As filed with the Securities and Exchange Commission on October 26, 2004
File No. 333-118444
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1
Post-Effective Amendment No. ______
(Check appropriate box or boxes)
PIONEER SERIES TRUST II
(on behalf of its series:
Pioneer California Tax Free Income Fund
Pioneer Growth Opportunities Fund
Pioneer Municipal Bond Fund
Pioneer Tax Free Money Market Fund)
(Exact Name of Registrant as Specified in Charter)
(617) 742-7825
(Area Code and Telephone Number)
60 State Street, Boston, Massachusetts 02109
(Address of Principal Executive Offices: Number, Street, City, State, Zip Code)
Dorothy E. Bourassa, Esq.
Pioneer Investment Management, Inc.
60 State Street
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copies to: David C. Phelan, Esq.
Wilmer Cutler Pickering Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
Calculation of Registration Fee under the Securities Act of 1933: No filing fee
is due because of reliance on Section 24(f) of the Investment Company Act of
1940, which permits registration of an indefinite number of securities.
Title of Securities Being Registered: Shares of beneficial interest of the
Registrant.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment, which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall be effective on
such date as the Commission, acting pursuant to Section 8(a), may determine.
COMBINED PROXY STATEMENT OF
SAFECO COMMON STOCK TRUST
(the "Safeco Trust")
on behalf of its Series:
SAFECO BALANCED FUND
SAFECO CORE EQUITY FUND
SAFECO GROWTH OPPORTUNITIES FUND
SAFECO INTERNATIONAL STOCK FUND
SAFECO LARGE-CAP GROWTH FUND
SAFECO LARGE-CAP VALUE FUND
SAFECO MULTI-CAP CORE FUND
SAFECO SMALL-CAP VALUE FUND
(each, "your Safeco Fund" and collectively, the "Safeco Funds")
The address and telephone number of each Safeco Fund is:
4854 154th Place N.E., Redmond, WA 98052
1-800-624-5711
PROSPECTUS
FOR INVESTOR CLASS SHARES OF
PIONEER BALANCED FUND
PIONEER FUND
PIONEER GROWTH OPPORTUNITIES FUND
PIONEER INTERNATIONAL EQUITY FUND
PIONEER GROWTH SHARES
PIONEER MID CAP VALUE FUND
PIONEER SMALL CAP VALUE FUND
PIONEER VALUE FUND
(each, a "Pioneer Fund" and collectively, the "Pioneer Funds")
The address and telephone number of each Pioneer Fund is:
60 State Street, Boston, Massachusetts 02109
1-800-622-3265 or 1-800-225-6292
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
SCHEDULED FOR DECEMBER 8, 2004
To the Shareholders of the Safeco Funds:
A joint special meeting of shareholders (the "Meeting") for each of the
Safeco Funds will be held at the offices of Safeco Mutual Funds, King
Auditorium, 4854 154th Place, N.E., Redmond, WA 98052, on December 8, 2004 at
2:00 p.m., local time, to consider the following:
1. With respect to each Safeco Fund, a proposal to approve an Agreement
and Plan of Reorganization. Under the Agreement and Plan of
Reorganization, your Safeco Fund will transfer all of its assets to an
investment company (each a "Pioneer Fund") managed by Pioneer
Investment Management, Inc. ("Pioneer") in exchange for Investor Class
shares of the Pioneer Fund. The Pioneer Fund also will assume your
Safeco Fund's liabilities that are included in the calculation of your
Safeco Fund's net assets at the closing. Generally, each Pioneer Fund
is an existing mutual fund with a substantially similar investment
objective and similar investment policies as your Safeco Fund. In the
case of certain Safeco Funds, the Pioneer Fund is a newly organized
mutual fund with a substantially similar investment objective and
similar investment policies as your Safeco Fund. Holders of all share
classes of your Safeco Fund will receive Investor Class shares of the
corresponding Pioneer Fund. Investor Class shares of the applicable
Pioneer Fund will be distributed to shareholders in proportion to the
relative net asset value of their share holdings on the closing date
of the reorganization. Following the reorganization, your Safeco Fund
will then be dissolved. As a result of the reorganization you will
become shareholders of the Pioneer Fund. Your board of trustees
recommends that you vote FOR this proposal.
2. With respect to each Safeco Fund, a proposal to approve an interim
investment advisory agreement between your Safeco Fund and Pioneer.
Pioneer has provided advisory services for your Safeco Funds pursuant
to this agreement since August 2, 2004, when the advisory agreement
between your Safeco Fund and Safeco Asset Management Company
terminated. Approval of the interim investment advisory agreement will
enable Pioneer to receive advisory fees currently held in escrow. Your
board of trustees recommends that you vote FOR this proposal.
3. Any other business that may properly come before the Meeting.
Shareholders of record as of the close of business on October 8, 2004, are
entitled to vote at the Meeting and any related follow-up meetings.
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 Safeco Fund may be required to make additional
solicitations.
By order of the Board of Trustees,
[Name]
[Title]
October [ ], 2004
COMBINED PROXY STATEMENT OF
SAFECO COMMON STOCK TRUST
(the "Safeco Trust")
on behalf of its Series:
SAFECO BALANCED FUND
SAFECO CORE EQUITY FUND
SAFECO GROWTH OPPORTUNITIES FUND
SAFECO INTERNATIONAL STOCK FUND
SAFECO LARGE-CAP GROWTH FUND
SAFECO LARGE-CAP VALUE FUND
SAFECO MULTI-CAP CORE FUND
SAFECO SMALL-CAP VALUE FUND
(each, "your Safeco Fund" and collectively, the "Safeco Funds")
The address and telephone number of each Safeco Fund is:
4854 154th Place N.E., Redmond, WA 98052
1-800-624-5711
PROSPECTUS
FOR INVESTOR CLASS SHARES OF
PIONEER BALANCED FUND
PIONEER FUND PIONEER GROWTH OPPORTUNITIES FUND
PIONEER INTERNATIONAL EQUITY FUND
PIONEER GROWTH SHARES
PIONEER MID CAP VALUE FUND
PIONEER SMALL CAP VALUE FUND
PIONEER VALUE FUND
(each, a "Pioneer Fund" and collectively, the "Pioneer Funds")
The address and telephone number of each Pioneer Fund is:
60 State Street, Boston, Massachusetts 02109
and 1-800-622-3265 or 1-800-225-6292.
Shares of the Pioneer Funds have not been approved or disapproved by the
Securities and Exchange Commission (the "SEC"). The SEC has not passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
An investment in any Safeco Fund or Pioneer Fund is not a bank deposit and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
1
This combined proxy statement and prospectus (the "Proxy
Statement/Prospectus"), dated October 25, 2004, is being furnished to
shareholders of the Safeco Funds in connection with the solicitation by the
board of trustees (the "Board", or the "Trustees") of the Safeco Trust of
proxies to be used at a joint meeting of shareholders of the Safeco Funds (the
"Meeting") to be held at the offices of Safeco Mutual Funds, King Auditorium,
4854 154th Place, N.E., Redmond, WA 98052, on December 8, 2004 at 2:00 p.m.,
local time.
The Proxy Statement/Prospectus contains information you should know before
voting on (i) the approval of a proposed Agreement and Plan of Reorganization
(each a "Plan") that provides for the reorganization of each Safeco Fund into a
corresponding Pioneer Fund (each a "Reorganization"), and (ii) the approval of
an interim investment advisory agreement for each Safeco Fund. The following
table indicates (a) the corresponding Pioneer Fund shares that each Safeco Fund
shareholder would receive if each Plan is approved, (b) which Safeco Fund
shareholders may vote on which proposals and on what page of this Proxy
Statement/Prospectus the discussion regarding each proposal begins. Shareholders
of each class of shares of a Safeco Fund will vote together as a single class on
each proposal. Although each Reorganization is similar in structure, you should
read carefully the specific discussion regarding your Safeco Fund's
Reorganization.
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Safeco Fund Pioneer Fund Shareholders Entitled to Vote Page
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PROPOSAL 1(a) Safeco Balanced Fund Pioneer Balanced Fund Safeco Balanced Fund shareholders 7
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PROPOSAL 1(b) Safeco Core Equity Pioneer Fund Safeco Core Equity Fund shareholders 20
Fund
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PROPOSAL 1(c) Safeco Growth Pioneer Growth Safeco Growth Opportunities Fund 33
Opportunities Fund Opportunities Fund shareholders
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PROPOSAL 1(d) Safeco International Pioneer International Safeco International Stock Fund shareholders 46
Stock Fund Equity Fund
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PROPOSAL 1(e) Safeco Large-Cap Pioneer Growth Shares Safeco Large-Cap Growth Fund shareholders 60
Growth Fund
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PROPOSAL 1(f) Safeco Large-Cap Pioneer Value Fund Safeco Large-Cap Value Fund shareholders 74
Value Fund
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PROPOSAL 1(g) Safeco Multi-Cap Pioneer Mid Cap Safeco Multi-Cap Core Fund shareholders 88
Core Fund Value Fund
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PROPOSAL 1(h) Safeco Small-Cap Pioneer Small Cap Safeco Small-Cap Value Fund shareholders 104
Value Fund Value Fund
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PROPOSAL 2 (a)-(h) Each Fund Not applicable Shareholders of each Fund voting separately 120
as to the proposal that affects their Fund
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Where to Get More Information
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The Safeco Funds' prospectuses dated April 30, 2004, as Available to you free of charge by calling 1-800-624-5711.
supplemented August 3, 2004. Each prospectus, which is also on file with the SEC, is
incorporated by reference into this Proxy Statement/Prospectus.
The Safeco Funds' annual report dated December 31, 2003
and semiannual report dated June 30, 2004. Available to you free of charge by calling 1-800-624-5711.
Also on file with the SEC. See "Available Information."
These reports are incorporated by reference into this Proxy
Statement/Prospectus.
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Each Pioneer Funds' current prospectus and each Pioneer Available to you free of charge by calling 1-800-225-6292.
Fund's most recent annual and semiannual reports and These prospectuses and reports are also on file with the SEC.
supplements (as they apply) to shareholders. These prospectuses and reports are incorporated by reference
into this Proxy Statement/Prospectus.
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A statement of additional information for this joint Proxy Available to you free of charge by calling 1-800-225-6292.
Statement/Prospectus (the "SAI"), dated October 25, 2004. Also on file with the SEC. This SAI is incorporated by
It contains additional information about your Safeco Funds reference into this Proxy Statement/Prospectus.
and the Pioneer Funds.
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To ask questions about this Proxy Statement/Prospectus. Call your Safeco Fund's toll-free telephone number:
1-800-624-5711.
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2
Background to the Reorganizations
Safeco Asset Management Company ("SAM"), the Safeco Funds' investment
adviser until August 2, 2004, was a subsidiary of Safeco Corporation, a
multi-line insurance company. On August 2, 2004, Symetra Financial Corporation
("Symetra") acquired certain assets from Safeco Corporation, including all of
the capital stock of SAM. While reviewing the operations of SAM in anticipation
of that transaction, Symetra determined that engaging in the business of
investment adviser to the Safeco Funds was not a core business that it intended
to continue. After investigating and discussing several alternatives for ongoing
investment management of the Safeco Funds with the Trustees, Symetra conducted a
search for a new investment adviser for the Safeco Funds. Ultimately Symetra
decided to recommend to the Boards that Pioneer Investment Management, Inc.
("Pioneer") be hired to manage the Safeco Funds on an interim basis until the
Reorganizations occur and the Safeco Funds be reorganized into similar mutual
funds managed by Pioneer.
The Board met at a series of meetings in July 2004. At these meetings, your
Trustees received and evaluated materials regarding Pioneer and the Pioneer
Funds, including the performance record and expense structure of each of the
Pioneer Funds, the impact of the proposed Reorganizations on the Safeco Funds'
shareholders, and the quality of the services offered by Pioneer. At these
meetings, the Trustees met with representatives of Pioneer. In addition to these
general factors, the Trustees also considered these and other factors
specifically in the context of each Reorganization. On July 30, 2004, the Board,
including all of the Trustees who are not interested persons of SAM (the
"Independent Trustees"), unanimously voted to approve each of the
Reorganizations. In approving the Reorganizations, the Board determined that the
Reorganizations were in the best interests of the Safeco Funds' shareholders and
the interests of existing Safeco Funds' shareholders will not be diluted as a
result of the Reorganizations.
Pioneer believes that it can offer favorable long-term investment
performance and enhanced shareholder services to the Safeco Funds' shareholders.
The Reorganizations will, by combining the assets of two mutual funds and, by
being part of a family of funds with greater distribution capabilities, offer
the potential for increased economies of scale. Increased economies of scale
have the potential of benefiting the shareholders of your Safeco Funds and the
Pioneer Funds by spreading fixed costs over a larger asset base and reducing
expenses on a per share basis. There can be no assurance that such economies of
scale will be realized.
Why the Trustees are Recommending the Reorganizations
The Trustees believe that reorganizing your Safeco Fund into a portfolio
with a substantially similar investment objective and similar investment
policies that is part of the Pioneer family of funds offers you potential
benefits. These potential benefits and considerations include:
o SAM, the investment adviser to each of the Safeco Funds until August
2, 2004, was acquired by Symetra. Symetra informed the Board that it
was not interested in continuing to provide investment advisory
services to the Safeco Funds. Therefore, a change in your Safeco
Fund's investment adviser was necessary;
o The track record of Pioneer in managing the Pioneer Funds as compared
to the historical performance of the Safeco Funds;
o The resources of Pioneer, including its infrastructure in shareholder
services;
o The opportunity to be part of a significantly larger family of funds,
with additional product offerings and enhanced shareholder servicing
options;
o Pioneer's commitment until December 10, 2006, or such later date that
is the second anniversary of the day on which each Reorganization
closes (the "Closing Date"), to limit the expenses of the Investor
Class shares of each Pioneer Fund; and
o Shareholders who own shares in their name as of the closing of the
Reorganizations (i.e., not in the name of a broker or other
intermediary) and maintain their account may purchase Class A shares
of the corresponding Pioneer Fund through such account in the future
or may exchange those shares for Class A shares of another Pioneer
Fund or purchase Class A share of another Pioneer Fund without paying
any sales charge. Investor Class shares will not be offered after the
Reorganizations.
How Each Reorganization will Work
o Safeco Fund shareholder-directed exchanges and purchases made by
check, ACH, or wire will be accepted up until 1 p.m. (Pacific Time) on
Wednesday, December 8, 2004. Exchange and purchase requests received
after this deadline will be rejected and returned. Purchase and
exchange requests made by Safeco Fund shareholders through financial
institutions or advisers must do so earlier to ensure the trade can be
processed within this deadline. Financial institutions and advisers
that trade electronically (NSCC) with the Safeco Funds can place
exchange and purchase requests up until 1 p.m. (Pacific Time) on
Tuesday, December 7, 2004. Exchanges and purchases received after this
deadline will be rejected and returned. The Safeco Funds will not
process purchases made via
3
automatic investment method (AIM) after December 8, 2004.
Dividend/capital gain reinvestment and established systematic
exchanges will continue through December 10, 2004.
o Each Safeco Fund will transfer all of its assets to a corresponding
Pioneer Fund. Each Pioneer Fund will assume the corresponding Safeco
Fund's liabilities that are included in the calculation of such Safeco
Fund's net asset value on the Closing Date.
o Each Pioneer Fund will issue Investor Class shares to the
corresponding Safeco Fund in amounts equal to the aggregate net asset
value of that Safeco Fund's shares. Shareholders of your Safeco Fund
will receive Investor Class shares of the corresponding Pioneer Fund.
These shares will be distributed to shareholders in proportion to the
relative net asset value of their share holdings on the Closing Date.
On the Closing Date, shareholders will hold the shares of the Pioneer
Fund with the same aggregate net asset value as the shares of your
Safeco Fund that you held immediately prior to the Reorganization.
o Each Safeco Fund will be dissolved after the Closing Date.
o Shares of the Investor Class of a Pioneer Fund will automatically
convert to Class A shares of the Pioneer Fund at the end of the
calendar month that is two years after the Closing Date.
o Pioneer acts as investment adviser to each Pioneer Fund. Until
December 10, 2006, or such later date that is the second anniversary
of the Closing Date, Pioneer has agreed to limit each Pioneer Fund's
expenses (excluding extraordinary expenses) for Investor Class shares.
Pioneer is not required to limit any expenses after December 10, 2006,
or such later date that is the second anniversary of the Closing Date.
o The Reorganizations are intended to result in no income, gain or loss
being recognized for federal income tax purposes to any of the Pioneer
Funds, the Safeco Funds or the shareholders of the Safeco Funds.
o In recommending each of the Reorganizations, the Trustees of your
Safeco Fund have determined that the Reorganization is in the best
interest of your Safeco Fund and will not dilute the interests of
shareholders of your Safeco Fund. The Trustees have made that
determination on the basis of the factors listed above and discussed
in more detail under each proposal. A reorganization might not be in
the best interest of the shareholders of a mutual fund if the
surviving fund had higher expenses, less experienced management or the
adviser did not have adequate resources to manage the affairs of the
mutual fund.
o If the Reorganizations are approved, the Safeco Trust will file with
the SEC an application for deregistration on Form N-8F under the
Investment Company Act of 1940, as amended (the "Investment Company
Act"), and will cease to exist as an investment company when such
application is approved.
Who is Pioneer
Pioneer is registered as an investment adviser under the Investment
Advisers Act of 1940, as amended, and acts as investment adviser to mutual funds
and institutional accounts. Pioneer or its predecessors have been managing
mutual funds since 1928 and at June 30, 2004 had, together with its affiliates,
over $35 billion in assets under management. Pioneer is an indirect,
wholly-owned subsidiary of UniCredito Italiano S.p.A., an Italian Bank.
In addition to the Investor Class shares to be issued in the
Reorganization, each Pioneer Fund also offers Class A shares (subject to an
initial sales load and a Rule 12b-1 Plan), Class B shares (subject to a
contingent deferred sales charge and a Rule 12b-1 Plan), and Class C shares
(subject to a contingent deferred sales charge and a Rule 12b-1 Plan). In
addition, most of the Pioneer Funds also offer Class Y shares (which are an
institutional class of shares and are not subject to a sales charge or a Rule
12b-1 Plan) and Class R shares (which are offered only to certain retirement
plans).
Who Bears the Expenses Associated with the Reorganizations
Pioneer and Symetra will pay all out of pocket expenses of the Safeco Funds
and the Pioneer Funds associated with the Reorganizations, including, but not
limited to: (1) the expenses associated with the preparation, printing and
mailing of any shareholder communications, including this joint Proxy
Statement/Prospectus, and any filings with the SEC and other governmental
authorities in connection with the Reorganizations; (2) the fees and expenses of
any proxy solicitation firm retained in connection with the Reorganizations; (3)
the legal fees and expenses incurred by the Safeco Funds in connection with the
Reorganizations; and (4) the Trustees' fees and out of pocket expenses incurred
as a result of the Reorganizations.
Will Pioneer and Symetra Benefit from the Reorganizations
Pioneer will benefit from managing a larger pool of assets. Pioneer is also
acquiring certain assets associated with SAM's mutual funds and institutional
account advisory business. In consideration for the acquisition of these assets
and certain covenants from Symetra
4
and SAM, including their assistance in facilitating the Reorganizations and
their obligation to indemnify Pioneer against certain liabilities, Pioneer has
agreed to pay Symetra up to $30 million. This amount is subject to downward
adjustment if the net assets of the Safeco Funds that approve the
Reorganizations (together with assets in certain other accounts) are less than
$2.6 billion. Under this agreement, Pioneer and Symetra have also agreed, among
other things, that (i) once the Investor Class converts to Class A shares,
Pioneer Funds Distributor, Inc. ("PFD"), the principal underwriter of the
Pioneer Funds, shall make payments to Safeco Securities, Inc. ("Safeco
Securities") pursuant to a Rule 12b-1 plan equal to 0.25% of the average daily
net assets attributable to accounts maintained by former shareholders of the
Safeco Funds; (ii) PFD will make additional continuing payments out of its own
resources to Safeco Securities, following Pioneer's acquisition of assets from
SAM, at an annual rate of 0.05% of the average daily net assets of any Pioneer
Fund held by or for the account of any former shareholders of the Safeco Funds
(including assets invested in any Pioneer Fund as a result of the Reorganization
or otherwise) and, in connection with purchases of shares of the Pioneer Funds
by former shareholders of the Safeco Funds after the acquisition, PFD will pay
out of its own resources to Safeco Securities an amount equal to 0.20% of the
amount of such purchases; and (iii) Symetra and SAM will be subject to certain
non-competition provisions.
Why is an Interim Investment Advisory Agreements being Voted On
Having determined to recommend the Reorganizations, the Trustees elected to
appoint Pioneer as investment adviser to each Safeco Fund until the closing of
the Reorganizations given that Symetra had indicated that it did not wish to
continue to offer investment advisory services to the Safeco Funds. In
connection with the retention of Pioneer, the sub-advisory agreement with Bank
of Ireland Asset Management (U.S.) Limited with respect to Safeco International
Stock Fund, and the sub-advisory agreement with RCM Capital Management LLC with
respect to Safeco Large-Cap Growth Fund, were terminated.
Under the Investment Company Act, shareholders must approve any new
investment advisory agreement for a Safeco Fund. However, Rule 15a-4 under the
Investment Company Act permits the Board to appoint an adviser on an interim
basis without prior shareholders' approval of an investment advisory agreement
with the adviser if the new adviser agrees to provide such services on the same
terms as the previous adviser. An adviser may act on such an interim basis for a
period of 150 days. Because Pioneer will be making the payment to Symetra as
discussed above, any fees that Pioneer would be entitled to under the interim
investment advisory agreement will be held in escrow until shareholder approval
of the agreement is obtained. If shareholders of a Safeco Fund do not approve
the interim investment advisory agreement, Pioneer will not receive the fee
under the current investment advisory agreement with SAM but instead would be
paid a fee based upon Pioneer's cost in managing the Fund. If the
Reorganizations and the interim investment advisory agreements are not approved
by December 30, 2004, Pioneer will no longer provide advisory services to the
Safeco Funds, unless an extension of the 150 -day period is permitted by a rule
or independent position of the staff of the SEC. If both the Reorganization and
appointment of Pioneer are approved, the interim investment advisory agreement
will continue in effect until the closing of the Reorganization.
What Happens if a Reorganization is not Approved
If a Reorganization is not approved by shareholders, the Board will
consider what action to take. Such action could include liquidating the Safeco
Fund or seeking SEC relief to permit Pioneer to serve as investment adviser
beyond the 150-day limitation period.
5
Who is Eligible to Vote
Shareholders of record on October 8, 2004 are entitled to attend and vote
at the Meeting or any adjournment of the Meeting. On each proposal, all
shareholders of a Safeco Fund, regardless of the class of shares held, will vote
together as a single class. 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 and the interim advisory agreement with
Pioneer. If any other business comes before the Meeting, your shares will be
voted at the discretion of the persons named as proxies.
TABLE OF CONTENTS
Page
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INTRODUCTION .............................................................................
PROPOSAL 1(a) -- SAFECO BALANCED FUND .................................................... 7
PROPOSAL 1(b) -- SAFECO CORE EQUITY FUND ................................................. 20
PROPOSAL 1(c) -- SAFECO GROWTH OPPORTUNITIES FUND ........................................ 33
PROPOSAL 1(d) -- SAFECO INTERNATIONAL STOCK FUND ......................................... 46
PROPOSAL 1(e) -- SAFECO LARGE-CAP GROWTH FUND ............................................ 60
PROPOSAL 1(f) -- SAFECO LARGE-CAP VALUE FUND ............................................. 74
PROPOSAL 1(g) -- SAFECO MULTI-CAP CORE FUND .............................................. 88
PROPOSAL 1(h) -- SAFECO SMALL-CAP VALUE FUND ............................................. 104
TERMS OF EACH AGREEMENT AND PLAN OF REORGANIZATION ....................................... 118
TAX STATUS OF EACH REORGANIZATION ........................................................ 119
PROPOSAL 2(a)-(h) -- APPROVAL OF AN INTERIM INVESTMENT ADVISORY AGREEMENT WITH PIONEER ... 120
VOTING RIGHTS AND REQUIRED VOTE .......................................................... 122
ADDITIONAL INFORMATION ABOUT THE PIONEER FUNDS ........................................... 122
FINANCIAL HIGHLIGHTS ..................................................................... 129
INFORMATION CONCERNING THE MEETING ....................................................... 136
OWNERSHIP OF SHARES OF THE FUNDS ......................................................... 138
EXPERTS .................................................................................. 146
AVAILABLE INFORMATION .................................................................... 146
EXHIBIT A-1 -- FORM OF AGREEMENT AND PLAN OF REORGANIZATION (C/D) ........................ A-1
EXHIBIT A-2 -- FORM OF AGREEMENT AND PLAN OF REORGANIZATION (F) .......................... A-22
EXHIBIT B -- FORM OF INTERIM ADVISORY AGREEMENT .......................................... B-1
EXHIBIT C -- ADDITIONAL INFORMATION REGARDING PIONEER .................................... C-1
EXHIBIT D -- PORTFOLIO MANAGER'S DISCUSSION OF PERFORMANCE ............................... D-1
6
Safeco Balanced Fund and
Pioneer Balanced Fund
PROPOSAL 1(a)
Approval of Agreement and Plan of Reorganization
SUMMARY
The following is a summary of more complete information appearing later in
this Proxy Statement/Prospectus or incorporated herein. You should read
carefully the entire Proxy Statement/Prospectus, including the form of Agreement
and Plan of Reorganization attached as EXHIBIT A-1 because they contain details
that are not in the summary.
The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses per
share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor Class
shares, Pioneer is not required to limit the expenses attributable to Class A
shares.
In the table below, if a row extends across the entire table, the policy
disclosed applies to both your Safeco Fund and the Pioneer Fund.
Comparison of Safeco Balanced Fund to the Pioneer Balanced Fund
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Safeco Balanced Fund Pioneer Balanced Fund
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Business A series of Safeco Common Stock Trust, A diversified open-end management
a diversified open-end management investment company registered under the
investment company organized as a Investment Company Act and organized as
Delaware statutory trust. a Delaware statutory trust.
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Net assets as of $19.5 million $132 million
June 30, 2004
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Investment advisers and Investment adviser (until August 2, 2004): Investment adviser:
portfolio managers SAM Pioneer
Portfolio Managers (until August 2, 2004): Portfolio Managers:
Rex L. Bentley (since 1996) Day-to-day management of the Fund's
Lynette D. Sagvold (since 1996) portfolio is the responsibility of co-managers
Greg Card (since 2004) Timothy Mulrenan (equity securities) and
Tim Hokari (since 2004) Richard Schlanger (fixed income securities).
Lesley Fox (since 2004)
Nancy McFadden (since 2004) Mr. Mulrenan joined Pioneer in 1997 and has
managed portfolios since 1998. Mr. Schlanger
Currently Pioneer is acting as investment joined Pioneer in 1988.
adviser to Safeco Balanced Fund. The Portfolio
Managers of Pioneer Balanced Fund, as
indicated in the next column, currently manage
Safeco Balanced Fund.
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Investment objective Safeco Balanced Fund seeks growth and Pioneer Balanced Fund seeks capital growth
income consistent with the preservation and current income by actively managing
of capital. a diversified portfolio of equity securities
and bonds.
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The investment objective of each Fund is fundamental and cannot be changed without
shareholder approval.
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7
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Safeco Balanced Fund Pioneer Balanced Fund
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Primary investments Under normal market conditions, Safeco Under normal market conditions, Pioneer
Balanced Fund invests from 50% to 70% of its Balanced Fund invests in a diversified portfolio
assets in common stocks and at least 25% of of equity securities and bonds. Pioneer
its assets in debt securities. allocates the Fund's assets between equity
and debt securities based on its assessment
of current business, economic and market
conditions. Normally, equity and debt
securities each represent 75% and 25%,
respectively, of the Fund's net assets.
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Investment strategies Safeco Balanced Fund seeks growth and Pioneer Balanced Fund uses a blended value/
income consistent with the preservation of growth style of management. In selecting
capital through a "disciplined value" approach. equity securities, the Fund seeks securities
selling at reasonable prices and then holds
When evaluating a stock to purchase for the these securities until the market values
Fund, SAM historically looked for companies reflect their intrinsic values. In selecting debt
having one or more of the following securities, the Fund considers both broad
characteristics: economic factors and issuer specific factors.
o Undervalued stock price as measured by
price-to-earnings ratios and dividend
potential relative to comparable companies
o Potential to beat the S&P 500 Index average
for risk adjusted returns over the next
three-to five-year outlook
o Good long-term growth potential
When evaluating a debt security to buy for
the Fund, SAM historically considered
factors such as:
o The issuer's creditworthiness
o The sensitivity of the security to changes in
interest rates
o The level to which that market sector is
already represented by the Fund's assets
- ------------------------------------------------------------------------------------------------------------------------------------
Other investments Safeco Balanced Fund may invest up to 10% Pioneer Balanced Fund may invest up to
of its net assets in debt securities may be 10% of its total assets in debt securities
invested in below investment grade bonds. rated below investment grade, including
convertible debt.
The Fund may invest up to 25% of its total
assets in real estate investment trusts.
Up to 25% of the Fund's total assets may
e invested in equity and debt securities of
non-U.S. issuers.
The Fund will not invest more than 5% of
its total assets in the securities of emerging
markets issuers.
The Fund may invest in U.S. government
securities, mortgage-backed and asset-
backed securities.
- ------------------------------------------------------------------------------------------------------------------------------------
8
- ------------------------------------------------------------------------------------------------------------------------------------
Safeco Balanced Fund Pioneer Balanced Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Temporary defensive Safeco Balanced Fund may hold cash or invest Pioneer Balanced Fund may invest all or part
strategies in high-quality, short-term securities issued of its assets in securities with remaining
by an agency or instrumentality of the U.S. maturities of less than one year, cash
government, high-quality commercial paper, equivalents or may hold cash.
certificates of deposit, shares of no-load,
open-end money market funds, or
repurchase agreements.
- ------------------------------------------------------------------------------------------------------------------------------------
Diversification Each Fund is diversified for the purpose of the Investment Company Act and each Fund is
subject to diversification requirements under the Internal Revenue Code of 1986, as amended
(the "Code").
- ------------------------------------------------------------------------------------------------------------------------------------
Industry concentration Each Fund may not invest more than 25% of its assets in any one industry.
- ------------------------------------------------------------------------------------------------------------------------------------
Restricted and illiquid If immediately after and as a result of such Pioneer Balanced Fund may not invest more
securities action the value of the following securities, in than 15% of its net assets in securities which
the aggregate, would exceed 15% of Safeco are illiquid and other securities which are not
Balanced Fund's net assets, the Fund will not readily marketable.
(i) purchase securities for which there is no
readily available market, (ii) purchase time
deposits maturing in more than seven days,
(iii) purchase over-the-counter (OTC) options
or hold assets set aside to cover OTC options
written by the Fund, (iv) enter into repurchase
agreements maturing in more than seven
days, or (v) invest in interests in real estate
investment trusts which are not readily
marketable or interests in real estate limited
partnerships which are not listed or traded
on the NASDAQ Stock Market.
- ------------------------------------------------------------------------------------------------------------------------------------
Borrowing Safeco Balanced Fund may borrow money Pioneer Balanced Fund may not borrow
(i) from banks or (ii) by engaging in reverse money, except the Fund may: (a) borrow
repurchase agreements. from banks or through reverse repurchase
agreements in an amount up to 331/3% of
the Fund's total assets (including the amount
borrowed); (b) to the extent permitted by
applicable law, borrow up to an additional 5%
of the Fund's assets for temporary purposes;
(c) obtain such short-term credits as are
necessary for the clearance of portfolio
transactions; (d) purchase securities on
margin to the extent permitted by applicable
law; and (e) engage in transactions in
mortgage dollar rolls that are accounted for
as financings.
- ------------------------------------------------------------------------------------------------------------------------------------
Lending Safeco Balanced Fund may lend securities to Pioneer Balanced Fund may make both short-
qualified institutional investors with a value term (nine months or less) and long-term
of up to 33% of the Fund's total assets. loans of its portfolio securities to the extent
of 30% of the value of the Fund's total assets
computed at the time of making such loans.
- ------------------------------------------------------------------------------------------------------------------------------------
9
- ------------------------------------------------------------------------------------------------------------------------------------
Safeco Balanced Fund Pioneer Balanced Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Derivative instruments Safeco Balanced Fund may write a put or call Pioneer Balanced Fund may use futures and
option if, as a result thereof, the aggregate options on securities, indices and currencies,
value of the assets underlying all such options forward currency exchange contracts and
does not exceed 25% of the Fund's net assets. other derivatives. The Fund does not use
The Fund may purchase a put or call option derivatives as a primary investment technique
or option on a futures contract if, as a result and generally limits their use to hedging.
thereof, the aggregate premiums paid on all However, the Fund may use derivatives for a
options or options on futures contracts held variety of non-principal purposes, including:
by the Fund do not exceed 20% of the Fund's
net assets. o As a hedge against adverse changes
in stock market prices, interest rates
The Fund may enter into any futures contract or currency exchange rates
or option on futures contract if, as a result o As a substitute for purchasing or
thereof, the aggregate margin deposits and selling securities
premiums required on all such instruments o To increase the Fund's return as a
do not exceed 5% of the Fund's net assets. non-hedging strategy that may be
considered speculative
The Fund may not purchase securities on
margin. However, the Fund may (i) obtain
short-term credits as necessary to clear
its purchases and sales of securities, and
(ii) make margin deposits in connection
with its use of financial options and futures,
forward and spot currency contracts, swap
transactions and other financial contracts or
derivative instruments.
- ------------------------------------------------------------------------------------------------------------------------------------
Other investment policies and As described above, the Funds have substantially similar principal investment strategies and
restrictions policies. Certain of the non-principal investment policies and restrictions are different. For a
more complete discussion of each Fund's other investment policies and fundamental and non-
fundamental investment restrictions, see the SAI.
- ------------------------------------------------------------------------------------------------------------------------------------
Buying, Selling and Exchanging Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Sales charges Purchases under $1,000,000 of Class A shares The Investor Class shares of Pioneer Balanced
of the Fund are subject to a 5.75% front-end Fund you receive in the Reorganization will
sales charge. not be subject to any sales charge. Moreover,
if you own shares in your own name as of the
Contingent deferred sales charge of up to 5% closing of the Reorganization (i.e., not in the
if you redeem Class B shares within six years name of a broker or other intermediary) and
of purchase. maintain your account, you may purchase
Class A shares of Pioneer Balanced Fund and
Contingent deferred sales charge of 1% if Class A shares of any Fund in the Pioneer
you redeem Class C shares within one year family of funds through such account in the
of purchase. future without paying any sales charge.
Purchases of Investor Class shares of the Fund Except as described above, Class A shares
are not subject to a sales load. of Pioneer Balanced Fund are subject to a
front-end sales charge of up to 4.50%.
The Fund assesses a mandatory redemption
fee of 2%, as a percentage of the amount
redeemed or exchanged, on Class A and
Investor Class shares held less than 30 days.
- ------------------------------------------------------------------------------------------------------------------------------------
10
- ------------------------------------------------------------------------------------------------------------------------------------
Safeco Balanced Fund Pioneer Balanced Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Management and other fees Safeco Balanced Fund pays an advisory fee on a Pioneer Balanced Fund pays Pioneer a
monthly basis at an annual rate as follows: management fee equal to Pioneer's annual fee
is equal to the Fund's average daily net assets
$0-$250,000,000: 0.70 of 1% as follows:
$250,000,001-$750,000,000: 0.65 of 1%
$750,000,001-$1,250,000,000: 0.60 of 1% $0-$1 billion: 0.65%
Over $1,250,000,000: 0.55 of 1% Next $4 billion: 0.60%
Over $5 billion: 0.55%
SAM serves as administrator and fund
accounting agent for the Fund. The Fund pays During its most recent fiscal year, Pioneer
SAM an administrative services fee of 0.05% Balanced Fund paid an advisory fee at an
of the Fund's average daily net assets up to the average rate of 0.65% of average daily
first $200,000,000 and 0.01% of its net assets net assets.
thereafter, and an accounting fee of 0.04% of
the Fund's average daily net assets up to the In addition, the Fund reimburses Pioneer for
first $200,000,000 and 0.01% of its net certain fund accounting and legal expenses
assets thereafter. incurred on behalf of the Fund and pays
a separate shareholder servicing/transfer
During its most recent fiscal year, Safeco agency fee to Pioneer Investment Management
Balanced Fund paid aggregate advisory and Shareholder Services, Inc. ("PIMSS"), an
administration fees at an average rate of affiliate of Pioneer.
0.79% of average daily net assets.
SAM had contractually agreed until April 30, For the fiscal year ended December 31, 2003,
2009, to pay certain fund operating expenses the Fund's total annual operating expenses for
(but not all of the operating expenses of the Class A shares were 1.38% of average daily
Fund) that exceeded the rate of 0.40% per net assets. The Fund does not currently have
annum of the Fund's average daily net assets. an expense limitation for its Class A shares.
This arrangement included all Fund operating
expenses except management fees, Rule 12b-1 Pioneer has agreed until the second anniversary
fees, brokerage commissions, interest, and of the closing of the Reorganization to limit the
extraordinary expenses. expenses (excluding extraordinary expenses) of
the Investor Class to 1.10% of the average daily
For the fiscal year ended December 31, 2003, net assets attributable to the Investor Class.
the Fund's annual operating expenses for Class A
shares, after giving effect to the expense The Investor Class Shares to be issued in
limitation were 1.35%, and without giving effect the Reorganization will convert to Class A
to the expense limitation, were 1.93% per share. shares after two years. Class A shares will
have higher expenses per share than Investor
For the fiscal year ended December 31, 2003, Class Shares due to the Rule 12b-1 Plan. In
the Fund's annual operating expenses for Class B addition, although Pioneer has agreed to limit
shares, after giving effect to the expense the expenses attributable to Investor Class
limitation were 2.10%, and without giving effect shares, Pioneer is not required to limit the
to the expense limitation, were 2.75% per share. expenses attributable to Class A shares.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for Class C
shares, after giving effect to the expense limitation
were 2.10%, and without giving effect to the
expense limitation, were 42.09% per share.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for
Investor Class shares, after giving effect to the
expense limitation were 1.10%, and without
giving effect to the expense limitation, were
1.43% per share.
- ------------------------------------------------------------------------------------------------------------------------------------
11
- ------------------------------------------------------------------------------------------------------------------------------------
Safeco Balanced Fund Pioneer Balanced Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Distribution and service Investor Class shares of each Fund are not subject to a Rule 12b-1 fee. Pioneer Investor Class
(12b-1) fee shares will convert into Class A shares after two years. Class A shares of each Fund are subject
to a Rule 12b-1 fee equal to 0.25% annually of average daily net assets.
- ------------------------------------------------------------------------------------------------------------------------------------
Buying shares You may buy shares of the Fund directly You may buy shares from any investment firm
through Safeco Securities, the Fund's principal that has a sales agreement with PFD. Existing
underwriter or through brokers, registered shareholders of Safeco Balanced Fund who
investment advisers, banks and other financial own shares in their own name as of the
institutions that have entered into selling closing date of the Reorganization and who
agreements with the Fund's principal underwriter, maintain their accounts may buy shares of
as described in the Fund's prospectus. any fund in the Pioneer family of funds
through such accounts in the future without
Certain account transactions may be done by paying sales charges.
telephone.
If the account is established in the
shareholder's own name, shareholders may
also purchase additional shares of Pioneer
Balanced Fund by telephone or online.
- ------------------------------------------------------------------------------------------------------------------------------------
Exchange privilege There are no sales charges on shares you You may exchange shares of Pioneer
acquire through dividend reinvestment or other Balanced Fund without incurring any fee on
fund distributions or for shares that you have the exchange with the more than 62 other
exchanged for shares of the same class of Pioneer Funds. Your exchange would be for
another Fund. Class A shares, which would be subject to
a Rule 12b-1 fee. An exchange generally is
Certain account transactions may be done by treated as a sale and a new purchase of
telephone. shares for federal income tax purposes.
If the account is established in the
shareholder's own name, shareholders may
also exchange shares of Pioneer Balanced
Fund for shares of other Pioneer Funds by
telephone or online.
- ------------------------------------------------------------------------------------------------------------------------------------
Selling shares Investor Class and Class A shares will be sold at net asset value per share next calculated after
each Fund receives your request in good order.
- ------------------------------------------------------------------------------------------------------------------------------------
You may sell your shares by contacting the Normally, your investment firm will send your
Fund directly in writing or by contacting a request to sell shares to PIMSS. You can
financial intermediary as described in the also sell your shares by contacting the Fund
Fund's prospectus. directly if your account is registered in
your name.
If the account is established in the
shareholder's own name, shareholders may
also redeem shares of Pioneer Balanced Fund
by telephone or online.
- ------------------------------------------------------------------------------------------------------------------------------------
Comparison of Principal Risks of Investing in the Funds
Because each Fund has a similar investment objective, primary investment
policies and strategies, the Funds are subject to the same principal risks. You
could lose money on your investment in either Fund or not make as much as if you
invested elsewhere if:
o The stock market goes down (this risk may be greater in the short
term)
o The Fund's equity investments do not have the growth potential
originally expected
o Stocks selected for income do not achieve the same return as
securities selected for capital growth
12
Each Fund also has risks associated with investing in debt securities. Each
Fund could underperform other investments if:
o Interest rates go up causing the value of the Fund's portfolio to
decline
o The issuer of a debt security owned by the Fund defaults on its
obligation to pay principal or interest or has its credit rating
downgraded
o During periods of declining interest rates, the issuer of a security
may exercise its option to repay earlier than scheduled, forcing the
Fund to reinvest in lower yielding securities. This is known as a call
prepayment risk
o During periods of rising interest rates, the average life of certain
types of securities may be extended because of slower than expected
principal payments. This may lock in a below market interest rate,
increase the security's duration (the estimated period until the
security is paid in full) and reduce the value of the security. This
is known as an extension risk
o Pioneer's judgment about the attractiveness, relative value or
potential appreciation of a particular sector, security or investment
strategy proves to be incorrect
The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses per
share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor Class
shares, Pioneer is not required to limit the expenses attributable to Class A
shares.
Investments in the Funds are not bank deposits and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. You could lose money by investing in either Fund.
Past Performance
Set forth below is performance information for each Fund. The bar charts
show how each Fund's total return (not including any deduction for sales
charges) has varied from year to year for each full calendar year. The tables
show average annual total return (before and after taxes) for each Fund over
time for each class of shares (including deductions for sales charges) compared
with a broad-based securities market index. The bar charts give an indication of
the risks of investing in each Fund, including the fact that you could incur a
loss and experience volatility of returns year to year. Past performance before
and after taxes does not indicate future results.
Safeco Balanced Fund -- Investor Class
Calendar Year Total Returns*
[DATA BELOW IS REPRESENTED BY A BAR CHART IN THE ORIGINAL REPORT]
'97 '98 '99 '00 '01 '02 '03
16.64 12.56 1.05 5.09 -0.29 -8.74 16.90
* During the period shown in the bar chart, your Safeco Fund's highest
quarterly return was 11.10% for the quarter ended June 30, 2003, and the
lowest quarterly return was -10.04% for the quarter ended September 30,
2002.
13
Pioneer Balanced Fund -- Class A Shares
Calendar Year Total Returns*
[DATA BELOW IS REPRESENTED BY A BAR CHART IN THE ORIGINAL REPORT]
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03
- -4.31 22.00 9.89 13.92 1.14 3.15 5.38 -2.87 11.20 15.99
* During the period shown in the bar chart, Pioneer Balanced Fund's highest
quarterly return was 8.99% for the quarter ended June 30, 2003, and the
lowest quarterly return was -11.66% for the quarter ended September 30,
2002.
Safeco Balanced Fund
Average Annual Total Returns as of December 31, 2003
- ---------------------------------------------------------------------------------------------------------
Since
1 Year 5 Years Inception(1)
Safeco Balanced Fund, Class A Shares*
- ---------------------------------------------------------------------------------------------------------
Return Before Taxes 9.96% 1.00% 5.48%
- ---------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(2) 9.45% 0.03% 4.12%
- ---------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(2) 6.70% 0.27% 3.94%
- ---------------------------------------------------------------------------------------------------------
Safeco Balanced Fund, Class B Shares*
- ---------------------------------------------------------------------------------------------------------
Return Before Taxes 10.79% 1.08% 5.66%
- ---------------------------------------------------------------------------------------------------------
Safeco Balanced Fund, Class C Shares*
- ---------------------------------------------------------------------------------------------------------
Return Before Taxes 14.76% 1.45% 5.53%
- ---------------------------------------------------------------------------------------------------------
Safeco Balanced Fund, Investor Class Shares*
- ---------------------------------------------------------------------------------------------------------
Return Before Taxes 16.90% 2.47% 6.55%
- ---------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(2) 16.29% 1.37% 5.06%
- ---------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(2) 11.26% 1.45% 4.79%
- ---------------------------------------------------------------------------------------------------------
S&P 500 Index3
(reflects no deduction for fees, expenses or taxes) 28.67% -0.57% 9.02%
- ---------------------------------------------------------------------------------------------------------
60% Russell 1000 Value/40% Lehman Brothers Aggregate Bond Index(3)
(reflects no deduction for fees, expenses or taxes) 19.66% 4.79% 9.11%
- ---------------------------------------------------------------------------------------------------------
* Returns for Class A, Class B and Class C shares have not been restated to
reflect Rule 12b-1 fees prior to September 30, 1996, and would be lower if
they were.
14
(1) The Fund commenced operations on January 31, 1996.
(2) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on your situation and may
differ from those shown. Furthermore, the after-tax returns shown are not
relevant to those who hold their shares through tax-deferred arrangements
such as 401(k) plans or IRA accounts, or to investors that are tax-exempt.
(3) The S&P 500 Index, an unmanaged index of 500 stocks, and the 60/40
combination of the Russell 1000 Value Index and the Lehman Brothers
Aggregate Bond Index, are for reference only and do not mirror the Fund's
investments.
Pioneer Balanced Fund -- Class A Shares
Average Annual Total Returns as of December 31, 2003
- -----------------------------------------------------------------------------------------------------
1 Year 5 Years 10 Years
Pioneer Balanced Fund, Class A Shares
- -----------------------------------------------------------------------------------------------------
Return Before Taxes 10.78% 0.76% 4.38%
- -----------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(1) 10.19% -0.11% 2.40%
- -----------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(1) 6.98% 0.10% 2.56%
- -----------------------------------------------------------------------------------------------------
S&P 500 Index(2)
(reflects no deduction for fees, expenses or taxes) 28.67% -0.57% 11.06%
- -----------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index(3)
(reflects no deduction for fees, expenses or taxes) 4.10% 6.62% 6.95%
- -----------------------------------------------------------------------------------------------------
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on your situation and may
differ from those shown. Furthermore, the after-tax returns shown are not
relevant to those who hold their shares through tax-deferred arrangements
such as 401(k) plans or IRA accounts, or to investors that are tax-exempt.
(2) The S&P 500 Index, an unmanaged index of 500 stocks, is for reference only
and does not mirror the Fund's investments.
(3) The Lehman Brothers Aggregate Bond Index is for reference only and does not
mirror the Fund's investments.
Pioneer Balanced Fund's Investor Class shares will not be outstanding prior
to the closing of the Reorganization and consequently have no performance
history. However, the performance record of the Investor Class would be modestly
higher than the performance of Class A shares due to the lower expenses
applicable to the Investor Class.
The most recent portfolio manager's discussion of each Fund's performance
is attached as Exhibit D.
15
The Funds' Fees and Expenses
Shareholders of both Funds pay various fees and expenses, either directly
or indirectly. The tables below show the fees and expenses that you would pay if
you were to buy and hold shares of each Fund. The expenses in the tables
appearing below are based on (i) for your Safeco Fund, the expenses of your
Safeco Fund for the period ended December 31, 2003 and (ii) for Pioneer Balanced
Fund, the expenses of Pioneer Balanced Fund for the period ended December 31,
2003. Future expenses for all share classes may be greater or less.
Pro Forma
Safeco Pioneer
Safeco Safeco Safeco Balanced Balanced
Balanced Balanced Balanced Fund Fund
Fund Fund Fund Investor Investor
Class A Class B Class C Class Class9
Shareholder transaction fees (paid directly from your investment) -------- -------- -------- -------- ---------
Maximum sales charge (load) when you buy shares as a percentage
of offering price .................................................. 5.75%(6) None None None None(1)
Maximum deferred sales charge (load) as a % of purchase price or the
amount you receive when you sell shares, whichever is less ......... None 5.00%(7) 1.00%(8) None None
Redemption fees for shares held less than 30 days ................... 2.00% None None 2.00% None
Wire redemption fee ................................................. $ 20(4) $ 20(4) $ 20(4) $ 20(4) $ 10
Annual low balance fee .............................................. $ 12(5) $ 12(5) $ 12(5) $ 12(5) None
Annual fund operating expenses (deducted from fund assets)
(as a % of average net assets)
Management fee ...................................................... 0.70% 0.70% 0.70% 0.70% 0.65%
Distribution and service (12b-1) fee ................................ 0.25% 1.00% 1.00% None None
Other expenses ...................................................... 0.98% 1.05% 40.39% 0.73% 0.61%
Total fund operating expenses ....................................... 1.93% 2.75% 42.09% 1.43% 1.26%
Expense reimbursement/reduction ..................................... 0.58%(2) 0.65%(2) 39.99%(2) 0.33%(2) 0.16%(3)
Net fund operating expenses ......................................... 1.35% 2.10% 2.10% 1.10% 1.10%
- ----------
(1) No sales load will apply to shares received in the Reorganization by
shareholders of your Safeco Fund who become shareholders of record of
Pioneer Balanced Fund through the Reorganization. In addition, shareholders
of your Safeco Fund who own shares in their own name (i.e., not in the name
of a broker or other intermediary) and maintain such account as of the
closing of the Reorganization may purchase Class A shares of Pioneer
Balanced Fund or of any fund in the Pioneer family of funds through such
account in the future without paying a sales charge.
(2) As described above, SAM had contractually agreed to reimburse Safeco
Balanced Fund for certain Fund operating expenses (but not all of the
operating expenses of the Fund) that exceeded the rate of 0.40% per annum
of the Fund's average daily net assets. This arrangement included all fund
operating expenses except management fees, Rule 12b-1 fees, brokerage
commissions, interest, and extraordinary expenses.
(3) Pioneer has agreed that through the second anniversary of the closing of
the Reorganization, Pioneer will limit the expenses (excluding
extraordinary expenses) of the Investor Class shares of Pioneer Balanced
Fund to 1.10% of average daily net assets.
(4) There is a higher charge for international wire redemptions, which may vary
by country or dollar amount.
(5) A low balance fee is charged once each year in December for accounts with
balances under $1,000 in your Safeco Fund.
(6) Purchases of $1,000,000 or more of Class A shares of your Safeco Fund are
not subject to a front-end sales charge, but a 1.00% deferred sales charge
will apply to redemptions made in the first twelve months except with
respect to participant-directed redemptions from qualified retirement
plans.
(7) The contingent deferred sales charge on Class B shares of your Safeco Fund
reduces to zero after six years from purchase, and the Class B shares
convert to Class A shares at that time.
(8) The contingent deferred sales charge on Class C shares applies only to
redemptions made in the first twelve months after purchase.
(9) The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses
per share than Investor Class shares due to the Rule 12b-1 Plan. In
addition, although Pioneer has agreed to limit the expenses attributable to
Investor Class shares, Pioneer is not required to limit the expenses
attributable to Class A shares. Class A shares do not currently have an
expense limitation.
16
The hypothetical example below helps you compare the cost of investing in
each Fund. It assumes that: (a) you invest $10,000 in each Fund for the time
periods shown, (b) you reinvest all dividends and distributions, (c) your
investment has a 5% return each year, (d) each Fund's gross operating expenses
remain the same, (e) the expense limitations are in effect for five years for
Safeco Balanced Fund and two years for Pioneer Balanced Fund and (f) the
Investor Class shares of Pioneer Balanced Fund convert to Class A shares after
two years. The examples are for comparison purposes only and are not a
representation of either Fund's actual expenses or returns, either past or
future.
Example
Safeco Balanced Fund
Class A Shares
Year 1 ........................ $ 705
Year 3 ........................ $ 978
Year 5 ........................ $1,272
Year 10 ....................... $2,447
With Without
Class B Shares redemption redemption
Year 1 .............. $ 713 $ 213
Year 3 .............. $ 958 $ 658
Year 5 .............. $1,329 $1,129
Year 10 ............. $2,418 $2,418
With Without
Class C Shares redemption redemption
Year 1 .............. $ 313 $ 213
Year 3 .............. $ 658 $ 658
Year 5 .............. $1,129 $1,129
Year 10 ............. $2,658 $2,658
Investor Class Shares
Year 1 ........................ $ 112
Year 3 ........................ $ 373
Year 5 ........................ $ 677
Year 10 ....................... $1,541
Pro Forma Pioneer Balanced Fund
Investor Class Shares
Year 1 ........................ $ 112
Year 3 ........................ $ 373
Year 5 ........................ $ 677
Year 10 ....................... $1,541
17
Reasons for the Proposed Reorganization
The Trustees believe that the proposed Reorganization is in the best
interests of Safeco Balanced Fund. The Trustees considered the following
matters, among others, in approving the proposal.
First, SAM, the investment adviser to the Fund until August 2, 2004, was
acquired by Symetra. Symetra informed the Trustees that it did not intend to
continue to provide investment advisory services to the Safeco Funds.
Consequently, a change in your Safeco Fund's investment adviser was necessary.
Second, the investment performance of Pioneer Balanced Fund is comparable
to the investment performance of your Safeco Fund. For the five year period
ended June 30, 2004, Class A shares of Pioneer Balanced Fund had an average
annual return of 1.34% compared to an average annual return of the Class A
shares and Investor shares of your Safeco Fund of 0.32% and 1.78%, respectively,
during the same period. In addition, the Trustees considered the track record of
Pioneer in managing equity and fixed income mutual funds.
Third, the resources of Pioneer. At June 30, 2004, Pioneer managed over 62
investment companies and accounts with approximately $35 billion in assets.
Pioneer is part of the global asset management group of UniCredito Italiano
S.p.A., one of the largest banking groups in Italy, providing investment
management and financial services to mutual funds, institutions and other
clients. As of June 30, 2004, assets under management of UniCredito Italiano
S.p.A. were approximately $151 billion worldwide. Shareholders of your Safeco
Fund would become part of a significantly larger family of funds that offers a
more diverse array of investment options and enhanced shareholder account
options. The Pioneer family of mutual funds offers over 62 funds, including
domestic and international equity and fixed income funds and a money market fund
that will be available to your Safeco Fund's shareholders through exchanges. In
addition, Pioneer offers shareholders additional options for their accounts,
including the ability to transact and exchange shares over the telephone or
online and the ability to access account values and transaction history in all
of the shareholder's direct accounts in the Pioneer Funds over the telephone or
online.
Fourth, Pioneer Balanced Fund's lower gross operating expenses and
Pioneer's commitment until the second anniversary of the Reorganization to limit
the expenses (excluding extraordinary expenses) of the Investor Class of Pioneer
Balanced Fund to 1.10% of average daily net assets. This expense ratio is below
the gross expenses of each class of shares of your Safeco Fund and is the same
or lower than expenses net of expense reimbursement of each class of shares of
your Safeco Fund.
Fifth, the substantially larger size of Pioneer Balanced Fund offers
greater opportunity for diversification of the investment portfolio, which
should help to reduce risks.
Sixth, shareholders who own shares in their name as of the closing of the
Reorganization (i.e., not in the name of a broker or other intermediary) and
maintain their account may purchase additional Class A shares of the
corresponding Pioneer Fund through such account in the future or may exchange
those shares for Class A shares of another Pioneer Fund or purchase Class A
share of another Pioneer Fund without paying any sales charge.
Seventh, the Investor Class shares of Pioneer Balanced Fund received in the
Reorganization will provide Safeco Balanced Fund shareholders with exposure to
substantially the same investment product as they currently have.
Pioneer and Symetra will pay all out of pocket expenses of the Safeco Funds
and the Pioneer Funds associated with the Reorganizations, including, but not
limited to: (1) the expenses associated with the preparation, printing and
mailing of any shareholder communications, including this joint Proxy
Statement/Prospectus, and any filings with the SEC and other governmental
authorities in connection with the Reorganizations; (2) the fees and expenses of
any proxy solicitation firm retained in connection with the Reorganizations; (3)
the legal fees and expenses incurred by the Safeco Funds in connection with the
Reorganizations; and (4) the Trustees' fees and out of pocket expenses incurred
as a result of the Reorganizations.
The Trustees also considered that Pioneer and Symetra will benefit from the
Reorganization. See "Certain Agreements between Pioneer and Symetra."
The Board of Trustees of Pioneer Balanced Fund also considered that the
Reorganization presents an excellent opportunity for the Pioneer Balanced Fund
to acquire investment assets without the obligation to pay commissions or other
transaction costs that a fund normally incurs when purchasing securities. This
opportunity provides an economic benefit to Pioneer Balanced Fund and its
shareholders.
18
CAPITALIZATION
The following table sets forth the capitalization of each Fund as of June
30, 2004, and the pro forma capitalization of the combined Fund as of June 30,
2004.
Pro Forma
Safeco Pioneer Pioneer
Balanced Balanced Balanced
Fund Fund Fund
June 30, 2004 June 30, 2004 June 30, 2004
--------------- --------------- --------------
Total Net Assets (in thousands) $ 19,459 $ 132,104 $ 151,563
Class A shares ................ $ 1,784 $ 103,881 $ 103,881
Class B shares ................ $ 1,622 $ 18,462 $ 18,462
Class C shares ................ $ 109 $ 9,761 $ 9,761
Investor Class shares ......... $ 15,944 N/A $ 19,459
Net Asset Value Per Share
Class A shares ................ $ 11.88 $ 9.57 $ 9.57
Class B shares ................ $ 11.84 $ 9.47 $ 9.47
Class C shares ................ $ 11.84 $ 9.54 $ 9.54
Investor Class shares ......... $ 11.83 N/A $ 9.57
Shares Outstanding
Class A shares ................ 150,124 10,851,975 10,851,975
Class B shares ................ 137,010 1,949,543 1,949,543
Class C shares ................ 9,194 1,023,264 1,023,264
Investor Class shares ......... 1,347,406 N/A 2,033,333
It is impossible to predict how many shares of Pioneer Balanced Fund will
actually be received and distributed by your Safeco Fund on the Reorganization
date. The table should not be relied upon to determine the amount of Pioneer
Balanced Fund's shares that will actually be received and distributed.
BOARD'S EVALUATION AND RECOMMENDATION
For the reasons described above, the Trustees, including the Independent
Trustees, approved the Reorganization. In particular, the Trustees determined
that the Reorganization is in the best interests of your Safeco Fund. Similarly,
the board of trustees of Pioneer Balanced Fund, including its Independent
Trustees, approved the Reorganization. They also determined that the
Reorganization is in the best interests of Pioneer Balanced Fund.
The Trustees recommend that the shareholders of your Safeco Fund vote FOR
the proposal to approve the Agreement and Plan of Reorganization.
19
Safeco Core Equity Fund and
Pioneer Fund
PROPOSAL 1(b)
Approval of Agreement and Plan of Reorganization
SUMMARY
The following is a summary of more complete information appearing later in
this Proxy Statement/Prospectus or incorporated herein. You should read
carefully the entire Proxy Statement/Prospectus, including the form of Agreement
and Plan of Reorganization attached as EXHIBIT A-1 because they contain details
that are not in the summary.
The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses per
share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor Class
shares, Pioneer is not required to limit the expenses attributable to Class A
shares.
In the table below, if a row extends across the entire table, the policy
disclosed applies to both your Safeco Fund and the Pioneer Fund.
Comparison of Safeco Core Equity Fund to the Pioneer Fund
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Safeco Core Equity Fund Pioneer Fund
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Business A series of Safeco Common Stock Trust, A diversified open-end management
a diversified open-end management investment company registered under
investment company organized as a the Investment Company Act organized as
Delaware statutory trust. a Delaware statutory trust.
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Net assets as of $694.6 million $6,321 million
June 30, 2004
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Investment advisers and Investment adviser (until August 2, 2004): Investment adviser:
portfolio managers SAM Pioneer
Portfolio Managers (until August 2, 2004): Portfolio Managers:
Richard D. Meagley (since 1995) Day-to-day management of the Pioneer Fund's
Darcy MacLaren (since 2003) portfolio is the responsibility of John A. Carey
and Walter Hunnewell, Jr. Mr. Carey joined
Currently Pioneer is acting as investment Pioneer in 1979 and Mr. Hunnewell joined
adviser to the Safeco Core Equity Fund. The pioneer in 2001.
Portfolio Managers of the Pioneer Fund, as
indicated in the next column, currently
manage your Safeco Fund.
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Investment objective Safeco Core Equity Fund seeks long-term Pioneer Fund seeks reasonable income and
growth of capital and reasonable current capital growth through investments primarily
income. in equity securities of U.S. issuers.
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The investment objective of each Fund is fundamental and cannot be changed without
shareholder approval.
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Primary investments Under normal market conditions, Safeco Core Pioneer Fund invests a major portion of
Equity Fund invests at least 80% of net assets its assets in equity securities, primarily of
(plus any borrowings for investment purposes) U.S. issuers. For purposes of the Fund's
in equity securities and, to a much lesser investment policies, equity securities include
extent, invests in equity related securities. common stocks, convertible debt and other
equity instruments such as depositary
receipts, warrants, rights and preferred stock.
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20
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Safeco Core Equity Fund Pioneer Fund
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Investment strategies Safeco Core Equity Fund seeks investments Pioneer Fund uses a "value" style of
in fundamentally sound companies with good management and seeks securities selling at
long-term potential. SAM historically evaluated reasonable prices or substantial discounts to
numerous measures such as current valuation, their underlying values and then holds these
profitability, management, competitive position securities until the market values reflect their
and financial soundness. intrinsic values. Pioneer looks at the following
factors in selecting investments: favorable
expected returns relative to perceived risk;
above average potential for earnings and
revenue growth; low market valuations relative
to earnings forecast, book value, cash flow
and sales; a sustainable competitive advantage
such as a brand name, customer base,
proprietary technology or economies of scale.
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Other investments Safeco Core Equity Fund may invest up to 20% Pioneer Fund may invest up to 10% of its
of its assets in foreign securities which are total assets in equity and debt securities of
listed on a national exchange, including non-U.S. corporate issuers and debt securities
investments in American Depositary Receipts. of non-U.S. government issuers.
The Fund may invest in securities convertible The Fund will not invest more than 5% of
into common stock, but less than 35% of its its total assets in securities of emerging
total assets will be invested in such securities. market issuers.
The Fund may invest up to 5% of its net
assets in below investment grade debt
securities issued by both U.S. and non-U.S.
corporate and government issuers.
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Temporary defensive Safeco Core Equity Fund may hold cash or Pioneer Fund may invest all or part of its
strategies invest in high-quality, short-term securities assets in securities with remaining maturities
issued by an agency or instrumentality of the of less than one year, cash equivalents or
U.S. government, high-quality commercial may hold cash.
paper, certificates of deposit, shares of
no-load, open-end money market funds,
or repurchase agreements.
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Diversification Each Fund is diversified for the purpose of the Investment Company Act and each Fund is
subject to diversification requirements under the Code.
- ------------------------------------------------------------------------------------------------------------------------------------
Industry concentration Each Fund may not invest more than 25% of its assets in any one industry.
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21
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Safeco Core Equity Fund Pioneer Fund
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Restricted and illiquid If immediately after and as a result of such Pioneer Fund may not invest more than
securities action the value of the following securities, in 15% of its net assets in securities which are
the aggregate, would exceed 15% of Safeco illiquid and other securities which are not
Core Equity Fund's net assets, the Fund will readily marketable.
not (i) purchase securities for which there is
no readily available market, (ii) purchase time
deposits maturing in more than seven days,
(iii) purchase over-the-counter (OTC) options
or hold assets set aside to cover OTC options
written by the Fund, (iv) enter into repurchase
agreements maturing in more than seven
days, or (v) invest in interests in real estate
investment trusts which are not readily
marketable or interests in real estate limited
partnerships which are not listed or traded on
the NASDAQ Stock Market.
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Borrowing Safeco Core Equity Fund may borrow money Pioneer Fund may not borrow money, except
(i) from banks or (ii) by engaging in reverse the Fund may: (a) borrow from banks or
repurchase agreements. through reverse repurchase agreements in
an amount up to 33 1/3% of the Fund's total
assets (including the amount borrowed);
(b) to the extent permitted by applicable law,
borrow up to an additional 5% of the Fund's
assets for temporary purposes; (c) obtain
such short-term credits as are necessary
for the clearance of portfolio transactions;
(d) purchase securities on margin to the
extent permitted by applicable law; and
(e) engage in transactions in mortgage dollar
rolls that are accounted for as financings.
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Lending Safeco Core Equity Fund may lend securities to Pioneer Fund may lend portfolio securities
qualified institutional investors with a value of with a value that may not exceed 331/3% of
up to 33% of the Fund's total assets. the value of its assets.
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22
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Safeco Core Equity Fund Pioneer Fund
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Derivative instruments Safeco Core Equity Fund may write put or call Pioneer Fund may use futures and options on
options if, as a result thereof, the aggregate securities, indices and currencies, forward
value of the assets underlying all such options currency exchange contracts and other
does not exceed 25% of the Fund's net assets. derivatives. The Fund does not use derivatives
as a primary investment technique and
Safeco Core Equity Fund may purchase put or generally limits their use to hedging. However,
call options or options on futures contracts if, the Fund may use derivatives for a variety of
as a result thereof, the aggregate premiums non-principal purposes, including:
paid on all options or options on futures
contracts do not exceed 20% of the Fund's o As a hedge against adverse changes in
net assets. stock market prices, interest rates or
currency exchange rates
Safeco Core Equity Fund may enter into o As a substitute for purchasing or selling
any futures contract or option on a futures securities
contract, if as a result thereof, the aggregate o To increase the Fund's return as a non-
margin deposits and premiums required on all hedging strategy that may be considered
such instruments does not exceed 5% of the speculative
Fund's net assets.
Safeco Core Equity Fund may not purchase
securities on margin. However, the Fund may
(i) obtain short-term credits as necessary to
clear its purchases and sales of securities and
(ii) make margin deposits in connection with
its use of financial options and futures,
forward and spot currency contracts, swap
transactions and other financial contracts or
derivative instruments.
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Other investment policies and As described above, the Funds have substantially similar principal investment strategies and
restrictions policies. Certain of the non-principal investment policies and restrictions are different. For a
more complete discussion of each Fund's other investment policies and fundamental and
non-fundamental investment restrictions, see the SAI.
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Buying, Selling and Exchanging Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Sales charges Purchases under $1,000,000 of Class A shares The Investor Class shares of Pioneer Fund
of Safeco Core Equity Fund are subject to a you receive in the Reorganization will not be
5.75% front-end sales charge. subject to any sales charge. Moreover, if you
own shares in your own name as of the
Contingent deferred sales charge of up to 5% closing of the Reorganizationm (i.e., not in
if you redeem Class B shares within six years the name of a broker or other intermediary)
of purchase. and maintain your account, you may purchase
Class A shares of Pioneer Fund and Class A
Contingent deferred sales charge of 1% if shares of any fund in the Pioneer family of
you redeem Class C shares within one year funds through such account in the future
of purchase. without paying any sales charge.
Purchases of Investor Class shares of Safeco Except as described above, Class A shares of
Core Equity Fund Pioneer Fund are subject to a front-end sales
are not subject to a sales load. charge of up to 5.75%.
Safeco Core Equity Fund assesses a mandatory
redemption fee of 2%, as a percentage of the
amount redeemed or exchanged, on Class A and
Investor Class shares held less than 30 days.
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23
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Safeco Core Equity Fund Pioneer Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Management and other fees Safeco Core Equity Fund pays an advisory Pioneer Fund pays Pioneer an annual basic fee
fee on a monthly basis at an annual rate of 0.60% of the Fund's average daily net assets.
as follows:
Pioneer's fee increases or decreases depending
$0-$250,000,000: 0.70 of 1% upon whether the Fund's performance exceeds,
$250,000,001-$750,000,000: 0.65 of 1% or is exceeded by, that of the S&P 500 Index
$750,000,001-$1,250,000,000: 0.60 of 1% over the specified performance period. Each
Over $1,250,000,000: 0.55 of 1% percentage point of difference between the
performance of the Class A shares and the index
SAM serves as administrator and Fund (limited to a maximum of +/-10) is multiplied
accounting agent for the Fund. The Fund pays by a performance rate adjustment of 0.01%.
SAM an administrative services fee of 0.05% As a result, the fee is subject to a maximum
of the Fund's average daily net assets up to the annualized rate adjustment of +/-0.10%. This
first $200,000,000 and 0.01% of its net assets performance comparison is made at the end of
thereafter, and an accounting fee of 0.04% of each month. An appropriate monthly percentage
the Fund's average daily net assets up to the of this annual rate (based on the number of
first $200,000,000 and 0.01% of its net days in the current month) is then applied to
assets thereafter. the Fund's average net assets for the entire
performance period, giving a dollar amount that
During its most recent fiscal year, Safeco is added to (or subtracted from) the basic fee.
Core Equity Fund paid aggregate advisory and In addition, the fee is also further limited to a
administration fees at an average rate of 0.71% maximum annualized rate adjustment of +/-0.10%
of average daily net assets. (i.e., the management fee will not exceed 0.70%
or be less than 0.50%). However, Pioneer
SAM had contractually agreed until April 30, currently is waving the lower limitation on its
2009, to pay certain Fund operating expenses fee, but may reimpose it in the future. Because
(but not all of the operating expenses of the any adjustments to the basic fee begin with the
Fund) that exceeded the rate of 0.40% per comparative performance of the Fund and the
annum of the Fund's average daily net assets. performance record of the index, the controlling
This arrangement included all Fund operating factor is not whether fund performance is up or
expenses except management fees, Rule 12b-1 down, but whether it is up or down more or
fees, brokerage commissions, interest, and less than the performance record of the index,
extraordinary expenses. regardless of general market performance.
For the fiscal year ended December 31, 2003, During its most recent fiscal year, Pioneer Fund
the Fund's annual operating expenses for Class paid an advisory fee at an average rate of 0.50%
A shares, after giving effect to the expense of average daily net assets.
limitation were 1.32%, and without giving
effect to the expense limitation, were 3.40%. In addition, the Fund reimburses Pioneer for
certain fund accounting and legal expenses
For the fiscal year ended December 31, 2003, incurred on behalf of the Fund and pays a
the Fund's annual operating expenses for Class separate shareholder servicing/transfer agency
B shares, after giving effect to the expense fee to PIMSS, an affiliate of Pioneer.
limitation were 2.07%, and without giving
effect to the expense limitation, were 2.38%. For the fiscal year ended December 31, 2003,
the Fund's total annual operating expenses for
For the fiscal year ended December 31, 2003, Class A shares were 1.09% of average daily net
the Fund's annual operating expenses for Class assets. The Fund does not currently have an
C shares, after giving effect to the expense expense limitation for its Class A shares.
limitation were 2.07%, and without giving
effect to the expense limitation, were 2.41%.
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24
- ------------------------------------------------------------------------------------------------------------------------------------
Safeco Core Equity Fund Pioneer Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Management and other fees For the fiscal year ended December 31, 2003, Pioneer has agreed until the second
(continued) the Fund's annual operating expenses for anniversary of the closing of the
Investor Class shares were 1.05%. Reorganization to limit the expenses
(excluding extraordinary expenses) of the
Investor Class to 1.02% of the average daily
net assets attributable to the Investor Class.
The Investor Class shares to be issued in
the Reorganization will convert to Class A
shares after two years. Class A shares will
have higher expenses per share than Investor
Class shares due to the Rule 12b-1 Plan. In
addition, although Pioneer has agreed to limit
the expenses attributable to Investor Class
shares, Pioneer is not required to limit the
expenses attributable to Class A shares.
- ------------------------------------------------------------------------------------------------------------------------------------
Distribution and service Investor Class shares of each Fund are not subject to a Rule 12b-1 fee. Pioneer Investor Class
(12b-1) fee shares will convert into Class A shares after two years. Class A shares of each Fund are subject
to a Rule 12b-1 fee equal to 0.25% annually of average daily net assets.
- ------------------------------------------------------------------------------------------------------------------------------------
Buying shares You may buy shares of the Fund directly You may buy shares from any investment firm
through Safeco Securities, the Fund's principal that has a sales agreement with PFD, Pioneer
underwriter or through brokers, registered Fund's distributor. Existing shareholders of
investment advisers, banks and other financial Safeco Core Equity Fund who own shares
institutions that have entered into selling in their own name as of the closing date of
agreements with the Fund's principal the Reorganization and who maintain their
underwriter, as described in the Fund's accounts may buy shares of any fund in
prospectus. the Pioneer family of funds through such
accounts in the future without paying
Certain account transactions may be done sales charges.
by telephone.
If the account is established in the
shareholder's own name, shareholders may
also purchase additional shares of Pioneer
Fund by telephone or online.
- ------------------------------------------------------------------------------------------------------------------------------------
Exchange privilege There are no sales charges on shares you You may exchange shares of Pioneer Fund
acquire through dividend reinvestment or other without incurring any fee on the exchange
fund distributions or for Class A shares that with the more than 62 other Pioneer Funds.
you have exchanged for Class A shares of Your exchange would be for Class A shares,
another Fund. which would be subject to Rule 12b-1 fees.
An exchange generally is treated as a sale and
Certain account transactions may be done a new purchase of shares for federal income
by telephone. tax purposes.
If the account is established in the
shareholder's own name, shareholders may
also exchange shares of Pioneer Fund for
shares of other Pioneer Funds by telephone
or online.
- ------------------------------------------------------------------------------------------------------------------------------------
25
- ------------------------------------------------------------------------------------------------------------------------------------
Safeco Core Equity Fund Pioneer Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Selling shares Investor Class and Class A shares will be sold at the net asset value per share next calculated
after each Fund receives your request in good order.
- ------------------------------------------------------------------------------------------------------------------------------------
You may sell your shares by contacting the Normally, your investment firm will send
Fund directly in writing or by contacting a your request to sell shares to PIMSS. You
financial intermediary as described in the can also sell your shares by contacting the
Fund's prospectus. Fund directly if your account is registered
in your name.
If the account is established in the
shareholder's own name, shareholders
may also redeem shares of Pioneer Fund
by telephone or online.
- ------------------------------------------------------------------------------------------------------------------------------------
Comparison of Principal Risks of Investing in the Funds
Because each Fund has a similar investment objective, primary investment
policies and strategies, the Funds are subject to the same principal risks. You
could lose money on your investment in either Fund or not make as much as if you
invested elsewhere if:
o The stock market goes down (this risk may be greater in the short
term)
o Value stocks fall out of favor with investors
o The Fund's assets remain undervalued or do not have the potential
value originally expected
o Stocks selected for income do not achieve the same return as
securities selected for capital growth
The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses per
share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor Class
shares, Pioneer is not required to limit the expenses attributable to Class A
shares.
26
Past Performance
Set forth below is performance information for each Fund. The bar charts
show how each Fund's total return (not including any deduction for sales
charges) has varied from year to year for each full calendar year. The tables
show average annual total return (before and after taxes) for each Fund over
time for each class of shares (including deductions for sales charges) compared
with a broad-based securities market index. The bar charts give an indication of
the risks of investing in each Fund, including the fact that you could incur a
loss and experience volatility of returns year to year. Past performance before
and after taxes does not indicate future results.
Safeco Core Equity Fund -- Investor Class
Calendar Year Total Returns*
[DATA BELOW IS REPRESENTED BY A BAR CHART IN THE ORIGINAL REPORT]
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03
9.93 25.26 25.01 24.21 24.93 9.37 -10.97 -9.72 -26.33 24.68
* During the period shown in the bar chart, your Safeco Fund's highest
quarterly return was 18.72% for the quarter ended December 31, 1998, and
the lowest quarterly return was -18.37% for the quarter ended September 30,
2002.
Pioneer Fund -- Class A Shares
Calendar Year Total Returns*
[DATA BELOW IS REPRESENTED BY A BAR CHART IN THE ORIGINAL REPORT]
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03
- -0.57 26.64 19.70 38.47 29.09 15.63 0.12 -11.13 -20.26 24.58
* During the period shown in the bar chart Pioneer Fund's highest quarterly
return was 22.33% for the quarter ended December 31, 1998, and the lowest
quarterly return was -18.18% for the quarter ended September 30, 2002.
27
Safeco Core Equity Fund
Average Annual Total Returns as of December 31, 2003
- ----------------------------------------------------------------------------------------------------------
1 Year 5 Years 10 Years
- ----------------------------------------------------------------------------------------------------------
Safeco Core Equity Fund, Class A Shares
- ----------------------------------------------------------------------------------------------------------
Return Before Taxes 17.23% -5.61% 7.12%
- ----------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(1) 17.15% -6.09% 5.51%
- ----------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(1) 11.29% -4.83% 5.36%
- ----------------------------------------------------------------------------------------------------------
Safeco Core Equity Fund, Class B Shares
- ----------------------------------------------------------------------------------------------------------
Return Before Taxes 18.53% -5.54% 7.23%
- ----------------------------------------------------------------------------------------------------------
Safeco Core Equity Fund, Class C Shares
- ----------------------------------------------------------------------------------------------------------
Return Before Taxes 22.42% -5.17% 7.14%
- ----------------------------------------------------------------------------------------------------------
Safeco Core Equity Fund, Investor Class Shares
- ----------------------------------------------------------------------------------------------------------
Return Before Taxes 24.68% -4.19% 7.99%
- ----------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(1) 24.55% -4.78% 6.28%
- ----------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(1) 16.19% -3.72% 6.08%
- ----------------------------------------------------------------------------------------------------------
S&P 500 Index(2)
(reflects no deduction for fees, expenses or taxes) 28.67% -0.57% 11.06%
- ----------------------------------------------------------------------------------------------------------
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on your situation and may
differ from those shown. Furthermore, the after-tax returns shown are not
relevant to those who hold their shares through tax-deferred arrangements
such as 401(k) plans or IRA accounts, or to investors that are tax-exempt.
(2) The S&P 500 Index, an unmanaged index of 500 stocks, is for reference only,
does not mirror the Fund's investments, and reflects no deduction for fees,
expenses or taxes.
Pioneer Fund -- Class A Shares
Average Annual Total Returns as of December 31, 2003
- ----------------------------------------------------------------------------------------------------------
1 Year 5 Years 10 Years
- ----------------------------------------------------------------------------------------------------------
Pioneer Fund, Class A shares
- ----------------------------------------------------------------------------------------------------------
Return Before Taxes 17.40% -0.76% 10.00%
- ----------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(1) 17.06% -1.46% 8.47%
- ----------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(1) 11.28% -0.87% 8.01%
- ----------------------------------------------------------------------------------------------------------
S&P 500 Index(2)
(reflects no deduction for fees, expenses or taxes) 28.67% -0.57% 11.06%
- ----------------------------------------------------------------------------------------------------------
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on your situation and may
differ from those shown. Furthermore, the after-tax returns shown are not
relevant to those who hold their shares through tax-deferred arrangements
such as 401(k) plans or IRA accounts, or to investors that are tax-exempt.
(2) The S&P 500 Index, an unmanaged index of 500 stocks, is for reference only,
does not mirror the Fund's investments, and reflects no deduction for fees,
expenses or taxes.
28
Pioneer Fund's Investor Class shares will not be outstanding prior to the
closing of the Reorganization and consequently have no performance history.
However, the performance record of the Investor Class would be modestly higher
than the performance of Class A shares due to the lower expenses applicable to
the Investor Class.
The most recent portfolio manager's discussion of each Fund's performance
is attached as Exhibit D.
The Funds' Fees and Expenses
Shareholders of both Funds pay various fees and expenses, either directly
or indirectly. The tables below show the fees and expenses that you would pay if
you were to buy and hold shares of each Fund. The expenses in the tables
appearing below are based on (i) for the Safeco Core Equity Fund, the expenses
of Safeco Core Equity Fund for the period ended December 31, 2003 and (ii) for
Pioneer Fund, the expenses of Pioneer Fund for the period ended December 31,
2003. Future expenses for all share classes may be greater or less.
Pro Forma
Safeco Safeco Safeco Safeco Pioneer
Core Equity Core Equity Core Equity Core Equity Fund
Fund Fund Fund Fund Investor
Class A Class B Class C Investor Class Class (9)
Shareholder transaction fees (paid directly from your investment) ----------- ----------- ----------- -------------- ---------
Maximum sales charge (load) when you buy shares as a percentage
of offering price ................................................ 5.75%(6) None None None None(1)
Maximum deferred sales charge (load) as a percentage of
purchase price or the amount you receive when you sell shares,
whichever is less ................................................ None 5.00%(7) 1.00%(8) None None
Redemption fees for shares held less than 30 days ................. 2.00% None None 2.00% N/A
Wire redemption fee ............................................... $ 20(4) $ 20(4) $ 20(4) $ 20(4) $ 10
Annual low balance fee ............................................ $ 12(5) $ 12(5) $ 12(5) $ 12(5) N/A
Annual fund operating expenses (deducted from fund assets)
(as a % of average net assets)
Management fee .................................................... 0.67% 0.67% 0.67% 0.67% 0.52%
Distribution and service (12b-1) fee .............................. 0.25% 1.00% 1.00% None None
Other expenses .................................................... 2.48% 0.71% 0.74% 0.38% 0.41%
Total fund operating expenses ..................................... 3.40% 2.38% 2.41% 1.05% 0.93%
Expense reimbursement/reduction ................................... 2.08%(2) 0.31%(2) 0.34%(2) None(2) None(3)
Net fund operating expenses ....................................... 1.32% 2.07% 2.07% 1.05% 0.93%
- ----------
(1) No sales load will apply to shares received in the Reorganization by
shareholders of your Safeco Fund who become shareholders of record of
Pioneer Fund through the Reorganization. In addition, shareholders of your
Safeco Fund who own shares in their own name (i.e., not in the name of a
broker or other intermediary) and maintain such account as of the closing
of the Reorganization may purchase Class A Shares of Pioneer Fund or of any
fund in the Pioneer family of funds through such account in the future
without paying a sales charge.
(2) As described above, SAM had contractually agreed to reimburse Safeco Core
Equity Fund for certain Fund operating expenses (but not all of the
operating expenses of the Fund) that exceeded the rate of 0.40% per annum
of the Fund's average daily net assets. This arrangement included all fund
operating expenses except management fees, Rule 12b-1 fees, brokerage
commissions, interest, and extraordinary expenses.
(3) Pioneer has agreed that through the second anniversary of the closing of
the Reorganization, Pioneer will limit the expenses (excluding
extraordinary expenses) of the Investor Class shares of Pioneer Fund to
1.02% of average daily net assets.
(4) There is a higher charge for international wire redemptions, which may vary
by country or dollar amount.
(5) A low balance fee is charged once each year in December for accounts with
balances under $1,000 in your Safeco Fund.
(6) Purchases of $1,000,000 or more of Class A shares of your Safeco Fund are
not subject to a front-end sales charge, but a 1.00% deferred sales charge
will apply to redemptions made in the first twelve months except with
respect to participant-directed redemptions from qualified retirement
plans.
(7) The contingent deferred sales charge on Class B shares of your Safeco Fund
reduces to zero after six years from purchase, and the Class B shares
convert to Class A shares at that time.
(8) The contingent deferred sales charge on Class C shares applies only to
redemptions made in the first twelve months after purchase.
29
(9) The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses
per share than Investor Class shares due to the Rule 12b-1 Plan. In
addition, although Pioneer has agreed to limit the expenses attributable to
Investor Class shares, Pioneer is not required to limit the expenses
attributable to Class A shares.
The hypothetical example below helps you compare the cost of investing in
each Fund. It assumes that: (a) you invest $10,000 in each Fund for the time
periods shown, (b) you reinvest all dividends and distributions, (c) your
investment has a 5% return each year, (d) each Fund's gross operating expenses
remain the same, (e) the expense limitations are in effect for five years for
Safeco Core Equity Fund and two years for Pioneer Fund and (f) and the Investor
Class shares of Pioneer Fund convert to Class A shares after two years. The
examples are for comparison purposes only and are not a representation of either
fund's actual expenses or returns, either past or future.
Example
Safeco Core Equity Fund
Class A Shares
Year 1 ....................... $ 702
Year 3 ....................... $ 969
Year 5 ....................... $1,257
Year 10 ...................... $3,255
With Without
Class B Shares redemption redemption
Year 1 .............. $ 710 $ 210
Year 3 .............. $ 949 $ 649
Year 5 .............. $1,314 $1,114
Year 10 ............. $3,057 $3,057
With Without
Class C Shares redemption redemption
Year 1 .............. $ 310 $ 210
Year 3 .............. $ 649 $ 649
Year 5 .............. $1,114 $1,114
Year 10 ............. $2,599 $2,599
Investor Class Shares
Year 1 ....................... $ 107
Year 3 ....................... $ 334
Year 5 ....................... $ 579
Year 10 ...................... $1,283
Pro Forma Pioneer Fund
Investor Class Shares
Year 1 ....................... $ 95
Year 3 ....................... $ 310
Year 5 ....................... $ 556
Year 10 ...................... $1,261
30
Reasons for the Proposed Reorganization
The Trustees believe that the proposed Reorganization is in the best
interests of Safeco Core Equity Fund. The Trustees considered the following
matters, among others, in approving the proposal.
First, SAM, the investment adviser to the Fund until August 2, 2004, was
acquired by Symetra. Symetra informed the Trustees that it did not intend to
continue to provide investment advisory services to the Safeco Funds.
Consequently, a change in your Safeco Fund's investment adviser was necessary.
Second, the historical investment performance of Pioneer Fund is higher
than your Safeco Fund's investment performance. For the one, five and 10 year
periods ended June 30, 2004, Class A shares of Pioneer Fund had an average
annual return of 18.13%; -1.14%; and 11.16% compared to an average annual
return of the Class A shares and Investor Class shares of 7.30% and 14.16% (one
year), -7.12% and -5.70% (five years) and 7.11% and 7.99% (ten years),
respectively, during the same period. In addition, the Trustees considered the
track record of Pioneer in managing equity and fixed income mutual funds.
Third, the resources of Pioneer. At June 30, 2004, Pioneer managed over 62
investment companies and accounts with approximately $35 billion in assets.
Pioneer is part of the global asset management group of UniCredito Italiano
S.p.A., one of the largest banking groups in Italy, providing investment
management and financial services to mutual funds, institutional and other
clients. As of June 30, 2004, assets under management of UniCredito Italiano
S.p.A. were approximately $151 billion worldwide. Shareholders of your Safeco
Fund would become part of a significantly larger family of funds that offers a
more diverse array of investment options and enhanced shareholder account
options. The Pioneer family of mutual funds offers over 62 funds, including
domestic and international equity and fixed income funds and a money market
fund that will be available to your Safeco Fund's shareholders through
exchanges. In addition, Pioneer offers shareholders additional options for
their accounts, including the ability to transact and exchange shares over the
telephone or online and the ability to access account values and transaction
history in all of the shareholder's direct accounts in the Pioneer Funds over
the telephone or online.
Fourth, Pioneer Fund's lower operating expenses and Pioneer's commitment
until the second anniversary of the Reorganization to limit the expenses
(excluding extraordinary expenses) of the Investor Class of Pioneer Fund to
1.02% of average daily net assets. This expense ratio is below the gross
expenses and expenses net of expense reimbursement of each class of shares of
your Safeco Fund. While you will experience higher expenses once the Investor
Class shares convert to Class A shares after two years, the Class A expense
ratio for the most recent fiscal year was 1.09% of average daily net assets,
which was below the net expenses of the Class A shares of your Safeco Fund and
only four basis points above the net expenses of the Investor Class of your
Safeco Fund.
Fifth, the substantially larger size of Pioneer Fund offers greater
opportunity for diversification of the investment portfolio, which should help
to reduce risks.
Sixth, shareholders who own shares in their name as of the closing of the
Reorganization (i.e., not in the name of a broker or other intermediary) and
maintain their account may purchase additional Class A shares of the
corresponding Pioneer Fund through such account in the future or may exchange
those shares for Class A shares of another Pioneer Fund or purchase Class A
share of another Pioneer Fund without paying any sales charge.
Seventh, the Investor Class shares of Pioneer Fund received in the
Reorganization will provide Safeco Core Equity Fund shareholders with exposure
to substantially the same investment product as they currently have.
Pioneer and Symetra will pay all out of pocket expenses of the Safeco
Funds and the Pioneer Funds associated with the Reorganizations, including, but
not limited to: (1) the expenses associated with the preparation, printing and
mailing of any shareholder communications, including this joint Proxy
Statement/Prospectus, and any filings with the SEC and other governmental
authorities in connection with the Reorganizations; (2) the fees and expenses
of any proxy solicitation firm retained in connection with the Reorganizations;
(3) the legal fees and expenses incurred by the Safeco Funds in connection with
the Reorganizations; and (4) the Trustees' fees and out of pocket expenses
incurred as a result of the Reorganizations.
The Trustees also considered that Pioneer and Symetra will benefit from
the Reorganization. See "Certain Agreements between Pioneer and Symetra."
The Board of Trustees of Pioneer Fund also considered that the
Reorganization presents an excellent opportunity for the Pioneer Fund to
acquire investment assets without the obligation to pay commissions or other
transaction costs that a fund normally incurs when purchasing securities. This
opportunity provides an economic benefit to Pioneer Fund and its shareholders.
31
CAPITALIZATION
The following table sets forth the capitalization of each Fund as of June
30, 2004, and the pro forma combined Fund as of June 30, 2004.
Safeco
Core Equity Pioneer Pro Forma
Fund Fund Pioneer Fund
June 30, 2004 June 30, 2004 June 30, 2004
--------------- --------------- --------------
Total Net Assets (in thousands) $ 694,570 $ 6,321,081 $ 7,015,651
Class A shares ................ $ 17,431 $ 5,328,526 $ 5,328,526
Class B shares ................ $ 8,846 $ 538,395 $ 538,395
Class C shares ................ $ 196 $ 295,384 $ 295,384
Investor Class shares ......... $ 668,097 N/A 694,570
Class R shares ................ N/A $ 11,139 $ 11,139
Class Y shares ................ N/A $ 147,637 $ 147,637
Net Asset Value Per Share
Class A shares ................ $ 17.04 $ 38.64 $ 38.64
Class B shares ................ $ 16.58 $ 37.77 $ 37.77
Class C shares ................ $ 16.60 $ 37.44 $ 37.44
Investor Class shares ......... $ 17.01 N/A $ 38.64
Class R shares ................ N/A $ 38.69 $ 38.69
Class Y shares ................ N/A $ 38.73 $ 38.73
Shares Outstanding
Class A shares ................ 1,022,979 137,918,274 137,918,274
Class B shares ................ 533,442 14,254,949 14,254,949
Class C shares ................ 11,810 7,890,437 7,890,437
Investor Class shares ......... 39,269,334 N/A 17,975,414
Class R shares ................ N/A 287,937 287,937
Class Y shares ................ N/A 3,811,827 3,811,827
It is impossible to predict how many shares of Pioneer Fund will actually
be received and distributed by your Safeco Fund on the Reorganization date. The
table should not be relied upon to determine the amount of Pioneer Fund's
shares that will actually be received and distributed.
BOARD'S EVALUATION AND RECOMMENDATION
For the reasons described above, the Trustees, including the Independent
Trustees, approved the Reorganization. In particular, the Trustees determined
that the Reorganization is in the best interests of your Safeco Fund. Similarly,
the Board of Trustees of Pioneer Fund, including its Independent Trustees,
approved the Reorganization. They also determined that the Reorganization is in
the best interests of Pioneer Fund.
The Trustees recommend that the shareholders of your Safeco Fund vote FOR
the proposal to approve the Agreement and Plan of Reorganization.
32
Safeco Growth Opportunities Fund and
Pioneer Growth Opportunities Fund
PROPOSAL 1(c)
Approval of Agreement and Plan of Reorganization
SUMMARY
The following is a summary of more complete information appearing later in
this Proxy Statement/Prospectus or incorporated herein. You should read
carefully the entire proxy statement, including the form of Agreement and Plan
of Reorganization attached as EXHIBIT A-2 because they contain details that are
not in the summary.
The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses per
share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor Class
shares, Pioneer is not required to limit the expenses attributable to Class A
shares.
In the table below, if a row extends across the entire table, the policy
disclosed applies to both your Safeco Fund and the Pioneer Fund.
Comparison of Safeco Growth Opportunities Fund to the Pioneer Growth
Opportunities Fund
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Safeco Growth Opportunities Fund Pioneer Growth Opportunities Fund
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Business A series of Safeco Common Stock Trust, A newly organized series of Pioneer Series
a diversified open-end management Trust II, an open-end management investment
investment company organized as a registered under the Investment Company Act
Delaware statutory trust. and organized as a Delaware statutory trust.
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Net assets as of $545.5 million None. The Pioneer Growth Opportunities Fund
June 30, 2004 is newly organized and does not expect to
commence investment operations until the
Reorganization occurs.
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Investment advisers and Investment adviser (until August 2, 2004): Investment adviser:
portfolio managers SAM Pioneer
Portfolio Managers (since 2003 until Portfolio Managers:
August 2, 2004): Day-to-day management of Pioneer Growth
Jeffrey Schwartz Opportunities Fund's portfolio will be the
CFA, Vice President, SAM responsibility of John A. Carey and Walter
Hunnewell, Jr. Mr. Carey joined Pioneer in
Bill Whitlow 1979 and Mr. Hunnewell joined Pioneer
CFA, Vice President, SAM in 2001.
Currently Pioneer is acting as investment Mr. Acheson is Vice President and joined
adviser to Safeco Growth Opportunities Fund. Pioneer as a portfolio manager in 2001
The Portfolio Manager of the Pioneer Growth and has been an investment professional
Opportunities Fund, as indicated in the next since 1994.
column, currently manages your Safeco Fund.
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Investment objective Each Fund seeks growth of capital.
Each Fund provides written notice to shareholders at least 60 days prior to any change to its
investment objective as described above.
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Primary investments To achieve its investment objective, under normal circumstances, each Fund invests most of its
assets in common stocks of companies Pioneer considers to be reasonably priced or
undervalued, with above average growth potential.
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33
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Safeco Growth Opportunities Fund Pioneer Growth Opportunities Fund
Pioneer Growth Opportunities Fund may invest
a significant portion of its assets in equity
securities of small companies.
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Investment strategies When evaluating a stock to buy for each Fund,
Pioneer considers factors such as:
o The strength of the company's balance
sheet
o The quality of the management team
o The rate at which the company's earnings
are projected to grow
o Whether the company's stock may be
trading at a discount relative to its industry
peers or the overall markets
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Safeco Growth Opportunities Fund may sell Pioneer Growth Opportunities Fund generally
as stock if: sells a portfolio security when Pioneer
believes that the issuer no longer offers the
o Any of the above factors or other relative- potential for growth at a reasonable price or
value indicators have deteriorated if any of the above factors have deteriorated.
o The stock becomes overvalued, for Pioneer makes that determination based
example, as a result of overly optimistic upon the same criteria it uses to select
earnings forecasts portfolio securities.
o The stock price reaches a specific target
o Changes in market value cause the Fund
to hold a larger position in the stock than
Pioneer wants
o Other companies present more attractive
investment opportunities
o Cash is needed to meet shareholder
redemptions
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Other investments Each Fund may invest in securities convertible into common stock, but less than 35% of its
total assets will be invested in such securities.
Each Fund may invest up to 20% of assets in foreign securities.
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Safeco Growth Opportunities Fund may invest Pioneer Growth Opportunities Fund may invest
up to 10% of its total assets in debt securities up to 5% of its total assets in debt securities
rated below investment grade. rated below investment grade, including below
investment grade convertible debt securities.
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Temporary defensive Safeco Growth Opportunities Fund may hold Pioneer Growth Opportunities Fund may invest
strategies cash or invest in high-quality, short-term all or part of its assets in securities with
securities issued by an agency or remaining maturities of less than one year,
instrumentality of the U.S. government, cash equivalents or may hold cash.
high-quality commercial paper, certificates of
deposit, shares of no-load, open-end money
market funds, or repurchase agreements as a
temporary defensive measure when market
conditions so warrant.
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34
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Safeco Growth Opportunities Fund Pioneer Growth Opportunities Fund
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Diversification Each Fund is diversified for the purpose of the Investment Company Act, and each Fund is
subject to diversification requirements under the Code.
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Industry concentration Each Fund will not make investments that will result in the concentration (as that term may be
defined in the Investment Company Act, any rule or order thereunder, or SEC staff interpretation
thereof) of its investments in the securities of issuers primarily engaged in the same industry,
provided that this restriction does not limit the Fund from investing in obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities, or governmental issuers of
special or general tax-exempt securities, or certain bank instruments issued by domestic banks.
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At times, more than 25% of Pioneer Growth
Opportunities Fund's assets may be invested
in the same market segment, such as
financials or technology. To the extent the
Fund emphasizes investments in a market
segment, the Fund will be subject to a greater
degree to the risks particular to the industries
in that segment, and may experience greater
market fluctuation, than a fund without the
same focus. For example, industries in the
financial segment, such as banks, insurance
companies, broker-dealers and REITs, may
be sensitive to changes in interest rates and
general economic activity and are subject to
extensive government regulation. Industries in
the technology segment, such as information
technology, communications equipment,
computer hardware and software, and office
and scientific equipment, are subject to
risks of rapidly evolving technology, short
product lives, rates of corporate expenditures,
falling prices and profits, competition
from new market entrants, and general
economic conditions.
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Restricted and illiquid If immediately after and as a result of such Pioneer Growth Opportunities Fund may
securities action the value of the following securities, not invest more than 15% of its net assets
in the aggregate, would exceed 15% of the in securities which are illiquid and other
Safeco Growth Opportunities Fund's net assets, securities which are not readily marketable.
the Fund will not (i) purchase securities for
which there is no readily available market,
(ii) purchase time deposits maturing in more
than seven days, (iii) purchase over-the-
counter (OTC) options or hold assets set aside
to cover OTC options written by the Fund,
(iv) enter into repurchase agreements maturing
in more than seven days, or (v) invest in
interests in real estate investment trusts which
are not readily marketable or interests in real
estate limited partnerships which are not listed
or traded on the NASDAQ Stock Market.
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35
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Safeco Growth Opportunities Fund Pioneer Growth Opportunities Fund
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Borrowing Safeco Growth Opportunities Fund may borrow Pioneer Growth Opportunities Fund may
money (i) from banks or (ii) by engaging in not borrow money, except the Fund may:
reverse repurchase agreements. (a) borrow from banks or through reverse
repurchase agreements in an amount up to
33 1/3% of the Fund's total assets (including
the amount borrowed); (b) to the extent
permitted by applicable law, borrow up to
an additional 5% of the Fund's assets for
temporary purposes; (c) obtain such
short-term credits as are necessary for
the clearance of portfolio transactions;
(d) purchase securities on margin to the
extent permitted by applicable law; and
(e) engage in transactions in mortgage dollar
rolls that are accounted for as financings.
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Lending Safeco Growth Opportunities Fund may lend Pioneer Growth Opportunities Fund may lend
securities to qualified institutional investors portfolio securities with a value that may not
with a value of up to 33% of the Fund's exceed 331/3% of the value of its assets.
total assets.
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Derivative instruments Safeco Growth Opportunities Fund may not Pioneer Growth Opportunities Fund may
purchase securities on margin. However, the use futures and options on securities, indices
Fund may (i) obtain short-term credits as and currencies, forward currency exchange
necessary to clear its purchases and sales of contracts and other derivatives. The Fund
securities, and (ii) make margin deposits in does not use derivatives as a primary
connection with its use of financial options and investment technique and generally limits
futures, forward and spot currency contracts, their use to hedging. However, the Fund may
swap transactions and other financial contracts use derivatives for a variety of non-principal
or derivative instruments. purposes, including:
o As a hedge against adverse changes
in stock market prices, interest rates
or currency exchange rates
o As a substitute for purchasing or
selling securities
o To increase the Fund's return as a
non-hedging strategy that may be
considered speculative
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Other investment policies and As described above, the Funds have substantially similar principal investment strategies and
restrictions policies. Certain of the non-principal investment policies and restrictions are different. For a
more complete discussion of each Fund's other investment policies and fundamental and
non-fundamental investment restrictions, see the SAI.
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36
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Safeco Growth Opportunities Fund Pioneer Growth Opportunities Fund
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Buying, Selling and Exchanging Shares
- --------------------------------------------------------------------------------------------------------------
Sales charges Purchases under $1,000,000 of Class A shares The Investor Class shares of Pioneer
of Safeco Growth Opportunities Fund are Growth Opportunities Fund you receive in
subject to a 5.75% front-end sales charge. the Reorganization will not be subject to any
sales charge. Moreover, if you own shares
Contingent deferred sales charge of up to 5% in your own name as of the closing of the
if you redeem Class B shares within six years Reorganization (i.e., not in the name of a
of purchase. broker or other intermediary) and maintain
your account, you may purchase Class A
Contingent deferred sales charge of 1% if shares of Pioneer Growth Opportunities Fund
you redeem Class C shares within one year and Class A shares of any fund in the Pioneer
of purchase. family of funds through such account in the
future without paying any sales charge.
Purchases of Investor Class shares of Safeco
Growth Opportunities are not subject to a Except as described above, Class A shares of
sales load. Pioneer Growth Opportunities Fund are subject
to a front-end sales charge of up to 5.75%.
Safeco Growth Opportunities Fund assesses
a mandatory redemption fee of 2%, as a
percentage of the amount redeemed or
exchanged, on Class A and Investor
Class shares held less than 30 days.
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37
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Safeco Growth Opportunities Fund Pioneer Growth Opportunities Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Management and other fees Safeco Growth Opportunities Fund pays an Pioneer Growth Opportunities Fund will pay
advisory fee on a monthly basis at an annual rate Pioneer a management fee equal to 0.65% of
as follows: the Fund's average daily net assets.
$0-$250,000,000: 0.70 of 1% In addition, Pioneer Growth Opportunities
$250,000,001-$750,000,000: 0.65 of 1% Fund will reimburse Pioneer for certain fund
$750,000,001-$1,250,000,000: 0.60 of 1% accounting and legal expenses incurred on
Over $1,250,000,000: 0.55 of 1% behalf of the Fund and will pay a separate
shareholder servicing/transfer agency fee to
SAM serves as administrator and fund PIMSS, an affiliate of Pioneer.
accounting agent for the Fund. The Fund pays
SAM an administrative services fee of 0.05% Pioneer has agreed until the second
of the Fund's average daily net assets up to the anniversary of the closing of the
first $200,000,000 and 0.01% of its net assets Reorganization to limit the expenses
thereafter, and an accounting fee of 0.04% of (excluding ordinary expenses) of the Investor
the Fund's average daily net assets up to the Class to 1.05% of the average daily net assets
first $200,000,000 and 0.01% of its net attributable to the Investor Class.
assets thereafter.
The Investor Class shares to be issued in the
During its most recent fiscal year, Safeco Growth Reorganization will convert to Class A shares
Opportunities Fund paid aggregate advisory and after two years. Class A shares will have
administration fees at an average rate of 0.73% higher expenses per share than Investor Class
of average daily net assets. Shares due to the Rule 12b-1 Plan.
SAM had contractually agreed until April 30,
2009, to pay certain fund operating expenses
(but not all of the operating expenses of the
Fund) that exceeded the rate of 0.40% per
annum of the Fund's average daily net assets.
This arrangement included all Fund operating
expenses except management fees, Rule 12b-1
fees, brokerage commissions, interest, and
extraordinary expenses.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for Class A
shares, after giving effect to the expense
limitation were 1.33%, and without giving effect
to the expense limitation, were 2.38%.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for Class B
shares, after giving effect to the expense
limitation were 2.08%, and without giving effect
to the expense limitation, were 2.45%.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for Class C
shares, after giving effect to the expense
limitation were 2.08%, and without giving effect
to the expense limitation, were 2.48%.
For the fiscal year ended December 31, 2003, the
Fund's annual operating expenses for Investor
Class shares, after giving effect to the expense
limitation were 1.08%, and without giving effect
to the expense limitation, were 1.14%.
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38
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Safeco Growth Opportunities Fund Pioneer Growth Opportunities Fund
- ------------------------------------------------------------------------------------------------------------------------------------
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Distribution and service Investor Class shares of each Fund are not subject to a Rule 12b-1 fee. Pioneer Investor Class
(12b-1) fee shares will convert into Class A shares after two years. Class A shares of each Fund are subject
to a Rule 12b-1 fee equal to 0.25% annually of average daily net assets.
- ------------------------------------------------------------------------------------------------------------------------------------
Buying shares You may buy shares of the Fund directly You may buy shares from any investment
through Safeco Securities, the Fund's principal firm that has a sales agreement with PFD,
underwriter or through brokers, registered Pioneer Growth Opportunities Fund's
investment advisers, banks and other financial distributor. Existing shareholders of Safeco
institutions that have entered into selling Growth Opportunities Fund who own shares
agreements with the Fund's principal in their own name as of the closing date of
underwriter, as described in the Fund's the Reorganization and who maintain their
prospectus. accounts may buy shares of any fund in
the Pioneer family of funds through such
Certain account transactions may be done accounts in the future without paying
by telephone. sales charges.
If the account is established in the
shareholder's own name, shareholders may
also purchase additional shares of Pioneer
Growth Opportunities Fund by telephone
or online.
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Exchange privilege There are no sales charges on shares you You may exchange shares of Pioneer Growth
acquire through dividend reinvestment or other Opportunities Fund without incurring any fee
fund distributions or for Class A shares that on the exchange with the more than 62 other
you have exchanged for Class A shares of Pioneer Funds. Your exchange would be for
another fund. Class A shares, which would be subject to
Rule 12b-1 fees. An exchange generally is
Certain account transactions may be done treated as a sale and a new purchase of
by telephone. shares for federal income tax purposes.
If the account is established in the
shareholder's own name, shareholders may
also exchange shares of Pioneer Growth
Opportunities Fund for shares of other Pioneer
Funds by telephone or online.
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Selling shares Investor Class and Class A shares will be sold at net asset value per share next calculated after
each Fund receives your request in good order.
- ------------------------------------------------------------------------------------------------------------------------------------
You may sell your shares by contacting the Normally, your investment firm will send your
Safeco Growth Opportunities Fund directly request to sell shares to PIMSS. You can also
in writing or by contacting a financial sell your shares by contacting the Fund
intermediary as described in the directly if your account is registered in
Fund's prospectus. your name.
If the account is established in the
shareholder's own name, shareholders
may also redeem shares of Pioneer Growth
Opportunities Fund by telephone or online.
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39
Comparison of Principal Risks of Investing in the Funds
Because each Fund has a similar investment objective, primary investment
policies and strategies, the Funds are subject to the same principal risks. Even
though each Fund seeks capital growth, you could lose money on your investment
or not make as much as if you invested elsewhere if:
o The stock market goes down (this risk factor may be greater in the
short term)
o Growth stocks fall out of favor with investors
o The Fund's investments do not have the growth potential originally
expected
o The Fund's shares may be subject to frequent and more significant
changes in value than the stock market in general due to the
volatility of some of the smaller companies in which it invests
o During periods of market concern about inflation or deflation, some
securities in which the Fund invests may become more volatile or
decline in value
Investing in non-U.S. issuers may involve unique risks compared to
investing in securities of U.S. issuers. These risks may include:
o Inadequate financial information
o Smaller, less liquid and more volatile markets
o Political and economic upheavals
The fund also has risks associated with investing in small companies.
Compared to large companies, small companies, and the market for their equity
securities, are likely to:
o Be more sensitive to changes in the economy, earnings results and
investor expectations
o Have more limited product lines and capital resources
o Experience sharper swings in market values
o Be harder to sell at the times and prices Pioneer thinks appropriate
o Offer greater potential for gain or loss
The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses per
share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor Class
shares, Pioneer is not required to limit the expenses attributable to Class A
shares.
40
Past Performance
Set forth below is performance information for Safeco Growth Opportunities
Fund. The bar chart shows how Safeco Growth Opportunities Fund's total return
(not including any deduction for sales charges) has varied from year to year for
each full calendar year. The table shows the average annual total return (before
and after taxes) for Safeco Growth Opportunities Fund over time for each class
of shares (including deductions for sales charges) compared with a broad-based
securities market index. The bar chart gives an indication of the risks of
investing in the Safeco Growth Opportunities Fund, including the fact that you
could incur a loss and experience volatility of returns year to year. Past
performance before and after taxes does not indicate future results. Since
Pioneer Growth Opportunities Fund has not yet commenced investment operations,
it has no prior performance.
Safeco Growth Opportunities Fund -- Investor Class
Calendar Year Total Returns*
[DATA BELOW IS REPRESENTED BY A BAR CHART IN THE ORIGINAL REPORT]
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03
- -1.62 26.10 22.90 49.96 4.37 2.64 -4.16 22.03 -36.92 43.98
* During the period shown in the bar chart, your Safeco Fund's highest
quarterly return was 34.64% for the quarter ended June 30, 2001, and the
lowest quarterly return was -26.84% for the quarter ended September 30,
2002.
Safeco Growth Opportunities Fund
Average Annual Total Returns As of December 31, 2003
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1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------------------------------
Safeco Growth Opportunities Fund, Class A Shares
- --------------------------------------------------------------------------------------------------------
Return Before Taxes 35.37% 0.28% 9.23%
- --------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions1 35.37% 0.28% 6.93%
- --------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares1 22.99% 0.24% 6.62%
- --------------------------------------------------------------------------------------------------------
Safeco Growth Opportunities Fund, Class B Shares
- --------------------------------------------------------------------------------------------------------
Return Before Taxes 37.64% 0.35% 9.38%
- --------------------------------------------------------------------------------------------------------
Safeco Growth Opportunities Fund, Class C Shares
- --------------------------------------------------------------------------------------------------------
Return Before Taxes 41.64% 0.75% 9.28%
- --------------------------------------------------------------------------------------------------------
Safeco Growth Opportunities Fund, Investor Class Shares
- --------------------------------------------------------------------------------------------------------
Return Before Taxes 43.98% 1.74% 10.03%
- --------------------------------------------------------------------------------------------------------
41
- --------------------------------------------------------------------------------------------------------
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions1 43.98% 1.74% 7.72%
- --------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(1) 28.59% 1.49% 7.34%
- --------------------------------------------------------------------------------------------------------
Russell 2000 Index(2)
(reflects no deduction for fees, expenses or taxes) 47.25% 7.13% 9.48%
- --------------------------------------------------------------------------------------------------------
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after- tax returns depend on your situation and may
differ from those shown. Furthermore, the after-tax returns shown are not
relevant to those who hold their shares through tax-deferred arrangements
such as 401(k) plans or IRA accounts, or to investors that are tax-exempt.
(2) The Russell 2000 Index, an unmanaged index of 2,000 small capitalization
stocks, is for reference only and does not mirror the Fund's investments.
The most recent portfolio manager's discussion of the Safeco Fund's
performance is attached as Exhibit D.
The Funds' Fees and Expenses
Shareholders of both Funds pay various fees and expenses, either directly
or indirectly. The tables below show the fees and expenses that you would pay if
you were to buy and hold shares of each Fund. The expenses in the table
appearing below are based on (i) for your Safeco Fund, the expenses of your
Safeco Fund for its fiscal year ended December 31, 2003 and (ii) for the Pioneer
Growth Opportunities Fund, the estimated annual expenses of the Pioneer Growth
Opportunities Fund. The Pioneer Growth Opportunities Fund's actual expenses may
be greater or less.
Safeco Safeco
Growth Growth
Opportunities Opportunities
Fund Fund
Class A Class B
Shareholder transaction fees (paid directly from your investment) --------------- ---------------
Maximum sales charge (load) when you buy shares as a percentage
of offering price ................................................... 5.75%(6) None
Maximum deferred sales charge (load) as a percentage of purchase
price or the amount you receive when you sell shares, whichever
is less ............................................................. None 5.00%(7)
Redemption fees for shares held less than 30 days .................... 2.00% None
Wire redemption fee .................................................. $ 204 $ 204
Annual low balance fee ............................................... $ 12(5) $ 12(5)
Annual fund operating expenses (deducted from fund assets)
(as a % of average net assets)
Management fee ....................................................... 0.68% 0.68%
Distribution and service (12b-1) fee ................................. 0.25% 1.00%
Other expenses ....................................................... 1.45% 0.77%
Total fund operating expenses ........................................ 2.38% 2.45%
Expense reimbursement/reduction ...................................... 1.05%(2) 0.37%(2)
Net fund operating expenses .......................................... 1.33% 2.08%
Pro Forma
Pioneer
Safeco Safeco Growth
Growth Growth Opportunities
Opportunities Opportunities Fund
Fund Fund Investor
Class C Investor Class Class (9)
Shareholder transaction fees (paid directly from your investment) --------------- ---------------- --------------
Maximum sales charge (load) when you buy shares as a percentage
of offering price ................................................... None None None(1)
Maximum deferred sales charge (load) as a percentage of purchase
price or the amount you receive when you sell shares, whichever
is less ............................................................. 1.00%(8) None None
Redemption fees for shares held less than 30 days .................... None 2.00% None
Wire redemption fee .................................................. $ 204 $ 204 $ 10
Annual low balance fee ............................................... $ 12(5) $ 12(5) None
Annual fund operating expenses (deducted from fund assets)
(as a % of average net assets)
Management fee ....................................................... 0.68% 0.68% 0.65%
Distribution and service (12b-1) fee ................................. 1.00% None None
Other expenses ....................................................... 0.80% 0.46% 0.32%
Total fund operating expenses ........................................ 2.48% 1.14% 0.97%
Expense reimbursement/reduction ...................................... 0.40%(2) 0.06%(2) None(3)
Net fund operating expenses .......................................... 2.08% 1.08% 0.97%
- ----------
(1) No sales load will apply to shares received in the Reorganization by
shareholders of your Safeco Fund who become shareholders of record of
Pioneer Growth Opportunities Fund through the Reorganization. In addition,
shareholders of your Safeco Fund who own shares in their own name (i.e.,
not in the name of a broker or other intermediary) and maintain such
account as of the closing of the Reorganization may purchase Class A shares
of Pioneer Growth Opportunities Fund or of any fund in the Pioneer family
of funds through such account in the future without paying a sales charge.
(2) As described above, SAM had contractually agreed to reimburse Safeco Growth
Opportunities Fund for certain Fund operating expenses (but not all of the
operating expenses of the Fund) that exceeded the rate of 0.40% per annum
of the Fund's average daily net assets.
42
This arrangement included all fund operating expenses except management
fees, Rule 12b-1 fees, brokerage commissions, interest, and extraordinary
expenses.
(3) Pioneer has agreed that through the second anniversary of the closing of
the Reorganization, Pioneer will limit the expenses (excluding
extraordinary expenses) of the Investor Class shares of Pioneer Growth
Opportunities Fund to 1.05% of average daily net assets.
(4) There is a higher charge for international wire redemptions, which may vary
by country or dollar amount.
(5) A low balance fee is charged once in year in December for accounts with
balances under $1,000 in your Safeco Fund.
(6) Purchases of $1,000,000 or more of Class A shares of your Safeco Fund are
not subject to a front-end sales charge, but a 1.00% deferred sales charge
will apply to redemptions made in the first twelve months except with
respect to participant-directed redemptions from qualified retirement
plans.
(7) The contingent deferred sales charge on Class B shares of your Safeco Fund
reduces to zero after six years from purchase, and the Class B shares
convert to Class A shares at that time.
(8) The contingent deferred sales charge on Class C shares applies only to
redemptions made in the first twelve months after purchase.
(9) The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses
per share than Investor Class shares due to the Rule 12b-1 Plan. In
addition, although Pioneer has agreed to limit the expenses attributable to
Investor Class shares, Pioneer is not required to limit the expenses
attributable to Class A shares. Class A shares do not currently have an
expense limitation and may be subject to higher total operating expenses.
The hypothetical example below helps you compare the cost of investing in
each Fund. It assumes that: (a) you invest $10,000 in each Fund for the time
periods shown, (b) you reinvest all dividends and distributions, (c) your
investment has a 5% return each year, (d) each Fund's and Pioneer Growth
Opportunities Fund's gross operating expenses remain the same, (e) the expense
limitations are in effect for five years for Safeco Growth Opportunities Fund
and two years for Pioneer Growth Opportunities Fund and (f) and the Investor
Class shares of Pioneer Growth Opportunities Fund convert to Class A shares
after two years. The examples are for comparison purposes only and are not a
representation of either Fund's actual expenses or returns, either past or
future.
Example
Safeco Growth Opportunities Fund
Class A Shares
Year 1 .............. $ 703
Year 3 .............. $ 972
Year 5 .............. $1,262
Year 10 ............. $2,696
With Without
Class B Shares redemption redemption
Year 1 .............. $ 711 $ 211
Year 3 .............. $ 952 $ 652
Year 5 .............. $ 1,319 $ 1,119
Year 10 ............. $ 2,593 $ 2,593
With Without
Class C Shares redemption redemption
Year 1 .............. $ 311 $ 211
Year 3 .............. $ 652 $ 652
Year 5 .............. $ 1,119 $ 1,119
Year 10 ............. $ 2,644 $ 2,644
Investor Class Shares
Year 1 .............. $ 110
Year 3 .............. $ 343
Year 5 .............. $ 595
Year 10 ............. $1,356
43
Pro Forma Pioneer Growth Opportunities Fund
Investor Class Shares
Year 1 .................................... $ 99
Year 3 .................................... $ 344
Year 5 .................................... $ 645
Year 10 ................................... $1,499
Reasons for the Proposed Reorganization
The Trustees believe that the proposed Reorganization is in the best
interests of Safeco Growth Opportunities Fund. The Trustees considered the
following matters, among others, in approving the proposal.
First, SAM, the investment adviser to the Safeco Fund until August 2, 2004,
was acquired by Symetra. Symetra informed the Trustees that it did not intend to
continue to provide investment advisory services to the Safeco Funds.
Consequently, a change in your Safeco Fund's investment adviser was necessary.
Second, the resources of Pioneer. At June 30, 2004, Pioneer managed over 62
investment companies and accounts with approximately $35 billion in assets.
Pioneer is part of the global asset management group of UniCredito Italiano
S.p.A., one of the largest banking groups in Italy, providing investment
management and financial services to mutual funds, institutions and other
clients. As of June 30, 2004, assets under management of UniCredito Italiano
S.p.A. were approximately $151 billion worldwide. Shareholders of your Safeco
Fund would become part of a significantly larger family of funds that offers a
more diverse array of investment options and enhanced shareholder account
options. The Pioneer family of mutual funds offers over 62 funds, including
domestic and international equity and fixed income funds and a money market fund
that will be available to your Safeco Fund's shareholders through exchanges. In
addition, Pioneer offers shareholders additional options for their accounts,
including the ability to transact and exchange shares over the telephone or
online and the ability to access account values and transaction history in all
of the shareholder's direct accounts in the Pioneer Funds over the telephone or
online.
Third, Pioneer's commitment until the second anniversary of the
Reorganization to limit the expenses (excluding extraordinary expenses) of the
Investor Class of Pioneer Growth Opportunities Fund to 1.05% of average daily
net assets. This expense ratio is no higher than both the gross expenses and
expenses net of expense reimbursement of the Investor Class shares of your
Safeco Fund. Although you will experience higher expenses once the Investor
Class shares convert to Class A shares after two years, your expenses will
remain the same until the second anniversary of the Reorganization.
Fourth, shareholders who own shares in their name as of the closing of the
Reorganization (i.e., not in the name of a broker or other intermediary) and
maintain their account may purchase additional Class A shares of the
corresponding Pioneer Fund through such account in the future or may exchange
those shares for Class A shares of another Pioneer Fund or purchase Class A
share of another Pioneer Fund without paying any sales charge.
Fifth, the Investor Class shares of Pioneer Growth Opportunities Fund
received in the Reorganization will provide Safeco Growth Opportunities Fund
shareholders with exposure to substantially the same investment product as they
currently have.
Pioneer and Symetra will pay all out of pocket expenses of the Safeco Funds
and the Pioneer Funds associated with the Reorganizations, including, but not
limited to: (1) the expenses associated with the preparation, printing and
mailing of any shareholder communications, including this joint Proxy
Statement/Prospectus, and any filings with the SEC and other governmental
authorities in connection with the Reorganizations; (2) the fees and expenses of
any proxy solicitation firm retained in connection with the Reorganizations; (3)
the legal fees and expenses incurred by the Safeco Funds in connection with the
Reorganizations; and (4) the Trustees' fees and out of pocket expenses incurred
as a result of the Reorganizations.
The Trustees also considered that Pioneer and Symetra will benefit from the
Reorganization. See "Certain Agreements between Pioneer and Symetra."
The Trustees of Pioneer Growth Opportunities Fund also considered that the
Reorganization presents an excellent opportunity for the Pioneer Growth
Opportunities Fund to acquire investment assets without the obligation to pay
commissions or other transaction costs that a fund normally incurs when
purchasing securities. This opportunity provides an economic benefit to Pioneer
Growth Opportunities Fund and its shareholders.
44
CAPITALIZATION
The following table sets forth the capitalization of each Fund, as of
September 30, 2004, and the pro forma combined Fund as of September 30, 2004.
Pro Forma
Safeco Growth Pioneer Growth Pioneer Growth
Opportunities Fund Opportunities Fund Opportunities Fund
September 30, 2004 September 30, 2004 September 30, 2004
-------------------- -------------------- -------------------
Total Net Assets (in thousands) $515,288 N/A $515,288
Class A shares ................ $ 29,032 N/A N/A
Class B shares ................ $ 7,301 N/A N/A
Class C shares ................ $ 221 N/A N/A
Investor Class shares ......... $478,733 N/A $515,288
Net Asset Value Per Share
Class A shares ................ $ 26.42 N/A N/A
Class B shares ................ $ 24.84 N/A N/A
Class C shares ................ $ 24.84 N/A N/A
Investor Class shares ......... $ 26.88 N/A $ 26.88
Shares Outstanding
Class A shares ................ 1,098,917 N/A N/A
Class B shares ................ 293,942 N/A N/A
Class C shares ................ 8,913 N/A N/A
Investor Class shares ......... 17,810,634 N/A 19,169,940
It is impossible to predict how many shares of Pioneer Growth Opportunities
Fund will actually be received and distributed by your Safeco Fund on the
Reorganization date. The table should not be relied upon to determine the amount
of Pioneer Growth Opportunities Fund's shares that will actually be received and
distributed.
BOARD'S EVALUATION AND RECOMMENDATION
For the reasons described above, the Trustees, including the Independent
Trustees, approved the Reorganization. In particular, the Trustees determined
that the Reorganization is in the best interests of your Safeco Fund. Similarly,
the Board of Trustees of Pioneer Growth Opportunities Fund, including its
Independent Trustees, approved the Reorganization. They also determined that the
Reorganization is in the best interests of Pioneer Growth Opportunities Fund.
The Trustees recommend that the shareholders of your Safeco Fund vote FOR
the proposal to approve the Agreement and Plan of Reorganization.
45
Safeco International Stock Fund and
Pioneer International Equity Fund
PROPOSAL 1(d)
Approval of Agreement and Plan of Reorganization
SUMMARY
The following is a summary of more complete information appearing later in
this Proxy Statement/Prospectus or incorporated herein. You should read
carefully the entire proxy statement, including the form of Agreement and Plan
of Reorganization attached as EXHIBIT A-1 because they contain details that are
not in the summary.
The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses per
share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor Class
shares, Pioneer is not required to limit the expenses attributable to Class A
shares.
In the table below, if a row extends across the entire table, the policy
disclosed applies to both your Safeco Fund and the Pioneer Fund.
Comparison of Safeco International Stock Fund to the Pioneer International
Equity Fund
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Safeco International Stock Fund Pioneer International Equity Fund
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Business A series of Safeco Common Stock Trust, A diversified open-end management
a diversified open-end management investment company registered under the
investment company organized as a Investment Company Act and organized as
Delaware statutory trust. a Delaware statutory trust.
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets as of $37 million $36 million
June 30, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
Investment advisers and Investment adviser (until August 2, 2004): Investment adviser:
portfolio managers SAM Pioneer
Investment sub-advisor (until August 2, 2004): Portfolio Manager:
Bank of Ireland Asset Management Limited Christopher Smart. Mr. Smart is supported by
("Sub-adviser") a team of portfolio managers and analysts.
Portfolio Managers (until August 2, 2004): The Mr. Smart, Senior Vice President and Director
Fund is managed by a committee of portfolio of International Investments, joined Pioneer in
managers at the Sub-adviser who are jointly 1995 as Director of Research of Pioneer First
and primarily responsible for the day-to-day Investments, Moscow, Russia.
management of the Fund.
Currently Pioneer is acting as investment
adviser to Safeco International Stock Fund. The
Portfolio Manager of the Pioneer International
Equity Fund, as indicated in the next column,
currently manages your Safeco Fund.
- ------------------------------------------------------------------------------------------------------------------------------------
Primary investments Under normal market conditions, Safeco Under normal market conditions, at least
International Stock Fund invests at least 80% of total assets (plus any borrowings for
80% of net assets (plus any borrowings for investment purposes) are invested in equity
investment purposes) in stocks and at least securities of non-U.S. issuers.
65% of its assets in securities issued by
companies domiciled in countries other than
the United States.
- ------------------------------------------------------------------------------------------------------------------------------------
46
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Safeco International Stock Fund Pioneer International Equity Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Investment strategies Safeco International Stock Fund uses a "value" Pioneer International Equity Fund uses a
style of management. The sub-adviser that balanced growth-value style of management
historically managed the Fund focused on and seeks to invest in issuers with above
companies that are well established with a average potential for earnings and revenue
durable business model and proven track growth that are also trading at attractive
record of delivering earnings and dividends; market valuations.
undervalued relative to their intrinsic value
and/or future growth potential; undervalued
when compared to their historic valuations,
to competitors, or to companies with similar
growth records; and liquid and readily traded
on established foreign exchanges.
- ------------------------------------------------------------------------------------------------------------------------------------
Other investments Pioneer International Equity Fund may
invest up to 20% of its total assets in debt
securities, cash and cash equivalents.
Generally the Fund acquires debt securities
that are investment grade, but the Fund may
invest up to 5% of its net assets in below
investment grade convertible debt securities.
- ------------------------------------------------------------------------------------------------------------------------------------
Temporary defensive Safeco International Stock Fund may purchase Pioneer International Equity Fund may invest
strategies as temporary investments for its cash: all or part of its assets in securities with
commercial paper; certificates of deposit; remaining maturities of less than one year,
shares of no-load, open-end money market cash equivalents or may hold cash.
funds; repurchase agreements (subject to
restrictions on the Fund's investment in illiquid
securities), and other short-term investments.
- ------------------------------------------------------------------------------------------------------------------------------------
Diversification Each Fund is diversified for the purpose of the Investment Company Act and each Fund is
subject to diversification requirements under the Code.
- ------------------------------------------------------------------------------------------------------------------------------------
Industry concentration Each Fund may not invest more than 25% of its assets in any one industry.
- ------------------------------------------------------------------------------------------------------------------------------------
Restricted and illiquid If immediately after and as a result of such Pioneer International Equity Fund may not
securities action the value of the following securities, invest more than 15% of its net assets in
in the aggregate, would exceed 15% of securities which are illiquid and other
the Fund's net assets, the Fund will not securities which are not readily marketable.
(i) purchase securities for which there is no
readily available market, (ii) purchase time
deposits maturing in more than seven days,
(iii) purchase over-the-counter (OTC) options
or hold assets set aside to cover OTC options
written by the Fund, (iv) enter into repurchase
agreements maturing in more than seven
days, or (v) invest in interests in real estate
investment trusts which are not readily
marketable or interests in real estate limited
partnerships which are not listed or traded on
the NASDAQ Stock Market.
- ------------------------------------------------------------------------------------------------------------------------------------
47
- ------------------------------------------------------------------------------------------------------------------------------------
Safeco International Stock Fund Pioneer International Equity Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Safeco International Stock Fund may borrow Pioneer International Equity Fund may
money (i) from banks or (ii) by engaging in not borrow money, except the Fund may:
reverse repurchase agreements. (a) borrow from banks or through reverse
repurchase agreements in an amount up to
33 1/3% of the Fund's total assets (including
the amount borrowed); (b) to the extent
permitted by applicable law, borrow up to
an additional 5% of the Fund's assets for
temporary purposes; (c) obtain such
short-term credits as are necessary for
the clearance of portfolio transactions;
(d) purchase securities on margin to the
extent permitted by applicable law; and
(e) engage in transactions in mortgage dollar
rolls that are accounted for as financings.
- ------------------------------------------------------------------------------------------------------------------------------------
Lending Safeco International Stock Fund may lend Pioneer International Equity Fund may lend
securities to qualified institutional investors portfolio securities with a value that may not
with a value of up to 33% of the Fund's exceed 33 1/3% of the value of its assets.
total assets.
- ------------------------------------------------------------------------------------------------------------------------------------
Derivative instruments Safeco International Stock Fund may write Pioneer International Equity Fund may use
put or call options if, as a result thereof, the futures and options on securities, indices
aggregate value of the assets underlying all and currencies, forward currency exchange
such options do not exceed 20% of the Fund's contracts and other derivatives. The Fund
net assets. does not use derivatives as a primary
investment technique and generally limits
Safeco International Stock Fund may also their use to hedging. However, the Fund may
purchase put or call options or options on use derivatives for a variety of non-principal
futures contracts if, as a result thereof, the purposes, including:
aggregate premiums paid on all options or
options on futures contracts held by the Fund o As a hedge against adverse changes
do not exceed 20% of the Fund's net assets. in stock market prices, interest rates
or currency exchange rates
Safeco International Stock Fund may enter into
any futures contracts or options on futures o As a substitute for purchasing or
contracts if, as a result thereof, the aggregate selling securities
margin deposits and premiums required on all
such instruments do not exceed 5% of the o To increase the Fund's return as a
Fund's net assets. non-hedging strategy that may be
considered speculative
Safeco International Stock Fund may not
purchase securities on margin. However, the
Fund may (i) obtain short-term credits as
necessary to clear its purchases and sales of
securities, and (ii) make margin deposits in
connection with its use of financial options and
futures, forward and spot currency contracts,
swap transactions and other financial contracts
or derivative instruments.
- ------------------------------------------------------------------------------------------------------------------------------------
48
- ------------------------------------------------------------------------------------------------------------------------------------
Safeco International Stock Fund Pioneer International Equity Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Other investment policies and As described above, the Funds have substantially similar principal investment strategies and
restrictions policies. Certain of the non-principal investment policies and restrictions are different. For a
more complete discussion of each Fund's other investment policies and fundamental and
non-fundamental investment restrictions, see the SAI.
- ------------------------------------------------------------------------------------------------------------------------------------
Buying, Selling and Exchanging Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Sales charges Purchases under $1,000,000 of Class A shares The Investor Class shares of Pioneer
of Safeco International Stock Fund are subject International Equity Fund you receive in the
to a 5.75% front-end sales charge. Reorganization will not be subject to any
sales charge. Moreover, if you own shares
Contingent deferred sales charge of up to 5% in your own name as of the closing of the
if you redeem Class B shares within six years Reorganization (i.e., not in the name of a
of purchase. broker or other intermediary) and maintain
your account, you may purchase Class A
Contingent deferred sales charge of 1% if you shares of Pioneer International Equity Fund
redeem Class C share within one year of and Class A shares of any fund in the Pioneer
purchase. family of funds through such account in the
future without paying any sales charge.
Purchases of Investor Class shares of Safeco
International Stock Fund are not subject to a Except as described above, Class A shares of
sales load. Pioneer International Equity Fund are subject
to a front-end sales charge of up to 5.75%.
Safeco International Stock Fund assesses a
mandatory redemption fee of 2%, as a
percentage of the amount redeemed or
exchanged, on Class A and Investor Class
shares held less than 30 days.
- ------------------------------------------------------------------------------------------------------------------------------------
49
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Safeco International Stock Fund Pioneer International Equity Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Management and other fees Safeco International Stock Fund pays an Pioneer International Equity Fund pays Pioneer
advisory fee on a monthly basis at an annual a management fee equal to Pioneer's annual
rate as follows: fee is equal to:
$0-$250,000,000: 1.00 of 1%
$250,000,001-$750,000,000: 0.90 of 1% 1.00% of average daily net assets up to
Over $750,000,000: 0.80 of 1% $300 million;
0.85% of the next $200 million;
SAM serves as administrator and fund 0.75% on assets over $500 million.
accounting agent for Safeco International Stock
Fund. The Fund pays SAM an administrative During its most recent fiscal year, Pioneer
services fee of 0.05% of the Fund's average International Equity Fund paid an advisory fee
daily net assets up to the first $200,000,000 at an average rate of 1.00% of average daily
and 0.01% of its net assets thereafter, and an net assets.
accounting fee of 0.04% of the Fund's average
daily net assets up to the first $200,000,000 In addition, Pioneer International Equity
and 0.01% of its net assets thereafter. Fund reimburses Pioneer for certain fund
accounting and legal expenses incurred
During its most recent fiscal year, Safeco on behalf of the Fund and pays a separate
International Stock Fund paid aggregate shareholder servicing/transfer agency fee to
advisory and administration fees at an average PIMSS, an affiliate of Pioneer.
rate of 1.09% of average daily net assets.
For the fiscal year ended March 31, 2004,
SAM had contractually agreed until April 30, Pioneer International Equity Fund's total
2009, to pay certain fund operating expenses annual operating expenses for Class A shares
(but not all of the operating expenses of the were 2.80%. Pursuant to an expense limitation
Safeco International Stock Fund) that exceeded agreement in effect until August 31, 2005, the
the rate of 0.40% per annum of the Fund's net expenses for Class A shares were 1.75%.
average daily net assets. This arrangement There can be no assurance that Pioneer will
included all Fund operating expenses except extend the expense limitation for its Class A
management fees, Rule 12b-1 fees, shares after August 31, 2005.
brokerage commissions, interest, and
extraordinary expenses. Pioneer has agreed until the second
anniversary of the closing of the
For the fiscal year ended December 31, 2003, Reorganization to limit the expenses
Safeco International Stock Fund's annual (excluding extraordinary expenses) of the
operating expenses for the Class A shares, Investor Class to 1.40% of the average daily
after giving effect to the expense limitation net assets attributable to the Investor Class.
were 1.65%, and without giving effect to the
expense limitation, were 2.49%. The Investor Class shares to be issued in the
Reorganization will convert to Class A shares
For the fiscal year ended December 31, 2003, after two years. Class A shares will have
Safeco International Stock Fund's annual higher expenses per share than Investor
operating expenses for the Class B shares, Class shares due to the Rule 12b-1 Plan. In
after giving effect to the expense limitation addition, although Pioneer has agreed to limit
were 2.40%, and without giving effect to the the expenses attributable to Investor Class
expense limitation, were 4.16%. shares, Pioneer is not required to extend the
current expense limitation agreement for its
For the fiscal year ended December 31, 2003, Class A shares after August 31, 2005.
Safeco International Stock Fund's annual
operating expenses for the Advisor Class C
shares, after giving effect to the expense
limitation were 2.40%, and without giving
effect to the expense limitation, were 3.29%.
- ------------------------------------------------------------------------------------------------------------------------------
50
- ------------------------------------------------------------------------------------------------------------------------------------
Safeco International Stock Fund Pioneer International Equity Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Management and other fees For the fiscal year ended December 31, 2003,
(continued) Safeco International Stock Fund's annual net
operating expenses for the Institutional Class
shares, after giving effect to the contractual
expense limitation were 1.40%, and without
giving effect to the expense limitation were
2.43%. Beginning in 2003, SAM also began
voluntarily reimbursing all expenses of the
Institutional Class that exceeded 1.10%.
For the fiscal year ended December 31, 2003,
Safeco International Stock Fund's annual
operating expenses for the Investor Class,
after giving effect to the expense limitation
were 1.40%, and without giving effect to the
expense limitation, were 2.19%.
- ------------------------------------------------------------------------------------------------------------------------------------
Distribution and service Investor Class shares of each Fund are not subject to a Rule 12b-1 fee. Pioneer Investor Class
(12b-1) fee shares will convert into Class A shares after two years. Class A shares of each Fund are subject
to a Rule 12b-1 fee equal to 0.25% annually of average daily net assets.
- ------------------------------------------------------------------------------------------------------------------------------------
Buying shares You may buy shares of Safeco International You may buy shares from any investment firm
Stock Fund directly through Safeco Securities, that has a sales agreement with PFD, Pioneer
the Fund's principal underwriter or through International Equity Fund's distributor. Existing
brokers, registered investment advisers, banks shareholders of Safeco International Stock
and other financial institutions that have Fund who own shares in their own name as
entered into selling agreements with the Fund's of the closing date of the Reorganization and
principal underwriter, as described in the who maintain their accounts may buy shares
Fund's prospectus. of any Fund in the Pioneer family of funds
through such accounts in the future without
Institutional Class shares have a minimum paying sales charges.
investment amount of $250,000.
If the account is established in the
Certain account transactions may be done shareholder's own name, shareholders may
by telephone.
also purchase additional shares of Pioneer
International Equity Fund by telephone
or online.
- ------------------------------------------------------------------------------------------------------------------------------------
Exchange privilege There are no sales charges on shares you You may exchange shares of Pioneer
acquire through dividend reinvestment or other International Equity Fund without incurring any
fund distributions or for shares that you have fee on the exchange with the more than 62
exchanged for equivalent shares of another other Pioneer Funds. Your exchange would be
Fund. A 2% redemption fee will be assessed for Class A shares, which would be subject to
on the value of exchanged shares that are held Rule 12b-1 fees. An exchange generally is
less than 30 days in the Safeco International treated as a sale and a new purchase of
Stock Fund. shares for federal income tax purposes.
Certain account transactions may be done If the account is established in the
by telephone. shareholder's own name, shareholders may
also exchange shares of Pioneer International
Equity Fund for shares of other Pioneer Funds
by telephone or online.
- ------------------------------------------------------------------------------------------------------------------------------------
51
- ------------------------------------------------------------------------------------------------------------------------------------
Safeco International Stock Fund Pioneer International Equity Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Selling shares Each class of shares will be sold at the net asset value per share next calculated after the
Fund receives your request in good order.
- ------------------------------------------------------------------------------------------------------------------------------------
You may sell your shares by contacting the Normally, your investment firm will send
Fund directly in writing or by contacting a your request to sell shares to PIMSS. You
financial intermediary as described in the can also sell your shares by contacting the
Safeco International Stock Fund's prospectus. Fund directly if your account is registered in
your name.
If the account is established in the
shareholder's own name, shareholders may
also redeem shares of Pioneer International
Equity Fund by telephone or online.
- ------------------------------------------------------------------------------------------------------------------------------------
Comparison of Principal Risks of Investing in the Funds
Because each Fund has a similar investment objective, primary investment
policies and strategies, the Funds are subject to the same principal risks. You
could lose money on your investment in either Fund or not make as much as if you
invested elsewhere if:
o The non-U.S. stock markets go down or perform poorly relative to other
investments (this risk may be greater in the short term)
o Equity securities of non-U.S. issuers or growth stocks fall out of
favor with investors
o The Fund's investments do not have the growth potential originally
expected
Investing in non-U.S. issuers may involve unique risks compared to
investing in securities of U.S. issuers. Some of these risks do not apply to
larger, more developed markets. These risks are more pronounced to the extent
the Fund invests in issuers in countries with emerging markets or if the fund
invests significantly in one country. These risks may include:
o Less information about non-U.S. issuers or markets may be available
due to less rigorous disclosure or accounting standards or regulatory
practices
o Many non-U.S. markets are smaller, less liquid and more volatile. In a
changing market, Pioneer may not be able to sell the Fund's portfolio
securities at times, in amounts and at prices it considers reasonable
o Adverse effect of currency exchange rates or controls on the value of
the Fund's investments
o The economies of non-U.S. countries may grow at slower rates than
expected or may experience a downturn or recession
o Economic, political and social developments may adversely affect the
securities markets
o Withholding and other non-U.S. taxes may decrease the Fund's return
Investments in the Funds are not bank deposits and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. You could lose money by investing in either Fund.
The Investor Class Shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses per
share than Investor Class Shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor Class
shares, Pioneer is not required to limit the expenses attributable to Class A
shares. The current expense limitation agreement for Class A shares is in effect
until August 31, 2005. There can be no assurance that Pioneer will extend the
expense limitation agreement for its Class A shares after August 31, 2005.
52
Past Performance
Set forth below is performance information for each Fund. The bar charts
show how each Fund's total return (not including any deduction for sales
charges) has varied from year to year for each full calendar year. The tables
show average annual total return (before and after taxes) for each Fund over
time for each class of shares (including deductions for sales charges) compared
with a broad-based securities market index. The bar charts give an indication of
the risks of investing in each Fund, including the fact that you could incur a
loss and experience volatility of returns year to year. Past performance before
and after taxes does not indicate future results.
Safeco International Stock Fund -- Investor Class
Calendar Year Total Returns*
[DATA BELOW IS REPRESENTED BY A BAR CHART IN THE ORIGINAL REPORT]
'97 '98 '99 '00 '01 '02 '03
4.55 14.26 29.00 -10.95 -24.30 -19.12 27.74
* During the period shown in the bar chart, your Safeco Fund's highest
quarterly return was 19.79% for the quarter ended December 31, 1999, and
the lowest quarterly return was -21.14% for the quarter ended September 30,
2002.
Pioneer International Equity Fund -- Class A Shares
Calendar Year Total Returns*
[DATA BELOW IS REPRESENTED BY A BAR CHART IN THE ORIGINAL REPORT]
'97 '98 '99 '00 '01 '02 '03
5.81 7.40 41.19 -17.87 -19.28 -19.61 32.29
* During the period shown in the bar chart, since the Fund's inception on
October 31, 1996, Pioneer International Equity Fund's highest quarterly
return was 29.50% for the quarter ended December 31, 1999, and the lowest
quarterly return was -21.25% for the quarter ended September 30, 2002.
53
Safeco International Stock Fund*
Average Annual Total Returns as of December 31, 2003
- ------------------------------------------------------------------------------------------------------------
Since
1 Year 5 Years Inception(1)
- ------------------------------------------------------------------------------------------------------------
Safeco International Stock Fund, Class A Shares*
- ------------------------------------------------------------------------------------------------------------
Return Before Taxes 20.18% -3.53% 1.56%
- ------------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(2) 19.98% -4.02% 1.08%
- ------------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(2) 13.39% -3.14% 1.12%
- ------------------------------------------------------------------------------------------------------------
Safeco International Stock Fund, Class B Shares*
- ------------------------------------------------------------------------------------------------------------
Return Before Taxes 21.41% -3.49% 1.71%
- ------------------------------------------------------------------------------------------------------------
Safeco International Stock Fund, Class C Shares*
- ------------------------------------------------------------------------------------------------------------
Return Before Taxes 25.38% -3.15% 1.57%
- ------------------------------------------------------------------------------------------------------------
Safeco International Stock Fund, Institutional Class Shares
- ------------------------------------------------------------------------------------------------------------
Return Before Taxes 27.99% -2.07% 2.64%
- ------------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(2) 27.74% -2.56% 2.13%
- ------------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(2) 18.19% -1.92% 2.04%
- ------------------------------------------------------------------------------------------------------------
Safeco International Stock Fund, Investor Class Shares
- ------------------------------------------------------------------------------------------------------------
Return Before Taxes 27.74% -2.11% 2.61%
- ------------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(2) 27.51% -2.60% 2.11%
- ------------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(2) 18.34% -1.93% 2.03%
- ------------------------------------------------------------------------------------------------------------
MSCI EAFE Index(3)
(reflects no deduction for fees, expenses or taxes) 38.59% -0.05% 3.29%
- ------------------------------------------------------------------------------------------------------------
* Returns for Class A, Class B and Class C shares have not been restated to
reflect Rule 12b-1 fees prior to September 30, 1996, and would be lower if
they were.
(1) The Fund commenced operations on January 31, 1996.
(2) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on your situation and may
differ from those shown. Furthermore, the after-tax returns shown are not
relevant to those who hold their shares through tax-deferred arrangements
such as 401(k) plans or IRA accounts, or to investors that are tax-exempt.
(3) The MSCI EAFE Index (Morgan Stanley Capital International Europe,
Australasia, Far East Index), an unmanaged index comprised of 21 developed
equity markets outside of North America, is for reference only and does not
mirror the Fund's investments.
54
Pioneer International Equity Fund -- Class A Shares
Average Annual Total Returns as of December 31, 2003
- ------------------------------------------------------------------------------------------------------------
Since
1 Year 5 Years Inception(1)
- ------------------------------------------------------------------------------------------------------------
Pioneer International Equity Fund, Class A Shares
- ------------------------------------------------------------------------------------------------------------
Return Before Taxes 24.69% -1.27% 1.98%
- ------------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(2) 24.69% -1.54% 1.71%
- ------------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(2) 16.05% -1.12% 1.62%
- ------------------------------------------------------------------------------------------------------------
MSCI EAFE Index(3)
(reflects no deduction for fees, expenses or taxes) 38.59% -0.05% 3.56%
- ------------------------------------------------------------------------------------------------------------
(1) The Fund commenced operations on October 31, 1996.
(2) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on your situation and may
differ from those shown. Furthermore, the after-tax returns shown are not
relevant to those who hold their shares through tax-deferred arrangements
such as 401(k) plans or IRA accounts, or to investors that are tax-exempt.
(3) The MSCI EAFE Index (Morgan Stanley Capital International Europe,
Australasia, Far East Index), an unmanaged index comprised of 21 developed
equity markets outside of North America, is for reference only, does not
mirror the Fund's investments, includes reinvested dividends net of tax
withholding, and reflects no deduction of fees or expenses.
Pioneer International Equity Fund's Investor Class shares will not be
outstanding prior to the closing of the Reorganization and consequently have no
performance history. However, the performance record of the Investor Class would
be modestly higher than the performance of Class A shares due to the lower
expenses applicable to the Investor Class.
The most recent portfolio manager's discussion of each Fund's performance
is attached as Exhibit D.
55
The Funds' Fees and Expenses
Shareholders of both Funds pay various fees and expenses, either directly
or indirectly. The tables below show the fees and expenses that you would pay if
you were to buy and hold shares of each Fund. The expenses in the tables
appearing below are based on (i) for your Safeco Fund, the expenses of your
Safeco Fund for the period ended December 31, 2003 and (ii) for Pioneer
International Equity Fund, the expenses of Pioneer International Equity Fund for
the period ended December 31, 2003. Future expenses for all share classes may be
greater or less.
Safeco Safeco Safeco
International International International
Stock Fund Stock Fund Stock Fund
Shareholder transaction fees Class A Class B Class C
(paid directly from your investment) --------------- --------------- ---------------
Maximum sales charge (load) when you buy shares
as a percentage of offering price ....................... 5.75%(6) None None
Maximum deferred sales charge (load) as a
percentage of purchase price or the amount you
receive when you sell shares, whichever is less ......... None 5.00%(7) 1.00%(8)
Redemption fees for shares held less than 30 days ........ 2.00% None None
Wire redemption fee ...................................... $ 20(4) $ 20(4) $ 20(4)
Annual low balance fee ................................... $ 12(5) $ 12(5) $ 12(5)
Annual fund operating expenses
(deducted from fund assets)
(as a percentage of average net assets)
Management fee ........................................... 1.00% 1.00% 1.00%
Distribution and service (12b-1) fee ..................... 0.25% 1.00% 1.00%
Other expenses ........................................... 1.24% 2.16% 1.29%
Total fund operating expenses ............................ 2.49% 4.16% 3.29%
Expense reimbursement/reduction .......................... 0.84%(2) 1.76%2 0.89%(2)
Net fund operating expenses .............................. 1.65% 2.40% 2.40%
Pro Forma
Safeco Safeco Pioneer
International Stock International International
Fund Institutional Stock Fund Equity Fund
Shareholder transaction fees Class Investor Class Investor Class(9)
(paid directly from your investment) --------------------- ---------------- ----------------
Maximum sales charge (load) when you buy shares
as a percentage of offering price ....................... None None None(1)
Maximum deferred sales charge (load) as a
percentage of purchase price or the amount you
receive when you sell shares, whichever is less ......... None None None
Redemption fees for shares held less than 30 days ........ 2.00% 2.00% 2.00%
Wire redemption fee ...................................... $ 20(4) $ 20(4) $ 10
Annual low balance fee ................................... $ 12(5) $ 12(5) N/A
Annual fund operating expenses
(deducted from fund assets)
(as a percentage of average net assets)
Management fee ........................................... 1.00% 1.00% 1.00%
Distribution and service (12b-1) fee ..................... None None None
Other expenses ........................................... 1.43% 1.19% 0.76%
Total fund operating expenses ............................ 2.43% 2.19% 1.76%
Expense reimbursement/reduction .......................... 1.03%(2) 0.79%(2) 0.36%(3)
Net fund operating expenses .............................. 1.40% 1.40% 1.40%
- ----------
(1) No sales load will apply to shares received in the Reorganization by
shareholders of your Safeco Fund who become shareholders of record of
Pioneer International Equity Fund through the Reorganization. In addition,
shareholders of your Safeco Fund who own shares in their own name (i.e.,
not in the name of a broker or other intermediary) and maintain such
account as of the closing of the Reorganization may purchase Class A shares
of Pioneer International Equity Fund or of any fund in the Pioneer family
of funds through such account in the future without paying a sales charge.
(2) As described above, SAM had contractually agreed to reimburse Safeco
International Stock Fund for certain Fund operating expenses (but not all
of the operating expenses of the Fund) that exceeded the rate of 0.40% per
annum of the Fund's average daily net assets. This arrangement included all
fund operating expenses except management fees, Rule 12b-1 fees, brokerage
commissions, interest, and extraordinary expenses. In 2003, SAM
additionally began voluntarily reimbursing the Fund to the extent that the
total expenses of the Institutional Class exceeded the rate of 1.10% per
annum of the Fund's average daily net assets for Institutional Class. The
above table reflects "contractual" expense reimbursements from SAM, if any,
but does not reflect "voluntary" expense reimbursements by SAM.
(3) Pioneer has agreed that through the second anniversary of the closing of
the Reorganization, Pioneer will limit the expenses (excluding
extraordinary expenses) of the Investor Class shares of Pioneer
International Equity Fund to 1.40% of average daily net assets.
(4) There is a higher charge for international wire redemptions, which may vary
by country or dollar amount.
(5) A low balance fee is charged once each year in December for accounts with
balances under $1,000 in your Safeco Fund.
(6) Purchases of $1,000,000 or more of Class A shares of your Safeco Fund are
not subject to a front-end sales charge, but a 1.00% deferred sales charge
will apply to redemptions mad in the first twelve months except with
respect to participant-directed redemptions from qualified retirement
plans.
(7) The contingent deferred sales charge on Class B shares of your Safeco Fund
reduces to zero after six years from purchase, and the Class B shares
covert to Class A shares at that time.
(8) The contingent deferred sales charge on Class C shares applies only to
redemptions made in the first twelve months after purchase.
56
The hypothetical example below helps you compare the cost of investing in
each Fund. It assumes that: (a) you invest $10,000 in each Fund for the time
periods shown, (b) you reinvest all dividends and distributions, (c) your
investment has a 5% return each year, (d) each Fund's gross operating expenses
remain the same, (e) the expense limitations are in effect for five years for
Safeco International Stock Fund and two years for Pioneer International Equity
Fund and (f) and the Investor Class shares of Pioneer International Equity Fund
convert to Class A shares after two years, without giving effect to any expense
limitation upon conversion. The examples are for comparison purposes only and
are not a representation of either Fund's actual expenses or returns, either
past or future.
Example
Safeco International Stock Fund
Class A Shares
Year 1 ................... $ 733
Year 3 ................... $1,065
Year 5 ................... $1,420
Year 10 .................. $2,893
With Without
Class B Shares Redemption Redemption
Year 1 ................... $ 743 $ 243
Year 3 ................... $ 1,048 $ 748
Year 5 ................... $ 1,480 $ 1,280
Year 10 .................. $ 2,956 $ 2,956
With Without
Class C Shares Redemption Redemption
Year 1 ................... $ 343 $ 243
Year 3 ................... $ 748 $ 748
Year 5 ................... $ 1,280 $ 1,280
Year 10 .................. $ 3,232 $ 3,232
Institutional Class Shares
Year 1 ................... $ 143
Year 3 ................... $ 443
Year 5 ................... $ 766
Year 10 .................. $2,168
Investor Class Shares
Year 1 ................... $ 143
Year 3 ................... $ 443
Year 5 ................... $ 766
Year 10 .................. $2,168
Pro Forma Pioneer International Equity Fund
Investor Class Shares
Year 1 ................... $ 143
Year 3 ................... $ 565
Year 5 ................... $1,134
Year 10 .................. $2,686
57
Reasons for the Proposed Reorganization
The Trustees believe that the proposed Reorganization is in the best
interests of Safeco International Stock Fund. The Trustees considered the
following matters, among others, in approving the proposal.
First, SAM, the investment adviser to the Safeco Fund until August 2, 2004,
was acquired by Symetra. Symetra informed the Trustees that it did not intend to
continue to provide investment advisory services to the Safeco Funds.
Consequently, a change in your Safeco Fund's investment management was
necessary.
Second, the resources of Pioneer. At June 30, 2004, Pioneer managed over 62
investment companies and accounts with approximately $35 billion in assets.
Pioneer is part of the global asset management group of UniCredito Italiano
S.p.A., one of the largest banking groups in Italy, providing investment
management and financial services to mutual funds, institutions and other
clients. As of June 30, 2004, assets under management of UniCredito Italiano
S.p.A. were approximately $151 billion worldwide. Shareholders of your Safeco
Fund would become part of a significantly larger family of funds that offers a
more diverse array of investment options and enhanced shareholder account
options. The Pioneer family of mutual funds offers over 62 funds, including
domestic and international equity and fixed income funds and a money market fund
that will be available to your Safeco Fund's shareholders through exchanges. In
addition, Pioneer offers shareholders additional options for their accounts,
including the ability to transact and exchange shares over the telephone or
online and the ability to access account values and transaction history in all
of the shareholder's direct accounts in the Pioneer Funds over the telephone or
online.
Third, Pioneer's commitment until the second anniversary of the
Reorganization to limit the expenses (excluding extraordinary expenses) of the
Investor Class of Pioneer International Equity Fund to 1.40% of average daily
net assets. The estimated expenses of the Investor Class of Pioneer
International Equity Fund are lower than or equal to both the gross and net
expenses after contractual reimbursements of each class of shares of your Safeco
Fund.
Fourth, shareholders who own shares in their name as of the closing of the
Reorganization (i.e., not in the name of a broker or other intermediary) and
maintain their account may purchase additional Class A shares of the
corresponding Pioneer Fund through such account in the future or may exchange
those shares for Class A shares of another Pioneer Fund or purchase Class A
share of another Pioneer Fund without paying any sales charge.
Fifth, the Investor Class shares of Pioneer International Equity Fund
received in the Reorganization will provide Safeco International Stock Fund
shareholders with exposure to substantially the same investment product as they
currently have.
Pioneer and Symetra will pay all out of pocket expenses of the Safeco Funds
and the Pioneer Funds associated with the Reorganizations, including, but not
limited to: (1) the expenses associated with the preparation, printing and
mailing of any shareholder communications, including this joint Proxy
Statement/Prospectus, and any filings with the SEC and other governmental
authorities in connection with the Reorganizations; (2) the fees and expenses of
any proxy solicitation firm retained in connection with the Reorganizations; (3)
the legal fees and expenses incurred by the Safeco Funds in connection with the
Reorganizations; and (4) the Trustees' fees and out of pocket expenses incurred
as a result of the Reorganizations.
The Trustees also considered that Pioneer and Symetra will benefit from the
Reorganization. See "Certain Agreements between Pioneer and Symetra."
The Board of Trustees of Pioneer International Equity Fund also considered
that the Reorganization presents an excellent opportunity for the Pioneer
International Equity Fund to acquire investment assets without the obligation to
pay commissions or other transaction costs that a fund normally incurs when
purchasing securities. This opportunity provides an economic benefit to Pioneer
International Equity Fund and its shareholders.
58
CAPITALIZATION
The following table sets forth the capitalization of each Fund as of March
31, 2004, and the pro forma combined Fund as of March 31, 2004.
Pro Forma
Safeco Pioneer Pioneer
International International International
Stock Fund Equity Fund Equity Fund
March 31, 2004 March 31, 2004 March 31, 2004
---------------- ---------------- ---------------
Total Net Assets (in thousands) $36,968 $30,572 $67,540
Class A shares ..................... $ 1,417 $18,345 $18,345
Class B shares ..................... $ 716 $ 8,575 $ 8,575
Class C shares ..................... $ 103 $ 3,652 $ 3,652
Institutional Class shares ......... $ 9,043 N/A N/A
Investor Class shares .............. $25,689 N/A $36,968
Net Asset Value Per Share
Class A shares ..................... $ 10.82 $ 17.55 $ 17.55
Class B shares ..................... $ 10.57 $ 16.41 $ 16.41
Class C shares ..................... $ 10.58 $ 16.21 $ 16.21
Institutional Class shares ......... $ 11.02 N/A N/A
Investor Class shares .............. $ 10.92 N/A $ 17.55
Shares Outstanding
Class A shares ..................... 131,004 1,045,193 1,045,193
Class B shares ..................... 67,765 522,503 522,503
Class C shares ..................... 9,689 225,379 225,379
Institutional Class shares ......... 820,220 N/A N/A
Investor Class shares .............. 2,351,852 N/A 2,106,439
It is impossible to predict how many shares of Pioneer International Equity
Fund will actually be received and distributed by your Safeco Fund on the
Reorganization date. The table should not be relied upon to determine the amount
of Pioneer International Equity Fund's shares that will actually be received and
distributed.
BOARD'S EVALUATION AND RECOMMENDATION
For the reasons described above, the Trustees, including the Independent
Trustees, approved the Reorganization. In particular, the Trustees determined
that the Reorganization is in the best interests of your Safeco Fund. Similarly,
the Board of Trustees of Pioneer International Equity Fund, including its
Independent Trustees, approved the Reorganization. They also determined that the
Reorganization is in the best interests of Pioneer International Equity Fund.
The Trustees recommend that the shareholders of your Safeco Fund vote FOR
the proposal to approve the Agreement and Plan of Reorganization.
59
Safeco Large-Cap Growth Fund and
Pioneer Growth Shares
PROPOSAL 1(e)
Approval of Agreement and Plan of Reorganization
SUMMARY
The following is a summary of more complete information appearing later in
this Proxy Statement/Prospectus or incorporated herein. You should read
carefully the entire proxy statement, including the form of Agreement and Plan
of Reorganization attached as EXHIBIT A-1 because they contain details that are
not in the summary.
The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have a higher expenses
per share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor Class
shares, Pioneer is not required to limit the expenses attributable to Class A
shares.
In the table below, if a row extends across the entire table, the policy
disclosed applies to both your Safeco Fund and the Pioneer Fund.
Comparison of Safeco Large-Cap Growth Fund to the Pioneer Growth Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Safeco Large-Cap Growth Fund Pioneer Growth Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Business A series of Safeco Common Stock Trust, A diversified open-end management
a diversified open-end management investment company registered under the
investment company organized as a Investment Company Act organized as a
Delaware statutory trust. Delaware statutory trust.
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets as of $7 million $732 million
June 30, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
Investment advisers and Investment adviser (until August 2, 2004): Investment adviser:
portfolio managers SAM Pioneer
Sub-adviser (until August 2, 2004): Portfolio Manager:
RCM Capital Management LLC ("Sub-adviser") Christopher M. Galizio
is responsible for the day-to-day management
of Safeco Large-Cap Growth Fund. Mr. Galizio is a vice president and joined
Pioneer in 1994
Portfolio Managers:
Seth A. Reicher (joined Sub-adviser in 1993)
Peter A. Goetz (joined Sub-adviser in 1999)
Currently Pioneer is acting as investment
adviser to Safeco Large-Cap Growth Fund. The
Portfolio Manager of Pioneer Growth Shares,
as indicated in the next column, currently
manages your Safeco Fund.
- ------------------------------------------------------------------------------------------------------------------------------------
Investment objective Safeco Large-Cap Growth Fund seeks long- Pioneer Growth Shares seeks capital
term growth of capital. appreciation primarily through equity
securities of large-cap U.S. companies
believed to have better-than-average
earnings potential.
- ------------------------------------------------------------------------------------------------------------------------------------
The investment objective of each Fund is fundamental and cannot be changed without
shareholder approval.
- ------------------------------------------------------------------------------------------------------------------------------------
60
- ------------------------------------------------------------------------------------------------------------------------------------
Safeco Large-Cap Growth Fund Pioneer Growth Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Primary investments Under normal market conditions, Safeco Under normal market conditions, Pioneer
Large-Cap Growth Fund invests at least 80% Growth Shares invests primarily in equity
of its net assets (plus any borrowings for securities of U.S. issuers. For purposes of the
investment purposes) in equity and equity- Fund's investment policies, equity securities
related securities of companies whose total include common stocks, convertible debt and
market capitalization at the time of the other equity instruments, such as depositary
investment is within the range of market receipts, warrants, rights, interests in real
capitalizations of companies included in the estate investment trusts ("REITs") and
Russell 1000 Growth Index. preferred stocks.
- ------------------------------------------------------------------------------------------------------------------------------------
Investment strategies Safeco Large-Cap Growth Fund uses a Pioneer Growth Shares uses a "growth"
"growth" style of management. The Sub- style and seeks to invest in issuers with
adviser historically has aimed to generate above average potential for earnings and
positive returns over a full market cycle by revenue growth.
investing in companies that show long-term
sustainable growth in revenue, earnings and/or Factors Pioneer looks for in selecting
cash flow. investments include:
The Sub-adviser considered factors such as: o companies with experienced management
teams, strong market positions and the
o the strength of the company's balance sheet; potential to support above average
o the quality of the management team; earnings growth;
o products or services that differentiate the o a sustainable competitive advantage,
company from its competitors; such as a brand name, customer base,
o the company's commitment to research and proprietary technology or economies of
development; and scale; and
o ongoing new products and services. o favorable expected returns relative to
perceived risk.
- ------------------------------------------------------------------------------------------------------------------------------------
Other investments Safeco Large-Cap Growth Fund may invest Pioneer Growth Shares may invest a portion
in securities convertible into common stock, of its assets not invested in equity securities
but less than 35% of its total assets will be in debt securities of corporate and
invested in such securities. government issuers.
Up to 5% of Pioneer Growth Shares' net
assets may be invested in below investment
grade debt securities issued by both U.S. and
non-U.S. corporate and government issuers.
Pioneer Growth Shares may invest up to 25%
of its total assets in REITs.
Pioneer Growth Shares may invest up to 30%
of its total assets in equity and debt securities
of non-U.S. corporate issuers and debt
securities of non-U.S. government issuers.
Pioneer Growth Shares will not invest more
than 5% of its total assets in securities of
emerging markets issuers.
- ------------------------------------------------------------------------------------------------------------------------------------
61
- ------------------------------------------------------------------------------------------------------------------------------------
Safeco Large-Cap Growth Fund Pioneer Growth Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Temporary defensive Safeco Large-Cap Growth Fund may hold cash Pioneer Growth Shares may invest all or part
strategies or invest in high-quality, short-term securities of its assets in securities with remaining
issued by an agency or instrumentality of the maturities of less than one year, cash
U.S. government, high-quality commercial equivalents or may hold cash.
paper, certificates of deposit, shares of no-
load, open-end money market funds, or
repurchase agreements.
- ------------------------------------------------------------------------------------------------------------------------------------
Diversification Each Fund is diversified for the purpose of the Investment Company Act and each Fund is
subject to diversification requirements under the Code.
- ------------------------------------------------------------------------------------------------------------------------------------
Industry concentration Each Fund may not invest more than 25% of its assets in any one industry.
- ------------------------------------------------------------------------------------------------------------------------------------
Restricted and illiquid If immediately after and as a result of such Pioneer Growth Shares may not invest more
securities action the value of the following securities, in than 15% of its net assets in securities which
the aggregate, would exceed 15% of Safeco are illiquid and other securities which are not
Large-Cap Growth Fund's net assets, the Fund readily marketable.
will not (i) purchase securities for which there
is no readily available market, (ii) purchase
time deposits maturing in more than seven
days, (iii) purchase over-the-counter (OTC)
options or hold assets set aside to cover OTC
options written by the Fund, (iv) enter into
repurchase agreements maturing in more than
seven days, or (v) invest in interests in real
estate investment trusts which are not readily
marketable or interests in real estate limited
partnerships which are not listed or traded on
the NASDAQ Stock Market.
- ------------------------------------------------------------------------------------------------------------------------------------
Borrowing Safeco Large-Cap Growth Fund may borrow Borrow money, except Pioneer Growth
money (i) from banks or (ii) by engaging in Shares may: (a) borrow from banks or
reverse repurchase agreements. through reverse repurchase agreements in
an amount up to 33 1/3% of the Fund's total
assets (including the amount borrowed);
(b) to the extent permitted by applicable law,
borrow up to an additional 5% of the Fund's
assets for temporary purposes; (c) obtain
such short-term credits as are necessary
for the clearance of portfolio transactions;
(d) purchase securities on margin to the
extent permitted by applicable law; and
(e) engage in transactions in mortgage dollar
rolls that are accounted for as financings.
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Lending Safeco Large-Cap Growth Fund may lend Pioneer Growth Shares may lend portfolio
securities to qualified institutional investors securities with a value that may not exceed
with a value of up to 33% of the Fund's 331/3% of the value of its assets.
total assets.
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62
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Safeco Large-Cap Growth Fund Pioneer Growth Shares
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Derivative instruments Safeco Large-Cap Growth Fund may write Pioneer Growth Shares may use futures and
put or call options if, as a result thereof, the options on securities, indices and currencies,
aggregate value of the assets underlying all forward currency exchange contracts and
such options does not exceed 25% of the other derivatives. The Fund does not use
Fund's net assets. derivatives as a primary investment technique
and generally limits their use to hedging.
Safeco Large-Cap Growth Fund may purchase However, the Fund may use derivatives for a
put or call options or options on futures variety of non-principal purposes, including:
contracts if, as a result thereof, the aggregate
premiums paid on all options or options on o As a hedge against adverse changes in
futures contracts do not exceed 20% of the stock market prices, interest rates or
Fund's net assets. currency exchange rates
o As a substitute for purchasing or selling
Safeco Large-Cap Growth Fund may enter into securities option on a futures contract
any futures contract or thereof, the aggregate o To increase the Fund's return as a
margin deposits and premiums required on all non-hedging strategy that may be
such instruments does not exceed 5% of the considered speculative
Fund's net assets.
Safeco Large-Cap Growth Fund may not
purchase securities on margin. However, the
Fund may (i) obtain short-term credits as
necessary to clear its purchases and sales of
securities, and (ii) make margin deposits in
connection with its use of financial options and
futures, forward and spot currency contracts,
swap transactions and other financial contracts
or derivative instruments.
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Other investment As described above, the Funds have substantially similar principal investment strategies and
policies and policies. Certain of the non-principal investment policies and restrictions are different. For a
restrictions more complete discussion of each Fund's other investment policies and fundamental and
non-fundamental investment restrictions, see the SAI.
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63
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Safeco Large-Cap Growth Fund Pioneer Growth Shares
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Buying, Selling and Exchanging Shares
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Sales charges Purchases under $1,000,000 of Class A shares The Investor Class shares of Pioneer Growth
of Safeco Large-Cap Growth Fund are subject Shares you receive in the Reorganization will
to a 5.75% front-end sales charge. not be subject to any sales charge. Moreover,
if you own shares in your own name as of the
Contingent deferred sales charge of up to 5% closing of the Reorganization (i.e., not in the
if you redeem Class B shares within 6 years name of a broker or other intermediary) and
of purchase.
maintain your account, you may purchase
Contingent deferred sales charge of up to 1% Class A shares of Pioneer Growth Shares and
if you redeem Class C shares within one year Class A shares of any Fund in the Pioneer
of purchase. family of funds through such account in the
future without paying any sales charge.
Purchases of Investor Class shares of Safeco
Large-Cap Growth Fund are not subject to a Except as described above, Class A shares of
sales load. Pioneer Growth Shares are subject to a front-
end sales charge of up to 5.75%.
Safeco Large-Cap Growth Fund assesses
a mandatory redemption fee of 2%, as a
percentage of the amount redeemed or
exchanged, on Class A and Investor Class
shares held less than 30 days.
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64
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Safeco Large-Cap Growth Fund Pioneer Growth Shares
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Management and other fees Safeco Large-Cap Growth Fund pays an Pioneer Growth Shares pays Pioneer a
advisory fee on a monthly basis at an annual management fee, subject to a performance
rate as follows: adjustment, equal to Pioneer's annual fee
equal to:
$0-$250,000,000: 0.80 of 1%
$250,000,001-$750,000,000: 0.75 of 1% 0.70% of average daily net assets up to
$750,000,001-$1,250,000,000: 0.70 of 1% $500 million;
Over $1,250,000,000: 0.65 of 1% 0.65% of the next $500 million;
0.625% on assets over $1 billion.
SAM paid the Sub-adviser a fee in accordance
with the following schedule: Pioneer's fee increases or decreases depending
$0 - $100,000,000: 0.35 of 1% upon whether the Fund's performance exceeds,
$100,000,000 - $250,000,000: 0.25 of 1% or is exceeded by, that of Russell 1000 Growth
Over $250,000,000: 0.20 of 1% Index over the specified performance period.
Each percentage point of difference between the
SAM serves as administrator and fund performance of the Class A shares and the index
accounting agent for Safeco Large-Cap Growth (limited to a maximum of +/-10) is multiplied
Fund. The Fund pays SAM an administrative by a performance rate adjustment of 0.01%.
services fee of 0.05% of the Fund's average As a result, the fee is subject to a maximum
daily net assets up to the first $200,000,000 annualized rate adjustment of +/-0.10%. This
and 0.01% of its net assets thereafter, and an performance comparison is made at the end of
accounting fee of 0.04% of the Fund's average each month. An appropriate monthly percentage
daily net assets up to the first $200,000,000 of this annual rate (based on the number of
and 0.01% of its net assets thereafter. days in the current month) is then applied to
the Fund's average net assets for the entire
During its most recent fiscal year, Safeco performance period, giving a dollar amount that
Large-Cap Growth Fund paid aggregate is added to (or subtracted from) the basic fee.
advisory and administration fees at an average In addition, the fee is also further limited to a
rate of 0.89% of average daily net assets. maximum annualized rate adjustment of +/-0.10%
(i.e., the management fee will not exceed 0.80%
In 2003, SAM began voluntarily reimbursing or be less than 0.525%). However, Pioneer
Safeco Large-Cap Growth Fund to the extent currently is waiving the lower limitation on its
that its total expenses exceeded the rate of fee, but may reimpose it in the future. Because
1.40% per annum of the Fund's average daily any adjustments to the basic fee begin with the
net assets for Class A shares, 2.15% per comparative performance of the Fund and the
annum for Class B and Class C shares, and performance record of the index, the controlling
1.15% per annum for Investor Class shares. factor is not whether fund performance is up or
down, but whether it is up or down more or
For the fiscal year ended December 31, 2003, less than the performance record of the index,
Safeco Large-Cap Growth Fund's annual regardless of general market performance.
operating expenses for Class A shares were
2.79%. After giving effect to the voluntary During its most recent fiscal year, Pioneer
expense reimbursement, the operating Growth Shares paid an advisory fee at an
expenses for Class A shares were 1.40%. average rate of 0.59% of average daily
net assets.
For the fiscal year ended December 31, 2003,
Safeco Large-Cap Growth Fund's annual In addition, Pioneer Growth Shares reimburses
operating expenses for Class B shares were Pioneer for certain fund accounting and legal
3.55%. After giving effect to the voluntary expenses incurred on behalf of the Fund and
expense reimbursement, the operating pays a separate shareholder servicing/transfer
expenses for Class B shares were 2.15%. agency fee to PIMSS, an affiliate of Pioneer.
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65
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Safeco Large-Cap Growth Fund Pioneer Growth Shares
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Management and other fees For the fiscal year ended December 31, 2003, For the fiscal year ended December 31, 2003,
(continued) Safeco Large-Cap Growth Fund's annual Pioneer Growth Shares' total annual operating
operating expenses for Class C shares were expenses for Class A shares were 1.45% of
3.46%. After giving effect to the voluntary average daily net assets. The Fund does not
expense reimbursement, the operating currently have an expense limitation for its
expenses for Class C shares were 2.15%. Class A shares.
For the fiscal year ended December 31, 2003, Pioneer has agreed until the second
Safeco Large-Cap Growth Fund's annual anniversary of the closing of the
operating expenses for Investor Class Reorganization to limit the expenses
shares were 2.55%. After giving effect to (excluding extraordinary expenses) of the
the voluntary expense reimbursement, the Investor Class to 1.15% of the average daily
operating expenses for Investor Class shares net assets attributable to the Investor Class.
were 1.15%.
The Investor Class shares to be issued in
the Reorganization will convert to Class A
shares after two years. Class A shares will
have higher expenses per share than Investor
Class Shares due to the Rule 12b-1 Plan. In
addition, although Pioneer has agreed to limit
the expenses attributable to Investor Class
shares, Pioneer is not required to limit the
expenses attributable to Class A shares.
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Distribution and service Investor Class shares of each Fund are not subject to a Rule 12b-1 fee. Pioneer Investor Class
(12b-1) fee shares will convert into Class A share after two years. Class A shares of each Fund are subject
to a Rule 12b-1 fee equal to 0.25% annually of average daily net assets.
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Buying shares You may buy shares of the Fund directly You may buy shares from any investment
through Safeco Securities, the Fund's firm that has a sales agreement with PFD,
principal underwriter or through brokers, Pioneer Growth Shares' distributor. Existing
registered investment advisers, banks and shareholders of Safeco Large-Cap Growth
other financial institutions that have entered Fund who own shares in their own name as
into selling agreements with the Fund's of the closing date of the Reorganization and
principal underwriter, as described in the who maintain their accounts may buy shares
Fund's prospectus. of any fund in the Pioneer family of funds
through such accounts in the future without
Certain account transactions may be done paying sales charges.
by telephone.
If the account is established in the
shareholder's own name, shareholders may
also purchase additional shares of Pioneer
Growth Shares by telephone or online.
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66
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Safeco Large-Cap Growth Fund Pioneer Growth Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Exchange privilege There are no sales charges on shares you You may exchange shares of Pioneer Growth
acquire through dividend reinvestment or other Shares without incurring any fee on the
fund distributions or for Class A shares that exchange with the more than 62 other Pioneer
you have exchanged for Class A shares of Funds. Your exchange would be for Class A
another Fund. shares, which would be subject to Rule 12b-1
fees. An exchange generally is treated as a
Certain account transactions may be done sale and a new purchase of shares for federal
by telephone. income tax purposes.
If the account is established in the
shareholder's own name, shareholders may
also exchange shares of Pioneer Growth
Shares for shares of other Pioneer Funds by
telephone or online.
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Selling shares Each class of shares is sold at the net asset value per share next calculated after the Fund
receives your request in good order.
- ------------------------------------------------------------------------------------------------------------------------------------
You may sell your shares by contacting Safeco Normally, your investment firm will send
Large-Cap Growth Fund directly in writing or your request to sell shares to PIMSS. You
by contacting a financial intermediary as can also sell your shares by contacting the
described in the Fund's prospectus. Fund directly if your account is registered in
your name.
If the account is established in the
shareholder's own name, shareholders may
also redeem shares of Pioneer Growth Shares
by telephone or online.
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Comparison of Principal Risks of Investing in the Funds
Because each Fund has a similar investment objective, primary investment
policies and strategies, the Funds are subject to the same principal risks. You
could lose money on your investment in either Fund or not make as much as if you
invested elsewhere if:
o The stock market goes down (this risk may be greater in the
short-term)
o Growth stocks fall out of favor with investors
o The Fund's investments do not have the growth potential originally
expected
Investing in non-U.S. issuers may involve unique risks compared to
investing in securities of U.S. issuers. These risks may include:
o Less information about non-U.S. issuers or markets may be available
due to less rigorous disclosure or accounting standards or regulatory
practices
o Many non-U.S. markets are small, less liquid and more volatile. In a
changing market, Pioneer might not be able to sell the Fund's
portfolio securities at times, in amounts and at prices it considers
reasonable
o Adverse effect of currency exchange rates or controls on the value of
the Fund's investments
o The economies of non-U.S. countries may grow at slower rates than
expected or may experience a downturn or recession
o Economic, political and social developments may adversely affect the
securities markets
o Withholding and other non-U.S. taxes may decrease the Fund's return
The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses per
share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor Class
shares, Pioneer is not required to limit the expenses attributable to Class A
shares.
67
Past Performance
Set forth below is performance information for each Fund. The bar charts
show how each Fund's total return (not including any deduction for sales
charges) has varied from year to year for each full calendar year. The tables
show average annual total return (before and after taxes) for each Fund over
time for each class of shares (including deductions for sales charges) compared
with a broad-based securities market index. The bar charts give an indication of
the risks of investing in each Fund, including the fact that you could incur a
loss and experience volatility of returns year to year. Past performance before
and after taxes does not indicate future results.
Safeco Large-Cap Growth Fund -- Investor Class
Calendar Year Total Returns*
[DATA BELOW IS REPRESENTED BY A BAR CHART IN THE ORIGINAL REPORT]
'02 '03
- -26.95 20.16
* During the period shown in the bar chart, your Safeco Fund's highest
quarterly return was 10.31% for the quarter ended June 30, 2003, and the
lowest quarterly return was -16.72% for the quarter ended June 30, 2002.
Pioneer Growth Shares -- Class A Shares
Calendar Year Total Returns*
[DATA BELOW IS REPRESENTED BY A BAR CHART IN THE ORIGINAL REPORT]
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03
- -2.60 29.82 26.95 43.78 33.54 7.40 -9.57 -19.23 -34.89 26.19
* During the period shown in the bar chart, Pioneer Growth Shares' highest
quarterly return was 24.06% for the quarter ended June 30, 1997, and the
lowest quarterly return was -20.20% for the quarter ended June 30, 2002.
68
Safeco Large-Cap Growth Fund
Average Annual Total Returns as of December 31, 2003
- ----------------------------------------------------------------------------------------------
Since
1 Year Inception(1)
- ----------------------------------------------------------------------------------------------
Safeco Large-Cap Growth Fund, Class A Shares
- ----------------------------------------------------------------------------------------------
Return Before Taxes 13.05% -5.94%
- ----------------------------------------------------------------------------------------------
Return After Taxes on Distributions(2) 13.05% -5.98%
- ----------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(2) 8.48% -5.05%
- ----------------------------------------------------------------------------------------------
Safeco Large-Cap Growth Fund, Class B Shares
- ----------------------------------------------------------------------------------------------
Return Before Taxes 14.06% -5.40%
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Safeco Large-Cap Growth Fund, Class C Shares
- ----------------------------------------------------------------------------------------------
Return Before Taxes 18.06% -4.06%
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Safeco Large-Cap Growth Fund, Investor Class Shares
- ----------------------------------------------------------------------------------------------
Return Before Taxes 20.16% -3.11%
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Return After Taxes on Distributions(2) 20.16% -3.18%
- ----------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(2) 13.10% -2.68%
- ----------------------------------------------------------------------------------------------
Russell 1000 Growth Index(3)
(reflects no deduction for fees, expenses or taxes) 29.76% 1.09%
- ----------------------------------------------------------------------------------------------
(1) The Fund commenced operations on October 31, 2001.
(2) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on your situation and may
differ from those shown. Furthermore, the after-tax returns shown are not
relevant to those who hold their shares through tax-deferred arrangements
such as 401(k) plans or IRA accounts, or to investors that are tax-exempt.
(3) The Russell 1000 Growth Index, an unmanaged index of growth stocks in the
Russell 1000 Index of the 1,000 largest-capitalization U.S. stocks, is for
reference only and does not mirror the Fund's investments.
Pioneer Growth Shares -- Class A Shares
Average Annual Total Returns as of December 31, 2003
- --------------------------------------------------------------------------------------------------------
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------------------------------
Pioneer Growth Shares, Class A Shares
- --------------------------------------------------------------------------------------------------------
Return Before Taxes 18.96% -9.49% 6.47%
- --------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions1 18.96% -10.10% 4.23%
- --------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(1) 12.32% -7.87% 4.47%
- --------------------------------------------------------------------------------------------------------
Russell 1000 Growth Index(2)
(reflects no deduction for fees, expenses or taxes) 29.75% -5.11% 9.21%
- --------------------------------------------------------------------------------------------------------
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on your situation and may
differ from those shown. Furthermore, the after-tax returns shown are not
relevant to those who hold their shares through tax-deferred arrangements
such as 401(k) plans or IRA accounts, or to investors that are tax-exempt.
69
(2) The Russell 1000 Growth Index, an unmanaged index of growth stocks in the
Russell 1000 Index of the 1,000 largest-capitalization U.S. stocks, is for
reference only and does not mirror the Fund's investments.
Pioneer Growth Shares' Investor Class shares will not be outstanding prior
to the closing of the Reorganization and consequently have no performance
history. However, the performance record of the Investor Class would be modestly
higher than the performance of Class A shares due to the lower expenses
applicable to the Investor Class.
The most recent portfolio manager's discussion of each Fund's performance
is attached as Exhibit D.
The Funds' Fees and Expenses
Shareholders of both Funds pay various fees and expenses, either directly
or indirectly. The tables below show the fees and expenses that you would pay if
you were to buy and hold shares of each Fund. The expenses in the tables
appearing below are based on (i) for your Safeco Fund, the expenses of your
Safeco Fund for the period ended December 31, 2003 and (ii) for Pioneer Growth
Shares, the expenses of Pioneer Growth Shares for the period ended December 31,
2003. Future expenses for all share classes may be greater or less.
Safeco Safeco
Large-Cap Large-Cap
Growth Fund Growth Fund
Shareholder Transaction fees Class A Class B
(paid directly From your Investment) ------------- -------------
Maximum sales charge (load) when you buy shares as a percentage
of offering price ..................................................... 5.75%(6) None
Maximum deferred sales charge (load) as a % of purchase price or the
amount you receive when you sell shares, whichever is less ............ None 5.00%7
Redemption fees for shares held less than 30 days ...................... 2.00% None
Wire redemption fee .................................................... $ 20(4) $ 20(4)
Annual low balance fee ................................................. $ 12(5) $ 12(5)
Annual fund Operating expenses (deducted from fund Assets)
(as a % of average Net assets)
Management fee ......................................................... 0.80% 0.80%
Distribution and service (12b-1) fee ................................... 0.25% 1.00%
Other expenses ......................................................... 1.74% 1.75%
Total fund operating expenses .......................................... 2.79% 3.55%
Expense reimbursement/reduction ........................................ None(2) None(2)
Net fund operating expenses ............................................ 2.79% 3.55%
Pro Forma
Pioneer
Safeco Safeco Growth
Large-Cap Large-Cap Shares
Growth Fund Growth Fund Investor
Shareholder Transaction fees Class C Investor Class Class(9)
(paid directly From your Investment) ------------- ---------------- ----------
Maximum sales charge (load) when you buy shares as a percentage
of offering price ..................................................... None None None(1)
Maximum deferred sales charge (load) as a % of purchase price or the
amount you receive when you sell shares, whichever is less ............ 1.00%(8) None None
Redemption fees for shares held less than 30 days ...................... None 2.00% N/A
Wire redemption fee .................................................... $ 20(4) $ 20(4) $ 10
Annual low balance fee ................................................. $ 12(5) $ 12(5) N/A
Annual fund Operating expenses (deducted from fund Assets)
(as a % of average Net assets)
Management fee ......................................................... 0.80% 0.80% 0.59%
Distribution and service (12b-1) fee ................................... 1.00% None None
Other expenses ......................................................... 1.66% 1.75% 0.44%
Total fund operating expenses .......................................... 3.46% 2.55% 1.03%
Expense reimbursement/reduction ........................................ None(2) None(2) None(3)
Net fund operating expenses ............................................ 3.46% 2.55% 1.03%
- ----------
(1) No sales load will apply to shares received in the Reorganization by
shareholders of your Safeco Fund who become shareholders of record of
Pioneer Growth Shares through the Reorganization. In addition, shareholders
of your Safeco Fund who own shares in their own name (i.e., not in the name
of a broker or other intermediary) and maintain such account as of the
closing of the Reorganization may purchase Class A Shares of Pioneer Growth
Shares or of any fund in the Pioneer family of funds through such account
in the future without paying a sales charge.
(2) In 2003, SAM began voluntarily reimbursing the Fund to the extent that its
total expenses exceeded the rate of 1.40% per annum of the Fund's average
daily net assets for Class A shares, 2.15% per annum for Class B and Class
C shares, and 1.15% per annum for Investor Class shares. The above table
reflects "contractual" expense reimbursements by SAM, if any, but does not
reflect "voluntary" expense reimbursements by SAM.
(3) Pioneer has agreed that through the second anniversary of the closing of
the Reorganization, Pioneer will limit the expenses (excluding
extraordinary expenses) of the Investor Class shares of Pioneer Growth
Shares to 1.15% of average daily net assets
(4) There is a higher charge for international wire redemptions, which may vary
by country or dollar amount.
(5) A low balance fee is charged once each year in December for accounts with
balances under $1,000 in your Safeco Fund.
(6) Purchases of $1,000,000 or more of Class A shares of your Safeco Fund are
not subject to a front-end sales charge, but a 1.00% deferred sales charge
will apply to redemptions made in the first twelve months except with
respect to participant-directed redemptions from qualified retirement
plans.
70
(7) The contingent deferred sales charge on Class B shares of your Safeco Fund
reduces to zero after six years from purchase, and the Class B shares
convert to Class A shares at that time.
(8) The contingent deferred sales charge on Class C shares applies only to
redemptions made in the first twelve months after purchase.
(9) The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses
per share than Investor Class shares due to the Rule 12b-1 Plan. In
addition, although Pioneer has agreed to limit the expenses attributable to
Investor Class shares, Pioneer is not required to limit the expenses
attributable to Class A shares. Class A shares do not currently have an
expense limitation and may be subject to higher total operating expenses.
The hypothetical example below helps you compare the cost of investing in
each Fund. It assumes that: (a) you invest $10,000 in each Fund for the time
periods shown, (b) you reinvest all dividends and distributions, (c) your
investment has a 5% return each year, (d) each Fund's gross operating expenses
remain the same, (e) the expense limitations are in effect for one year for
Safeco Large-Cap Growth Fund and two years for Pioneer Growth Shares and (f) and
the Investor Class shares of Pioneer Growth Shares convert to Class A shares
after two years. The examples are for comparison purposes only and are not a
representation of either Fund's actual expenses or returns, either past or
future.
Example
Safeco Large-Cap Growth Fund
Class A Shares
Year 1 .............. $ 841
Year 3 .............. $1,390
Year 5 .............. $1,964
Year 10 ............. $3,514
With Without
Class B Shares Redemption Redemption
Year 1 .............. $ 858 $ 358
Year 3 .............. $ 1,388 $ 1,088
Year 5 .............. $ 2,040 $ 1,840
Year 10 ............. $ 3,496 $ 3,496
With Without
Class C Shares Redemption Redemption
Year 1 .............. $ 449 $ 349
Year 3 .............. $ 1,062 $ 1,062
Year 5 .............. $ 1,798 $ 1,798
Year 10 ............. $ 3,738 $ 3,738
Investor Class Shares
Year 1 .............. $ 258
Year 3 .............. $ 793
Year 5 .............. $1,355
Year 10 ............. $2,885
Pro Forma Pioneer Growth Shares
Investor Class Shares
Year 1 .............. $ 105
Year 3 .............. $ 367
Year 5 .............. $ 690
Year 10 ............. $1,604
71
Reasons for the Proposed Reorganization
The Trustees believe that the proposed Reorganization is in the best
interests of Safeco Large-Cap Growth Fund. The Trustees considered the following
matters, among others, in approving the proposal.
First, SAM, the investment adviser to the Safeco Fund until August 2, 2004,
was acquired by Symetra. Symetra informed the Trustees that it did not intend to
continue to provide investment advisory services to the Safeco Funds.
Consequently, a change in your Safeco Fund's investment adviser was necessary.
Second, Pioneer Growth Shares has a strong short term performance record
and a substantially longer performance history. For the one year period ended
June 30, 2004, Class A shares of Pioneer Growth Shares had an average annual
return of 9.31% compared to an average annual return of the Class A shares and
Investor Class shares of 4.25% and 10.77%, respectively, during the same
periods. In addition, the Trustees considered the track record of Pioneer in
managing equity and fixed income mutual funds.
Third, the resources of Pioneer. At June 30, 2004, Pioneer managed over 62
investment companies and accounts with approximately $35 billion in assets.
Pioneer is part of the global asset management group of UniCredito Italiano
S.p.A., one of the largest banking groups in Italy, providing investment
management and financial services to mutual funds, institutions and other
clients. As of June 30, 2004, assets under management of UniCredito Italiano
S.p.A. were approximately $151 billion worldwide. Shareholders of your Safeco
Fund would become part of a significantly larger family of funds that offers a
more diverse array of investment options and enhanced shareholder account
options. The Pioneer family of mutual funds offers over 62 funds, including
domestic and international equity and fixed income funds and a money market fund
that will be available to your Safeco Fund's shareholders through exchanges. In
addition, Pioneer offers shareholders additional options for their accounts,
including the ability to transact and exchange shares over the telephone or
online and the ability to access account values and transaction history in all
of the shareholder's direct accounts in the Pioneer Funds over the telephone or
online.
Fourth, Pioneer Growth Shares' lower operating expenses and Pioneer's
commitment until the second anniversary of the Reorganization to limit the
expenses (excluding extraordinary expenses) of the Investor Class of Pioneer
Growth Shares to 1.15% of average daily net assets. The estimated expense ratio
of the Investor Class of Pioneer Growth Shares is lower than the gross and net
expense ratio of each class of shares of your Safeco Fund other than Investor
Class Shares of your Safeco Fund. The expense limitation applicable to Investor
Class Shares of Pioneer Growth Shares is equivalent to the voluntary expense
limit applicable to the Investor Class shares of your Safeco Fund and lower than
the limit on all the other classes of your Safeco Fund. Pioneer has
contractually agreed to keep that limit in place for two years while the expense
limit applicable to your Safeco Fund could be terminated at any time. While you
may experience higher expenses once the Investor Class shares convert to Class A
shares after two years, the Class A shares expense ratio for the most recent
fiscal year was 1.45% of average daily net assets, which was below the gross
expenses of Class A shares of your Safeco Fund.
Fifth, the substantially larger size of Pioneer Growth Shares offers
greater opportunity for diversification of the investment portfolio, which
should help to reduce risks.
Sixth, shareholders who own shares in their name as of the closing of the
Reorganization (i.e., not in the name of a broker or other intermediary) and
maintain their account may purchase additional Class A shares of the
corresponding Pioneer Fund through such account in the future or may exchange
those shares for Class A shares of another Pioneer Fund or purchase Class A
shares of another Pioneer Fund without paying any sales charge.
Seventh, the Investor Class shares of Pioneer Growth Shares received in the
Reorganization will provide Safeco Large-Cap Growth Fund shareholders with
exposure to substantially the same investment product as they currently have.
Pioneer and Symetra will pay all out of pocket expenses of the Safeco Funds
and the Pioneer Funds associated with the Reorganizations, including, but not
limited to: (1) the expenses associated with the preparation, printing and
mailing of any shareholder communications, including this joint Proxy
Statement/Prospectus, and any filings with the SEC and other governmental
authorities in connection with the Reorganizations; (2) the fees and expenses of
any proxy solicitation firm retained in connection with the Reorganizations; (3)
the legal fees and expenses incurred by the Safeco Funds in connection with the
Reorganizations; and (4) the Trustees' fees and out of pocket expenses incurred
as a result of the Reorganizations.
The Trustees also considered that Pioneer and Symetra will benefit from the
Reorganization. See "Certain Agreements between Pioneer and Symetra."
The Board of Trustees of Pioneer Growth Shares also considered that the
Reorganization presents an excellent opportunity for the Pioneer Growth Shares
to acquire investment assets without the obligation to pay commissions or other
transaction costs that a fund normally incurs when purchasing securities. This
opportunity provides an economic benefit to Pioneer Growth Shares and its
shareholders.
72
Pioneer offers several growth oriented equity funds. From time to time,
Pioneer considers recommending to trustees and shareholders the combination of
certain Pioneer funds that have similar investment strategies and where the
Pioneer funds may benefit from economies of scale. It is possible that Pioneer
will recommend the combination of Pioneer Growth Shares with another Pioneer
fund in the future. If such a recommendation is made, there can be no assurance
that the trustees or shareholders of the relevant funds would approve the
transaction.
CAPITALIZATION
The following table sets forth the capitalization of each Fund as of
September 30, 2004, and pro forma combined Fund as of September 30, 2004.
Safeco Pro Forma
Large-Cap Pioneer Pioneer
Growth Fund Growth Shares Growth Shares
September 30, 2004 September 30, 2004 September 30, 2004
-------------------- -------------------- -------------------
Total Net Assets (in thousands) $6,128 $663,767 $669,895
Class A shares ................ $1,162 $444,912 $444,912
Class B shares ................ $ 931 $168,879 $168,879
Class C shares ................ $ 887 $ 46,992 $ 46,992
Investor Class shares ......... $3,148 N/A $ 6,128
Class Y shares ................ N/A $ 2,719 $ 2,719
Class R shares ................ N/A $265,000 $265,000
Net Asset Value Per Share
Class A shares ................ $ 8.90 $ 10.78 $ 10.78
Class B shares ................ $ 8.70 $ 9.89 $ 9.89
Class C shares ................ $ 8.70 $ 9.99 $ 9.99
Investor Class shares ......... $ 8.94 N/A $ 10.78
Class Y shares ................ N/A $ 11.35 $ 11.35
Class R shares ................ N/A $ 10.81 $ 10.81
Shares Outstanding
Class A shares ................ 130,597 41,259,524 41,259,524
Class B shares ................ 106,917 17,082,803 17,082,803
Class C shares ................ 101,854 4,703,127 4,703,127
Investor Class shares ......... 351,993 N/A 568,460
Class Y shares ................ N/A 239,683 239,683
Class R shares ................ N/A 24,523 24,523
It is impossible to predict how many shares of Pioneer Growth Shares will
actually be received and distributed by your Safeco Fund on the Reorganization
date. The table should not be relied upon to determine the amount of Pioneer
Growth Shares' shares that will actually be received and distributed.
BOARD'S EVALUATION AND RECOMMENDATION
For the reasons described above, the Trustees, including the Independent
Trustees, approved the Reorganization. In particular, the Trustees determined
that the Reorganization is in the best interests of your Safeco Fund. Similarly,
the Board of Trustees of Pioneer Growth Shares, including its Independent
Trustees, approved the Reorganization. They also determined that the
Reorganization is in the best interests of Pioneer Growth Shares.
The Trustees recommend that the shareholders of your Safeco Fund vote FOR
the proposal to approve the Agreement and Plan of Reorganization.
73
Safeco Large-Cap Value Fund and
Pioneer Value Fund
PROPOSAL 1(f)
Approval of Agreement and Plan of Reorganization
SUMMARY
The following is a summary of more complete information appearing later in
this Proxy Statement/Prospectus or incorporated herein. You should read
carefully the entire proxy statement, including the form of Agreement and Plan
of Reorganization attached as EXHIBIT A-1 because they contain details that are
not in the summary.
The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses per
share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor Class
shares, Pioneer is not required to limit the expenses attributable to Class A
shares.
In the table below, if a row extends across the entire table, the policy
disclosed applies to both your Safeco Fund and the Pioneer Fund.
Comparison of Safeco Large-Cap Value Fund to the Pioneer Value Fund
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Safeco Large-Cap Value Fund Pioneer Value Fund
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Business A series of Safeco Common Stock Trust, A diversified open-end management
a diversified open-end management investment company registered under the
investment company organized as a Investment Company Act and organized as
Delaware statutory trust. a Delaware statutory trust.
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Net assets as of $153 million $3,855 million
June 30, 2004
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Investment advisers and Investment adviser (until August 2, 2004): Investment adviser:
portfolio managers SAM Pioneer
Portfolio Managers (until August 2, 2004): Portfolio Managers:
Rex L. Bentley Day-to-day management of Pioneer Value
Vice President, SAM Fund's portfolio is the responsibility of J.
Lynette D. Sagvold Rodman Wright, who is assisted by Sean
Vice President, SAM Gavin. Mr. Wright is a senior vice president
and joined Pioneer in 1994 and has been an
Currently Pioneer is acting as investment investment professional since 1988. Mr. Gavin
adviser to Safeco Large-Cap Value Fund. The is a vice president and joined Pioneer in 2002.
Portfolio Managers of the Pioneer Fund, as
indicated in the next column, currently manage
your Safeco Fund.
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Investment objective Safeco Large-Cap Value Fund seeks long-term Pioneer Value Fund seeks reasonable income
growth of capital plus current income. and capital growth primarily through equity
securities.
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Safeco Large-Cap Value Fund provides written The investment objective of Pioneer Value
notice to shareholders at least 60 days prior to Fund is fundamental and cannot be changed
any change to its investment objective as without shareholder approval.
described above.
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74
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Safeco Large-Cap Value Fund Pioneer Value Fund
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Primary investments Under normal circumstances, Safeco Large-Cap Under normal market conditions, Pioneer
Value Fund invests at least 80% of net assets Value Fund invests the major portion of its
(plus any borrowings for investment purposes) assets in equity securities, primarily U.S.
in equity and equity-related securities of issuers. For purposes of Pioneer Value Fund's
companies whose total market capitalization at investment policies, equity securities include
the time of the investment is at least $4 billion. common stocks, convertible debt and other
equity instruments, such as depositary
receipts, warrants, rights and preferred stocks.
Up to 25% of Pioneer Value Fund's portfolio
may be invested in the equity securities of
non-U.S. companies.
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Investment strategies In managing the portfolio and selecting Pioneer uses a "value" approach to select
securities, SAM historically analyzed various Pioneer Value Fund's investments. Pioneer
valuation measures such as the ratio of a evaluates a security's potential value,
company's price-to-cash flow compared to its including the attractiveness of its market
historical ratios, industry comparisons, the valuation, based on the company's assets
ratio for the company's competitors, and and prospects for earnings and revenue
companies with similar growth rates. growth. Factors Pioneer looks for in selecting
investments include:
SAM generally sought companies having good
earnings, good value relative to share price, or o Above average potential for earnings and
attractive growth potential. revenue growth
o Favorable expected returns relative to
perceived risks
o Management with demonstrated ability and
commitment to the company
o Low market valuations relative to earnings
forecast, book value, cash flow and sales
o Turnaround potential for companies that
have been through difficult periods
o Good prospects for dividend growth
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Other investments Pioneer Value Fund may invest up to 25% of
its total assets in securities of non-U.S.
issuers. The Fund will not invest more than
5% of its total assets in the securities of
emerging market issuers.
Pioneer Value Fund may invest the balance of
its assets in debt securities of corporate and
government issuers. The Fund may invest up
to 5% of its net assets in below investment
grade debt securities issued by both U.S. and
non-U.S. corporate and government issuers,
including convertible debt securities.
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75
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Safeco Large-Cap Value Fund Pioneer Value Fund
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Temporary defensive Safeco Large-Cap Value Fund may hold cash Pioneer Value Fund may invest all or part
strategies or invest in high-quality, short-term securities of its assets in securities with remaining
issued by an agency or instrumentality of the maturities of less than one year, cash
U.S. government, high-quality commercial equivalents or may hold cash.
paper, certificates of deposit, shares of
no-load, open-end money market funds,
or repurchase agreements.
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Diversification Each Fund is diversified for the purpose of the Investment Company Act and each Fund is
subject to diversification requirements under the Code.
- ------------------------------------------------------------------------------------------------------------------------------------
Industry Concentration Each Fund may not invest more than 25% of its assets in any one industry.
- ------------------------------------------------------------------------------------------------------------------------------------
Restricted and illiquid If immediately after and as a result of such Pioneer Value Fund may not invest more than
securities action the value of the following securities, in 15% of its net assets in securities which are
the aggregate, would exceed 15% of Safeco illiquid and other securities which are not
Large-Cap Value Fund's net assets, the Fund readily marketable.
will not (i) purchase securities for which there
is no readily available market, (ii) purchase
time deposits maturing in more than seven
days, (iii) purchase over-the-counter (OTC)
options or hold assets set aside to cover OTC
options written by the Fund, (iv) enter into
repurchase agreements maturing in more than
seven days, or (v) invest in interests in real
estate investment trusts which are not readily
marketable or interests in real estate limited
partnerships which are not listed or traded on
the NASDAQ Stock Market.
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Borrowing Safeco Large-Cap Value Fund may borrow Borrow money, except Pioneer Value Fund
money (i) from banks or (ii) by engaging in may: (a) borrow from banks or through
reverse repurchase agreements. reverse repurchase agreements in an amount
up to 33 1/3% of the Fund's total assets
(including the amount borrowed); (b) to the
extent permitted by applicable law, borrow
up to an additional 5% of the Fund's assets
for temporary purposes; (c) obtain such
short-term credits as are necessary for
the clearance of portfolio transactions;
(d) purchase securities on margin to the
extent permitted by applicable law; and
(e) engage in transactions in mortgage dollar
rolls that are accounted for as financings.
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Lending Safeco Large-Cap Value Fund may lend Pioneer Value Fund may lend portfolio
securities to qualified institutional investors securities with a value that may not exceed
with a value of up to 33% of the Fund's 33 1/3% of the value of its total assets.
total assets.
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76
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Safeco Large-Cap Value Fund Pioneer Value Fund
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Derivative instruments Safeco Large-Cap Value Fund may write a Pioneer Value Fund may use futures and
put or call option if, as a result thereof, the options on securities, indices and currencies,
aggregate value of the assets underlying all forward currency exchange contracts and
such options does not exceed 25% of the other derivatives. The Fund does not use
Fund's net assets. derivatives as a primary investment technique
and generally limits their use to hedging.
Safeco Large-Cap Value Fund may purchase However, the Fund may use derivatives for a
a put or call option or option on a futures variety of non-principal purposes, including:
contract if, as a result thereof, the aggregate
premiums paid on all options or options on o As a hedge against adverse changes in
a futures contracts held by the Fund do not stock market prices, interest rates or
exceed 20% of the Fund's net assets. currency exchange rates
o As a substitute for purchasing or selling
Safeco Large-Cap Value Fund may enter into a securities
futures contract or option on futures contract o To increase the Fund's return as a non-
if, as a result thereof, the aggregate margin hedging strategy that may be considered
deposits and premiums required on all such speculative
instruments do not exceed 5% of the Fund's
net assets.
Safeco Large-Cap Value Fund may not
purchase securities on margin. However, the
Fund may (i) obtain short-term credits as
necessary to clear its purchases and sales of
securities and (ii) make margin deposits in
connection with its use of financial options and
futures, forward and spot currency contracts,
swap transactions and other financial contracts
or derivative instruments.
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Other investment policies and As described above, the Funds have substantially similar principal investment strategies and
restrictions policies. Certain of the non-principal investment policies and restrictions are different. For
a more complete discussion of each Fund's other investment policies and fundamental and
non-fundamental investment restrictions, see the SAI.
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77
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Safeco Large-Cap Value Fund Pioneer Value Fund
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Buying, Selling and Exchanging Shares
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Sales charges Purchases under $1,000,000 of Class A shares The Investor Class shares of Pioneer Value
of Safeco Large-Cap Value Fund are subject to Fund you receive in the Reorganization will
a 5.75% front-end sales charge. not be subject to any sales charge. Moreover,
if you own shares in your own name as of the
Contingent deferred sales charge of up to 5% closing of the Reorganization (i.e., not in the
if you redeem Class B shares within six years name of a broker or other intermediary) and
of purchase. maintain your account, you may purchase
Class A shares of Pioneer Value Fund and
Contingent deferred sales charge of 1% if Class A shares of any fund in the Pioneer
you redeem Class C share within one year family of funds through such account in the
of purchase. future without paying any sales charge.
Purchases of Investor Class shares of Safeco Except as described above, Class A shares of
Large-Cap Value Fund are not subject to a Pioneer Value Fund are subject to a front-end
sales load. sales charge of up to 5.75%.
Safeco Large-Cap Value Fund assesses a
mandatory redemption fee of 2%, as a
percentage of the amount redeemed or
exchanged, on Class A and Investor Class
shares held less than 30 days.
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78
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Safeco Large-Cap Value Fund Pioneer Value Fund
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Management and other fees Safeco Large-Cap Value Fund pays an advisory Pioneer's annual basic fee is 0.60% of Pioneer
fee on a monthly basis at an annual rate Value Fund's average daily net assets.
as follows:
Pioneer's fee increases or decreases
$0-$250,000,000: 0.70 of 1% depending upon whether the Fund's
$250,000,001-$750,000,000: 0.65 of 1% performance exceeds, or is exceeded by,
$750,000,001-$1,250,000,000: 0.60 of 1% that of the Russell 1000 Value Index over the
Over $1,250,000,000: 0.55 of 1% specified performance period. Each percentage
point of difference between the performance
SAM serves as administrator and fund of the Class A shares and the index (limited
accounting agent for Safeco Large-Cap Value to a maximum of +/-10) is multiplied by a
Fund. The Fund pays SAM an administrative performance rate adjustment of 0.01%. As
services fee of 0.05% of the Fund's average a result, the fee is subject to a maximum
daily net assets up to the first $200,000,000 annualized rate adjustment of +/-0.10%. This
and 0.01% of its net assets thereafter, and an performance comparison is made at the end
accounting fee of 0.04% of the Fund's average of each month. An appropriate monthly
daily net assets up to the first $200,000,000 percentage of this annual rate (based on the
and 0.01% of its net assets thereafter. number of days in the current month) is then
applied to the Fund's average net assets for
During its most recent fiscal year, Safeco the entire performance period, giving a dollar
Large-Cap Value Fund paid aggregate advisory amount that is added to (or subtracted from)
and administration fees at an average rate of the basic fee. In addition, the fee is also
0.79% of average daily net assets. further limited to a maximum annualized rate
adjustment of +/-0.10% (i.e., the management
SAM had contractually agreed until April 30, fee will not exceed 0.70% or be less than
2009, to pay certain fund operating expenses 0.50%). However, Pioneer currently is
(but not all of the operating expenses of the waving the lower limitation on its fee, but
Fund) that exceeded the rate of 0.40% per may reimpose it in the future. Because any
annum of Safeco Large-Cap Value Fund's adjustments to the basic fee begin with the
average daily net assets. This arrangement comparative performance of the Fund and
included all Fund operating expenses the performance record of the index, the
except management fees, Rule 12b-1 fees, controlling factor is not whether fund
brokerage commissions, interest, and performance is up or down, but whether
extraordinary expenses. it is up or down more or less than the
performance record of the index, regardless
For the fiscal year ended December 31, 2003, of general market performance.
Safeco Large-Cap Value Fund's annual
operating expenses for Class A shares, after During its most recent fiscal year, Pioneer
giving effect to the expense limitation were Value Fund paid an advisory fee at an average
1.35%, and without giving effect to the rate of 0.70% of average daily net assets.
expense limitation, were 1.71%.
In addition, the Fund reimburses Pioneer for
For the fiscal year ended December 31, 2003, certain Fund accounting and legal expenses
Safeco Large-Cap Value Fund's annual incurred on behalf of the fund and pays a
operating expenses for Class B shares, after separate shareholder servicing/transfer agency
giving effect to the expense limitation were fee to PIMSS, an affiliate of Pioneer.
2.10%, and without giving effect to the
expense limitation, were 2.55%.
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79
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Safeco Large-Cap Value Fund Pioneer Value Fund
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Management and other fees For the fiscal year ended December 31, 2003, For the fiscal year ended September 30, 2003,
(continued) Safeco Large-Cap Value Fund's annual the Fund's total annual operating expenses for
operating expenses for Class C shares, after Class A shares were 1.19% of average daily
giving effect to the expense limitation were net assets. The Fund does not currently have
2.10%, and without giving effect to the an expense limitation for its Class A shares.
expense limitation, were 2.33%.
Pioneer has agreed until the second
For the fiscal year ended December 31, 2003, anniversary of the closing of the
Safeco Large-Cap Value Fund's annual Reorganization to limit the expenses
operating expenses for Investor Class shares, (excluding extraordinary expenses) of the
after giving effect to the expense limitation Investor Class to 1.10% of the average daily
were 1.10%, and without giving effect to the net assets attributable to the Investor Class.
expense limitation, were 1.14%.
The Investor Class Shares to be issued in
the Reorganization will convert to Class A
shares after two years. Class A shares will
have higher expenses per share than Investor
Class Shares due to the Rule 12b-1 Plan. In
addition, although Pioneer has agreed to limit
the expenses attributable to Investor Class
shares, Pioneer is not required to limit the
expenses attributable to Class A shares.
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Distribution and service Investor Class shares of each Fund are not subject to a Rule 12b-1 fee. Pioneer Investor Class
(12b-1) fee shares will convert into Class A share after two years. Class A shares of each Fund are subject
to a Rule 12b-1 fee equal to 0.25% annually of average daily net assets.
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Buying shares You may buy shares of Safeco Large-Cap You may buy shares from any investment firm
Value Fund directly through Safeco Securities, that has a sales agreement with PFD, Pioneer
the Fund's principal underwriter or through Value Fund's distributor. Existing shareholders
brokers, registered investment advisers, of Safeco Large-Cap Value Fund who own
banks and other financial institutions that shares in their own name as of the closing
have entered into selling agreements with the date of the Reorganization and who maintain
Fund's principal underwriter, as described in their accounts may buy shares of any fund in
the Fund's prospectus. the Pioneer family of funds through such
accounts in the future without paying
Certain account transactions may be done by sales charges.
telephone.
If the account is established in the
shareholder's own name, shareholders may
also purchase additional shares of Pioneer
Value Fund by telephone or online.
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80
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Safeco Large-Cap Value Fund Pioneer Value Fund
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Exchange privilege There are no sales charges on shares you You may exchange shares of Pioneer
acquire through dividend reinvestment or other Value Fund without incurring any fee on
fund distributions or for Class A shares that the exchange with the more than 62 other
you have exchanged for Class A shares of Pioneer Funds. Your exchange would be for
another Fund. Class A shares, which is subject to Rule
12b-1 fees. An exchange generally is treated
Certain account transactions may be done as a sale and a new purchase of shares for
by telephone. federal income tax purposes.
If the account is established in the
shareholder's own name, shareholders may
also exchange shares of Pioneer Value Fund
for shares of other Pioneer Funds by
telephone or online.
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Selling shares Investor Class and Class A shares will be sold at net asset value per share next calculated after
each Fund receives your request in good order.
- ------------------------------------------------------------------------------------------------------------------------------------
You may sell your shares by contacting Safeco Normally, your investment firm will send
Large-Cap Value Fund directly in writing or by your request to sell shares to PIMSS. You
contacting a financial intermediary as described can also sell your shares by contacting the
in the Fund's prospectus. Fund directly if your account is registered in
your name.
If the account is established in the
shareholder's own name, shareholders may
also redeem shares of Pioneer Value Fund by
telephone or online.
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Comparison of Principal Risks of Investing in the Funds
Because each Fund has a similar investment objective, primary investment
policies and strategies, the Funds are subject to the same principal risks. You
could lose money on your investment in either Fund or not make as much as if you
invested elsewhere if:
o Stock market goes down (this risk may be greater in the short-term)
o Value stocks fall out of favor with investors
o The Fund's assets remain undervalued or do not have the potential
value originally expected
o Stocks selected for income do not achieve the same return as
securities selected for capital appreciation Investments in the Funds
are not bank deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. You
could lose money by investing in either Fund.
The Investor Class Shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses per
share than Investor Class Shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor Class
shares, Pioneer is not required to limit the expenses attributable to Class A
shares.
81
Past Performance
Set forth below is performance information for each Fund. The bar charts
show how each Fund's total return (not including any deduction for sales
charges) has varied from year to year for each full calendar year. The tables
show average annual total return (before and after taxes) for each Fund over
time for each class of shares (including deductions for sales charges) compared
with a broad-based securities market index. The bar charts give an indication of
the risks of investing in each Fund, including the fact that you could incur a
loss and experience volatility of returns year to year. Past performance before
and after taxes does not indicate future results.
Safeco Large-Cap Value Fund -- Investor Class
Calendar Year Total Returns*
[DATA BELOW IS REPRESENTED BY A BAR CHART IN THE ORIGINAL REPORT]
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03
- -1.09 30.36 23.99 26.43 6.31 1.17 -6.36 -7.06 17.40 4.20
* During the period shown in the bar chart, your Safeco Fund's highest
quarterly return was 14.77% for the quarter ended June 30, 2003, and the
lowest quarterly return was -17.60% for the quarter ended September 30,
2002.
Pioneer Value Fund -- Class A Shares
Calendar Year Total Returns*
[DATA BELOW IS REPRESENTED BY A BAR CHART IN THE ORIGINAL REPORT]
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03
- -1.73 27.15 21.99 23.70 -7.99 1.61 15.95 -3.09 -18.79 28.54
* During the period shown in the bar chart, Pioneer Value Fund's highest
quarterly return was 15.93% for the quarter ended June 30, 2003, and the
lowest quarterly return was -22.31% for the quarter ended September 30,
1998.
82
Safeco Large-Cap Value Fund
Average Annual Total Returns as of December 31, 2003
- --------------------------------------------------------------------------------------------------------
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------------------------------
Safeco Large-Cap Value Fund, Class A Shares
- --------------------------------------------------------------------------------------------------------
Return Before Taxes 16.75% -3.39% 5.98%
- --------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(1) 16.57% -4.07% 4.11%
- --------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(1) 11.10% -3.20% 4.18%
- --------------------------------------------------------------------------------------------------------
Safeco Large-Cap Value Fund, Class B Shares
- --------------------------------------------------------------------------------------------------------
Return Before Taxes 17.98% -3.36% 6.19%
- --------------------------------------------------------------------------------------------------------
Safeco Large-Cap Value Fund, Class C Shares
- --------------------------------------------------------------------------------------------------------
Return Before Taxes 22.00% -2.92% 6.11%
- --------------------------------------------------------------------------------------------------------
Safeco Large-Cap Value Fund, Investor Class Shares
- --------------------------------------------------------------------------------------------------------
Return Before Taxes 24.20% -2.01% 6.86%
- --------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(1) 23.94% -2.79% 4.86%
- --------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(1) 16.01% -2.11% 4.87%
- --------------------------------------------------------------------------------------------------------
Russell 1000 Value Index(2)
(reflects no deduction for fees, expenses or taxes) 30.03% 3.57% 11.87%
- --------------------------------------------------------------------------------------------------------
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on your situation and may
differ from those shown. Furthermore, the after-tax returns shown are not
relevant to those who hold their shares through tax-deferred arrangements
such as 401(k) plans or IRA accounts, or to investors that are tax-exempt.
(2) The Russell 1000 Value Index, an unmanaged index of value stocks in the
Russell 1000 Index of 1,000 largest-capitalization U.S. stocks, is for
reference only and does not mirror the Fund's investments.
Pioneer Value Fund -- Class A Shares
Average Annual Total Returns as of December 31, 2003
- ------------------------------------------------------------------------------------------------------
1 Year 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------
Pioneer Value Fund, Class A Shares
- ------------------------------------------------------------------------------------------------------
Return Before Taxes 21.13% 2.36% 6.90%
- ------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(1) 20.74% 0.96% 4.80%
- ------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(1) 13.76% 1.44% 4.94%
- ------------------------------------------------------------------------------------------------------
Russell 1000 Value Index(2)
(reflects no deduction for fees, expenses or taxes) 30.03% 3.56% 11.88%
- ------------------------------------------------------------------------------------------------------
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on your situation and may
differ from those shown. Furthermore, the after-tax returns shown are not
relevant to those who hold their shares through tax-deferred arrangements
such as 401(k) plans or IRA accounts, or to investors that are tax-exempt.
(2) The Russell 1000 Value Index, an unmanaged index of value stocks in the
Russell 1000 Index of 1,000 largest-capitalization U.S. stocks, is for
reference only and does not mirror the Fund's investments.
83
Pioneer Value Fund's Investor Class shares will not be outstanding prior to
the closing of the Reorganization and consequently have no performance history.
However, the performance record of the Investor Class would be modestly higher
than the performance of Class A, B and C shares due to the lower expenses
applicable to the Investor Class.
The most recent portfolio manager's discussion of each Fund's performance
is attached as Exhibit D.
The Funds' Fees and Expenses
Shareholders of both Funds pay various fees and expenses, either directly
or indirectly. The tables below show the fees and expenses that you would pay if
you were to buy and hold shares of each Fund. The expenses in the tables
appearing below are based on (i) for your Safeco Fund, the expenses of your
Safeco Fund for the period ended December 31, 2003 and (ii) for Pioneer Value
Fund, the expenses of Pioneer Value Fund for the period ended June 30, 2003.
Future expenses for all share classes may be greater or less.
Safeco
Safeco Large-Cap
Large-Cap Value
Value Fund Fund
Class A Class B
Shareholder transaction fees (paid directly from your investment) ------------ -----------
Maximum sales charge (load) when you buy shares as a percentage
of offering price ................................................... 5.75%(6) None
Maximum deferred sales charge (load) as a percentage of purchase
price or the amount you receive when you sell shares, whichever
is less ............................................................. None 5.00%(7)
Redemption fees for shares held less than 30 days .................... 2.00% None
Wire redemption fee .................................................. $ 20(4) $ 20(4)
Annual low balance fee ............................................... $ 12(5) $ 12(5)
Annual fund operating expenses (deducted from fund assets)
(as a % of average net assets)
Management fee ....................................................... 0.70% 0.70%
Distribution and service (12b-1) fee ................................. 0.25% 1.00%
Other expenses ....................................................... 0.76% 0.85%
Total fund operating expenses ........................................ 1.71% 2.55%
Expense reimbursement/reduction ...................................... 0.36%(2) 0.45%(2)
Net fund operating expenses .......................................... 1.35% 2.10%
Safeco Safeco Pro Forma
Large-Cap Large-Cap Pioneer
Value Value Value Fund
Fund Fund Investor
Class C Investor Class Class(9)
Shareholder transaction fees (paid directly from your investment) ----------- ---------------- -----------
Maximum sales charge (load) when you buy shares as a percentage
of offering price ................................................... None None None(1)
Maximum deferred sales charge (load) as a percentage of purchase
price or the amount you receive when you sell shares, whichever
is less ............................................................. 1.00%(8) None None
Redemption fees for shares held less than 30 days .................... None 2.00% None
Wire redemption fee .................................................. $ 20(4) $ 20(4) $ 10
Annual low balance fee ............................................... $ 12(5) $ 12(5) N/A
Annual fund operating expenses (deducted from fund assets)
(as a % of average net assets)
Management fee ....................................................... 0.70% 0.70% 0.63%
Distribution and service (12b-1) fee ................................. 1.00% None None
Other expenses ....................................................... 0.63% 0.44% 0.47%
Total fund operating expenses ........................................ 2.33% 1.14% 1.10%
Expense reimbursement/reduction ...................................... 0.23%(2) 0.04%(2) None(3)
Net fund operating expenses .......................................... 2.10% 1.10% 1.10%
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(1) No sales load will apply to shares received in the Reorganization by
shareholders of your Safeco Fund who become shareholders of record of
Pioneer Value Fund through the Reorganization. In addition, shareholders of
your Safeco Fund who own shares in their own name (i.e., not in the name of
a broker or other intermediary) and maintain such account as of the closing
of the Reorganization may purchase Class A Shares of Pioneer Value Fund or
of any Fund in the Pioneer family of funds through such account in the
future without paying a sales charge.
(2) As described above, SAM had contractually agreed to reimburse Safeco
Large-Cap Value Fund for certain Fund operating expenses (but not all of
the operating expenses of the Fund) that exceeded the rate of 0.40% per
annum of the Fund's average daily net assets. This arrangement included all
fund operating expenses except management fees, Rule 12b-1 fees, brokerage
commissions, interest, and extraordinary expenses.
(3) Pioneer has agreed that through the second anniversary of the closing of
the Reorganization, Pioneer will limit the expenses (excluding
extraordinary expenses) of the Investor Class shares of Pioneer Value Fund
to 1.10% of average daily net assets.
(4) There is a higher charge for international wire redemptions, which may vary
by country or dollar amount.
(5) A low balance fee is charged once in year in December for accounts with
balances under $1,000 in your Safeco Fund.
(6) Purchases of $1,000,000 or more of Class A shares of your Safeco Fund are
not subject to a front-end sales charge, but a 1.00% deferred sales charge
will apply to redemptions made in the first twelve months except with
respect to participant-directed redemptions from qualified retirement
plans.
(7) The contingent deferred sales charge on Class B shares of your Safeco Fund
reduces to zero after six years from purchase, and the Class B shares
convert to Class A shares at that time.
(8) The contingent deferred sales charge on Class C shares applies only to
redemptions made in the first twelve months after purchase.
84
(9) The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses
per share than Investor Class shares due to the Rule 12b-1 Plan. In
addition, although Pioneer has agreed to limit the expenses attributable to
Investor Class shares, Pioneer is not required to limit the expenses
attributable to Class A shares. Class A shares do not currently have an
expense limitation.
The hypothetical example below helps you compare the cost of investing in
each Fund. It assumes that: (a) you invest $10,000 in each Fund for the time
periods shown, (b) you reinvest all dividends and distributions, (c) your
investment has a 5% return each year, (d) each Fund's gross operating expenses
remain the same, (e) the expense limitations are in effect for five years for
Safeco Large-Cap Value Fund and two years for Pioneer Value Fund and (f) and the
Investor Class shares of Pioneer Value Fund convert to Class A shares after two
years. The examples are for comparison purposes only and are not a
representation of either Fund's actual expenses or returns, either past or
future.
Example
Safeco Large-Cap Value Fund
Class A Shares
Year 1 .............. $ 705
Year 3 .............. $ 978
Year 5 .............. $1,272
Year 10 ............. $2,318
With Without
Class B Shares Redemption Redemption
Year 1 .............. $ 713 $ 213
Year 3 .............. $ 958 $ 658
Year 5 .............. $ 1,329 $ 1,129
Year 10 ............. $ 2,290 $ 2,290
With Without
Class C Shares Redemption Redemption
Year 1 .............. $ 313 $ 213
Year 3 .............. $ 658 $ 658
Year 5 .............. $ 1,129 $ 1,129
Year 10 ............. $ 2,565 $ 2,565
Investor Class Shares
Year 1 .............. $ 112
Year 3 .............. $ 350
Year 5 .............. $ 606
Year 10 ............. $1,366
Pro FormaPioneer Value Fund
Investor Class Shares
Year 1 .............. $ 113
Year 3 .............. $ 346
Year 5 .............. $ 594
Year 10 ............. $1,430
85
Reasons for the Proposed Reorganization
The Trustees believe that the proposed Reorganization is in the best
interests of Safeco Large-Cap Value Fund. The Trustees considered the following
matters, among others, in approving the proposal.
First, SAM, the investment adviser to the Safeco Fund until August 2, 2004,
was acquired by Symetra. Symetra informed the Trustees that it did not intend to
continue to provide investment advisory services to the Safeco Funds.
Consequently, a change in your Safeco Fund's investment adviser was necessary.
Second, Pioneer Value Fund's short and long-term performance record is
superior to the performance record of your Safeco Fund. For the one, five and
ten year periods ended June 30, 2004, Class A shares of Pioneer Value Fund had
an average annual return of 20.04%, 3.24%, and 8.43%, respectively, compared to
an average annual return of the Class A shares and Investor Class shares of
11.80% and 18.91% (one year) -3.11% and -1.71% (five year) and 6.63% and 7.52%
(ten year), respectively, during the same period. In addition, the Trustees
considered the track record of Pioneer in managing equity and fixed income
mutual funds.
Third, the resources of Pioneer. At June 30, 2004, Pioneer managed over 62
investment companies and accounts with approximately $35 billion in assets.
Pioneer is part of the global asset management group of UniCredito Italiano
S.p.A., one of the largest banking groups in Italy, providing investment
management and financial services to mutual funds, institutions and other
clients. As of June 30, 2004, assets under management of UniCredito Italiano
S.p.A. were approximately $151 billion worldwide. Shareholders of your Safeco
Fund would become part of a significantly larger family of funds that offers a
more diverse array of investment options and enhanced shareholder account
options. The Pioneer family of mutual funds offers over 62 funds, including
domestic and international equity and fixed income funds and a money market fund
that will be available to your Safeco Fund's shareholders through exchanges. In
addition, Pioneer offers shareholders additional options for their accounts,
including the ability to transact and exchange shares over the telephone or
online and the ability to access account values and transaction history in all
of the shareholder's direct accounts in the Pioneer Funds over the telephone or
online.
Fourth, Pioneer Value Fund's lower operating expenses and Pioneer's
commitment until the second anniversary of the Reorganization to limit the
expenses (excluding extraordinary expenses) of the Investor Class of Pioneer
Value Fund to 1.10% of average daily net assets. The estimated expense ratio of
the Investor Class shares of Pioneer Value Fund is lower or equal to both the
gross expenses and expenses net of expense reimbursement of each class of shares
of your Safeco Fund. Although you will experience higher expenses once the
Investor Class shares convert to Class A shares after two years, the Class A
expense ratio for the most recent fiscal year was 1.19% of average daily net
assets, which was below the total gross and net expenses of the Class A shares
of your Safeco Fund.
Fifth, the substantially larger size of Pioneer Value Fund offers greater
opportunity for diversification of the investment portfolio, which should help
to reduce risks.
Sixth, shareholders who own shares in their name as of the closing of the
Reorganization (i.e., not in the name of a broker or other intermediary) and
maintain their account may purchase additional Class A shares of the
corresponding Pioneer Fund through such account in the future or may exchange
those shares for Class A shares of another Pioneer Fund or purchase Class A
share of another Pioneer Fund without paying any sales charge.
Seventh, the Investor Class shares of Pioneer Value Fund received in the
Reorganization will provide Safeco Large-Cap Value Fund shareholders with
exposure to substantially the same investment product as they currently have.
Pioneer and Symetra will pay all out of pocket expenses of the Safeco Funds
and the Pioneer Funds associated with the Reorganizations, including, but not
limited to: (1) the expenses associated with the preparation, printing and
mailing of any shareholder communications, including this joint Proxy
Statement/Prospectus, and any filings with the SEC and other governmental
authorities in connection with the Reorganizations; (2) the fees and expenses of
any proxy solicitation firm retained in connection with the Reorganizations; (3)
the legal fees and expenses incurred by the Safeco Funds in connection with the
Reorganizations; and (4) the Trustees' fees and out of pocket expenses incurred
as a result of the Reorganizations.
The Trustees also considered that Pioneer and Symetra will benefit from the
Reorganization. See "Certain Agreements between Pioneer and Symetra."
The Board of Trustees of Pioneer Value Fund also considered that the
Reorganization presents an excellent opportunity for the Pioneer Value Fund to
acquire investment assets without the obligation to pay commissions or other
transaction costs that a fund normally incurs when purchasing securities. This
opportunity provides an economic benefit to Pioneer Value Fund and its
shareholders.
86
CAPITALIZATION
The following table sets forth the capitalization of each Fund as of
September 30, 2004, and pro forma combined Fund as of September 30, 2004.
Safeco Pro Forma
Large-Cap Pioneer Pioneer
Value Fund Value Fund Value Fund
September 30, 2004 September 30, 2004 September 30, 2004
-------------------- -------------------- -------------------
Total Net Assets (in thousands) $147,084 $3,788,405 $3,935,489
Class A shares ................ $ 1,654 $3,745,064 $3,745,064
Class B shares ................ $ 996 $ 32,311 $ 32,311
Class C shares ................ $ 143 $ 9,168 $ 9,168
Investor Class shares ......... $144,291 N/A $ 147,084
Class Y shares ................ N/A $ 1,852 $ 1,852
Class R shares ................ N/A $ 10 $ 10
Net Asset Value Per Share
Class A shares ................ $ 19.46 $ 18.83 $ 18.83
Class B shares ................ $ 19.47 $ 17.87 $ 17.87
Class C shares ................ $ 19.55 $ 17.87 $ 17.87
Investor Class shares ......... $ 19.34 N/A $ 18.83
Class Y shares ................ N/A $ 18.84 $ 18.84
Class R shares ................ N/A $ 18.64 $ 18.64
Shares Outstanding
Class A shares ................ 85,000 198,896,441 198,896,441
Class B shares ................ 51,153 1,807,707 1,807,707
Class C shares ................ 7,334 513,049 513,049
Investor Class shares ......... 7,459,486 N/A 7,811,152
Class Y shares ................ N/A 98,313 98,313
Class R shares ................ N/A 539 539
It is impossible to predict how many shares of Pioneer Value Fund will
actually be received and distributed by your Safeco Fund on the Reorganization
date. The table should not be relied upon to determine the amount of Pioneer
Value Fund's shares that will actually be received and distributed.
BOARD'S EVALUATION AND RECOMMENDATION
For the reasons described above, the Trustees, including the Independent
Trustees, approved the Reorganization. In particular, the Trustees determined
that the Reorganization is in the best interests of your Safeco Fund. Similarly,
the Board of Trustees of Pioneer Value Fund, including its Independent Trustees,
approved the Reorganization. They also determined that the Reorganization is in
the best interests of Pioneer Value Fund.
The Trustees recommend that the shareholders of your Safeco Fund vote FOR
the proposal to approve the Agreement and Plan of Reorganization.
87
Safeco Multi-Cap Core Fund and
Pioneer Mid Cap Value Fund
PROPOSAL 1(g)
Approval of Agreement and Plan of Reorganization
SUMMARY
The following is a summary of more complete information appearing later in
this Proxy Statement/Prospectus or incorporated herein. You should read
carefully the entire proxy statement, including the form of Agreement and Plan
of Reorganization attached as EXHIBIT A-1 because they contain details that are
not in the summary.
The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses per
share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor Class
shares, Pioneer is not required to limit the expenses attributable to Class A
shares.
In the table below, if a row extends across the entire table, the policy
disclosed applies to both your Safeco Fund and the Pioneer Fund.
Comparison of Safeco Multi-Cap Core Fund to the Pioneer Mid Cap Value Fund
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Safeco Multi-Cap Core Fund Pioneer Mid Cap Value Fund
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Business A series of Safeco Common Stock Trust, A diversified open-end management
a diversified open-end management investment company registered under the
investment company organized as a Investment Company Act organized as a
Delaware statutory trust. Delaware statutory trust.
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Net assets as of $90 million $1,820 million
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June 30, 2004
Investment advisers and Investment adviser (until August 2, 2004): Investment adviser:
portfolio managers SAM Pioneer
Portfolio Managers: Portfolio Managers:
Bill Whitlow (since 1997 and until J. Rodman Wright
August 2, 2004) Senior Vice President, Pioneer
CFA, Vice President, SAM Joined Pioneer in 1994
Joined SAM in 2001 Investment professional since 1988
Brian Clancy (since 2003) Sean Gavin
CFA, Equity Analyst, SAM Vice President, Pioneer
Joined SAM in 1996 Joined Pioneer in 2002
Currently Pioneer is acting as investment
adviser to Safeco Multi-Cap Core Fund. The
Portfolio Managers of Pioneer Mid Cap Value
Fund, as indicated in the next column,
currently manage your Safeco Fund.
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Investment objective Safeco Multi-Cap Core Fund seeks long-term Pioneer Mid Cap Value Fund seeks capital
growth of capital. appreciation by investing in a diversified
portfolio of securities consisting primarily
of common stocks.
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Each Fund provides written notice to shareholders at least 60 days prior to any change to its
investment objective as described above.
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88
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Safeco Multi-Cap Core Fund Pioneer Mid Cap Value Fund
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Primary investments Under normal circumstances, Safeco Multi-Cap Normally, Pioneer Mid Cap Value Fund invests
Core Fund invests in a blend of growth and at least 80% of its total assets in equity
value-oriented stocks of companies of any size. securities of mid-size companies, that is
companies with market values within the
range of market values of companies included
in the Russell Midcap Value Index.
Pioneer Mid Cap Value Fund focuses on
issuers with capitalizations within the $1
billion to $10 billion range, and that range
will change depending on market conditions.
The equity securities in which Pioneer
Mid Cap Value Fund principally invests are
common stocks, preferred stocks, depositary
receipts and convertible debt, but the Fund
may invest in other types of equity securities
to a lesser extent, such as warrants
and rights.
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Investment strategies In managing the portfolio and selecting Pioneer Mid Cap Value Fund takes a
securities, SAM considered companies with: fundamental, research-driven approach in
seeking to provide superior returns over time.
o Faster earnings growth than their Pioneer seeks securities selling at substantial
competitors discounts to their underlying values and then
o Low price-to-earnings ratios when compared holds these securities until the market values
to competitors reflect their intrinsic values.
o A share price that represents good value
o Potential for long-term appreciation Pioneer evaluates a security's potential value,
including the attractiveness of its market
valuation, based on the company's assets
and earnings growth. Pioneer evaluates the
issuer based on its financial statements
and operations, employing a bottom-up
analytic style.
Factors Pioneer looks for in selecting
investments include:
o Favorable expected returns relative to
perceived risk
o Management with demonstrated ability and
commitment to the company
o Low market valuations relative to earnings
forecast, book value, cash flow and sales
o Turnaround potential for companies that
have been through difficult periods
o Estimated private market value in excess
of current stock price
o Whether the issuer's industry has strong
fundamentals, such as increasing or
sustainable demand and barriers to entry
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89
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Safeco Multi-Cap Core Fund Pioneer Mid Cap Value Fund
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Other investments Safeco Multi-Cap Core Fund may invest in Pioneer Mid Cap Value Fund may invest up
securities convertible into common stock, to 25% of its total assets in equity and debt
but less than 35% of its total assets will be securities of non-U.S. issuers. The Fund will
invested in such securities. not invest more than 5% of its total assets in
the securities of emerging markets issuers.
Safeco Multi-Cap Core Fund may invest up to
20% of assets in foreign securities. Pioneer Mid Cap Value Fund may invest up
to 20% of its total assets in debt securities of
Safeco Multi-Cap Core Fund may invest up to corporate and government issuers. Generally
10% of its total assets in debt securities rated the Fund acquires debt securities that are
below investment grade. investment grade, but the Fund may invest up
to 5% of its net assets in below investment
grade convertible debt securities issued by
both U.S. and non-U.S. issuers. The Fund
invests in debt securities when Pioneer
believes they are consistent with the Fund's
investment objective by offering the potential
for capital appreciation, to diversify the Fund's
portfolio or for greater liquidity.
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Temporary defensive Safeco Multi-Cap Core Fund may hold cash or Pioneer Mid Cap Value Fund may invest all or
strategies invest in high-quality, short-term securities part of its assets in securities with remaining
issued by an agency or instrumentality of the maturities of less than one year, cash
U.S. government, high-quality commercial equivalents or may hold cash.
paper, certificates of deposit, shares of
no-load, open-end money market funds, or
repurchase agreements as a temporary
defensive measure when market conditions
so warrant.
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Diversification Each Fund is diversified for the purpose of the Investment Company Act and each Fund is
subject to diversification requirements under the Code.
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Industry Concentration Each Fund may not invest more than 25% of its assets in any one industry.
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Restricted and illiquid If immediately after and as a result of such Pioneer Mid Cap Value Fund will not invest
securities action the value of the following securities, in more than 15% of its net assets in illiquid
the aggregate, would exceed 15% of Safeco and other securities that are not readily
Multi-Cap Core Fund's net assets, the Fund will marketable. Repurchase agreements maturing
not (i) purchase securities for which there is in more than seven days will be included for
no readily available market, (ii) purchase time purposes of the foregoing limit. Securities
deposits maturing in more than seven days, subject to restrictions on resale under the
(iii) purchase over-the-counter (OTC) options 1933 Act, are considered illiquid unless they
or hold assets set aside to cover OTC options are eligible for resale pursuant to Rule 144A
written by the Fund, (iv) enter into repurchase or another exemption from the registration
agreements maturing in more than seven requirements of the 1933 Act and are
days, or (v) invest in interests in real estate determined to be liquid by Pioneer.
investment trusts which are not readily
marketable or interests in real estate limited
partnerships which are not listed or traded on
the NASDAQ Stock Market.
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90
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Safeco Multi-Cap Core Fund Pioneer Mid Cap Value Fund
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Borrowing Safeco Multi-Cap Core Fund may borrow Pioneer Mid Cap Value Fund may not borrow
money (i) from banks or (ii) by engaging in money in amounts exceeding 10% of the
reverse repurchase agreements. Fund's total assets (including the amount
borrowed) taken at market value.
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Lending Safeco Multi-Cap Core Fund may lend Pioneer Mid Cap Value Fund may not make
securities to qualified institutional investors loans, except that the Fund may (i) lend
with a value of up to 33% of the Fund's portfolio securities in accordance with the
total assets. Fund's investment policies, (ii) enter into
repurchase agreements, (iii) purchase all or
a portion of an issue of publicly distributed
debt securities, bank loan participation
interests, bank certificates of deposit, bankers'
acceptances, debentures or other securities,
whether or not the purchase is made upon
the original issuance of the securities,
(iv) participate in a credit facility whereby
the Fund may directly lend to and borrow
money from other affiliated funds to the extent
permitted under the Investment Company
Act or an exemption therefrom, and (v) make
loans in any other manner consistent with
applicable law, as amended and interpreted or
modified from time to time by any regulatory
authority having jurisdiction.
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91
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Safeco Multi-Cap Core Fund Pioneer Mid Cap Value Fund
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Derivative instruments Safeco Multi-Cap Core Fund may write a put or Pioneer Mid Cap Value Fund may use
call option if, as a result thereof, the aggregate futures and options on securities, indices
value of the assets underlying all such options and currencies, forward currency exchange
does not exceed 25% of the Fund's net assets. contracts and other derivatives. The Fund
does not use derivatives as a primary
Safeco Multi-Cap Core Fund may purchase a investment technique and generally limits
put or call option or option on a futures their use to hedging. However, the Fund may
contract if, as a result thereof, the aggregate use derivatives for a variety of non-principal
premiums paid on all options or options on purposes, including:
futures contracts held by the Fund do not
exceed 20% of the Fund's net assets. o As a hedge against adverse changes
in stock market prices, interest rates
Safeco Multi-Cap Core Fund may enter into any or currency exchange rates
futures contract or option on futures contract o As a substitute for purchasing or
if, as a result thereof, the aggregate margin selling securities
deposits and premiums required on all such o To increase the Fund's return as a
instruments do not exceed 5% of the Fund's non-hedging strategy that may be
net assets. considered speculative
Safeco Multi-Cap Core Fund may not purchase
securities on margin. However, the Fund may
(i) obtain short-term credits as necessary to
clear its purchases and sales of securities, and
(ii) make margin deposits in connection with
its use of financial options and futures,
forward and spot currency contracts, swap
transactions and other financial contracts or
derivative instruments.
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Other investment policies and As described above, the Funds have substantially similar principal investment strategies and
restrictions policies. Certain of the non-principal investment policies and restrictions are different. For a
more complete discussion of each Fund's other investment policies and fundamental and
non-fundamental investment restrictions, see the SAI.
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92
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Safeco Multi-Cap Core Fund Pioneer Mid Cap Value Fund
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Buying, Selling and Exchanging Shares
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Sales charges Purchases under $1,000,000 of Class A shares The Investor Class shares of Pioneer Mid Cap
of Safeco Multi-Cap Core Fund are subject to a Value Fund you receive in the Reorganization
5.75% front-end sales charge. will not be subject to any sales charge.
Moreover, if you own shares in your own
Contingent deferred sales charge of up to 5% name as of the closing of the Reorganization
if you redeem Class B shares within six years (i.e., not in the name of a broker or other
of purchase. intermediary) and maintain your account, you
may purchase Class A shares of Pioneer Mid
Contingent deferred sales charge of 1% if Cap Value Fund and Class A shares of any
you redeem Class C shares within one year fund in the Pioneer family of funds through
of purchase. such account in the future without paying any
sales charge.
Purchases of Investor Class shares of Safeco
Multi-Cap Core Fund are not subject to a Except as described above, Class A shares of
sales load. Pioneer Mid Cap Value Fund are subject to a
front-end sales charge of up to 5.75%.
Safeco Multi-Cap Core Fund assesses a
mandatory redemption fee of 2%, as a
percentage of the amount redeemed or
exchanged, on Class A and Investor Class
shares held less than 30 days.
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93
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Safeco Multi-Cap Core Fund Pioneer Mid Cap Value Fund
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Management and other fees Safeco Multi -Cap Core Fund pays an advisory Pioneer Mid Cap Value Fund pays Pioneer a
fee on a monthly basis at an annual rate management fee equal to:
as follows:
0.70% of average daily net assets up to
$0-$250,000,000: 0.70 of 1% $500 million;
$250,000,001-$750,000,000: 0.65 of 1% 0.65% of the next $500 million; and
$750,000,001-$1,250,000,000: 0.60 of 1% 0.625% on assets over $1 billion, based
Over $1,250,000,000: 0.55 of 1% on the Fund's performance and the size of
the Fund.
SAM serves as administrator and fund
accounting agent for Safeco Multi-Cap Core Pioneer's fee increases or decreases
Fund. The Fund pays SAM an administrative depending upon whether the Fund's
services fee of 0.05% of the Fund's average performance exceeds, or is exceeded by,
daily net assets up to the first $200,000,000 that of the Russell Midcap Value Index over
and 0.01% of its net assets thereafter, and an the specified performance period. Each
accounting fee of 0.04% of the Fund's average percentage point of difference between the
daily net assets up to the first $200,000,000 performance of the Class A shares and the
and 0.01% of its net assets thereafter. index (limited to a maximum of +/-10) is
multiplied by a performance rate adjustment
During its most recent fiscal year, Safeco of 0.01%. As a result, the fee is subject to
Multi-Cap Core Fund paid aggregate advisory a maximum annualized rate adjustment of
and administration fees at an average rate of +/-0.10%. This performance comparison
0.79% of average daily net assets. is made at the end of each month. An
appropriate monthly percentage of this annual
SAM had contractually agreed until April 30, rate (based on the number of days in the
2009, to pay certain Fund operating expenses current month) is then applied to the Fund's
(but not all of the operating expenses of the average net assets for the entire performance
Fund) that exceeded the rate of 0.40% per period, giving a dollar amount that is added to
annum of the Fund's average daily net assets. (or subtracted from) the basic fee. In addition,
This arrangement included all Fund operating the fee is also further limited to a maximum
expenses except management fees, Rule 12b-1 annualized rate adjustment of +/-0.10% (i.e., the
fees, brokerage commissions, interest, and management fee will not exceed 0.80% or be
extraordinary expenses. less than 0.525%). However, Pioneer currently
is waving the lower limitation on its fee, but
For the fiscal year ended December 31, 2003, may reimpose it in the future. Because any
the Fund's annual operating expenses for Class adjustments to the basic fee begin with the
A shares, after giving effect to the expense comparative performance of the Fund and the
limitation were 1.35%, and without giving performance record of the index, the
effect to the expense limitation, were 1.78%. controlling factor is not whether fund
performance is up or down, but whether it is
For the fiscal year ended December 31, 2003, up or down more or less than the
the Fund's annual operating expenses for Class performance record of the index, regardless
B shares, after giving effect to the expense of general market performance.
limitation were 2.10%, and without giving
effect to the expense limitation, were 2.54%. During its most recent fiscal year, Pioneer
Mid Cap Value Fund paid an advisory fee at
an average rate of 0.76% of average daily
net assets.
In addition, the Fund reimburses Pioneer for
certain fnd accounting and legal expenses
incurred on behalf of the Fund and pays a
separate shareholder servicing/transfer agency
fee to PIMSS, an affiliate of Pioneer.
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94
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Safeco Multi-Cap Core Fund Pioneer Mid Cap Value Fund
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Management and other fees For the fiscal year ended December 31, 2003, For the fiscal year ended October 31, 2003,
(continued) the Fund's annual operating expenses for Class the Fund's total annual operating expenses for
C shares, after giving effect to the expense Class A shares were 1.37% of average daily
limitation were 2.10%, and without giving net assets. The Fund does not currently have
effect to the expense limitation, were 2.46%. an expense limitation for its Class A shares.
For the fiscal year ended December 31, 2003, Pioneer has agreed until the second
the Fund's annual operating expenses for anniversary of the closing of the
Investor Class shares, after giving effect to Reorganization to limit the expenses
the expense limitation were 1.10%, and (excluding extraordinary expenses) of the
without giving effect to the expense limitation, Investor Class to 1.10% of the average daily
were 1.23%. net assets attributable to the Investor Class.
The Investor Class sares to be issued in the
Reorganization will convert to Class A shares
after two years. Class A shares will have
higher expenses per share than Investor
Class shares due to the Rule 12b-1 Plan. In
addition, although Pioneer has agreed to limit
the expenses attributable to Investor Class
shares, Pioneer is not required to limit the
expenses attributable to Class A shares.
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Distribution and service Investor Class shares of each Fund are not subject to a Rule 12b-1 fee. Pioneer Investor Class
(12b-1) fee shares will convert into Class A shares after two years. Class A shares of each Fund are subject
to a Rule 12b-1 fee equal to 0.25% annually of average daily net assets.
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Buying shares You may buy shares of Safeco Multi-Cap You may buy shares from any investment firm
Core Fund directly through Safeco Securities, that has a sales agreement with PFD, Pioneer
the Fund's principal underwriter or through Mid Cap Value Fund's distributor. Existing
brokers, registered investment advisers, banks shareholders of Safeco Multi-Cap Core
and other financial institutions that have Fund who own Investor Class shares in their
entered into selling agreements with the Fund's own name as of the closing date of the
principal underwriter, as described in the Reorganization and who maintain their
Fund's prospectus. accounts may buy shares of any Fund in
the Pioneer family of funds through such
Certain account transactions may be done accounts in the future without paying
by telephone. sales charges.
If the account is established in the
shareholder's own name, shareholders may
also purchase additional shares of Pioneer
Mid Cap Value Fund by telephone or online.
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95
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Safeco Multi-Cap Core Fund Pioneer Mid Cap Value Fund
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Exchange privilege There are no sales charges on shares you You may exchange shares of Pioneer Mid Cap
acquire through dividend reinvestment or other Value Fund without incurring any fee on the
Fund distributions or for Class A shares that exchange with the more than 62 other Pioneer
you have exchanged for Class A shares of Funds. Your exchange would be for Class A
another fund. shares, which is subject to Rule 12b-1 fees.
An exchange generally is treated as a sale and
Certain account transactions may be done a new purchase of shares for federal income
by telephone. tax purposes.
If the account is established in the
shareholder's own name, shareholders may
also exchange shares of Pioneer Mid Cap
Value Fund for shares of other Pioneer Funds
by telephone or online.
- ------------------------------------------------------------------------------------------------------------------------------------
Selling shares Investor Class and Class A shares will be sold at net asset value per share next calculated after
each Fund receives your request in good order.
- ------------------------------------------------------------------------------------------------------------------------------------
You may sell your shares by contacting Safeco Normally, your investment firm will send
Multi-Cap Core Fund directly in writing or by your request to sell shares to PIMSS. You
contacting a financial intermediary as described can also sell your shares by contacting the
in the Fund's prospectus. Fund directly if your account is registered in
your name.
If the account is established in the
shareholder's own name, shareholders may
also redeem shares of Pioneer Mid Cap Fund
by telephone or online.
- ------------------------------------------------------------------------------------------------------------------------------------
Comparison of Principal Risks of Investing in the Funds
Because each Fund has a similar investment objective, primary investment
policies and strategies, the Funds are subject to the same principal risks. Even
though each Fund seeks capital appreciation, you could lose money on your
investment or not make as much as if you invested elsewhere if:
o The stock market goes down (this risk may be greater in the short
term)
o Mid-size or value stocks fall out of favor with investors
o The Fund's assets remain undervalued or do not have the potential
value originally expected
Each Fund also has risks associated with investing in mid-size companies.
Compared to large companies, mid-size companies, and the market for their equity
securities, are likely to:
o Be more sensitive to changes in earnings results and investor
expectations
o Have more limited product lines and capital resources
o Experience sharper swings in market values
o Be harder to sell at the times and prices Pioneer thinks appropriate
o Offer greater potential for gain and loss
96
Investing in non-U.S. issuers may involve unique risks compared to
investing in securities of U.S. issuers. These risks may include:
o Less information about non-U.S. issuers or markets may be available
due to less rigorous disclosure or accounting standards or regulatory
practices
o Many non-U.S. markets are smaller, less liquid and more volatile. In a
changing market, Pioneer may not be able to sell the Fund's portfolio
securities at times, in amounts and at prices it considers reasonable
o Adverse effect of currency exchange rates or controls on the value of
the Fund's investments
o The economies of non-U.S. countries may grow at slower rates than
expected or may experience a downturn or recession
o Economic, political and social developments may adversely affect the
securities markets
o Withholding and other non-U.S. taxes may decrease the Fund's return
The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses per
share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor Class
shares, Pioneer is not required to limit the expenses attributable to Class A
shares.
Past Performance
Set forth below is performance information for each Fund. The bar charts
show how each Fund's total return (not including any deduction for sales
charges) has varied from year to year for each full calendar year. The tables
show average annual total return (before and after taxes) for each Fund over
time for each class of shares (including deductions for sales charges) compared
with a broad-based securities market index. The bar charts give an indication of
the risks of investing in each Fund, including the fact that you could incur a
loss and experience volatility of returns year to year. Past performance before
and after taxes does not indicate future results.
Safeco Multi-Cap Core Fund -- Investor Class
Calendar Year Total Returns*
[DATA BELOW IS REPRESENTED BY A BAR CHART IN THE ORIGINAL REPORT]
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03
- -1.55 20.17 15.04 31.12 3.50 54.25 -16.11 -11.25 24.13 45.18
* During the period shown in the bar chart, your Safeco Fund's highest
quarterly return was 34.90% for the quarter ended December 31, 1999, and
the lowest quarterly return was -21.03 for the quarter ended September 30,
2001.
97
Pioneer Mid Cap Value Fund -- Class A Shares
Calendar Year Total Returns*
[DATA BELOW IS REPRESENTED BY A BAR CHART IN THE ORIGINAL REPORT]
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03
14.83 30.73 11.66 17.45 -4.71 12.60 17.64 5.56 -11.99 36.87
* During the period shown in the bar chart, Pioneer Mid Cap Value Fund's
highest quarterly return was 17.27% for the quarter ended June 30, 2003,
and the lowest quarterly return was -21.42% for the quarter ended September
30, 1998.
Safeco Multi-Cap Core Fund
Average Annual Total Returns as of December 31, 2003
- ------------------------------------------------------------------------------------------------------
1 Year 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------
Safeco Multi-Cap Core Fund, Class A Shares
- ------------------------------------------------------------------------------------------------------
Return Before Taxes 36.47% 3.34% 7.99%
- ------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(1) 36.47% 2.92% 7.03%
- ------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(1) 23.70% 2.72% 6.53%
- ------------------------------------------------------------------------------------------------------
Safeco Multi-Cap Core Fund, Class B Shares
- ------------------------------------------------------------------------------------------------------
Return Before Taxes 38.77% 3.46% 8.20%
- ------------------------------------------------------------------------------------------------------
Safeco Multi-Cap Core Fund, Class C Shares
- ------------------------------------------------------------------------------------------------------
Return Before Taxes 42.74% 3.82% 8.09%
- ------------------------------------------------------------------------------------------------------
Safeco Multi-Cap Core Fund, Investor Class Shares
- ------------------------------------------------------------------------------------------------------
Return Before Taxes 45.18% 4.81% 8.86%
- ------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(1) 45.18% 4.39% 7.89%
- ------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(1) 29.38% 4.00% 7.32%
- ------------------------------------------------------------------------------------------------------
Russell 3000 Index(2)
(reflects no deduction for fees, expenses or taxes) 31.04% 0.36% 10.77%
- ------------------------------------------------------------------------------------------------------
S&P 500 Index(2)
(reflects no deduction for fees, expenses or taxes) 28.67% -0.57% 11.06%
- ------------------------------------------------------------------------------------------------------
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on your situation and may
differ from those shown. Furthermore, the after-tax
98
returns shown are not relevant to those who hold their shares through
tax-deferred arrangements such as 401(k) plans or IRA accounts, or to
investors that are tax-exempt.
(2) The Russell 3000 Index, an unmanaged index of the 3,000 largest U.S.
companies based on market capitalization, and the S&P 500 Index, an
unmanaged index of 500 stocks, are for reference only and do not mirror the
Fund's investments.
Pioneer Mid Cap Value Fund -- Class A Shares
Average Annual Total Returns as of December 31, 2003
- -------------------------------------------------------------------------------------------------------
1 Year 5 Years 10 Years
- -------------------------------------------------------------------------------------------------------
Pioneer Mid Cap Value Fund, Class A Shares
- -------------------------------------------------------------------------------------------------------
Return Before Taxes 28.98% 9.68% 11.53%
- -------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(1) 28.29% 8.04% 9.51%
- -------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(1) 19.16% 7.58% 9.05%
- -------------------------------------------------------------------------------------------------------
Russell Midcap Value Index(2)
(reflects no deduction for fees, expenses or taxes) 38.07% 8.73% 13.04%
- -------------------------------------------------------------------------------------------------------
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on your situation and may
differ from those shown. Furthermore, the after-tax returns shown are not
relevant to those who hold their shares through tax-deferred arrangements
such as 401(k) plans or IRA accounts, or to investors that are tax-exempt.
(2) The Russell Midcap Value Index, an unmanaged index that measures the
performance of those companies in the Russell Midcap Value Index with lower
price-to-book ratios and lower forecasted growth values, is for reference
only and does not mirror the Fund's investments.
Pioneer Mid Cap Value Fund's Investor Class shares will not be outstanding
prior to the closing of the Reorganization and consequently have no performance
history. However, the performance record of the Investor Class would be modestly
higher than the performance of Class A, B and C shares due to the lower expenses
applicable to the Investor Class.
The most recent portfolio manager's discussion of each Fund's performance
is attached as Exhibit D.
99
The Funds' Fees and Expenses
Shareholders of both Funds pay various fees and expenses, either directly
or indirectly. The tables below show the fees and expenses that you would pay if
you were to buy and hold shares of each Fund. The expenses in the tables
appearing below are based on (i) for your Safeco Fund, the expenses of your
Safeco Fund for the period ended December 31, 2003 and (ii) for Pioneer Mid Cap
Value Fund, the expenses of Pioneer Mid Cap Fund for the period ended October
31, 2003. Future expenses for all share classes may be greater or less.
Pro Forma
Safeco Safeco Safeco Safeco Pioneer
Multi-Cap Multi-Cap Multi-Cap Multi-Cap Mid Cap
Core Core Core Core Fund Value Fund
Fund Fund Fund Investor Investor
Class A Class B Class C Class Class(9)
Shareholder transaction fees (paid directly from your investment) ----------- ----------- ----------- ----------- -----------
Maximum sales charge (load) when you buy shares as a percentage
of offering price ................................................ 5.75%(6) None None None None(1)
Maximum deferred sales charge (load) as a percentage of purchase
price or the amount you receive when you sell shares, whichever
is less .......................................................... None 5.00%(7) 1.00%(8) None None
Redemption fees for shares held less than 30 days ................. 2.00% None None 2.00% N/A
Wire redemption fee ............................................... $ 20(4) $ 20(4) $ 20(4) $ 20(4) $ 10
Annual low balance fee ............................................ $ 12(5) $ 12(5) $ 12(5) $ 12(5) N/A
Annual Fund Operating Expenses (deducted from fund assets)
(as a % of average net assets)
Management fee .................................................... 0.70% 0.70% 0.70% 0.70% 0.74%
Distribution and service (12b-1) fee .............................. 0.25% 1.00% 1.00% None None
Other expenses .................................................... 0.83% 0.84% 0.76% 0.53% 0.51%
Total fund operating expenses ..................................... 1.78% 2.54% 2.46% 1.23% 1.25%
Expense reimbursement/reduction ................................... 0.43%(2) 0.44%(2) 0.36%(2) 0.13%(2) 0.15%(3)
Net fund operating expenses ....................................... 1.35% 2.10% 2.10% 1.10% 1.10%
- ----------
(1) No sales load will apply to shares received in the Reorganization by
shareholders of your Safeco Fund who become shareholders of record of
Pioneer Mid Cap Value Fund through the Reorganization. In addition,
shareholders of your Safeco Fund who own shares in their own name (i.e.,
not in the name of a broker or other intermediary) and maintain such
account as of the closing of the Reorganization may purchase Class A Shares
of Pioneer Mid Cap Value Fund or of any fund in the Pioneer family of funds
through such account in the future without paying a sales charge.
(2) As described above, SAM had contractually agreed to reimburse Safeco
Multi-Cap Core Fund for certain Fund operating expenses (but not all of the
operating expenses of the Fund) that exceeded the rate of 0.40% per annum
of the Fund's average daily net assets. This arrangement included all Fund
operating expenses except management fees, Rule 12b-1 fees, brokerage
commissions, interest, and extraordinary expenses.
(3) Pioneer has agreed that through the second anniversary of the closing of
the Reorganization, Pioneer will limit the expenses (excluding
extraordinary expenses) of the Investor Class shares of Pioneer Mid Cap
Value Fund to 1.10% of average daily net assets.
(4) There is a higher charge for international wire redemptions, which may vary
by country or dollar amount.
(5) A low balance fee is charged once in year in December for accounts with
balances under $1,000 in your Safeco Fund.
(6) Purchases of $1,000,000 or more of Class A shares of your Safeco Fund are
not subject to a front-end sales charge, but a 1.00% deferred sales charge
will apply to redemptions made in the first twelve months except with
respect to participant-directed redemptions from qualified retirement
plans.
(7) The contingent deferred sales charge on Class B shares of your Safeco Fund
reduces to zero after six years from purchase, and the Class B shares
convert to Class A shares at that time.
(8) The contingent deferred sales charge on Class C shares applies only to
redemptions made in the first twelve months after purchase.
(9) The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses
per share than Investor Class shares due to the Rule 12b-1 Plan. In
addition, although Pioneer has agreed to limit the expenses attributable to
Investor Class shares, Pioneer is not required to limit the expenses
attributable to Class A shares. Class A shares do not currently have an
expense limitation.
100
The hypothetical example below helps you compare the cost of investing in
each Fund. It assumes that: (a) you invest $10,000 in each Fund for the time
periods shown, (b) you reinvest all dividends and distributions, (c) your
investment has a 5% return each year, (d) each Fund's gross operating expenses
remain the same, (e) the expense limitations are in effect for five years for
Safeco Multi-Cap Core Fund and two years for Pioneer Mid Cap Value Fund and (f)
and the Investor Class shares of Pioneer Mid Cap Value Fund convert to Class A
shares after two years. The examples are for comparison purposes only and are
not a representation of either Fund's actual expenses or returns, either past or
future.
Example
Safeco Multi-Cap Core Fund
Class A Shares
Year 1 .............. $ 705
Year 3 .............. $ 978
Year 5 .............. $1,272
Year 10 ............. $2,359
With Without
Class B Shares Redemption Redemption
Year 1 .............. $ 713 $ 213
Year 3 .............. $ 958 $ 658
Year 5 .............. $ 1,329 $ 1,129
Year 10 ............. $ 2,323 $ 2,323
With Without
Class C Shares Redemption Redemption
Year 1 .............. $ 313 $ 213
Year 3 .............. $ 658 $ 658
Year 5 .............. $ 1,129 $ 1,129
Year 10 ............. $ 2,641 $ 2,641
Investor Class Shares
Year 1 .............. $ 112
Year 3 .............. $ 350
Year 5 .............. $ 606
Year 10 ............. $1,424
Pro Forma Pioneer Mid Cap Value Fund
Investor Class Shares
Year 1 .............. $ 112
Year 3 .............. $ 359
Year 5 .............. $ 636
Year 10 ............. $1,426
101
Reasons for the Proposed Reorganization
The Trustees believe that the proposed Reorganization is in the best
interests of Safeco Multi-Cap Core Fund. The Trustees considered the following
matters, among others, in approving the proposal.
First, SAM, the investment adviser to the Safeco Fund until August 2, 2004,
was acquired by Symetra. Symetra informed the Trustees that it did not intend to
continue to provide investment advisory services to the Safeco Funds.
Consequently, a change in your Safeco Fund's investment adviser was necessary.
Second, the performance of Pioneer Mid Cap Value Fund is higher than the
historical investment performance of your Safeco Fund. For the one, five and ten
year periods ended June 30, 2004, Class A shares of Pioneer Mid Cap Value Fund
had an average annual return of 31.89%, 9.49% and 12.55%, respectively, compared
to an average annual return of the Class A shares and Investor Class shares of
18.34% and 25.78% (one year), 0.89% and 2.32% (five years), and 8.64% and 9.53%
(ten years), respectively, during the same periods. In addition, the Trustees
considered the track record of Pioneer in managing equity and fixed income
mutual funds.
Third, the resources of Pioneer. At June 30, 2004, Pioneer managed over 62
investment companies and accounts with approximately $35 billion in assets.
Pioneer is part of the global asset management group of UniCredito Italiano
S.p.A., one of the largest banking groups in Italy, providing investment
management and financial services to mutual funds, institutions and other
clients. As of June 30, 2004, assets under management of UniCredito Italiano
S.p.A. were approximately $151 billion worldwide. Shareholders of your Safeco
Fund would become part of a significantly larger family of funds that offers a
more diverse array of investment options and enhanced shareholder account
options. The Pioneer family of mutual funds offers over 62 funds, including
domestic and international equity and fixed income funds and a money market fund
that will be available to your Safeco Fund's shareholders through exchanges. In
addition, Pioneer offers shareholders additional options for their accounts,
including the ability to transact and exchange shares over the telephone or
online and the ability to access account values and transaction history in all
of the shareholder's direct accounts in the Pioneer Funds over the telephone or
online.
Fourth, Pioneer's commitment until the second anniversary of the
Reorganization to limit the expenses (excluding extraordinary expenses) of the
Investor Class of Pioneer Mid Cap Value Fund to 1.10% of average daily net
assets. The estimated expenses of the Investor Class shares of Pioneer Mid Cap
Value Fund are below both the gross expenses and expenses net of expense
reimbursement of each class of shares of your Safeco Fund other than Investor
Class shares, and equal to the net expenses of the Investor Class shares of your
Safeco Fund. Although you will experience higher expenses once the Investor
Class shares convert to Class A shares after two years, your expenses will
remain the same until the second anniversary of the Reorganization.
Fifth, the substantially larger size of Pioneer Mid Cap Value Fund offers
greater opportunity for diversification of the investment portfolio, which
should help to reduce risks.
Sixth, shareholders who own shares in their name as of the closing of the
Reorganization (i.e., not in the name of a broker or other intermediary) and
maintain their account may purchase additional Class A shares of the
corresponding Pioneer Fund through such account in the future or may exchange
those shares for Class A shares of another Pioneer Fund or purchase Class A
share of another Pioneer Fund without paying any sales charge.
Seventh, the Investor Class shares of Pioneer Mid Cap Value Fund received
in the Reorganization will provide your Safeco Fund's shareholders with exposure
to substantially the same investment product as they currently have.
Pioneer and Symetra will pay all out of pocket expenses of the Safeco Funds
and the Pioneer Funds associated with the Reorganizations, including, but not
limited to: (1) the expenses associated with the preparation, printing and
mailing of any shareholder communications, including this joint Proxy
Statement/Prospectus, and any filings with the SEC and other governmental
authorities in connection with the Reorganizations; (2) the fees and expenses of
any proxy solicitation firm retained in connection with the Reorganizations; (3)
the legal fees and expenses incurred by the Safeco Funds in connection with the
Reorganizations; and (4) the Trustees' fees and out of pocket expenses incurred
as a result of the Reorganizations.
The Trustees also considered that Pioneer and Symetra will benefit from the
Reorganization. See "Certain Agreements between Pioneer and Symetra."
The Board of Trustees of Pioneer Mid Cap Value Fund also considered that
the Reorganization presents an excellent opportunity for the Pioneer Mid Cap
Value Fund to acquire investment assets without the obligation to pay
commissions or other transaction costs that a fund normally incurs when
purchasing securities. This opportunity provides an economic benefit to Pioneer
Mid Cap Value Fund and its shareholders.
102
CAPITALIZATION
The following table sets forth the capitalization of each Fund as of
September 30, 2004, and pro forma combined Fund as of September 30, 2004.
Pro Forma
Safeco Pioneer Pioneer
Multi-Cap Mid Cap Mid Cap
Core Fund Value Fund Value Fund
September 30, 2004 September 30, 2004 September 30, 2004
-------------------- -------------------- -------------------
Total Net Assets (in thousands) $75,773 $1,842,494 $1,918,267
Class A shares ................ $ 6,989 $1,507,440 $1,507,440
Class B shares ................ $ 3,128 $ 220,239 $ 220,239
Class C shares ................ $ 120 $ 100,705 $ 100,705
Investor Class shares ......... $65,536 N/A $ 75,773
Class R shares ................ N/A $ 2,696 $ 2,696
Class Y shares ................ N/A $ 11,414 $ 11,414
Net Asset Value Per Share
Class A shares ................ $ 21.05 $ 25.40 $ 25.40
Class B shares ................ $ 19.86 $ 23.18 $ 23.18
Class C shares ................ $ 19.88 $ 23.01 $ 23.01
Investor Class shares ......... $ 21.56 N/A $ 25.40
Class R shares ................ N/A $ 25.29 $ 25.29
Class Y shares ................ N/A $ 25.98 $ 25.98
Shares Outstanding
Class A shares ................ 331,954 59,348,209 59,348,209
Class B shares ................ 157,479 9,502,592 9,502,592
Class C shares ................ 6,029 4,376,222 4,376,222
Investor Class shares ......... 3,039,744 N/A 2,983,189
Class R shares ................ N/A 106,595 106,595
Class Y shares ................ N/A 439,348 439,348
It is impossible to predict how many shares of Pioneer Mid Cap Value Fund
will actually be received and distributed by your Safeco Fund on the
Reorganization date. The table should not be relied upon to determine the amount
of Pioneer Mid Cap Value Fund's shares that will actually be received and
distributed.
BOARD'S EVALUATION AND RECOMMENDATION
For the reasons described above, the Trustees, including the Independent
Trustees, approved the Reorganization. In particular, the Trustees determined
that the Reorganization is in the best interests of your Safeco Fund. Similarly,
the board of trustees of Pioneer Mid Cap Value Fund, including its Independent
Trustees, approved the Reorganization. They also determined that the
Reorganization is in the best interests of Pioneer Mid Cap Value Fund.
The Trustees recommend that the shareholders of your Safeco Fund vote FOR
the proposal to approve the Agreement and Plan of Reorganization.
103
Safeco Small-Cap Value Fund and
Pioneer Small Cap Value Fund
PROPOSAL 1(h)
Approval of Agreement and Plan of Reorganization
SUMMARY
The following is a summary of more complete information appearing later in
this Proxy Statement/Prospectus or incorporated herein. You should read
carefully the entire proxy statement, including the form of Agreement and Plan
of Reorganization attached as EXHIBIT A-1 because they contain details that are
not in the summary.
The Investor Class Shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses per
share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor Class
shares, Pioneer is not required to limit the expenses attributable to Class A
shares.
In the table below, if a row extends across the entire table, the policy
disclosed applies to both your Safeco Fund and the Pioneer Fund.
Comparison of Safeco Small-Cap Value Fund to the Pioneer Small Cap Value Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Safeco Small-Cap Value Fund Pioneer Small Cap Value Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Business A series of Safeco Common Stock Trust, A diversified open-end management
a diversified open-end management investment company registered under the
investment company organized as a Investment Company Act and organized as
Delaware statutory trust. a Delaware statutory trust.
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets as of $77 million $522 million
June 30, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
Investment advisers and Investment adviser (until August 2, 2004): Investment adviser:
portfolio managers SAM Pioneer
Portfolio Manager (until August 2, 2004): Portfolio Managers:
Greg Eisen Day-to-day management of Pioneer Small Cap
CFA, Assistant Vice President, SAM Value Fund's portfolio is the responsibility of
David M. Adams and John McPherson.
Currently Pioneer is acting as investment
adviser to Safeco Small-Cap Value Fund. The Mr. Adams is a vice president of Pioneer and
Portfolio Managers of the Pioneer Small Cap joined Pioneer in 1994. Mr. McPherson joined
Value Fund, as indicated in the next column, Pioneer in 2002.
currently manage your Safeco Fund.
- ------------------------------------------------------------------------------------------------------------------------------------
Investment objective Safeco Small-Cap Value Fund seeks long-term Pioneer Small Cap Value Fund seeks long-
growth of capital through investing primarily in term growth through small-capitalization
small-sized companies. value companies.
- ------------------------------------------------------------------------------------------------------------------------------------
Each Fund provides written notice to shareholders at least 60 days prior to any change to its
investment object as described above.
- ------------------------------------------------------------------------------------------------------------------------------------
104
- ------------------------------------------------------------------------------------------------------------------------------------
Safeco Small-Cap Value Fund Pioneer Small Cap Value Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Primary investments Under normal circumstances Safeco Small-Cap Under normal market conditions, Pioneer
Value Fund invests at least 80% of its net Small Cap Value Fund invests at least 80%
assets (plus any borrowings for investment of its net assets in equity securities of small
purposes) in equity and equity-related companies. Small companies are those with
securities of companies with total market market values, at the time of the investment,
capitalizations at the time of the investment that do not exceed the greater of the market
of less than $1.5 billion. capitalization of the largest company within
the Russell 2000 Index. For purposes of the
Fund's investment policies, equity securities
include common stocks, convertible debt and
other equity instruments, such as depositary
receipts, warrants, rights, interest in REITs
and preferred stocks.
- ------------------------------------------------------------------------------------------------------------------------------------
Investment strategies When evaluating a stock to buy for Safeco Pioneer uses a "value" approach to select
Small-Cap Value Fund, SAM historically looked Pioneer Small Cap Value Fund's investments.
for companies having one or more of the Pioneer seeks securities selling at substantial
following characteristics: discounts to their underlying values and then
holds these securities until the market values
o Long-term potential for above-average or reflect their intrinsic values.
improving earnings growth
o Involvement in new or innovative products Pioneer evaluates a security's potential value,
or services including the attractiveness of its market
o A share price that represents good relative valuation, based on the company's assets and
value as determined by price-to-earnings prospects for earnings and revenue growth.
ratio or other commonly used valuation Factors Pioneer looks for in selecting
measures investments include:
o Above average potential for earnings and
revenue growth
o Favorable expected returns relative to
perceived risks
o Management with demonstrated ability and
commitment to the company
o Low market valuations relative to earnings
forecast, book value, cash flow and sales
o Turnaround potential for companies that
have been through difficult periods
o Low debt levels relative to equity
o Issuer's industry has strong fundamentals,
such as increasing or sustainable demand
and barriers to entry
- ------------------------------------------------------------------------------------------------------------------------------------
105
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Safeco Small-Cap Value Fund Pioneer Small Cap Value Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Other investments Safeco Small-Cap Value Fund may invest in Pioneer Small Cap Value Fund may invest up
securities convertible into common stock, but to 25% of its total assets in REITs.
less than 35% of its total assets will be
invested in such securities. Pioneer Small Cap Value Fund may invest in
securities of Canadian issuers to the same
extent as securities of U.S. issuers.
Pioneer Small Cap Value Fund may invest up
to 5% of its total assets in equity and debt
securities of other non-U.S. issuers, including
securities of emerging market issuers.
Pioneer Small Cap Value Fund may invest up
to 20% of its total assets in debt securities of
corporate and government issuers. The Fund
may invest up to 5% of its net assets in
below investment grade debt securities issued
by both U.S. and non-U.S. issuers, including
below investment grade convertible debt
securities.
- ------------------------------------------------------------------------------------------------------------------------------------
Temporary defensive Safeco Small-Cap Value Fund may hold cash Pioneer Small Cap Value Fund may invest
strategies or invest in high-quality, short-term securities all or part of its assets in securities with
issued by an agency or instrumentality of the remaining maturities of less than one year,
U.S. government, high-quality commercial cash equivalents or may hold cash.
paper, certificates of deposit, shares of
no-load, open-end money market funds,
or repurchase agreements.
- ------------------------------------------------------------------------------------------------------------------------------------
Diversification Each Fund is diversified for the purpose of the Investment Company Act and each Fund is
subject to diversification requirements under the Code.
- ------------------------------------------------------------------------------------------------------------------------------------
Industry Concentration Each Fund may not invest more than 25% of its assets in any one industry.
- ------------------------------------------------------------------------------------------------------------------------------------
Restricted and Illiquid If immediately after and as a result of such Pioneer Small Cap Value Fund may not invest
Securities action the value of the following securities, in more than 15% of its net assets in securities
the aggregate, would exceed 15% of Safeco which are illiquid and other securities which
Small-Cap Value Fund's net assets, the Fund are not readily marketable.
will not (i) purchase securities for which there
is no readily available market, (ii) purchase
time deposits maturing in more than seven
days, (iii) purchase over-the-counter (OTC)
options or hold assets set aside to cover OTC
options written by the Fund, (iv) enter into
repurchase agreements maturing in more than
seven days, or (v) invest in interests in real
estate investment trusts which are not readily
marketable or interests in real estate limited
partnerships which are not listed or traded on
the NASDAQ Stock Market.
- ------------------------------------------------------------------------------------------------------------------------------------
106
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Safeco Small-Cap Value Fund Pioneer Small Cap Value Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Borrowing Safeco Small-Cap Value Fund may borrow Borrow money, except Pioneer Small Cap
money (i) from banks or (ii) by engaging in Value Fund may: (a) borrow from banks or
reverse repurchase agreements. through reverse repurchase agreements in
an amount up to 33 1/3% of the Fund's total
assets (including the amount borrowed);
(b) to the extent permitted by applicable law,
borrow up to an additional 5% of the Fund's
assets for temporary purposes; (c) obtain
such short-term credits as are necessary
for the clearance of portfolio transactions;
(d) purchase securities on margin to the
extent permitted by applicable law; and
(e) engage in transactions in mortgage dollar
rolls that are accounted for as financings.
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Lending Safeco Small-Cap Value Fund may lend Pioneer Small Cap Value Fund may lend
securities to qualified institutional investors portfolio securities with a value that may not
with a value of up to 33% of the Fund's total exceed 331/3% of the value of its total assets.
assets.
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Derivative instruments Safeco Small-Cap Value Fund may write a Pioneer Small Cap Value Fund may use
put or call option if, as a result thereof, the futures and options on securities, indices
aggregate value of the assets underlying all and currencies, forward currency exchange
such options does not exceed 25% of the contracts and other derivatives. The Fund
Fund's net assets. Safeco Small-Cap Value does not use derivatives as a primary
Fund may purchase a put or call option or investment technique and generally limits
option on a futures contract if, as a result their use to hedging. However, the Fund may
thereof, the aggregate premiums paid on all use derivatives for a variety of non-principal
options or options on futures contracts held purposes, including:
by the Fund do not exceed 20% of the Fund's
net assets. o As a hedge against adverse changes
in stock market prices, interest rates
Safeco Small-Cap Value Fund may enter into a or currency exchange rates
futures contract or option on futures contract o As a substitute for purchasing or
if, as a result thereof, the aggregate margin selling securities
deposits and premiums required on all such o To increase the Fund's return as a
instruments do not exceed 5% of the Fund's non-hedging strategy that may be
net assets. considered speculative
Safeco Small-Cap Value Fund may not
purchase securities on margin. However, the
Fund may (i) obtain short-term credits as
necessary to clear its purchases and sales of
securities and (ii) make margin deposits in
connection with its use of financial options and
futures, forward and spot currency contracts,
swap transactions and other financial contracts
or derivative instruments.
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Other investment policies and As described above, the Funds have substantially similar principal investment strategies and
restrictions policies. Certain of the non-principal investment policies and restrictions are different. For a
more complete discussion of each Fund's other investment policies and fundamental and
non-fundamental investment restrictions, see the SAI.
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107
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Safeco Small-Cap Value Fund Pioneer Small Cap Value Fund
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Buying, Sellingand Exchanging Shares
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Sales charges Purchases under $1,000,000 of Class A shares The Investor Class shares of Pioneer
of Safeco Small-Cap Value Fund are subject to Small Cap Value Fund you receive in the
a 5.75% front-end sales charge. Reorganization will not be subject to any
sales charge. Moreover, if you own shares
Contingent deferred sales charge of up to 5% in your own name as of the closing of the
if you redeem Class B shares within six years Reorganization (i.e., not in the name of a
of purchase. broker or other intermediary) and maintain
your account, you may purchase Class A
Contingent deferred sales charge of 1% if shares of Pioneer Small Cap Value Fund and
you redeem Class C share within one year Class A shares of any fund in the Pioneer
of purchase. family of funds through such account in the
future without paying any sales charge.
Purchases of Investor Class shares of Safeco
Small-Cap Value Fund are not subject to a Except as described above, Class A shares of
sales load. Pioneer Small Cap Value Fund are subject to a
front-end sales charge of up to 5.75%.
Safeco Small-Cap Value Fund assesses
a mandatory redemption fee of 2%, as a
percentage of the amount redeemed or
exchanged, on Class A and Investor Class
shares held less than 30 days.
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108
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Safeco Small-Cap Value Fund Pioneer Small Cap Value Fund
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Management and other fees Safeco Small-Cap Value Fund pays an advisory Pioneer Small Cap Value Fund pays Pioneer a
fee on a monthly basis at an annual rate management fee equal to 0.85% of the Fund's
as follows: average daily net assets.
$0-$250,000,000: 0.75 of 1% During its most recent fiscal year, Pioneer
$250,000,001-$750,000,000: 0.70 of 1% Small Cap Value Fund paid an advisory fee
$750,000,001-$1,250,000,000: 0.65 of 1% at an average rate of 0.85% of average daily
Over $1,250,000,000: 0.60 of 1% net assets.
SAM serves as administrator and fund In addition, Pioneer Small Cap Value
accounting agent for Safeco Small-Cap Value Fund reimburses Pioneer for certain fund
Fund. The Fund paid SAM an administrative accounting and legal expenses incurred
services fee of 0.05% of the Fund's average on behalf of the Fund and pays a separate
daily net assets up to the first $200,000,000 shareholder servicing/transfer agency fee
and 0.01% of its net assets thereafter, and an to PIMSS, an affiliate of Pioneer.
accounting fee of 0.04% of the Fund's average
daily net assets up to the first $200,000,000 For the fiscal year ended November 30, 2003,
and 0.01% of its net assets thereafter. Pioneer Small Cap Value Fund's total annual
operating expenses for Class A shares were
During its most recent fiscal year, Safeco 1.66% of average daily net assets. The Fund
Small-Cap Value Fund paid aggregate advisory does not currently have an expense limitation
and administration fees at an average rate of for its Class A shares.
0.84% of average daily net assets.
Pioneer has agreed until the second
SAM had contractually agreed until April 30, anniversary of the closing of the
2009, to pay certain fund operating expenses Reorganization to limit the expenses
(but not all of the operating expenses of the (excluding extraordinary expenses) of the
Fund) that exceeded the rate of 0.40% per Investor Class to 1.15% of the average daily
annum of the Fund's average daily net assets. net assets attributable to the Investor Class.
This arrangement included all Fund operating
expenses except management fees, Rule 12b-1 The Investor Class shares to be issued in the
fees, brokerage commissions, interest, and Reorganization will convert to Class A shares
extraordinary expenses. after two years. Class A shares will have
higher expenses per share than Investor
For the fiscal year ended December 31, 2003, Class shares due to the Rule 12b-1 Plan. In
the Fund's annual operating expenses for Class addition, although Pioneer has agreed to limit
A shares, after giving effect to the expense the expenses attributable to Investor Class
limitation were 1.40%, and without giving shares, Pioneer is not required to limit the
effect to the expense limitation, were 1.82%. expenses attributable to Class A shares.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for Class
B shares, after giving effect to the expense
limitation were 2.15%, and without giving
effect to the expense limitation, were 2.72%.
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109
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Safeco Small-Cap Value Fund Pioneer Small Cap Value Fund
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Management and other fees For the fiscal year ended December 31, 2003,
(continued) the Fund's annual operating expenses for Class
C shares, after giving effect to the expense
limitation were 2.15%, and without giving
effect to the expense limitation, were 39.37%.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for
Investor Class shares, after giving effect to
the expense limitation were 1.15%, and
without giving effect to the expense limitation,
were 1.43%.
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Distribution and service Investor Class shares of each Fund are not subject to a Rule 12b-1 fee. Pioneer Investor Class
(12b-1) fee shares will convert into Class A share after two years. Class A shares of each Fund are subject
to a Rule 12b-1 fee equal to 0.25% annually of average daily net assets.
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Buying shares You may buy shares of Safeco Small-Cap You may buy shares from any investment firm
Value Fund directly through Safeco Securities, that has a sales agreement with PFD, Pioneer
the Fund's principal underwriter or through Small Cap Value Fund's distributor. Existing
brokers, registered investment advisers, shareholders of Safeco Small-Cap Value Fund
banks and other financial institutions that who own shares in their own name as of the
have entered into selling agreements with the closing date of the Reorganization and who
Fund's principal underwriter, as described in maintain their accounts may buy shares of
the Fund's prospectus. any fund in the Pioneer family of funds
through such accounts in the future without
Certain account transactions may be done paying sales charges.
by telephone.
If the account is established in the
shareholder's own name, shareholders may
also purchase additional shares of Pioneer
Small Cap Value Fund by telephone or online.
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Exchange privilege There are no sales charges on shares you You may exchange shares of Pioneer Small
acquire through dividend reinvestment or other Cap Value Fund without incurring any fee
fund distributions or for Class A shares that on the exchange with the more than 62
you have exchanged for Class A shares of other Pioneer Funds. Your exchange would
another Fund. be for Class A shares, which is subject to
Rule 12b-1 fees. An exchange generally is
Certain account transactions may be done treated as a sale and a new purchase of
by telephone. shares for federal income tax purposes.
If the account is established in the
shareholder's own name, shareholders may
also exchange shares of Pioneer Small Cap
Value Fund for shares of other Pioneer Funds
by telephone or online.
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110
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Safeco Small-Cap Value Fund Pioneer Small Cap Value Fund
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Selling Shares Investor Class and Class A shares will be sold at net asset value per share next calculated after
the Fund receives your request in good order.
- ------------------------------------------------------------------------------------------------------------------------------------
You may sell your shares by contacting Safeco Normally, your investment firm will send
Small-Cap Value Fund directly in writing or by your request to sell shares to PIMSS. You
contacting a financial intermediary as described can also sell your shares by contacting the
in the Fund's prospectus. fund directly if your account is registered in
your name.
If the account is established in the
shareholder's own name, shareholders may
also redeem shares of Pioneer Small Cap
Value Fund by telephone or online.
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Comparison of Principal Risks of Investing in the Funds
Because each Fund has a similar investment objective, primary investment
policies and strategies, the Funds are subject to the same principal risks. You
could lose money on your investment in either Fund or not make as much as if you
invested elsewhere if:
o The stock market goes down (this risk may be greater in the
short-term)
o Small company or value stocks fall out of favor with investors
o The Fund's assets remain undervalued or do not have the potential
value originally expected
Each Fund also has risks associated with investing in small companies.
Compared to large companies, small companies, and the market for their equity
securities, are likely to:
o Be more sensitive to changes in the economy, earnings results and
investor expectations
o Have more limited product lines and capital resources
o Experience sharper swings in market values
o Be harder to sell at the times and prices Pioneer thinks appropriate
o Offer greater potential for gain and loss
Investments in the Funds are not bank deposits and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. You could lose money by investing in either Fund.
The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses per
share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor Class
shares, Pioneer is not required to limit the expenses attributable to Class A
shares.
111
Past Performance
Set forth below is performance information for each Fund. The bar charts
show how each Fund's total return (not including any deduction for sales
charges) has varied from year to year for each full calendar year. The tables
show average annual total return (before and after taxes) for each Fund over
time for each class of shares (including deductions for sales charges) compared
with a broad-based securities market index. The bar charts give an indication of
the risks of investing in each Fund, including the fact that you could incur a
loss and experience volatility of returns year to year. Past performance before
and after taxes does not indicate future results.
Safeco Small-Cap Value Fund -- Investor Class
Calendar Year Total Returns*
[DATA BELOW IS REPRESENTED BY A BAR CHART IN THE ORIGINAL REPORT]
'97 '98 '99 '00 '01 '02 '03
23.38 -21.57 14.07 -7.54 18.20 -3.76 43.1
* During the period shown in the bar chart, your Safeco Fund's highest
quarterly return was 27.05% for the quarter ended December 31, 1999, and
the lowest quarterly return was -33.97% for the quarter ended September 30,
1998.
Pioneer Small Cap Value Fund -- Class A Shares
Calendar Year Total Returns*
[DATA BELOW IS REPRESENTED BY A BAR CHART IN THE ORIGINAL REPORT]
'98 '99 '00 '01 '02 '03
- -12.69 35.96 15.30 13.08 -12.70 37.11
* During the period shown in the bar chart, Pioneer Small Cap Value Fund's
highest quarterly return was 22.18% for the quarter ended June 30, 2003,
and the lowest quarterly return was -26.57% for the quarter ended September
30, 1998.
112
Safeco Small-Cap Value Fund
Average Annual Total Returns as of December 31, 2003
- ----------------------------------------------------------------------------------------------------------
Since
1 Year 5 Years Inception(1)
- ----------------------------------------------------------------------------------------------------------
Safeco Small-Cap Value Fund, Class A Shares
- ----------------------------------------------------------------------------------------------------------
Return Before Taxes 34.45% 9.71% 8.52%
- ----------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(2) 34.39% 9.63% 8.14%
- ----------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(2) 22.47% 8.41% 7.26%
- ----------------------------------------------------------------------------------------------------------
Safeco Small-Cap Value Fund, Class B Shares
- ----------------------------------------------------------------------------------------------------------
Return Before Taxes 36.67% 9.93% 8.69%
- ----------------------------------------------------------------------------------------------------------
Safeco Small-Cap Value Fund, Class C Shares
- ----------------------------------------------------------------------------------------------------------
Return Before Taxes 40.67% 10.21% 8.57%
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Safeco Small-Cap Value Fund, Investor Class Shares
- ----------------------------------------------------------------------------------------------------------
Return Before Taxes 43.10% 11.42% 9.67%
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Return After Taxes on Distributions(2) 42.97% 11.28% 9.25%
- ----------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(2) 28.18% 9.90% 8.27%
- ----------------------------------------------------------------------------------------------------------
Russell 2000 Value Index(3)
(reflects no deduction for fees, expenses or taxes) 46.02% 12.28% 13.06%
- ----------------------------------------------------------------------------------------------------------
(1) The Fund commenced operations on January 31, 1996.
(2) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on your situation and may
differ from those shown. Furthermore, the after-tax returns shown are not
relevant to those who hold their shares through tax-deferred arrangements
such as 401(k) plans or IRA accounts, or to investors that are tax-exempt.
(3) The Russell 2000 Value Index, an unmanaged index of value stocks in the
Russell 2000 Index of small-capitalization U.S. stocks, is for reference
only and does not mirror the Fund's investments.
Pioneer Small Cap Value Fund -- Class A Shares
Average Annual Total Returns as of December 31, 2003
- ------------------------------------------------------------------------------------------------------------
Since
1 Year 5 Years Inception(1)
- ------------------------------------------------------------------------------------------------------------
Pioneer Small Cap Value Fund, Class A Shares
- ------------------------------------------------------------------------------------------------------------
Return Before Taxes 29.20% 14.87% 10.86%
- ------------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(2) 29.11% 14.61% 10.28%
- ------------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(2) 19.09% 12.99% 9.21%
- ------------------------------------------------------------------------------------------------------------
Russell 2000 Value Index(3)
(reflects no deduction for fees, expenses or taxes) 46.03% 12.28% 11.83%
- ------------------------------------------------------------------------------------------------------------
(1) The Fund commenced operations on February 28, 1997.
(2) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on your situation and may
differ from those shown. Furthermore, the after-tax
113
returns shown are not relevant to those who hold their shares through
tax-deferred arrangements such as 401(k) plans or IRA accounts, or to
investors that are tax-exempt.
(3) The Russell 2000 Value Index, an unmanaged index of value stocks in the
Russell 2000 Index of small-capitalization U.S. stocks, is for reference
only and does not mirror the Fund's investments.
Pioneer Small Cap Value Fund's Investor Class shares will not be
outstanding prior to the closing of the Reorganization and consequently have no
performance history. However, the performance record of the Investor Class would
be modestly higher than the performance of Class A shares due to the lower
expenses applicable to the Investor Class.
The most recent portfolio manager's discussion of each Fund's performance
is attached as Exhibit D.
The Funds' Fees and Expenses
Shareholders of both Funds pay various fees and expenses, either directly
or indirectly. The tables below show the fees and expenses that you would pay if
you were to buy and hold shares of each Fund. The expenses in the tables
appearing below are based on (i) for your Safeco Fund, the expenses of your
Safeco Fund for the period ended December 31, 2003 and (ii) for Pioneer Small
Cap Value Fund, the expenses of Pioneer Small Cap Value Fund for the period
ended November 30, 2003. Future expenses for all share classes may be greater or
less.
Safeco Safeco
Small-Cap Small-Cap
Value Fund Value Fund
Class A Class B
Shareholder transaction fees (paid directly from your investment) ------------ ------------
Maximum sales charge (load) when you buy shares as a percentage
of offering price ....................................................... 5.75%(6) None
Maximum deferred sales charge (load) as a percentage of purchase price
or the amount you receive when you sell shares, whichever is less ....... None 5.00%(7)
Redemption fees for shares held less than 30 days ........................ 2.00% None
Wire redemption fee ...................................................... $ 20(4) $ 20(4)
Annual low balance fee ................................................... $ 12(5) $ 12(5)
Annual fund operating expenses (deducted from fund assets)
(as a % of average net assets)
Management fee ........................................................... 0.75% 0.75%
Distribution and service (12b-1) fee ..................................... 0.25% 1.00%
Other expenses ........................................................... 0.82% 0.97%
Total fund operating expenses ............................................ 1.82% 2.72%
Expense reimbursement/reduction .......................................... 0.42%(2) 0.57%
Net fund operating expenses .............................................. 1.40% 2.15%
Pro Forma
Pioneer
Safeco Safeco Small Cap
Small-Cap Small-Cap Value
Value Fund Value Fund Investor
Class C Investor Class Class(9)
Shareholder transaction fees (paid directly from your investment) ------------ ---------------- -----------
Maximum sales charge (load) when you buy shares as a percentage
of offering price ....................................................... None None None(1)
Maximum deferred sales charge (load) as a percentage of purchase price
or the amount you receive when you sell shares, whichever is less ....... 1.00%(8) None None
Redemption fees for shares held less than 30 days ........................ None 2.00% N/A
Wire redemption fee ...................................................... $ 20(4) $ 20(4) $ 10
Annual low balance fee ................................................... $ 12(5) $ 12(5) N/A
Annual fund operating expenses (deducted from fund assets)
(as a % of average net assets)
Management fee ........................................................... 0.75% 0.75% 0.85%
Distribution and service (12b-1) fee ..................................... 1.00% None None
Other expenses ........................................................... 37.62% 0.68% 0.43%
Total fund operating expenses ............................................ 39.37% 1.43% 1.28%
Expense reimbursement/reduction .......................................... 37.22%(2) 0.28%(2) 0.13%(3)
Net fund operating expenses .............................................. 2.15% 1.15% 1.15%
- ----------
(1) No sales load will apply to shares received in the Reorganization by
shareholders of your Safeco Fund who become shareholders of record of
Pioneer Small Cap Value Fund through the Reorganization. In addition,
shareholders of your Safeco Fund who own shares in their own name (i.e.,
not in the name of a broker or other intermediary) and maintain such
account as of the closing of the Reorganization may purchase Class A Shares
of Pioneer Small Cap Value Fund or of any fund in the Pioneer family of
funds through such account in the future without paying a sales charge.
(2) As described above, SAM had contractually agreed to reimburse Safeco
Small-Cap Value Fund for certain Fund operating expenses (but not all of
the operating expenses of the Fund) that exceeded the rate of 0.40% per
annum of the Fund's average daily net assets. This arrangement included all
fund operating expenses except management fees, Rule 12b-1 fees, brokerage
commissions, interest, and extraordinary expenses.
(3) Pioneer has agreed that through the second anniversary of the closing of
the Reorganization, Pioneer will limit the expenses (excluding
extraordinary expenses) of the Investor Class shares of Pioneer Small Cap
Value Fund to 1.15% of average daily net assets.
(4) There is a higher charge for international wire redemptions, which may vary
by country or dollar amount.
(5) A low balance fee is charged once each year in December for accounts with
balances under $1,000 in your Safeco Fund.
114
(6) Purchases of $1,000,000 or more of Class A shares of your Safeco Fund are
not subject to a front-end sales charge, but a 1.00% deferred sales charge
will apply to redemptions made in the first twelve months except with
respect to participant-directed redemptions from qualified retirement
plans.
(7) The contingent deferred sales charge on Class B shares of your Safeco Fund
reduces to zero after six years from purchase, and the Class B shares
convert to Class A shares at that time.
(8) The contingent deferred sales charge on Class C shares applies only to
redemptions made in the first twelve months after purchase.
(9) The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses
per share than Investor Class shares due to the Rule 12b-1 Plan. In
addition, although Pioneer has agreed to limit the expenses attributable to
Investor Class shares, Pioneer is not required to limit the expenses
attributable to Class A shares.
The hypothetical example below helps you compare the cost of investing in
each Fund. It assumes that: (a) you invest $10,000 in each Fund for the time
periods shown, (b) you reinvest all dividends and distributions, (c) your
investment has a 5% return each year, (d) each Fund's gross operating expenses
remain the same, (e) the expense limitations are in effect for five years for
Safeco Small-Cap Value Fund and two years for Pioneer Small Cap Value Fund and
(f) and the Investor Class shares of Pioneer Small Cap Value Fund convert to
Class A shares after two years. The examples are for comparison purposes only
and are not a representation of either Fund's actual expenses or returns, either
past or future.
Example
Safeco Small-Cap Value Fund
Class A Shares
Year 1 .............. $ 709
Year 3 .............. $ 993
Year 5 .............. $1,297
Year 10 ............. $2,405
With Without
Class B Shares Redemption Redemption
Year 1 .............. $ 718 $ 218
Year 3 .............. $ 973 $ 673
Year 5 .............. $ 1,354 $ 1,154
Year 10 ............. $ 2,384 $ 2,384
With Without
Class C Shares Redemption Redemption
Year 1 .............. $ 318 $ 218
Year 3 .............. $ 673 $ 673
Year 5 .............. $ 1,154 $ 1,154
Year 10 ............. $ 2,558 $ 2,558
Investor Class Shares
Year 1 .............. $ 117
Year 3 .............. $ 365
Year 5 .............. $ 633
Year 10 ............. $1,577
Pro Forma Pioneer Small Cap Value Fund
Investor Class Shares
Year 1 .............. $ 117
Year 3 .............. $ 405
Year 5 .............. $ 754
Year 10 ............. $1,738
115
Reasons for the Proposed Reorganization
The Trustees believe that the proposed Reorganization is in the best
interests of Safeco Small-Cap Value Fund. The Trustees considered the following
matters, among others, in approving the proposal.
First, SAM, the investment adviser to the Safeco Fund until August 2, 2004,
was acquired by Symetra. Symetra informed the Trustees that it did not intend to
continue to provide investment advisory services to the Safeco Funds.
Consequently, a change in your Safeco Fund's investment adviser was necessary.
Second, the long-term investment performance of Pioneer Small Cap Value
Fund is superior to your Safeco Fund's performance, although your Safeco Fund
had better performance during the most recent 12 month period. For the one and
five year periods ended June 30, 2004, Class A shares of Pioneer Small Cap Value
Fund had an average annual return of 31.83% and 13.77%, respectively, compared
to an average annual return of the Class A shares and Investor Class shares of
23.99% and 31.58% (one year) and 13.21% and 14.80% (five years), respectively,
during the same period. In addition, the Trustees considered the track record of
Pioneer in managing equity and fixed income mutual funds.
Third, the resources of Pioneer. At June 30, 2004, Pioneer managed over 62
investment companies and accounts with approximately $35 billion in assets.
Pioneer is part of the global asset management group of UniCredito Italiano
S.p.A., one of the largest banking groups in Italy, providing investment
management and financial services to mutual funds, institutions and other
clients. As of June 30, 2004, assets under management of UniCredito Italiano
S.p.A. were approximately $151 billion worldwide. Shareholders of your Safeco
Fund would become part of a significantly larger family of funds that offers a
more diverse array of investment options and enhanced shareholder account
options. The Pioneer family of mutual funds offers over 62 funds, including
domestic and international equity and fixed income funds and a money market fund
that will be available to your Safeco Fund's shareholders through exchanges. In
addition, Pioneer offers shareholders additional options for their accounts,
including the ability to transact and exchange shares over the telephone or
online and the ability to access account values and transaction history in all
of the shareholder's direct accounts in the Pioneer Funds over the telephone or
online.
Fourth, Pioneer's commitment until the second anniversary of the
Reorganization to limit the expenses (excluding extraordinary expenses) of the
Investor Class of Pioneer Small Cap Value Fund to 1.15% of average daily net
assets. This expense ratio is lower than both the gross expenses and expenses
net of expense reimbursement of the Class A, Class B and Class C shares of your
Safeco Fund and no higher than the gross and the same as the net expense of your
Safeco Fund's Investor Class shares. Although without the expense limitation
Pioneer Small Cap Value Fund's expenses are significantly higher than your
Safeco Fund's net expenses, the trustees believe that Pioneer Small Cap Value
Fund offers the potential for lower expenses through economies of scale.
Fifth, the substantially larger size of Pioneer Small Cap Value Fund offers
greater opportunity for diversification of the investment portfolio, which
should help to reduce risks.
Sixth, shareholders who own shares in their name as of the closing of the
Reorganization (i.e., not in the name of a broker or other intermediary) and
maintain their account may purchase additional Class A shares of the
corresponding Pioneer Fund through such account in the future or may exchange
those shares for Class A shares of another Pioneer Fund or purchase Class A
share of another Pioneer Fund without paying any sales charge.
Seventh, the Investor Class shares of Pioneer Small Cap Value Fund received
in the Reorganization will provide Safeco Small-Cap Value Fund shareholders with
exposure to substantially the same investment product as they currently have.
Pioneer and Symetra will pay all out of pocket expenses of the Safeco Funds
and the Pioneer Funds associated with the Reorganizations, including, but not
limited to: (1) the expenses associated with the preparation, printing and
mailing of any shareholder communications, including this joint Proxy
Statement/Prospectus, and any filings with the SEC and other governmental
authorities in connection with the Reorganizations; (2) the fees and expenses of
any proxy solicitation firm retained in connection with the Reorganizations; (3)
the legal fees and expenses incurred by the Safeco Funds in connection with the
Reorganizations; and (4) the Trustees' fees and out of pocket expenses incurred
as a result of the Reorganizations.
The Trustees also considered that Pioneer and Symetra will benefit from the
Reorganization. See "Certain Agreements between Pioneer and Symetra."
The Board of Trustees of Pioneer Small Cap Value Fund also considered that
the Reorganization presents an excellent opportunity for the Pioneer Small Cap
Value Fund to acquire investment assets without the obligation to pay
commissions or other transaction costs that a fund normally incurs when
purchasing securities. This opportunity provides an economic benefit to Pioneer
Small Cap Value Fund and its shareholders.
116
CAPITALIZATION
The following table sets forth the capitalization of each Fund as of May
31, 2004, and pro forma combined Fund as of May 31, 2004.
Pro Forma
Safeco Pioneer Pioneer
Small-Cap Small Cap Small Cap
Value Fund Value Fund Value Fund
May 31, 2004 May 31, 2004 May 31, 2004
-------------- -------------- -------------
Total Net Assets (in thousands) $69,484 $487,436 $556,920
Class A shares ................ $ 4,147 $256,248 $256,248
Class B shares ................ $ 1,380 $149,851 $149,851
Class C shares ................ $ 120 $ 79,412 $ 79,412
Investor Class shares ......... $63,837 N/A $ 69,484
Class R shares ................ N/A $ 1,925 $ 1,925
Net Asset Value Per Share
Class A shares ................ $ 19.01 $ 29.70 $ 29.70
Class B shares ................ $ 18.11 $ 28.10 $ 28.10
Class C shares ................ $ 18.17 $ 29.16 $ 29.16
Investor Class shares ......... $ 19.32 N/A $ 29.70
Class R shares ................ N/A $ 29.71 $ 29.71
Shares Outstanding
Class A shares ................ 218,133 8,629,200 8,629,200
Class B shares ................ 76,212 5,332,727 5,332,727
Class C shares ................ 6,612 2,723,047 2,723,047
Investor Class shares ......... 3,303,596 N/A 2,339,529
Class R shares ................ N/A 64,816 64,816
It is impossible to predict how many shares of Pioneer Small Cap Value Fund
will actually be received and distributed by your Safeco Fund on the
Reorganization date. The table should not be relied upon to determine the amount
of Pioneer Small Cap Value Fund's shares that will actually be received and
distributed.
BOARD'S EVALUATION AND RECOMMENDATION
For the reasons described above, the Trustees, including the Independent
Trustees, approved the Reorganization. In particular, the Trustees determined
that the Reorganization is in the best interests of your Safeco Fund. Similarly,
the Board of Trustees of Pioneer Small Cap Value Fund, including its Independent
Trustees, approved the Reorganization. They also determined that the
Reorganization is in the best interests of Pioneer Small Cap Value Fund.
The Trustees recommend that the shareholders of your Safeco Fund vote FOR
the proposal to approve the Agreement and Plan of Reorganization.
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TERMS OF EACH AGREEMENT AND PLAN OF REORGANIZATION
The Reorganizations
o Each Reorganization is scheduled to occur at 4:00 p.m., Eastern time,
on December 10, 2004, unless your Safeco Fund and the corresponding
Pioneer Fund agree in writing to a later date. Your Safeco Fund will
transfer all of its assets to the corresponding Pioneer Fund. The
corresponding Pioneer Fund will assume your Safeco Fund's liabilities
that are included in the calculation of your Safeco Fund's net asset
value on the Closing Date. The net asset value of both Funds will be
computed as of 4:00 p.m., Eastern time, on the Closing Date.
o Each corresponding Pioneer Fund will issue to the corresponding Safeco
Fund Investor Class shares with an aggregate net asset value equal to
the net assets attributable to the corresponding Safeco Fund's shares.
These shares will immediately be distributed to your Safeco Fund's
shareholders in proportion to the relative net asset value of their
holdings of your Safeco Fund's shares on the Closing Date. As a
result, each Safeco Fund's shareholders will end up as Investor Class
shareholders of the corresponding Pioneer Fund.
o After the distribution of shares, your Safeco Fund will be liquidated
and dissolved.
o Each Reorganization is intended to result in no income, gain or loss
being recognized for federal income tax purposes and will not take
place unless both Funds receive a satisfactory opinion concerning the
tax consequences of the Reorganization from Wilmer Cutler Pickering
Hale and Dorr LLP, counsel to the Pioneer Funds.
Agreement and Plan of Reorganization
The shareholders of each Safeco Fund are being asked to approve an
Agreement and Plan of Reorganization substantially in the form attached as
EXHIBIT A-1 or A-2 (each, a "Plan"). The description of the Plan contained
herein is qualified in its entirety by the attached copies, as appropriate.
Conditions to Closing each Reorganization. The obligation of each Fund to
consummate each Reorganization is subject to the satisfaction of certain
conditions, including your Safeco Fund's performance of all of its obligations
under the Plan, the receipt of certain documents and financial statements from
your Safeco Fund and the receipt of all consents, orders and permits necessary
to consummate the Reorganization (see Sections 7 and 8 of the Plan).
The obligations of both Funds are subject to the approval of the Plan by
the necessary vote of the outstanding shares of your Safeco Fund, in accordance
with the provisions of your Trust's trust instrument and by-laws. The Funds'
obligations are also subject to the receipt of a favorable opinion of Wilmer
Cutler Pickering Hale and Dorr LLP as to the federal income tax consequences of
each Reorganization (see Section 8.5 of the Plan).
Termination of the Plan. The board of either the Safeco Trust or the
corresponding Pioneer Fund may terminate the Plan (even if the shareholders of
your Safeco Fund have already approved it) at any time before the Closing Date,
if that board believes in good faith that proceeding with the Reorganization
would no longer be in the best interests of shareholders.
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TAX STATUS OF EACH REORGANIZATION
Each Reorganization is intended to result in no income, gain or loss being
recognized for United States federal income tax purposes and will not take place
unless both Funds involved in the Reorganization receive a satisfactory opinion
from Wilmer Cutler Pickering Hale and Dorr LLP, counsel to the Pioneer Funds,
substantially to the effect that each Reorganization will be a "reorganization"
within the meaning of Section 368(a) of the Code.
As a result, for federal income tax purposes:
o No gain or loss will be recognized by your Safeco Fund upon (1) the
transfer of all of its assets to the Pioneer Fund as described in this
Proxy Statement/Prospectus or (2) the distribution by your Safeco Fund
of Pioneer Fund shares to your Safeco Fund's shareholders;
o No gain or loss will be recognized by the Pioneer Fund upon the
receipt of your Safeco Fund's assets solely in exchange for the
issuance of Pioneer Fund shares to your Safeco Fund and the assumption
of your Safeco Fund's liabilities by the corresponding Pioneer Fund;
o The basis of the assets of your Safeco Fund acquired by the
corresponding Pioneer Fund will be the same as the basis of those
assets in the hands of your Safeco Fund immediately before the
transfer;
o The tax holding period of the assets of your Safeco Fund in the hands
of the corresponding Pioneer Fund will include your Safeco Fund's tax
holding period for those assets;
o You will not recognize gain or loss upon the exchange of your shares
of your Safeco Fund solely for the Pioneer Fund shares as part of the
Reorganization;
o The basis of the Pioneer Fund shares received by you in the
Reorganization will be the same as the basis of your shares of your
Safeco Fund surrendered in exchange; and
o The tax holding period of the Pioneer Fund shares you receive will
include the tax holding period of the shares of your Safeco Fund
surrendered in the exchange, provided that you held the shares of your
Safeco Fund as capital assets on the date of the exchange.
In rendering such opinions, counsel shall rely upon, among other things,
reasonable assumptions as well as representations of your Safeco Fund and the
Pioneer Fund (see the annexes to the Plan).
No tax ruling has been or will be received from the Internal Revenue
Service ("IRS") in connection with the Reorganizations. An opinion of counsel is
not binding on the IRS or a court, and no assurance can be given that the IRS
would not assert, or a court would not sustain, a contrary position.
You should consult your tax adviser for the particular tax consequences to
you of the Reorganization, including the applicability of any state, local or
foreign tax laws.
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PROPOSALS 2(a)-(h)
APPROVAL OF INTERIM INVESTMENT ADVISORY AGREEMENT WITH PIONEER
Background
Having determined to recommend the Reorganizations, the Trustees appointed
Pioneer as investment adviser to each Fund commencing August 2, 2004, until the
closing of the Reorganizations given that Symetra had indicated that it did not
wish to continue to offer investment advisory services to the Safeco Funds. If
both the Reorganization and appointment of Pioneer are approved, the interim
investment advisory agreement will continue in effect until the closing of the
Reorganization. In connection with the retention of Pioneer, the sub-advisory
agreement with Bank of Ireland Asset Management (U.S.) Limited with respect to
Safeco International Stock Fund, and the sub-advisory agreement with RCM Capital
Management LLC with respect to Safeco Large-Cap Growth Fund, were terminated.
Interim Investment Advisory Agreement
Under the Investment Company Act, shareholders must approve any new
investment advisory agreement for the Funds. However, Rule 15a-4 under the
Investment Company Act permits your Trustees to appoint an adviser on an interim
basis without prior shareholder approval if the new adviser agrees to provide
such services on the same terms as the previous adviser and approves the
investment advisory agreement with that adviser. An adviser may manage on such
an interim basis for a period of 150-days. Because Pioneer will be making the
payment to Symetra discussed under "Background to the Reorganizations," any fees
that Pioneer would be entitled to under the interim investment advisory
agreement will be held in escrow by the Fund until shareholder approval of the
agreement is obtained. If shareholders of a Safeco Fund do not approve the
interim advisory agreement, Pioneer will not receive the fee under the current
investment advisory agreement with SAM but instead would be paid a fee based
upon Pioneer's cost in managing the Fund. During this period prior to the
meeting, the Fund will be managed as separate Funds and will not be combined
with a Pioneer Fund. During this period, you also will not be able to exchange
your shares in a Fund for shares of a Pioneer Fund. If the appointment of
Pioneer as interim investment adviser is not approved by December 30, 2004,
Pioneer will no longer provide advisory services to the Funds, unless an
extension of the 150 day period is permitted by a rule or independent position
of the staff of the SEC. Reasons for Approving the Interim Investment Advisory
Agreement and Board's Recommendation
Reasons for Approving the Interim Investment Advisory Agreement and Board's
Recommendation
The Trustees recommend that the shareholders of the Safeco Funds approve
the interim investment advisory agreements. In determining to appoint Pioneer as
investment advisor on an interim basis, the Trustees considered many of the same
factors on which the recommendation to approve the Reorganizations are based.
These factors include:
o SAM, the investment adviser to the Safeco Funds until August 2, 2004,
was acquired by Symetra. Symetra informed the Trustees that it was not
interested in continuing to provide investment advisory services to
the Safeco Funds. Consequently, a change in your Fund's investment
adviser was necessary.
o The resources of Pioneer. At June 30, 2004, Pioneer managed over 62
investment companies and accounts with approximately $35 billion in
assets. Pioneer is part of the global asset management group of
UniCredito Italiano S.p.A., one of the largest banking groups in
Italy, providing investment management and financial services to
mutual funds, institutions, and other clients. As of June 30, 2004,
assets under management of UniCredito Italiano S.p.A. were
approximately $151 billion worldwide.
o The track record of Pioneer in managing other investment companies
with similar strategies.
o Pioneer's willingness to proceed with the Reorganizations and to limit
expenses of the Fund as discussed above.
o Pioneer's investment process, style and philosophy with respect to
equity and fixed income investing.
o The expertise of John Carey as portfolio manager of Pioneer Fund and
the head of equity investments at Pioneer.
o Pioneer's willingness to act as investment adviser to each of the
Funds.
Safeco Advisory Agreement
The following is a summary of the material terms of the Safeco Advisory
Agreement. The Safeco Advisory Agreement terminated on August 2, 2004.
Services. Under the terms of the Safeco Advisory Agreement, SAM managed the
Funds' investments, subject to the supervision of the Board. At its expense, SAM
provided office space and all necessary office facilities, equipment and
personnel for managing the investments of the Funds.
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Compensation. As compensation under the Safeco Advisory Agreement, each
Safeco Fund paid SAM a monthly advisory fee at an annual rate as listed in the
below table of the Fund's average daily net assets calculated each business day
and paid monthly, as listed in the table below. In addition, SAM had
contractually agreed to reimburse each Fund to the extent a Fund's total annual
expenses during any of the Fund's fiscal years, exceed 0.40% of its average
daily net asset value in such year. This arrangement included all Fund operating
expenses except management fees, Rule 12b-1 fees, brokerage commissions,
interest, and extraordinary expenses.
Fund Net Assets Annual Fee
- ----------------------------------------------------------------------------------
SAFECO BALANCED FUND $0-$250,000,000 0.70 of 1%
SAFECO CORE EQUITY FUND $250,000,001-$750,000,000 0.65 of 1%
SAFECO GROWTH OPPORTUNITIES FUND $750,000,001-$1,250,000,000 0.60 of 1%
SAFECO LARGE-CAP VALUE FUND Over $1,250,000,000 0.55 of 1%
SAFECO MULTI-CAP CORE FUND
- ----------------------------------------------------------------------------------
SAFECO INTERNATIONAL STOCK FUND $0-$250,000,000 1.00 of 1%
$250,000,001-$750,000,000 0.90 of 1%
Over $750,000,000 0.80 of 1%
- ----------------------------------------------------------------------------------
SAFECO LARGE-CAP GROWTH FUND $0-$250,000,000 0.80 of 1%
$250,000,001-$750,000,000 0.75 of 1%
$750,000,001-$1,250,000,000 0.70 of 1%
Over $1,250,000,000 0.65 of 1%
- ----------------------------------------------------------------------------------
SAFECO SMALL-CAP VALUE FUND $0-$250,000,000 0.75 of 1%
$250,000,001-$750,000,000 0.70 of 1%
$750,000,001-$1,250,000,000 0.65 of 1%
Over $1,250,000,000 0.60 of 1%
- ----------------------------------------------------------------------------------
In addition to the management fee, your Safeco Fund paid SAM, in its
capacity as administrator and fund accounting agent an administrative services
fee of 0.05% of your Safeco Fund's average daily net assets up to the first
$200,000,000 and 0.01% of its net assets thereafter, and an accounting fee of
0.04% of the Fund's average daily net assets up to the first $200,000,000 and
0.01% of its net assets thereafter.
The table below shows gross advisory fees paid by each Fund and any expense
reimbursements by SAM during the fiscal year ended December 31, 2003:
FUND (In Thousands)
- ---- --------------
SAFECO BALANCED FUND
Advisory Fee ............................ $ 124
Reimbursement ........................... $ 79
SAFECO CORE EQUITY FUND
Advisory Fee ............................ $4,663
Reimbursement ........................... $ 353
SAFECO GROWTH OPPORTUNITIES FUND
Advisory Fee ............................ $3,156
Reimbursement ........................... $ 499
SAFECO INTERNATIONAL STOCK FUND
Advisory Fee ............................ $ 256
Reimbursement ........................... $ 235
SAFECO LARGE-CAP GROWTH FUND
Advisory Fee ............................ $ 40
Reimbursement ........................... $ 70
SAFECO LARGE-CAP VALUE FUND
Advisory Fee ............................ $ 965
Reimbursement ........................... $ 58
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FUND (In Thousands)
- ---- --------------
SAFECO MULTI-CAP CORE FUND
Advisory Fee ....................... $523
Reimbursement ...................... $122
SAFECO SMALL-CAP VALUE FUND
Advisory Fee ....................... $345
Reimbursement ...................... $149
Limitation of Liability. The Safeco Advisory Agreement provided that SAM
shall not be subject to liability to the Funds or to any shareholder of the
Funds for any loss suffered by a Fund or its shareholders from or as a
consequence of any act or omission of SAM, or of any of the partners, employees
or agents of SAM in connection with or pursuant to the Agreement, except by
reason of willful misfeasance, bad faith or gross negligence on the part of SAM
in the performance of its duties or by reason of reckless disregard by SAM of
its obligations and duties under the Agreement.
VOTING RIGHTS AND REQUIRED VOTE
Each share of your Safeco Fund is entitled to one vote and each fractional
share shall be entitled to a proportionate fractional vote. A quorum is required
to conduct business at the Meeting. With respect to each Safeco Fund, the
presence in person or by proxy of one-third of the outstanding shares of a
Safeco Fund entitled to cast votes at the Meeting will constitute a quorum with
respect to that Safeco Fund. A favorable vote of a "majority of the outstanding
voting securities" of the applicable Fund is required to approve each Proposal.
Under the Investment Company Act, the vote of a majority of the outstanding
voting securities means the affirmative vote of the lesser of (i) 67% or more of
the shares of the applicable Safeco Fund represented at the meeting, if at least
50% of all outstanding shares of the Safeco Fund are represented at the meeting,
or (ii) 50% or more of the outstanding shares of the Safeco Fund entitled to
vote at the meeting.
- ---------------------------------------------------------------------------------------------------------------------------------
Shares Quorum Voting
- ---------------------------------------------------------------------------------------------------------------------------------
In General All shares "present" in person or by proxy are Shares "present" in person will be voted in
counted towards a quorum. person at the Meeting. Shares present by
proxy will be voted in accordance with
instructions.
- ---------------------------------------------------------------------------------------------------------------------------------
Broker Non-Vote (where the Considered "present" at Meeting for purposes Broker non-votes do not count as a vote "for"
underlying holder has not of quorum. and effectively result in a vote "against"
voted and the broker does not Proposals 1(a)-(h), and Proposal 2(a)-(h) if
have discretionary authority to less than 50% of the outstanding shares are
vote the shares) present at the Meeting
- ---------------------------------------------------------------------------------------------------------------------------------
Proxy with No Voting Considered "present" at Meeting for purposes Voted "for" the proposal.
Instruction (other than Broker of quorum.
Non-Vote)
- ---------------------------------------------------------------------------------------------------------------------------------
Vote to Abstain Considered "present" at Meeting for purposes Abstentions do not constitute a vote "for" and
of quorum. effectively result in a vote "against" Proposals
1(a)-(h), and Proposal 2(a)-(h) if less than
50% of the outstanding shares are present at
the Meeting.
- ---------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT THE PIONEER FUNDS
Investment Adviser
Pioneer serves as the investment adviser to each Pioneer Fund. Pioneer is
an indirect, wholly owned subsidiary of UniCredito Italiano S.p.A., one of the
largest banking groups in Italy. Pioneer is part of the global asset management
group providing investment management and financial services to mutual funds,
institutions and other clients. As of June 30, 2004, assets under management
were approximately $150 billion worldwide, including over $35 billion in assets
under management by Pioneer. Pioneer's main office is at 60 State Street,
Boston, Massachusetts 02109. Pioneer's U.S. mutual fund investment history
includes creating one of the first mutual funds in 1928.
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The Board of Trustees of the Pioneer Funds is responsible for overseeing
the performance of each of Pioneer Fund's investment adviser and subadviser, if
any, and determining whether to approve and renew the fund's investment advisory
agreement and the subadvisory agreements.
Pioneer has received an order (the "Exemptive Order") from the SEC that
permits Pioneer, subject to the approval of the Pioneer Funds' board of
trustees, to hire and terminate a subadviser or to materially modify an existing
subadvisory agreement for a Pioneer Fund without shareholder approval. Pioneer
retains the ultimate responsibility to oversee and recommend the hiring,
termination and replacement of any subadviser. To the extent that the SEC adopts
a rule that would supersede the Exemptive Order, Pioneer and the Pioneer Funds
intend to rely on such rule to permit Pioneer, subject to the approval of the
Pioneer Funds' board of trustees and any other applicable conditions of the
rule, to hire and terminate a subadviser or to materially modify an existing
subadvisory agreement for a Pioneer Fund without shareholder approval.
Buying, Exchanging and Selling Shares of the Pioneer Funds
Net Asset Value. Each Pioneer 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 Pioneer 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 Pioneer Fund generally values its portfolio securities using closing
market prices or readily available market quotations. When closing market prices
or market quotations are not available or are considered by Pioneer to be
unreliable, a Pioneer Fund may use a security's fair value. Fair value is the
valuation of a security determined on the basis of factors other than market
value in accordance with procedures approved by the Pioneer Funds' trustees.
Each Pioneer Fund also may use the fair value of a security, including a
non-U.S. security, when Pioneer determines that the closing market price on the
primary exchange where the security is traded no longer accurately reflects the
value of the security due to factors affecting one or more relevant securities
markets or the specific issuer. The use of fair value pricing by a Pioneer Fund
may cause the net asset value of its shares to differ from the net asset value
that would be calculated using closing market prices. International securities
markets may be open on days when the U.S. markets are closed. For this reason,
the value of any international securities owned by a Pioneer Fund could change
on a day you cannot buy or sell shares of the fund. Each Pioneer Fund may use a
pricing service or a pricing matrix to value some of its assets. Debt securities
with remaining maturities of 60 days or less are valued at amortized cost, which
is a method of determining a security's fair value.
The Pioneer International Equity Fund primarily invests in securities of
non-U.S. issuers and the markets for these securities generally close prior to
the time the Fund determines its net asset value. However, the value of these
securities continues to be influenced by changes in the global markets.
Consequently, the trustees have determined to use the fair value of these
securities as of the time the fund determines its net asset value, based upon
data from a pricing service. On a daily basis, the pricing service recommends
changes, based upon a proprietary model, to the closing market prices of each
non-U.S. security held by the fund to reflect the security's fair value at the
time the fund determines its net asset value. The fund applies these
recommendations in accordance with procedures approved by the trustees. A
security's fair value determined in this manner may differ from the security's
closing market price on the date the fund determines its net asset value or the
opening price of the security on the next business day. The fund's use of this
method may significantly affect its net asset value compared to the net asset
value that would have been determined using closing market prices. The fund also
may take other factors influencing specific markets or issuers into
consideration in determining the fair value of a non-U.S. security.
You buy or sell shares at the share price. When you buy Class A shares, you
pay an initial sales charge unless you qualify for a waiver or reduced sales
charge. The Class A shares of the Pioneer Funds you receive in the
Reorganizations will not be subject to any sales charge. Moreover, if you own
shares in your own name as of the closing of the Reorganizations (i.e., not in
the name of a broker or other intermediary) and maintain your account, you may
purchase additional Class A shares of the corresponding Pioneer Fund through
such account in the future or may exchange those shares for Class A shares of
another Pioneer Fund without paying any sales charge.
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
described herein or in the Pioneer Fund's prospectus. Ask your investment
professional for more information.
If you invest in a Pioneer Fund through investment professionals or other
financial intermediaries, including wrap programs and fund supermarkets,
additional conditions may apply to your investment in a Pioneer Fund, and the
investment professional or intermediary may charge you a transaction-based or
other fee for its services. These conditions and fees are in addition to those
imposed by the Pioneer Fund and its affiliates. You should ask your investment
professional or financial intermediary about its services and any applicable
fees.
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.
123
Call or write to the Pioneer Funds' transfer agent for account
applications, account options forms and other account information:
PIONEER INVESTMENT MANAGEMENT SHAREHOLDER SERVICES, INC.
P.O. Box 55014
Boston, Massachusetts 02205-5014
Telephone 1-800-225-6292
Telephone Transaction Privileges. If your account is registered in your
name, you can buy, exchange or sell shares of the Pioneer Funds 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. Each Pioneer 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.
Online Transaction Privileges. If your account is registered in your name,
you may be able to buy, exchange or sell fund shares online. Your investment
firm may also be able to buy, exchange or sell your Pioneer Fund shares online.
To establish online transaction privileges complete an account options
form, write to the transfer agent or complete the online authorization screen
on: www.pioneerfunds.com.
To use online transactions, you must read and agree to the terms of an
online transaction agreement available on the Pioneer website. When you or your
investment firm requests an online transaction the transfer agent electronically
records the transaction, requires an authorizing password and sends a written
confirmation. The Pioneer Funds may implement other 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. You may not be able to use the online transaction privilege for
certain types of accounts, including most retirement accounts.
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 PFD
prior to PFD'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 Pioneer Fund Shares. You may buy shares of each Pioneer Fund from
any investment firm that has a sales agreement with PFD. 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 shares of the Pioneer Funds 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. 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. The minimum investment amount does not
apply for purposes of the Reorganization.
Exchanging Pioneer Fund Shares. You may exchange your shares in a Pioneer
Fund 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. Each Pioneer 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 policy as described in each fund's prospectus.
Selling Pioneer Fund Shares. Your shares will be sold at net asset value
per share next calculated after the Pioneer Fund, or authorized agent, and as a
broker-dealer, 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. Each Pioneer 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 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.
124
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 Pioneer 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:
o Are selling over $100,000 or exchanging over $500,000 worth of shares
o Changed your account registration or address within the last 30 days
o Instruct the transfer agent to mail the check to an address different
from the one on your account
o Want the check paid to someone other than the account owner(s)
o Are transferring the sale proceeds to a Pioneer mutual fund account
with a different registration
Buying, Exchanging and Selling Pioneer Fund Shares
Buying Shares
Through Normally, your investment firm will send your purchase request
your investment to the Pioneer Funds' transfer agent. Consult your investment
firm professional for more information. Your investment firm may
receive a 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 or online You can use the telephone or online privilege if you have an
existing non-retirement account or certain IRAs. You can purchase
additional fund shares by phone if:
o You established your bank account of record at least
30 days ago
o Your bank information has not changed for at least 30 days
o You are not purchasing more than $25,000 worth of shares per
account per day
o You can provide the proper account identification information
When you request a telephone or online purchase, the transfer
agent will electronically debit the amount of the purchase from
your bank account of record. The transfer agent will purchase
Pioneer Fund shares for the amount of the debit at the offering
price determined after the transfer agent receives your
telephone or online 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 Pioneer Fund shares for an existing fund
by mail or by fax account by mailing a check to the transfer agent. Make your
check payable to the Pioneer Fund. Neither initial nor subsequent
investments should be made by third party check. Your check
must be in U.S. dollars and drawn on a U.S. bank. Include in your
purchase request the fund's name, the account number and the
name or names in the account registration.
Exchanging Shares
Through Normally, your investment firm will send your exchange request to
your investment the Pioneer Fund's transfer agent. Consult your investment
firm professional for more information about exchanging your
shares.
By phone or online After you establish your Pioneer Fund account, you can exchange
Fund shares by phone or online if:
o You are exchanging into an existing account or using the
exchange to establish a new account, provided the new account
has a registration identical to the original account
o The fund into which you are exchanging offers the same class
of shares
o You are not exchanging more than $500,000 worth of shares
per account per day
o You can provide the proper account identification information
In writing, You can exchange fund shares by mailing or faxing a letter of
by mail or by fax instruction to the transfer agent. You can exchange Pioneer Fund
shares directly through the Pioneer Fund only if your account is
registered in your name. However, you may not fax an exchange
request for more than $500,000. Include in your letter:
o The name, social security number and signature of all registered
owners
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
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Selling Shares
Normally, your investment firm will send your request to sell
shares to the Pioneer Funds' transfer agent. Consult your
investment professional for more information. Each Pioneer Fund
has authorized PFD to act as its agent in the repurchase of
Pioneer Fund shares from qualified investment firms. Each Pioneer
Fund reserves the right to terminate this procedure at any time.
You may sell up to $100,000 per account per day by phone or
online. You may sell Pioneer Fund shares held in a retirement
plan account by phone only if your account is an eligible IRA (tax
penalties may apply). You may not sell your shares by phone or
online if you have changed your address (for checks) or your
bank information (for wires and transfers) in the last 30 days.
You may receive your sale proceeds:
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 being sent to your bank address of record
You can sell some or all of your Pioneer Fund shares by writing
directly to the Pioneer fund only if your account is registered in
your name. Include in your request your name, your social
security number, the fund's name and any other applicable
requirements as described below. The transfer agent will send the
sale proceeds to your address of record unless you provide other
instructions. Your request must be signed by all registered owners
and be in good order. You may not sell more than $100,000 per
account per day by fax.
How to contact Pioneer
By phone
For information or to request a telephone transaction between
8:00 a.m. and 7:00 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 (TDD) 1-800-225-1997
By mail
Send your written instructions to:
Pioneer Investment Management Shareholder Services, Inc.
P.O. Box 55014
Boston, Massachusetts 02205-5014
By fax
Fax your exchange and sale requests to:
1-800-225-4240
Exchange Privilege
You may make up to four exchange redemptions of $25,000 or
more per account per calendar year.
Excessive Trading
The fund discourages excessive and/or trading practices, such as
market timing, that may disrupt portfolio management strategies
and harm fund request until it is received in performance. These
practices consist of:
o Selling shares purchased within the preceding 90 days;
o Two or more purchases and redemptions in any 90-day period;
or
o Any other series of transactions indicative of a timing pattern
If we identify an account that engages in such activity, the fund
and the distributor reserve the right to refuse or restrict any
purchase order (including exchanges) for that account and other
accounts under common ownership or control.
Pioneer Fund 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 Pioneer 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. All
Pioneer Funds will accept only medallion signature guarantees. A medallion
signature guarantee may be obtained from a domestic bank or trust company,
broker, dealer, clearing agency, savings association, or other financial
institution that is participating in a medallion program recognized by the
Securities Transfer Association. Signature guarantees from financial
institutions that are not participating in one of these programs are not
accepted. Fiduciaries and corporations are required to submit additional
documents to sell Pioneer Fund shares.
Exchange Limitation. You may only make up to four exchange redemptions of
$25,000 or more per account per calendar year out of a fund. Each fund's
exchange limitation is intended to discourage short-term trading in fund shares.
Short-term trading can increase the expenses incurred by the fund and make
portfolio management less efficient. In determining whether the exchange
redemption limit has been reached, Pioneer may aggregate a series of exchanges
(each valued at less than $25,000) and/or fund accounts that appear to be under
common ownership or control. Pioneer may view accounts for which one person
gives instructions or accounts that act on advice provided by a single source to
be under common control.
The exchange limitation does not apply to automatic exchange transactions
or to exchanges made by participants in employer-sponsored retirement plans
qualified under Section 401(a) of the IRC. While financial intermediaries that
maintain omnibus accounts that
126
invest in the fund are requested to apply the exchange limitation policy to
shareholders who hold shares through such accounts, we do not impose the
exchange limitation policy at the level of the omnibus account and are not able
to monitor compliance by the financial intermediary with this policy.
Redemption Fee. Pioneer International Equity Fund has adopted a redemption
fee on short term holdings of the fund's shares. If you sell or exchange shares
within 30 days of any purchase of fund shares, the fund will apply a 2% fee to
the entire amount of your sales proceeds. The fund's redemption fee is intended
to discourage short-term trading in fund shares. Short-term trading can increase
the expenses incurred by the fund and make portfolio management less efficient.
Excessive Trading. The fund discourages excessive and short-term trading
practices, such as market timing, that may disrupt portfolio management
strategies and harm fund performance. Although there is no generally applied
standard in the marketplace as to what level of trading activity is excessive,
we may consider trading in the fund's shares to be excessive if:
o You sell shares within a short period of time after the shares were
purchased;
o You make two or more purchases and redemptions within a short period
of time;
o You enter into a series of transactions that is indicative of a timing
pattern or strategy; or
o We reasonably believe that you have engaged in such practices in
connection with other mutual funds.
We monitor selected trades on a daily basis in an effort to detect
excessive short-term trading. If we determine that an investor or a client of a
broker has engaged in excessive short-term trading that we believe may be
harmful to the fund, we will ask the investor or broker to cease such activity
and we will refuse to process purchase orders (including purchases by exchange)
of such investor, broker or accounts that we believe are under their control. In
determining whether to take such actions, we seek to act in a manner that is
consistent with the best interests of the fund's shareholders. We also limit the
number of exchanges of $25,000 or more in any calendar year.
While we use our reasonable efforts to detect excessive trading activity,
there can be no assurance that our efforts will be successful or that market
timers will not employ tactics designed to evade detection. Frequently, fund
shares are held through omnibus accounts maintained by financial intermediaries
such as brokers and retirement plan administrators where the holdings of
multiple shareholders, such as all the clients of a particular broker, are
aggregated. Our ability to monitor trading practices by investors purchasing
shares through omnibus accounts is limited and dependent upon the cooperation of
the financial intermediary in observing the fund's policies.
Minimum Account Size. Each Pioneer 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 Pioneer 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 Pioneer Fund by
telephone during times of market volatility or disruption in telephone service.
If you are unable to reach the Pioneer 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. If you are legally required
to obtain a certificate, you may request one for your Class A shares only. A fee
may be charged for this service. Any share certificates of the Safeco Funds
outstanding at the Closing of the Reorganization will be deemed to be cancelled
and will no longer represent shares of the Funds.
Other Policies. Each Pioneer Fund may suspend transactions in shares when
trading on the New York Stock Exchange is closed or restricted, when an
emergency exists that makes it impracticable, as determined by the SEC, for the
fund to sell or value its portfolio securities or with the permission of the
SEC.
Each Pioneer Fund or PFD may revise, suspend or terminate the account
options and services available to shareholders at any time.
Each Pioneer Fund reserves the right to redeem in kind by delivering
portfolio securities to a redeeming shareholder, provided that the Pioneer Fund
must pay redemptions in cash if a shareholder's aggregate redemptions in a 90
day period are less than $250,000 or 1% of the fund's net assets.
Dividends and Capital Gains
Each Pioneer Fund generally pays any distributions of net short- and
long-term capital gains and dividends from any net investment income at least
annually.
127
Each Pioneer Fund may also pay dividends and capital gain distributions at
other times if necessary for the fund to avoid U.S. federal income or excise
tax. If you invest in a Pioneer Fund close to the time that the fund makes a
distribution, generally you will pay a higher price per share and you will pay
taxes on the amount of the distribution whether you reinvest the distribution or
receive it as cash.
Taxes
For U.S. federal income tax purposes, distributions from each Pioneer
Fund's net long-term capital gains (if any) are considered long-term capital
gains and may be taxable to you at different maximum rates depending upon their
source and other factors. Short-term capital gain distributions for each Pioneer
Fund are taxable as ordinary income.
Dividends from net investment income are taxable either as ordinary income
or, if so designated by the fund and certain other conditions, including holding
period requirements, are met by the fund and the shareholder, as "qualified
dividend income" taxable to individual shareholders at the maximum 15% U.S.
federal tax rate. Dividends and distributions generally are taxable, whether you
take payment in cash or reinvest them to buy additional Pioneer Fund shares.
When you sell or exchange Pioneer Fund shares you will generally recognize
a capital gain or capital loss in an amount equal to the difference between the
net amount of sale proceeds (or, in the case of an exchange, the fair market
value of the shares) that you receive and your tax basis for the shares that you
sell or exchange. In January of each year each Pioneer Fund will mail to you
information about your dividends, distributions and any 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 Pioneer Fund will withhold 28% "backup
withholding" tax from your dividends and distributions, sale proceeds and any
other payments to you.
You should ask your tax adviser about any federal, state and foreign tax
considerations, including possible additional withholding taxes for non-U.S.
shareholders. You may also consult the "Tax Status" section of each Pioneer
Fund's statement of additional information for a more detailed discussion of
U.S. federal income tax considerations, including qualified dividend income
considerations that may affect the Pioneer Fund and its shareholders.
Pioneer Funds' Class A Rule 12b-1 Plans. As described above, each Pioneer
Fund has adopted a Rule 12b-1 plan for its Class A shares (the "Class A Plans"
or the "Plans"). Because the 12b-1 fees payable under each Plan are an ongoing
expense, over time they may increase the cost of your investment and your shares
may cost more than shares that are not subject to a distribution or service fee
or sales charge.
Compensation and Services. Each Class A Plan is a reimbursement plan, and
distribution expenses of PFD are expected to substantially exceed the
distribution fees paid by the fund in a given year. Pursuant to each Class A
Plan the fund reimburses PFD for its actual expenditures to finance any activity
primarily intended to result in the sale of Class A shares or to provide
services to holders of Class A shares, provided the categories of expenses for
which reimbursement is made are approved by the board of trustees. The expenses
of the fund pursuant to the Class A Plan are accrued daily at a rate which may
not exceed the annual rate of 0.25% of the fund's average daily net assets
attributable to Class A shares.
Trustee Approval and Oversight. Each Plan was last approved by the board of
trustees of each Pioneer Fund, including a majority of the independent trustees,
by votes cast in person at meetings called for the purpose of voting on the Plan
on December 6, 2003. Pursuant to the Plan, at least quarterly, PFD will provide
each fund with a written report of the amounts expended under the Plan and the
purpose for which these expenditures were made. The trustees review these
reports on a quarterly basis to determine their continued appropriateness.
Term, Termination and Amendment. Each Plan's adoption, terms, continuance
and termination are governed by Rule 12b-1 under the Investment Company Act. The
board of trustees believes that there is a reasonable likelihood that the Plans
will benefit each fund and its current and future shareholders. The Plans may
not be amended to increase materially the annual percentage limitation of
average net assets which may be spent for the services described therein without
approval of the shareholders of the fund affected thereby, and material
amendments of the Plans must also be approved by the trustees as provided in
Rule 12b-1.
128
FINANCIAL HIGHLIGHTS
The following tables show the financial performance of each Pioneer Fund
for the past five fiscal years and, if applicable, for any recent semiannual
period (or the period during which each Pioneer Fund has been in operation, if
less than five years). Certain information reflects financial results for a
single Pioneer Fund share. "Total return" shows how much an investment in a
Pioneer Fund would have increased or decreased during each period, assuming you
had reinvested all dividends and other distributions. In the case of each
Pioneer Fund, each fiscal year ended on or after the fiscal year ended June 30,
2002 has been audited by Ernst & Young LLP, each Pioneer Fund's independent
registered public accounting firm, as stated in their reports incorporated by
reference in this registration statement. For fiscal years prior to the fiscal
year ended June 30, 2002, the financial statements of each Pioneer Fund were
audited by Arthur Anderson LLP. The information for any semiannual period has
not been audited.
PIONEER BALANCED FUND
FINANCIAL HIGHLIGHTS
Six Months
Ended Year
6/30/04 Ended
CLASS A (Unaudited) 12/31/03
- ------- ----------- --------
Net asset value, beginning of period ......................... $ 9.47 $ 8.29
-------- --------
Increase (decrease) from investment operations:
Net investment income ....................................... $ 0.06 $ 0.12
Net realized and unrealized gain (loss) on investments ...... 0.09 1.20
-------- --------
Net increase (decrease) from investment operations .......... $ 0.15 $ 1.32
Distributions to shareholders:
Net investment income ....................................... (0.05) (0.14)
Net increase (decrease) in net asset value .................. $ 0.10 $ 1.18
-------- --------
Net asset value, end of period .............................. $ 9.57 $ 9.47
-------- --------
Total return* ................................................ 1.59% 15.99%
======== ========
Ratio of net expenses to average net assets+ ................. 1.31%** 1.38%
Ratio of net investment income to average net assets+ ....... 1.31%** 1.25%
Portfolio turnover rate ..................................... 34%** 44%
Net assets, end of period (in thousands) .................... $103,881 $107,265
Ratios with reductions for fees paid indirectly:
Net expenses ................................................ 1.31%** 1.38%
Net investment income ....................................... 1.31%** 1.25%
Year Year Year Year
Ended Ended Ended Ended
CLASS A 12/31/02 12/31/01 (a) 12/31/00 12/31/99
- ------- -------- ------------ -------- --------
Net asset value, beginning of period ......................... $ 9.46 $ 9.94 $ 9.73 $ 9.74
-------- -------- -------- --------
Increase (decrease) from investment operations:
Net investment income ....................................... $ 0.11 $ 0.19 $ 0.30 $ 0.31
Net realized and unrealized gain (loss) on investments ...... (1.17) (0.47) 0.22 (0.01)
-------- -------- -------- --------
Net increase (decrease) from investment operations .......... $ (1.06) $ (0.28) $ 0.52 $ 0.30
Distributions to shareholders:
Net investment income ....................................... (0.11) (0.20) (0.31) (0.31)
Net increase (decrease) in net asset value .................. $ (1.17) $ (0.48) $ 0.21 $ (0.01)
-------- -------- -------- --------
Net asset value, end of period .............................. $ 8.29 $ 9.46 $ 9.94 $ 9.73
-------- -------- -------- --------
Total return* ................................................ (11.20)% (2.87)% 5.38% 3.15%
======== ======== ======== ========
Ratio of net expenses to average net assets+ ................. 1.41% 1.31% 1.23% 1.23%
Ratio of net investment income to average net assets+ ....... 1.19% 1.97% 2.96% 3.21%
Portfolio turnover rate ..................................... 180% 133% 17% 46%
Net assets, end of period (in thousands) .................... $106,734 $141,746 $162,855 $214,866
Ratios with reductions for fees paid indirectly:
Net expenses ................................................ 1.41% 1.30% 1.20% 1.21%
Net investment income ....................................... 1.19% 1.98% 2.99% 3.23%
- ----------
* 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.
+ Ratios with no reduction for fees paid indirectly.
(a) At January 1, 2001, the Fund began accreting discounts and amortizing
premiums on debt securities. The effect of this change for the year ended
December 31, 2001 was to decrease net investment income by less than one
cent per share, increase net realized and unrealized gain (loss) by less
than one cent per share and decrease the ratio of net investment income to
average net assets assuming reduction for fees paid indirectly from 2.02%
to 1.98%. Per share ratios and supplemental data for periods prior to
January 1, 2002, have not been restated to reflect this change in
presentation.
129
PIONEER FUND
FINANCIAL HIGHLIGHTS
Six Months
Ended Year
6/30/04 Ended
CLASS A (Unaudited) 12/31/03
- ------- ----------- --------
Net asset value, beginning of period .......................... $ 38.00 $ 30.76
---------- ----------
Increase (decrease) from investment operations:
Net investment income ........................................ $ 0.14 $ 0.28
Net realized and unrealized gain (loss) on investments and
foreign currency transactions ............................... 0.63 7.24
---------- ----------
Net increase (decrease) from investment operations ........... $ 0.77 $ 7.52
Distributions to shareholders:
Net investment income ........................................ $ (0.13) $ (0.28)
Net realized gain ............................................ -- --
---------- ----------
Net increase (decrease) in net asset value ................... $ 0.64 $ 7.24
---------- ----------
Net asset value, end of period ................................ $ 38.64 $ 38.00
========== ==========
Total return* ................................................. 2.03% 24.58%
Ratio of net expenses to average net assets+ .................. 1.05%** 1.09%
Ratio of net investment income to average net assets+ ........ 0.71%** 0.86%
Portfolio turnover rate ...................................... 22%** 6%
Net assets, end of period (in thousands) ..................... $5,328,526 $5,370,888
Ratios with reductions for fees paid indirectly:
Net expenses ................................................. 1.05%** 1.09%
Net investment income ........................................ 0.71%** 0.86%
Year Year Year Year
Ended Ended Ended Ended
CLASS A 12/31/02 12/31/01 12/31/00 12/31/99
- ------- -------- -------- -------- --------
Net asset value, beginning of period .......................... $ 38.87 $ 44.26 $ 47.60 $ 43.30
---------- ---------- ---------- ----------
Increase (decrease) from investment operations:
Net investment income ........................................ $ 0.27 $ 0.18 $ 0.16 $ 0.18
Net realized and unrealized gain (loss) on investments and
foreign currency transactions ............................... (8.12) (5.11) (0.14) 6.51
---------- ---------- ---------- ----------
Net increase (decrease) from investment operations ........... $ (7.85) $ (4.93) $ 0.02 $ 6.69
Distributions to shareholders:
Net investment income ........................................ $ (0.26) $ (0.16) $ (0.12) $ (0.17)
Net realized gain ............................................ -- (0.30) (3.24) (2.22)
---------- ---------- ---------- ----------
Net increase (decrease) in net asset value ................... $ (8.11) $ (5.39) $ (3.34) $ 4.30
---------- ---------- ---------- ----------
Net asset value, end of period ................................ $ 30.76 $ 38.87 $ 44.26 $ 47.60
========== ========== ========== ==========
Total return* ................................................. (20.26%) (11.13%) 0.12% 15.54%
Ratio of net expenses to average net assets+ .................. 1.11% 1.14% 1.11% 1.10%
Ratio of net investment income to average net assets+ ........ 0.75% 0.43% 0.31% 0.39%
Portfolio turnover rate ...................................... 7% 6% 20% 10%
Net assets, end of period (in thousands) ..................... $4,584,649 $6,140,520 $6,645,954 $6,638,130
Ratios with reductions for fees paid indirectly:
Net expenses ................................................. 1.10% 1.13% 1.09% 1.09%
Net investment income ........................................ 0.76% 0.44% 0.33% 0.40%
- ----------
* 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.
+ Ratios with no reduction for fees paid indirectly.
130
PIONEER INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
Year Year
CLASS A Ended Ended
- ------- 3/31/04 3/31/03
Net asset value, beginning of period ................................. $ 11.64 $ 15.94
------- -------
Increase (decrease) from investment operations:
Net investment income (loss) ........................................ $ 0.10 $ 0.05
Net realized and unrealized gain (loss)on investments and foreign
currency transactions .............................................. 5.81 (4.35)
Net increase (decrease) from investment operations .................. $ 5.91 $ (4.30)
Distributions to shareholders:
Net investment income ............................................... -- --
Net realized gain ................................................... -- --
------- -------
Net increase (decrease) in net asset value .......................... $ 5.91 $ (4.30)
------- -------
Net asset value, end of period ....................................... $ 17.55 $ 11.64
======= =======
Total return* ........................................................ 50.77% (26.98)%
Ratio of net expenses to average net assets+ ......................... 1.75% 1.76%
Ratio of net investment income (loss) to average net assets+ ......... 0.67% 0.30%
Portfolio turnover rate .............................................. 169% 45%
Net assets, end of period (in thousands) ............................. $18,345 $11,578
Ratios with no waiver of management fees and assumption of expenses
by PIM and no reduction for fees paid indirectly:
Net expenses ........................................................ 2.80% 2.94%
Net investment loss ................................................. (0.38)% (0.88)%
Ratios with waiver of management fees and assumption of expenses by
PIM and reduction for fees paid indirectly:
Net expenses ........................................................ 1.75% 1.75%
Net investment income (loss) ........................................ 0.67% 0.31%
Year Year Year
CLASS A Ended Ended Ended
- ------- 3/31/02 3/31/01 3/31/00
Net asset value, beginning of period ................................. $ 16.81 $ 27.50 $ 18.55
------- ------- -------
Increase (decrease) from investment operations:
Net investment income (loss) ........................................ $ (0.06) $ (0.16) $ (0.06)
Net realized and unrealized gain (loss)on investments and foreign
currency transactions .............................................. (0.78) (9.25) 9.09
Net increase (decrease) from investment operations .................. $ (0.84) $ (9.41) $ 9.03
Distributions to shareholders:
Net investment income ............................................... -- -- (0.08)
Net realized gain ................................................... (0.03) (1.28) --
------- ------- -------
Net increase (decrease) in net asset value .......................... $ (0.87) $(10.69) $ 8.95
------- ------- -------
Net asset value, end of period ....................................... $ 15.94 $ 16.81 $ 27.50
======= ======= =======
Total return* ........................................................ (4.98)% (34.95)% 48.62%
Ratio of net expenses to average net assets+ ......................... 1.75% 1.77% 1.76%
Ratio of net investment income (loss) to average net assets+ ......... (0.35)% (0.75)% (0.23)%
Portfolio turnover rate .............................................. 77% 50% 59%
Net assets, end of period (in thousands) ............................. $16,455 $20,689 $41,276
Ratios with no waiver of management fees and assumption of expenses
by PIM and no reduction for fees paid indirectly:
Net expenses ........................................................ 2.68% 2.12% 2.10%
Net investment loss ................................................. (1.28)% (1.10) (0.57)%
Ratios with waiver of management fees and assumption of expenses by
PIM and reduction for fees paid indirectly:
Net expenses ........................................................ 1.75% 1.75% 1.75%
Net investment income (loss) ........................................ (0.35)% (0.73)% (0.22)%
- ----------
* 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.
+ Ratios with no reduction for fees paid indirectly.
131
PIONEER GROWTH SHARES
FINANCIAL HIGHLIGHTS
Six Months
Ended Year
6/30/04 Ended
CLASS A (Unaudited) 12/31/03
- ------- ----------- --------
Net asset value, beginning of period ..................... $ 11.42 $ 9.05
-------- --------
Increase (decrease) from investment operations:
Net investment loss ..................................... $ (0.02) $ (0.04)
Net realized and unrealized gain (loss) on investments .. (0.13) 2.41
-------- --------
Net increase (decrease) from investment operations ...... $ (0.15) $ 2.37
Distributions to shareholders:
Net realized gain ....................................... -- --
-------- --------
Net increase (decrease) in net asset value .............. $ (0.15) $ 2.37
-------- --------
Net asset value, end of period .......................... $ 11.27 $ 11.42
======== ========
Total return* ............................................ (1.31)% 26.19%
Ratio of net expenses to average net assets+ ............. 1.39%** 1.45%
Ratio of net investment loss to average net assets+ ...... (0.44)%** (0.42)%
Portfolio turnover rate .................................. 197%** 47%
Net assets, end of period (in thousands) ................. $486,992 $516,234
Ratios with reductions for fees paid indirectly:
Net expenses ............................................ 1.39%** 1.45%
Net investment loss ..................................... (0.44)%** (0.42)%
Year Year Year Year
Ended Ended Ended Ended
CLASS A 12/31/02 (a) 12/31/01 12/31/00 12/31/99
- ------- ------------ -------- -------- --------
Net asset value, beginning of period ..................... $ 13.90 $ 17.21 $ 20.16 $ 20.34
-------- -------- ---------- ----------
Increase (decrease) from investment operations:
Net investment loss ..................................... $ (0.04) $ (0.04) $ (0.09) $ (0.09)
Net realized and unrealized gain (loss) on investments .. (4.81) (3.27) (1.81) 1.59
-------- -------- ---------- ----------
Net increase (decrease) from investment operations ...... $ (4.85) $ (3.31) $ (1.90) $ 1.50
Distributions to shareholders:
Net realized gain ....................................... -- -- (1.05) (1.68)
-------- -------- ---------- ----------
Net increase (decrease) in net asset value .............. $ (4.85) $ (3.31) $ (2.95) $ (0.18)
-------- -------- ---------- ----------
Net asset value, end of period .......................... $ 9.05 $ 13.90 $ 17.21 $ 20.16
======== ======== ========== ==========
Total return* ............................................ (34.89)% (19.23)% (9.57)% 7.40%
Ratio of net expenses to average net assets+ ............. 1.39% 1.18% 1.22% 1.02%
Ratio of net investment loss to average net assets+ ...... (0.39)% (0.29)% (0.60)% (0.41)%
Portfolio turnover rate .................................. 88% 111% 58% 48%
Net assets, end of period (in thousands) ................. $452,070 $836,149 $1,197,025 $1,935,072
Ratios with reductions for fees paid indirectly:
Net expenses ............................................ 1.38% 1.16% 1.19% 1.00%
Net investment loss ..................................... (0.38)% (0.27)% (0.57)% (0.39)%
- ----------
(a) The per share data presented above is based upon the average shares
outstanding for the year 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 with no reduction for fees paid indirectly.
132
PIONEER VALUE FUND
FINANCIAL HIGHLIGHTS
Six Months
Ended Year
3/31/04 Ended
CLASS A (Unaudited) 9/30/03
- ------- ----------- -------
Net asset value, beginning of period .......................... $ 16.25 $ 15.29
---------- ----------
Increase (decrease) from investment operations:
Net investment income ........................................ $ 0.07 $ 0.11
Net realized and unrealized gain (loss) on investments and
foreign currency transactions ............................... 2.52 3.20
---------- ----------
Net increase (decrease) from investment operations ........... $ 2.59 $ 3.31
Distributions to shareholders:
Net investment income ........................................ (0.08) (0.24)
Net realized gain ............................................ (0.04) (2.11)
---------- ----------
Net increase (decrease) in net asset value ................... $ 2.47 $ 0.96
---------- ----------
Net asset value, end of period ............................... $ 18.72 $ 16.25
========== ==========
Total return* ................................................. 15.98% 22.94%
Ratio of net expenses to average net assets ................... 1.06%** 1.19%
Ratio of net investment income to average net assets+ ......... 0.70%** 0.85%
Portfolio turnover rate ....................................... 35%** 40%
Net assets, end of period (in thousands) ...................... $3,843,212 $3,424,962
Ratios assuming reduction for fees paid indirectly:
Net expenses ................................................. 1.06%** 1.19%
Net investment income ........................................ 0.70%** 0.85%
Year Year Year Year
Ended Ended Ended Ended
CLASS A 9/30/02 9/30/01 9/30/00 9/30/99
- ------- ------- ------- ------- -------
Net asset value, beginning of period .......................... $ 19.12 $ 22.67 $ 20.16 $ 18.32
---------- ---------- ---------- ----------
Increase (decrease) from investment operations:
Net investment income ........................................ $ 0.15 $ 0.17 $ 0.20 $ 0.21
Net realized and unrealized gain (loss) on investments and
foreign currency transactions ............................... (3.17) (2.05) 3.0 21.97
---------- ---------- ---------- ----------
Net increase (decrease) from investment operations ........... $ (3.02) $ (1.88) $ 3.22 $ 2.18
Distributions to shareholders:
Net investment income ........................................ (0.09) (0.14) (0.20) (0.19)
Net realized gain ............................................ (0.72) (1.53) (0.51) (0.15)
---------- ---------- ---------- ----------
Net increase (decrease) in net asset value ................... $ (3.83) $ (3.55) $ 2.51 $ 1.84
---------- ---------- ---------- ----------
Net asset value, end of period ............................... $ 15.29 $ 19.12 $ 22.67 $ 20.16
========== ========== ========== ==========
Total return* ................................................. (16.78)% (8.88)% 16.29% 11.86%
Ratio of net expenses to average net assets ................... 1.16% 1.01% 0.96% 0.96%
Ratio of net investment income to average net assets+ ......... 0.74% 0.76% 0.81% 0.93%
Portfolio turnover rate ....................................... 61% 3% 3% 12%
Net assets, end of period (in thousands) ...................... $3,016,623 $3,885,560 $4,614,739 $5,125,858
Ratios assuming reduction for fees paid indirectly:
Net expenses ................................................. 1.16% 0.99% 0.94% 0.95%
Net investment income ........................................ 0.74% 0.78% 0.83% 0.94%
- ----------
* 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.
+ Ratios assuming no reduction for fees paid indirectly.
133
PIONEER MID CAP VALUE FUND
FINANCIAL HIGHLIGHTS
Six Months
Ended Year
4/30/04 Ended
CLASS A (Unaudited) 10/31/03
- ------- ----------- --------
Net asset value, beginning of period ............................ $ 22.25 $ 16.93
---------- ----------
Increase (decrease) from investment operations:
Net investment income (loss) ................................... $ 0.01 $ 0.04
Net realized and unrealized gain (loss) on investments ......... 2.03 5.28
---------- ----------
Net increase (decrease) from investment operations ............. $ 2.04 $ 5.32
Distributions to shareholders:
Net investment income .......................................... (0.03) --
Net realized gain .............................................. (0.49) --
---------- ----------
Net increase (decrease) in net asset value ..................... 1.52 $ 5.32
---------- ----------
Net asset value, end of period ................................. $ 23.77 $ 22.25
========== ==========
Total return* ................................................... 9.37% 31.42%
Ratio of net expenses to average net assets+ .................... 1.19%**(a) 1.37%
Ratio of net investment income (loss) to average net assets+ .... 0.08%**(a) 0.24%
Portfolio turnover rate ......................................... 46%** 58%
Net assets, end of period (in thousands) ........................ $1,363,097 $1,208,400
Ratios with reduction for fees paid indirectly:
Net expenses ................................................... 1.19%**(a) 1.37%
Net investment income (loss) ................................... 0.08%**(a) 0.24%
Year Year Year Year
Ended Ended Ended Ended
CLASS A 10/31/02 10/31/01 10/31/00 10/31/99
- ------- -------- -------- -------- --------
Net asset value, beginning of period ............................ $ 19.29 $ 20.83 $ 19.90 $ 19.02
-------- -------- -------- ----------
Increase (decrease) from investment operations:
Net investment income (loss) ................................... $ (0.02) $ (0.01) $ 0.11 $ 0.12
Net realized and unrealized gain (loss) on investments ......... (0.97) 0.34 3.46 1.70
-------- -------- -------- ----------
Net increase (decrease) from investment operations ............. $ (0.99) $ 0.33 $ 3.57 $ 1.82
Distributions to shareholders:
Net investment income .......................................... -- -- -- (0.02)
Net realized gain .............................................. (1.37) (1.87) (2.64) (0.92)
-------- -------- -------- ----------
Net increase (decrease) in net asset value ..................... $ (2.36) $ (1.54) $ 0.93 $ 0.88
-------- -------- -------- ----------
Net asset value, end of period ................................. $ 16.93 $ 19.29 $ 20.83 $ 19.90
======== ======== ======== ==========
Total return* ................................................... (5.99)% 1.85% 20.00% 10.02%
Ratio of net expenses to average net assets+ .................... 1.30% 1.24% 1.13% 1.18%
Ratio of net investment income (loss) to average net assets+ .... (0.09)% 0.01% 0.27% 0.37%
Portfolio turnover rate ......................................... 65% 95% 70% 75%
Net assets, end of period (in thousands) ........................ $890,856 $921,310 $945,583 $1,067,562
Ratios with reduction for fees paid indirectly:
Net expenses ................................................... 1.30% 1.22% 1.11% 1.16%
Net investment income (loss) ................................... (0.09)% 0.03% 0.29% 0.39%
- ----------
* 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.
+ Ratios with no reduction for fees paid indirectly.
(a) In the absence of the negative printing fees in the statement of
operations, which relates to a change in estimate for printing fees in the
period ended October 31, 2003, the gross expense ratio and net investment
income ratio to average net assets would have been 1.20% and 0.07%,
respectively.
134
PIONEER SMALL CAP VALUE FUND
FINANCIAL HIGHLIGHTS
Six Months
Ended Year
5/31/04 Ended
CLASS A (Unaudited) 11/30/03
- ------- ----------- --------
Net asset value, beginning of period ........................ $ 27.10 $ 21.51
-------- --------
Increase (decrease) from investment operations:
Net investment loss ........................................ $ (0.07) $ (0.07)
Net realized and unrealized gain (loss) on investments and
futures contracts ......................................... 2.67 5.78
-------- --------
Net increase (decrease) from investment operations ......... $ 2.60 $ 5.71
Distributions to shareholders:
Net realized gain .......................................... -- (0.12)
-------- --------
Net increase (decrease) in net asset value ................. $ 2.60 $ 5.59
-------- --------
Net asset value, end of period ............................. $ 29.70 $ 27.10
======== ========
Total return* ............................................... 9.59% 26.56%
Ratio of net expenses to average net assets+ ................ 1.51%** 1.66%
Ratio of net investment loss to average net assets+ ......... (0.50)%* (0.32)%
Portfolio turnover rate ..................................... 31%** 37%
Net assets, end of period (in thousands) .................... $256,248 $201,892
Ratios with no waiver of management fees and assumption of
expenses by PIM and no reduction for fees paid indirectly:
Net expenses ............................................... 1.51%** 1.66%
Net investment loss ........................................ (0.50)%** (0.32)%
Ratios with waiver of management fees and assumption of
expenses by PIM and reduction for fees paid indirectly:
Net expenses ............................................... 1.51%** 1.65%
Net investment loss ........................................ (0.50)%** (0.31)%
Year Year Year Year
Ended Ended Ended Ended
CLASS A 11/30/02 11/30/01 11/30/00 11/30/99
- ------- -------- -------- -------- --------
Net asset value, beginning of period ........................ $ 22.46 $ 20.10 $ 17.40 $ 13.85
-------- ------- ------- -------
Increase (decrease) from investment operations:
Net investment loss ........................................ $ (0.24) $ (0.09) $ (0.12) $ (0.08)
Net realized and unrealized gain (loss) on investments and
futures contracts ......................................... (0.69) 3.29 3.13 3.63
-------- ------- ------- -------
Net increase (decrease) from investment operations ......... $ (0.93) $ 3.20 $ 3.01 $ 3.55
------- -------
Distributions to shareholders:
Net realized gain .......................................... (0.02) (0.84) (0.31) --
-------- ------- ------- -------
Net increase (decrease) in net asset value ................. $ (0.95) $ 2.36 $ 2.70 $ 3.55
-------- ------- ------- -------
Net asset value, end of period ............................. $ 21.51 $ 22.46 $ 20.10 $ 17.40
======== ======= ======= =======
Total return* ............................................... (4.16)% 15.92% 17.26% 25.63%
Ratio of net expenses to average net assets+ ................ 1.65% 1.79% 1.72% 2.02%
Ratio of net investment loss to average net assets+ ......... (0.49)% (0.33)% (0.27)% (0.71)%
Portfolio turnover rate ..................................... 31% 49% 61% 78%
Net assets, end of period (in thousands) .................... $139,170 $73,855 $58,323 $33,714
Ratios with no waiver of management fees and assumption of
expenses by PIM and no reduction for fees paid indirectly:
Net expenses ............................................... 1.65% 1.79% 1.72% 2.02%
Net investment loss ........................................ (0.49)% (0.33)% (0.27)% (0.71)%
Ratios with waiver of management fees and assumption of
expenses by PIM and reduction for fees paid indirectly:
Net expenses ............................................... 1.63% 1.76% 1.69% 1.98%
Net investment loss ........................................ (0.47)% (0.30)% (0.24)% (0.67)%
- ----------
* 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
+ Ratios with no reduction for fees paid indirectly.
135
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 and officers of your
Safeco Fund or its affiliates, including personnel of your Safeco Fund's
transfer agent, Pioneer Funds' investment adviser, Pioneer, Pioneer Funds'
transfer agent, PIMSS, or by broker-dealer firms. Georgeson Shareholder
Communications Corporation, 17 State Street, New York, NY 10004, has been
retained to provide proxy solicitation services to the Funds at a cost of
approximately $30,000. Pioneer and Symetra will bear the cost of such
solicitation.
Revoking Proxies
A Safeco 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 your Safeco Fund's
transfer agent, Safeco Services Corporation, at 4854 154th Place,
N.E., Redmond, WA 98052, 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
Safeco 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
Only shareholders of record on October 8, 2004 (the "record date") are
entitled to notice of and to vote at the Meetings. As of the record date, the
following number of shares of each Safeco Fund were outstanding.
Shares Outstanding
Safeco Fund (as of October 8, 2004)
- ----------- -----------------------
Safeco Balanced Fund ..................... 1,524,501.995
Safeco Core Equity Fund .................. 37,767,966.955
Safeco Growth Opportunities Fund ......... 19,115,534.708
Safeco International Stock Fund .......... 3,191,887.818
Safeco Large-Cap Growth Fund ............. 694,809.278
Safeco Large-Cap Value Fund .............. 7,551,928.230
Safeco Multi-Cap Core Fund ............... 3,514,922.442
Safeco Small-Cap Value Fund .............. 3,908,412.105
Other Business
Your Safeco Fund's board of trustees knows of no business to be presented
for consideration at the Meetings other than Proposals 1(a)-(h) and 2(a)-(h). If
other business is properly brought before a Meeting, proxies will be voted
according to the best judgment of the persons named as proxies.
Adjournments
If, by the time scheduled for a Meeting, a quorum of shareholders of a Fund
is not present or if a quorum is present but sufficient votes "for" the
proposals have not been received, the persons named as proxies may propose the
Meeting with respect to one or more of the Funds to another date and time, and
the Meeting may be held as adjourned within a reasonable time after the date set
for the original Meeting for that Fund without further notice. Any such
adjournment will require the affirmative vote of a majority of the votes cast on
the question in person or by proxy at the session of the Meeting to be
adjourned. The persons named as proxies will vote all proxies in favor of the
adjournment that voted in favor of the proposal or that abstained. They will
vote against such adjournment those proxies required to be voted against the
proposal. Broker non-votes will be disregarded in the vote for adjournment. If
the adjournment requires setting a new record date or the adjournment is for
more than 120 days of the original Meeting (in which case the board of trustees
of your Safeco Fund will set a new record date), your Safeco Fund will give
notice of the adjourned meeting to its shareholders.
136
Telephone Voting
In addition to soliciting proxies by mail, by fax or in person, your Safeco
Fund may also arrange to have votes recorded by telephone by officers and
employees of your Safeco Fund or by personnel of the adviser or transfer agent
or a third party solicitation firm. 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 Safeco 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.
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.
Internet Voting
You will also have the opportunity to submit your voting instructions via
the Internet by utilizing a program provided through a vendor. Voting via the
Internet will not affect your right to vote in person if you decide to attend
the Meeting. Do not mail the proxy card if you are voting via the Internet. To
vote via the Internet, you will need the "control number" that appears on your
proxy card. These Internet voting procedures are designed to authenticate
shareholder identities, to allow shareholders give their voting instructions,
and to confirm that shareholders instructions have been recorded properly. If
you are voting via the Internet you should understand that there may be costs
associated with electronic access, such as usage charges from Internet access
providers and telephone companies, that must be borne by you.
o Read the proxy statement and have your proxy card at hand.
o Go to the Web site listed on your proxy card.
o Enter control number found on your proxy card.
o Follow the simple instructions on the Web site. Please call [ ]
us at [1-800 ] if you have any problems.
o To insure that your instructions have been recorded correctly you will
receive a confirmation of your voting instructions immediately after
your submission and also by e-mail if chosen.
Shareholders' Proposals
Your Safeco Fund is not required, and does not intend, to hold meetings of
shareholders each year. Instead, meetings will be held only when and if
required. Any shareholders desiring to present a proposal for consideration at
the next meeting for shareholders must submit the proposal in writing, so that
it is received by the your Safeco Fund to Safeco Mutual Funds, Attention: Legal
Department at 4854 154th Place N.E., Redmond, WA 98052 within a reasonable time
before any meeting. If the Reorganization is completed, your Safeco Fund will
not hold another shareholder meeting.
Appraisal Rights
If the Reorganization of your Safeco Fund is approved at the Meeting,
shareholders of your Safeco Fund will not have the right to dissent and obtain
payment of the fair value of their shares because the exercise of appraisal
rights is subject to the forward pricing requirements of Rule 22c-1 under the
Investment Company Act, which supersede state law. Shareholders of your Safeco
Funds, however, have the right to redeem their Fund shares until the closing
date of the Reorganizations. After the Reorganization, shareholders of your
Safeco Fund will hold shares of a Pioneer Fund which may also be redeemed at net
asset value without being subject to any deferred sales charges.
137
OWNERSHIP OF SHARES OF THE SAFECO FUNDS
To the knowledge of your Safeco Fund, as of September 30, 2004, the
following persons owned of record or beneficially 5% or more of the outstanding
shares of each of the Safeco Funds.
- ------------------------------------------------------------------------------------------------------
Safeco Fund Shareholder Name and Address Percentage Owned
- ------------------------------------------------------------------------------------------------------
Safeco Balanced Fund Symetra Asset Management Co. 35.03%
4854 154th Place NE
Redmond, WA 98052
- ------------------------------------------------------------------------------------------------------
Safeco Core Equity Fund Charles Schwab & Co. Inc. 17.66%
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
- ------------------------------------------------------------------------------------------------------
Safeco Growth Opportunities Fund Charles Schwab & Co. Inc. 19.44%
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
- ------------------------------------------------------------------------------------------------------
Wells Fargo & Company 5.66%
420 Montgomery Street
San Francisco, California 94163
- ------------------------------------------------------------------------------------------------------
National Financial Services Corp. 5.61%
for the Exclusive Benefit of Our Customers
Attn.: Mutual Funds Dept. 5th Fl.
200 Liberty St., 1 World Financial Center
New York, NY 10281-1003
- ------------------------------------------------------------------------------------------------------
Safeco International Stock Fund Wells Fargo & Company 30.77%
420 Montgomery Street
San Francisco, California 94163
- ------------------------------------------------------------------------------------------------------
Symetra Asset Management Co. 21.91%
4854 154th Place NE
Redmond, WA 98052
- ------------------------------------------------------------------------------------------------------
Charles Schwab & Co. Inc. 16.93%
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
- ------------------------------------------------------------------------------------------------------
Safeco Large-Cap Growth Fund Symetra Asset Management Co. 72.10%
4854 154th Place NE
Redmond, WA 98052
- ------------------------------------------------------------------------------------------------------
Safeco Large-Cap Value Fund Wells Fargo & Company 6.65%
420 Montgomery Street
San Francisco, California 94163
- ------------------------------------------------------------------------------------------------------
Charles Schwab & Co. Inc. 6.60%
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
- ------------------------------------------------------------------------------------------------------
138
- -------------------------------------------------------------------------------------------------
Safeco Fund Shareholder Name and Address Percentage Owned
- -------------------------------------------------------------------------------------------------
Safeco Multi-Cap Core Fund Charles Schwab & Co. Inc. 5.10%
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
- -------------------------------------------------------------------------------------------------
Safeco Small-Cap Value Fund Wells Fargo & Company 27.04%
420 Montgomery Street
San Francisco, California 94163
- -------------------------------------------------------------------------------------------------
National Financial Services Corp. 16.55%
for the Exclusive Benefit of Our Customers
Attn.: Mutual Funds Dept. 5th Fl.
200 Liberty St., 1 World Financial Center
New York, NY 10281-1003
- -------------------------------------------------------------------------------------------------
Charles Schwab & Co. Inc. 15.56%
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
- -------------------------------------------------------------------------------------------------
As of December 31, 2003, the trustees and officers of your Safeco Fund, as
a group, owned in the aggregate less than 1% of the outstanding shares of your
Safeco Fund.
Symetra or other companies controlled by Symetra own shares of certain
Safeco Funds. Those shares will be voted pro rata in accordance with the vote
cast by shareholders of the applicable Fund.
139
OWNERSHIP OF SHARES OF THE PIONEER FUNDS
To the knowledge of your Pioneer Fund, as of September 30, 2004, the
following persons owned of record or beneficially 5% or more of the outstanding
shares of each of the Pioneer Funds.
- ----------------------------------------------------------------------------------------------------
Pioneer Fund/Class Shareholder Name and Address Percentage Owned
- ----------------------------------------------------------------------------------------------------
Pioneer Balanced Fund
- ----------------------------------------------------------------------------------------------------
Class B Shares MLPFS For The Sole Benefit of its Customers 5.21%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- ----------------------------------------------------------------------------------------------------
Class C Shares MLPFS For The Sole Benefit of its Customers 6.53%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- ----------------------------------------------------------------------------------------------------
Citigroup Global Markets Inc. 7.84%
333 West 34th St., 7th Fl.
New York, NY 10001-2402
- ----------------------------------------------------------------------------------------------------
Pioneer Fund
- ----------------------------------------------------------------------------------------------------
Class B Shares MLPFS For The Sole Benefit of its Customers 15.03%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- ----------------------------------------------------------------------------------------------------
Class C Shares MLPFS For The Sole Benefit of its Customers 34.48%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- ----------------------------------------------------------------------------------------------------
Citigroup Global Markets Inc. 8.79%
333 West 34th St., 7th Fl.
New York, NY 10001-2402
- ----------------------------------------------------------------------------------------------------
Class R Shares ING National Trust, Trustee 43.47%
Agreement and Aetna 403(b)(7)
Custodial Acct 3/26/97 Trustee for Thomas J. Botticelli
DTD 4/22/96
151 Farmington Avenue -- TN41
Hartford, CT 06156-0001
- ----------------------------------------------------------------------------------------------------
Aetna Life Insurance & Annuity Co. 19.93%
151 Farmington Avenue -- TN41
Hartford, CT 06156-0001
- ----------------------------------------------------------------------------------------------------
MCB Trust Services Cust. FBO Big Boy 401(K) 5.96%
Plan & Trust
700 17th St., Ste 300
Denver, CO 80202-3531
- ----------------------------------------------------------------------------------------------------
Class Y Shares Pioneer Protected Principal Plus Fund II 12.19%
60 State St.
Boston, MA 02109-1800
- ----------------------------------------------------------------------------------------------------
NFSC FEBO #U71-000027 12.78%
First Command Bank Trust Dept.
P.O. Box 901075
Fort Worth, TX 76101-2075
- ----------------------------------------------------------------------------------------------------
140
- ---------------------------------------------------------------------------------------------------
Pioneer Fund/Class Shareholder Name and Address Percentage Owned
- ---------------------------------------------------------------------------------------------------
MLPFS For The Sole Benefit of its Customers 5.51%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- ---------------------------------------------------------------------------------------------------
State St. Bank and Trust Trustee 59.51%
FBO Pacificorp K Plus Savings Plan Trust DTD 1/9/96
805 Pennsylvania Ave.
5th Fl., Tower 2
Kansas City, MO 64105-1307
- ---------------------------------------------------------------------------------------------------
State of Florida Public Employees Optional Retirement 6.00%
Program
1801 Hermitage Blvd., Ste 100
Tallahassee, FL 32308-7743
- ---------------------------------------------------------------------------------------------------
Pioneer International Equity Fund
- ---------------------------------------------------------------------------------------------------
Class B Shares MLPFS For The Sole Benefit of its Customers 6.89%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- ---------------------------------------------------------------------------------------------------
Class Y Shares FISERV Securities, Inc. 20.10%
FAO 58861625
Attn: Mutual Funds
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, PA 19103-7084
- ---------------------------------------------------------------------------------------------------
FISERV Securities, Inc. 24.75%
FAO 58861649
Attn: Mutual Funds
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, PA 19103-7084
- ---------------------------------------------------------------------------------------------------
FISERV Securities, Inc. 54.32%
FAO 58861654
Attn: Mutual Funds
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, PA 19103-7084
- ---------------------------------------------------------------------------------------------------
Pioneer Growth Shares
- ---------------------------------------------------------------------------------------------------
Class B Shares MLPFS For The Sole Benefit of its Customers 6.85%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- ---------------------------------------------------------------------------------------------------
Class C Shares MLPFS For The Sole Benefit of its Customers 11.53%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- ---------------------------------------------------------------------------------------------------
141
- ----------------------------------------------------------------------------------------------------
Pioneer Fund/Class Shareholder Name and Address Percentage Owned
- ----------------------------------------------------------------------------------------------------
Class R Shares MLPFS For The Sole Benefit of its Customers 51.38
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- ----------------------------------------------------------------------------------------------------
Aetna Life Insurance & Annuity Co. 13.09%
151 Farmington Avenue -- TN41
Hartford, CT 06156-0001
- ----------------------------------------------------------------------------------------------------
A T Systems Inc. 401K Plan 6.99%
Tom Donaldson ETAL
4257 Diplomacy Dr.
Columbus, OH 43228-3803
- ----------------------------------------------------------------------------------------------------
MCB Trust Services Cust. FBO 21.88%
AM-Liner Savings & Retirement
700 17th St., Ste 300
Denver, CO 80202-3531
- ----------------------------------------------------------------------------------------------------
Class Y Shares MLPFS For The Sole Benefit of its Customers 85.13%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- ----------------------------------------------------------------------------------------------------
Pioneer Mid Cap Value Fund
- ----------------------------------------------------------------------------------------------------
Class B Shares MLPFS For The Sole Benefit of its Customers 8.80%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- ----------------------------------------------------------------------------------------------------
Class C Shares MLPFS For The Sole Benefit of its Customers 18.39%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- ----------------------------------------------------------------------------------------------------
Citigroup Global Markets Inc. 9.22%
333 West 34th St., 7th Fl.
New York, NY 10001-2402
- ----------------------------------------------------------------------------------------------------
Class R Shares MCB Trust Services Cust. FBO 11.38%
United International Corp
700 17th St., Ste 300
Denver, CO 80202-3531
- ----------------------------------------------------------------------------------------------------
ING National Trust, Trustee 20.50%
Agreement and Aetna 403(b)(7)
Custodial Acct 3/26/97 Trustee for Thomas J. Botticelli
DTD 4/22/96
151 Farmington Avenue -- TN41
Hartford, CT 06156-0001
- ----------------------------------------------------------------------------------------------------
MLPFS For The Sole Benefit of its Customers 13.61%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- ----------------------------------------------------------------------------------------------------
Aetna Life Insurance & Annuity Co. 23.70%
151 Farmington Avenue -- TN41
Hartford, CT 06156-0001
- ----------------------------------------------------------------------------------------------------
142
- -----------------------------------------------------------------------------------------------------
Pioneer Fund/Class Shareholder Name and Address Percentage Owned
- -----------------------------------------------------------------------------------------------------
MCB Trust Services Cust. FBO 5.52%
Foxcor, Inc.
700 17th St., Ste 300
Denver, CO 80202-3531
- -----------------------------------------------------------------------------------------------------
Class Y Shares John F. Cogan Jr. 8.77%
C/O Hale and Dorr
60 State street
Boston, MA 02109-1800
- -----------------------------------------------------------------------------------------------------
John F. Cogan Jr. & Mary Cornille & Pamela Cogan Riddle 8.88%
& Gregory Cogan TTEESO/The Cogan Family Foundation
C/O Hale & Dorr Trust Dept.
60 State street
Boston, MA 02109-1800
- -----------------------------------------------------------------------------------------------------
MLPFS For The Sole Benefit of its Customers 55.07%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- -----------------------------------------------------------------------------------------------------
Pioneer Small Cap Value Fund
- -----------------------------------------------------------------------------------------------------
Class A Shares MLPFS For The Sole Benefit of its Customers 7.28%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- -----------------------------------------------------------------------------------------------------
Class B Shares MLPFS For The Sole Benefit of its Customers 9.53%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- -----------------------------------------------------------------------------------------------------
Class C Shares MLPFS For The Sole Benefit of its Customers 26.91%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- -----------------------------------------------------------------------------------------------------
Citigroup Global Markets Inc. 10.97%
333 West 34th St., 7th Fl.
New York, NY 10001-2402
- -----------------------------------------------------------------------------------------------------
Class R Shares MCB Trust Services Cust. FBO 13.45%
United International Corp.
700 17th St., Ste 300
Denver, CO 80202-3531
- -----------------------------------------------------------------------------------------------------
MLPFS For The Sole Benefit of its Customers 21.91%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- -----------------------------------------------------------------------------------------------------
MCB Trust Services Cust. FBO 20.94%
Gerken Retirement Savings Plan
700 17th St., Ste 300
Denver, CO 80202-3531
- -----------------------------------------------------------------------------------------------------
143
- -----------------------------------------------------------------------------------------------------
Pioneer Fund/Class Shareholder Name and Address Percentage Owned
- -----------------------------------------------------------------------------------------------------
MCB Trust Services Cust. FBO 5.60%
Telecommunications Asset Management
700 17th St., Ste 300
Denver, CO 80202-3531
- -----------------------------------------------------------------------------------------------------
BISYS Retirement Services FBO 9.10%
Fong & Chan Architects 401K
700 17th St. Ste 300
Denver, CO 80202-3531
- -----------------------------------------------------------------------------------------------------
Class Y Shares FISERV Securities, Inc. 5.21%
FAO 58861649
Attn: Mutual Funds
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, PA 19103-7084
- -----------------------------------------------------------------------------------------------------
FISERV Securities, Inc. 7.02%
FAO 58861654
Attn: Mutual Funds
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, PA 19103-7084
- -----------------------------------------------------------------------------------------------------
John F. Cogan Jr. 34.51%
C/O Hale and Dorr
60 State street
Boston, MA 02109-1800
- -----------------------------------------------------------------------------------------------------
John F. Cogan Jr. & Mary Cornille & Pamela Cogan Riddle 34.83%
& Gregory Cogan TTEESO/The Cogan Family Foundation
C/O Hale & Dorr Trust Dept.
P.O. Box 1711
Boston, MA 02109-1800
- -----------------------------------------------------------------------------------------------------
John F. Cogan and William Schmidt 13.93%
TTEESO/The John F. Cogan Jr. Family Trust
C/O Hale & Dorr Trust Dept.
P.O. Box 1711
Boston, MA 02109-1800
- -----------------------------------------------------------------------------------------------------
Pioneer Value Fund
- -----------------------------------------------------------------------------------------------------
Class A Shares Nuernberger Lebensversicherung 5.27%
AGKA-Controlling
Ostendstr. 100
D-90334 Nuernberg, Mittelfr, Germany
- -----------------------------------------------------------------------------------------------------
PFPC 20.94%
FBO Primerica Shareholder Services
211 S. Gulf Road
King of Prussia, PA 19406
- -----------------------------------------------------------------------------------------------------
Class R Shares Pioneer Funds Distributor Inc. 6.66%
Attn: Carrie Cuscia
60 State Street
Boston, MA 02109-1800
- -----------------------------------------------------------------------------------------------------
144
- -----------------------------------------------------------------------------------------------------
Pioneer Fund/Class Shareholder Name and Address Percentage Owned
- -----------------------------------------------------------------------------------------------------
Athletic Clubs International 401(k) Profit Sharing Plan 92.13%
Francis Cassidy, et al
2729 St. Marys Road
Ardmore, PA 19003-2026
- -----------------------------------------------------------------------------------------------------
Class Y Shares John F. Cogan Jr. 19.58%
C/O Hale and Dorr
60 State street
Boston, MA 02109-1800
- -----------------------------------------------------------------------------------------------------
FISERV Securities, Inc. 6.25%
FAO 58861625
Attn: Mutual Funds
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, PA 19103-7084
- -----------------------------------------------------------------------------------------------------
FISERV Securities, Inc. 10.25%
FAO 58861649
Attn: Mutual Funds
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, PA 19103-7084
- -----------------------------------------------------------------------------------------------------
FISERV Securities, Inc. 18.73%
FAO 58861654
Attn: Mutual Funds
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, PA 19103-7084
- -----------------------------------------------------------------------------------------------------
John F. Cogan Jr. & Mary Cornille & Pamela Cogan Riddle 33.65%
& Gregory Cogan TTEESO/The Cogan Family Foundation
C/O Hale & Dorr Trust Dept.
60 State street
Boston, MA 02109-1800
- -----------------------------------------------------------------------------------------------------
John F. Cogan and William Schmidt 8.38%
TTEESO/The John F. Cogan Jr. Family Trust
C/O Hale & Dorr Trust Dept.
60 State street
Boston, MA 02109-1800
- -----------------------------------------------------------------------------------------------------
As of December 31, 2003, the trustees and officers of each Pioneer Fund
owned less than 1% of the outstanding shares of each Pioneer Fund.
145
EXPERTS
Safeco Funds
The financial statements and financial highlights of each Safeco Fund
incorporated by reference in the respective Safeco Trust's Annual Report for the
most recent fiscal year end have been audited by Ernst & Young LLP, independent
registered public accounting firm, as set forth in their reports thereon
incorporated by reference into this registration statement. Such financial
statements and financial highlights are incorporated herein by reference in
reliance on such reports given on the authority of such firm as experts in
accounting and auditing.
Pioneer Funds
The financial statements and financial highlights of each Pioneer Fund
incorporated by reference in the respective Pioneer Fund's Annual Report for the
most recent fiscal year end (except in the case of Pioneer Value Fund, in which
case the Annual Report incorporated by reference is for the fiscal year ended
September 30, 2003) have been audited by Ernst & Young LLP, independent
registered public accounting firm, as set forth in their reports thereon
incorporated by reference into this registration statement. Such financial
statements and financial highlights are incorporated herein by reference in
reliance on such reports given the authority of such firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Safeco Funds and the Pioneer Funds are subject to the informational
requirements of the Securities Exchange Act of 1934 and the Investment Company
Act and file reports, proxy statements and other information with the SEC. These
reports, proxy statements and other information filed by the Funds can be
inspected and copied (for a duplication fee) at the public reference facilities
of the SEC at 450 Fifth Street, N.W., Washington, D.C. Copies of these materials
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.
146
Exhibit A-1 - Form of Agreement and Plan of Reorganization (C/D Reorganizations)
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made this
day of __________, 2004, by and between [Pioneer Trust], a [Delaware statutory]
[Massachusetts business] trust (the "Acquiring Trust"), on behalf of its series
[name of Pioneer Fund] (the "Acquiring Fund"), with its principal place of
business at 60 State Street, Boston, Massachusetts 02109, and [Safeco Trust], a
Delaware statutory trust (the "Safeco Trust"), on behalf of its series [name of
Safeco Fund] (the "Acquired Fund"), with its principal place of business at 5069
154th Place N.E., Redmond, Washington 98052. The Acquiring Fund and the Acquired
Fund are sometimes referred to collectively herein as the "Funds" and
individually as a "Fund."
This Agreement is intended to be and is adopted as a plan of a
"reorganization" as defined in Section 368(a)(1)(C/D) of the United States
Internal Revenue Code of 1986, as amended (the "Code") and the Treasury
Regulations thereunder. The reorganization (the "Reorganization") will consist
of (1) the transfer of all of the assets of the Acquired Fund to the Acquiring
Fund in exchange solely for (A) the issuance of Investor Class shares of
beneficial interest of the Acquiring Fund (collectively, the "Acquiring Fund
Shares" and each, an "Acquiring Fund Share") to the Acquired Fund, and (B) the
assumption by the Acquiring Fund of the liabilities of the Acquired Fund that
are included in the calculation of net asset value ("NAV") on the closing date
of the Reorganization (the "Closing Date") (collectively, the "Assumed
Liabilities"), and (2) the distribution by the Acquired Fund, on or promptly
after the Closing Date as provided herein, of the Acquiring Fund Shares to the
shareholders of the Acquired Fund in liquidation and dissolution of the Acquired
Fund, all upon the terms and conditions hereinafter set forth in this Agreement.
WHEREAS, the Acquiring Trust and the Safeco Trust are each registered
investment companies classified as management companies of the open-end type.
WHEREAS, the Acquiring Fund is authorized to issue shares of beneficial
interest.
WHEREAS, the Board of Trustees of the Safeco Trust and the Board of
Trustees of the Acquiring Trust have determined that the Reorganization is in
the best interests of the Acquired Fund shareholders and the Acquiring Fund
shareholders, respectively, and is not dilutive of the interests of those
shareholders.
NOW, THEREFORE, 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 THE ACQUIRING
FUND SHARES AND ASSUMPTION OF THE ASSUMED LIABILITIES; LIQUIDATION AND
TERMINATION OF THE ACQUIRED FUND.
1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, the Acquired Fund will
transfer all of its assets as set forth in Paragraph 1.2 (the "Acquired
Assets") to the Acquiring Fund free and clear of all liens and encumbrances
(other than those arising under the Securities Act of 1933, as amended (the
"Securities Act"), liens for taxes not yet due and contractual restrictions on
the transfer of the Acquired Assets) and the Acquiring Fund agrees in exchange
therefor: (i) to issue to the Acquired Fund the number of Acquiring Fund
Shares, including fractional Acquiring Fund Shares, with an aggregate NAV equal
to the NAV of the Acquired Fund, as determined in the manner set forth in
Paragraphs 2.1 and 2.2; and (ii) to assume the Assumed Liabilities. Such
transactions shall take place at the Closing (as defined in Paragraph 3.1
below).
1.2(a) The Acquired Assets shall consist of all of the Acquired Fund's
property, including, without limitation, all portfolio securities and
instruments, dividends and interest receivables, cash, goodwill, contractual
rights of the Acquired Fund or the Safeco Trust in respect of the Acquired
Fund, all other intangible property owned by the Acquired Fund, originals or
copies of all books and records of the Acquired Fund, and all other assets of
the Acquired Fund on the Closing Date. The Acquiring Fund shall also be
entitled to receive (or, to the extent agreed upon between the Safeco Trust and
the Acquiring Trust, be provided access to) copies of all records that the
Safeco Trust is required to maintain under the Investment Company Act of 1940,
as amended (the "Investment Company Act"), and the rules of the Securities and
Exchange Commission (the "Commission") thereunder to the extent such records
pertain to the Acquired Fund.
(b) The Acquired Fund has provided the Acquiring Fund with a list of all
of the Acquired Fund's securities and other assets as of the date of execution
of this Agreement, and the Acquiring Fund has provided the Acquired Fund with a
copy of the current fundamental investment policies and restrictions and fair
value procedures applicable to the Acquiring Fund. The Acquired Fund reserves
the right to sell any of such securities or other assets before the Closing
Date (except to the extent sales may be limited by representations of the
Acquired Fund contained herein and made in connection with the issuance of the
tax opinion provided for in Paragraph 8.5 hereof).
A-1
1.3 The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations that are or will become due prior to the Closing.
1.4 On or as soon after the Closing Date as is conveniently practicable
(the "Liquidation Date"), the Safeco Trust shall liquidate the Acquired Fund
and distribute pro rata to its shareholders of record, determined as of the
close of regular trading on the New York Stock Exchange on the Closing Date
(the "Acquired Fund Shareholders"), the Acquiring Fund Shares received by the
Acquired Fund pursuant to Paragraph 1.1 hereof. Each Acquired Fund Shareholder
shall receive such number of Acquiring Fund Shares that have an aggregate NAV
equal to the aggregate NAV of the shares of beneficial interest of the Acquired
Fund (the "Acquired Fund Shares") held of record by such Acquired Fund
Shareholder on the Closing Date. Such liquidation and distribution will be
accomplished by the Safeco Trust instructing the Acquiring Trust to transfer
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 established and maintained by the Acquiring Fund's transfer
agent in the names of the Acquired Fund Shareholders and representing the
respective pro rata number of the Acquiring Fund Shares due the Acquired Fund
Shareholders. The Safeco Trust shall promptly provide the Acquiring Trust with
evidence of such liquidation and distribution. All issued and outstanding
Acquired Fund Shares will simultaneously be cancelled on the books of the
Acquired Fund, and the Acquired Fund will be dissolved. The Acquiring Fund
shall not issue certificates representing the Acquiring Fund Shares in
connection with such exchange.
1.5 Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent for its Investor Class shares. Any certificates
representing ownership of Acquired Fund Shares that remain outstanding on the
Closing Date shall be deemed to be cancelled and shall no longer evidence
ownership of Acquired Fund Shares.
1.6 Any transfer taxes payable upon issuance of Acquiring Fund Shares in a
name other than the registered holder of the Acquired 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 Any reporting responsibility of the Safeco Trust with respect to the
Acquired Fund for taxable periods ending on or before the Closing Date,
including, but not limited to, the responsibility for filing of regulatory
reports, Tax Returns (as defined in Paragraph 4.1), or other documents with the
Commission, any state securities commissions, and any federal, state or local
tax authorities or any other relevant regulatory authority, is and shall remain
the responsibility of the Safeco Trust.
2. VALUATION
2.1 The NAV of the Acquiring Fund Shares and the NAV of the Acquired Fund
shall, in each case, be determined as of the close of business (4:00 p.m.,
Boston time) on the Closing Date (the "Valuation Time"). The NAV of each
Acquiring Fund Share shall be computed by Pioneer Investment Management, Inc.
(the "Acquiring Fund Adviser") in the manner set forth in the Acquiring Fund's
Declaration of Trust (the "Declaration"), or By-Laws, and the Acquiring Fund's
then-current prospectus and statement of additional information. The NAV of the
Acquired Fund shall be computed by Safeco Asset Management, Inc. (the "Acquired
Fund Administrator") by calculating the value of the Acquired Assets and by
subtracting therefrom the amount of the liabilities of the Acquired Fund on the
Closing Date included on the Statement of Assets and Liabilities of the
Acquired Fund delivered pursuant to Paragraph 5.7 (the "Statement of Assets and
Liabilities"), said assets and liabilities to be valued in the manner set forth
in the Acquired Fund's then current prospectus and statement of additional
information. The Acquiring Fund Adviser shall confirm to the Acquiring Fund the
NAV of the Acquired Fund.
2.2 The number of Acquiring Fund Shares to be issued (including fractional
shares, if any) in exchange for the Acquired Assets and the assumption of the
Assumed Liabilities shall be determined by the Acquiring Fund Adviser by
dividing the NAV of the Acquired Fund, as determined in accordance with
Paragraph 2.1, by the NAV of each Acquiring Fund Share, as determined in
accordance with Paragraph 2.1.
2.3 The Acquiring Fund and the Acquired Fund shall cause the Acquiring
Fund Adviser and the Acquired Fund Administrator, respectively, to deliver a
copy of its valuation report to the other party at Closing. All computations of
value shall be made by the Acquiring Fund Adviser and the Acquired Fund
Administrator in accordance with its regular practice as pricing agent for the
Acquiring Fund and the Acquired Fund, respectively.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be December 8, 2004, or such later date as the
parties may agree to in writing. All acts necessary to consummation the
Reorganization (the "Closing") shall be deemed to take place simultaneously as
of 5:00 p.m. (Eastern time) on the Closing Date unless otherwise provided. The
Closing shall be held at the offices of Wilmer Cutler Pickering Hale and Dorr
LLP, 60 State Street, Boston, Massachusetts, or at such other place as the
parties may agree.
A-2
3.2 Portfolio securities that are held other than in book-entry form in
the name of State Street Bank and Trust Company (the "Acquired Fund Custodian")
as record holder for the Acquired Fund shall be presented by the Acquired Fund
to Brown Brothers Harriman & Co. (the "Acquiring Fund Custodian") for
examination no later than three business days preceding the Closing Date. Such
portfolio securities shall be delivered by the Acquired Fund to the Acquiring
Fund 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 Acquired Fund Custodian in book-entry form on behalf of the Acquired
Fund shall be delivered by the Acquired Fund Custodian through the Depository
Trust Company to the Acquiring Fund Custodian and by the Acquiring Fund
Custodian recording the beneficial ownership thereof by the Acquiring Fund on
the Acquiring Fund Custodian's records. Any cash shall be delivered by the
Acquired Fund Custodian transmitting immediately available funds by wire
transfer to the Acquiring Fund Custodian the cash balances maintained by the
Acquired Fund Custodian and the Acquiring Fund Custodian crediting such amount
to the account of the Acquiring Fund.
3.3 The Acquiring Fund Custodian shall deliver within one business day
after the Closing a certificate of an authorized officer stating that: (a) the
Acquired Assets have been delivered in proper form to the Acquiring Fund on the
Closing Date, and (b) all necessary transfer taxes including all applicable
federal and state stock transfer stamps, if any, have been paid, or provision
for payment has been made in conjunction with the delivery of portfolio
securities as part of the Acquired Assets.
3.4 If on the Closing Date (a) the New York Stock Exchange is closed to
trading or trading thereon shall be restricted or (b) trading or the reporting
of trading on such exchange or elsewhere is disrupted so that accurate
appraisal of the NAV of the Acquiring Fund Shares or the Acquired Fund pursuant
to Paragraph 2.1 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.
3.5 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 and certificates of the Acquired Fund
Shareholders and the number and percentage ownership of outstanding Acquired
Fund Shares owned by each Acquired Fund Shareholder as of the Valuation Time,
certified by the President or a Secretary of the Safeco Trust and its
Treasurer, Secretary or other authorized officer (the "Shareholder List") as
being an accurate record of the information (a) provided by the Acquired Fund
Shareholders, (b) provided by the Acquired Fund Custodian, or (c) derived from
the Safeco Trust's records by such officers or one of the Safeco Trust's
service providers. The Acquiring Fund shall issue and deliver to the Acquired
Fund a confirmation evidencing the Acquiring Fund Shares to be credited on the
Closing 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, stock certificates, receipts or
other documents as such other party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1 Except as set forth on Schedule 4.1 hereto, the Safeco Trust, on
behalf of the Acquired Fund, represents, warrants and covenants to the
Acquiring Fund, which representations, warranties and covenants will be true
and correct on the date hereof and on the Closing Date as though made on and as
of the Closing Date, as follows:
(a) The Acquired Fund is a series of the Safeco Trust. The Safeco Trust is
a statutory trust 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, subject to approval by the Acquired Fund's shareholders, 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 subject it to any material
liability or disability. Each of the Safeco Trust and 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 Safeco Trust is a registered investment company classified as a
management company of the open-end type, and its registration with the
Commission as an investment company under the Investment Company Act is in
full force and effect;
(c) The Safeco Trust is not in violation of, and the execution and
delivery of this Agreement and the performance of its obligations under
this Agreement in respect of the Acquired Fund will not result in a
violation of, any provision of the Safeco Trust's Trust Instrument or
By-Laws or any material agreement, indenture, instrument, contract, lease
or other undertaking with respect to the Acquired Fund to which the Safeco
Trust is a party or by which the Acquired Fund or any of its assets are
bound;
(d) No litigation or administrative proceeding or investigation of or
before any court or governmental body is currently pending or to its
knowledge threatened against the Acquired Fund or any of the Acquired
Fund's properties or assets. The Acquired Fund knows of no facts which
might form the basis for the institution of such proceedings. Neither the
Safeco Trust nor the Acquired Fund is
A-3
a party to or subject to the provisions of any order, decree or judgment of
any court or governmental body which materially adversely affects the
Acquired Fund's business or its ability to consummate the transactions
contemplated herein or would be binding upon the Acquiring Fund as the
successor to the Acquired Fund;
(e) The Acquired Fund has no material contracts or other commitments
(other than this Agreement or agreements for the purchase and sale of
securities entered into in the ordinary course of business and consistent
with its obligations under this Agreement) which will not be terminated at
or prior to the Closing Date and no such termination will result in
liability to the Acquired Fund (or the Acquiring Fund);
(f) The statement of assets and liabilities of the Acquired Fund, and the
related statements of income and changes in NAV, as of and for the fiscal
year ended December 31, 2003, have been audited by Ernst & Young LLP,
independent registered public accounting firm, and are in accordance with
generally accepted accounting principles ("GAAP") consistently applied and
fairly reflect, in all material respects, the financial condition of the
Acquired Fund as of such date and the results of its operations for the
period then ended, and all known liabilities, whether actual or
contingent, of the Acquired Fund as of the date thereof are disclosed
therein. The Statement of Assets and Liabilities will be in accordance
with GAAP consistently applied and will fairly reflect, in all material
respects, the financial condition of the Acquired Fund as of such date and
the results of its operations for the period then ended. Except for the
Assumed Liabilities, the Acquired Fund will not have any known or
contingent liabilities on the Closing Date. No significant deficiency,
material weakness, fraud, significant change or other factor that could
significantly affect the internal controls of the Acquired Fund has been
disclosed or is required to be disclosed in the Acquired Fund's reports on
Form N-CSR to enable the chief executive officer and chief financial
officer or other officers of the Acquired Fund to make the certifications
required by the Sarbanes-Oxley Act, and no deficiency, weakness, fraud,
change, event or other factor exists that will be required to be disclosed
in the Acquiring Fund's Form N-CSR after the Closing Date;
(g) Since December 31, 2003, except as specifically disclosed in the
Acquired Fund's prospectus, its statement of additional information as in
effect on the date of this Agreement, or its semi-annual report for the
period ended June 30, 2004, there has not been any material adverse change
in the Acquired Fund's financial condition, assets, liabilities, business
or prospects, or any incurrence by the Acquired Fund of indebtedness,
except for normal contractual obligations incurred in the ordinary course
of business or in connection with the settlement of purchases and sales of
portfolio securities. For the purposes of this subparagraph (g) (but not
for any other purpose of this Agreement), a decline in NAV per Acquired
Fund Share arising out of its normal investment operations or a decline in
market values of securities in the Acquired Fund's portfolio or a decline
in net assets of the Acquired Fund as a result of redemptions shall not
constitute a material adverse change;
(h) (A) For each taxable year of its operation since its inception, the
Acquired Fund has met, and for the current taxable year it will meet, the
requirements of Subchapter M of the Code for qualification and treatment as
a regulated investment company. The Acquired Fund will qualify as such as
of the Closing Date and will satisfy the diversification requirements of
Section 851(b)(3) of the Code without regard to the last sentence of
Section 851(d) of the Code. The Acquired Fund has not taken any action,
caused any action to be taken or caused any action to fail to be taken
which action or failure could cause the Acquired Fund to fail to qualify as
a regulated investment company under the Code;
(B) Within the times and in the manner prescribed by law, the Acquired
Fund has properly filed on a timely basis all Tax Returns (as defined
below) that it was required to file, and all such Tax Returns were
complete and accurate in all respects. The Acquired Fund has not been
informed by any jurisdiction that the jurisdiction believes that the
Acquired Fund was required to file any Tax Return that was not filed; and
the Acquired Fund does not know of any basis upon which a jurisdiction
could assert such a position;
(C) The Acquired Fund has timely paid, in the manner prescribed by
law, all Taxes (as defined below), which were due and payable or which
were claimed to be due;
(D) All Tax Returns filed by the Acquired Fund constitute complete and
accurate reports of the respective Tax liabilities and all attributes of
the Acquired Fund or, in the case of information returns and payee
statements, the amounts required to be reported, and accurately set forth
all items required to be included or reflected in such returns;
(E) The Acquired Fund has not waived or extended any applicable
statute of limitations relating to the assessment or collection of Taxes;
(F) The Acquired Fund has not been notified that any examinations of
the Tax Returns of the Acquired Fund are currently in progress or
threatened, and no deficiencies have been asserted or assessed against the
Acquired Fund as a result of any audit
A-4
by the Internal Revenue Service or any state, local or foreign taxing
authority, and, to its knowledge, no such deficiency has been proposed or
threatened;
(G) The Acquired Fund has no actual or potential liability for any Tax
obligation of any taxpayer other than itself. The Acquired Fund is not and
has never been a member of a group of corporations with which it has filed
(or been required to file) consolidated, combined or unitary Tax Returns.
The Acquired Fund is not a party to any Tax allocation, sharing, or
indemnification agreement;
(H) The unpaid Taxes of the Acquired Fund for tax periods through the
Closing Date do not exceed the accruals and reserves for Taxes (excluding
accruals and reserves for deferred Taxes established to reflect timing
differences between book and Tax income) set forth on the Statement of
Assets and Liabilities, rather than in any notes thereto (the "Tax
Reserves"). All Taxes that the Acquired Fund is or was required by law to
withhold or collect have been duly withheld or collected and, to the
extent required, have been timely paid to the proper governmental agency;
(I) The Acquired Fund has delivered to the Acquiring Fund or made
available to the Acquiring Fund complete and accurate copies of all Tax
Returns of the Acquired Fund, together with all related examination
reports and statements of deficiency for all periods not closed under the
applicable statutes of limitations and complete and correct copies of all
private letter rulings, revenue agent reports, information document
requests, notices of proposed deficiencies, deficiency notices, protests,
petitions, closing agreements, settlement agreements, pending ruling
requests and any similar documents submitted by, received by or agreed to
by or on behalf of the Acquired Fund. The Acquired Fund has disclosed on
its federal income Tax Returns all positions taken therein that could give
rise to a substantial understatement of federal income Tax within the
meaning of Section 6662 of the Code;
(J) The Acquired Fund has not undergone, has not agreed to undergo,
and is not required to undergo (nor will it be required as a result of the
transactions contemplated in this Agreement to undergo) a change in its
method of accounting resulting in an adjustment to its taxable income
pursuant to Section 481 of the Code. The Acquired Fund will not be
required to include any item of income in, or exclude any item of
deduction from, taxable income for any taxable period (or portion thereof)
ending after the Closing Date as a result of any (i) change in method of
accounting for a taxable period ending on or prior to the Closing Date
under Section 481(c) of the Code (or any corresponding or similar
provision of state, local or foreign income Tax law); (ii) "closing
agreement" as described in Section 7121 of the Code (or any corresponding
or similar provision of state, local or foreign income Tax law) executed
on or prior to the Closing Date; (iii) installment sale or open
transaction disposition made on or prior to the Closing Date; or (iv)
prepaid amount received on or prior to the Closing Date;
(K) The Acquired Fund has not taken or agreed to take any action, and
is not aware of any agreement, plan or other circumstance, that is
inconsistent with the representations set forth in Annex B;
(L) There are (and as of immediately following the Closing there will
be) no liens on the assets of the Acquired Fund relating to or
attributable to Taxes, except for Taxes not yet due and payable;
(M) The Tax bases of the assets of the Acquired Fund are accurately
reflected on the Acquired Fund's Tax books and records;
(N) The Acquired Fund has not incurred (or been allocated) an "overall
foreign loss" as defined in Section 904(f)(2) of the Code which has not
been previously recaptured in full as provided in Sections 904(f)(2)
and/or 904(f)(3) of the Code;
(O) The Acquired Fund is not a party to a gain recognition agreement
under Section 367 of the Code;
(P) The Acquired Fund does not own any interest in an entity that is
characterized as a partnership for income tax purposes;
(Q) The Acquired Fund's Tax attributes are not limited under the Code
(including but not limited to any capital loss carry forward limitations
under Sections 382 or 383 of the Code and the Treasury Regulations
thereunder) or comparable provisions of state law, except as set forth on
Schedule 4.1; and
(R) For purposes of this Agreement, "Taxes" or "Tax" shall mean all
taxes, charges, fees, levies or other similar assessments or liabilities,
including without limitation income, gross receipts, ad valorem, premium,
value-added, excise, real property, personal property, sales, use,
transfer, withholding, employment, unemployment, insurance, social
security, business license, business organization, environmental, workers
compensation, payroll, profits, license, lease, service, service use,
severance, stamp, occupation, windfall profits, customs, duties, franchise
and other taxes imposed by the United States of America or any state,
local or foreign government, or any agency thereof, or other political
subdivision of the United States or any such government,
A-5
and any interest, fines, penalties, assessments or additions to tax
resulting from, attributable to or incurred in connection with any tax or
any contest or dispute thereof; and "Tax Returns" shall mean all reports,
returns, declarations, statements or other information required to be
supplied to a governmental or regulatory authority or agency, or to any
other person, in connection with Taxes and any associated schedules or
work papers produced in connection with such items;
(i) All issued and outstanding Acquired Fund Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid
and nonassessable by the Acquired Fund. All of the issued and outstanding
Acquired Fund Shares will, at the time of Closing, be held of record by the
persons and in the amounts set forth in the Shareholder List submitted to
the Acquiring Fund pursuant to Paragraph 3.5 hereof. The Acquired Fund does
not have outstanding any options, warrants or other rights to subscribe for
or purchase any Acquired Fund Shares, nor is there outstanding any security
convertible into any Acquired Fund Shares;
(j) At the Closing Date, the Acquired Fund will have good and marketable
title to the Acquired Assets, and full right, power and authority to sell,
assign, transfer and deliver the Acquired Assets to the Acquiring Fund, and,
upon delivery and payment for the Acquired Assets, the Acquiring Fund will
acquire good and marketable title thereto, subject to no restrictions on the
full transfer thereof, except such restrictions as might arise under the
Securities Act;
(k) The Safeco Trust has the trust power and authority to enter into and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary
action on the part of the Safeco Trust's Board of Trustees, and, subject to
the approval of the Acquired Fund's shareholders, assuming due
authorization, execution and delivery by the Acquiring Fund, this Agreement
will constitute a valid and binding obligation of the Acquired Fund,
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating
to or affecting creditors' rights and to general equity principles;
(l)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 and any information necessary to compute
the total return of the Acquired Fund shall be accurate and complete and
shall comply in all material respects with federal securities and other laws
and regulations applicable thereto;
(m) The information included in the proxy statement (the "Proxy
Statement") forming part of the Acquiring Fund's Registration Statement on
Form N-14 filed in connection with this Agreement (the "Registration
Statement") that has been furnished in writing by the Acquired Fund to the
Acquiring Fund for inclusion in the Registration Statement, on the effective
date of that Registration Statement and on the Closing Date, will conform in
all material respects to the applicable requirements of the Securities Act,
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the Investment Company Act and the rules and regulations of the Commission
thereunder and will 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 not misleading;
(n) Upon the effectiveness of the Registration Statement, no consent,
approval, authorization or order of any court or governmental authority is
required for the consummation by the Safeco Trust or the Acquired Fund of
the transactions contemplated by this Agreement;
(o) All of the issued and outstanding Acquired Fund Shares 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;
(p) The prospectus and statement of additional information of the Acquired
Fund and any amendments or supplements thereto, furnished to the Acquiring
Fund, did not as of their dates or the dates of their distribution to the
public 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 in which such statements
were made, not misleading;
(q) The Acquired Fund currently complies in all material respects with,
and since its organization has complied in all material respects with, the
requirements of, and the rules and regulations under, the Investment Company
Act, the Securities Act, the Exchange Act, state "Blue Sky" laws and all
other applicable federal and state laws or regulations. The Acquired Fund
currently complies in all material respects with, and since its organization
has complied in all material respects with, all investment objectives,
policies, guidelines and restrictions and any compliance procedures
established by the Safeco Trust with respect to the Acquired Fund. All
advertising and sales material used by the Acquired Fund complies in all
material respects with and has complied in all material respects with the
applicable requirements of the Securities Act, the Investment Company Act,
the rules and regulations of the Commission, and, to the extent applicable,
the Conduct Rules of the National Association of Securities Dealers, Inc.
(the "NASD") and any applicable state regulatory authority. All registration
statements, prospectuses, reports, proxy materials or other filings required
to be made or filed with the Commission, the NASD or any state securities
authorities by the Acquired Fund have been duly filed and have been
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approved or declared effective, if such approval or declaration of
effectiveness is required by law. Such registration statements,
prospectuses, reports, proxy materials and other filings under the
Securities Act, the Exchange Act and the Investment Company Act (i) are or
were in compliance in all material respects with the requirements of all
applicable statutes and the rules and regulations thereunder and (ii) do not
or did 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 in which they were made,
not false or misleading;
(r) Neither the Acquired Fund nor, to the knowledge of the Acquired Fund,
any "affiliated person" of the Acquired Fund has been convicted of any
felony or misdemeanor, described in Section 9(a)(1) of the Investment
Company Act, nor, to the knowledge of the Acquired Fund, has any affiliated
person of the Acquired Fund been the subject, or presently is the subject,
of any proceeding or investigation with respect to any disqualification that
would be a basis for denial, suspension or revocation of registration as an
investment adviser under Section 203(e) of the Investment Advisers Act of
1940, as amended (the "Investment Advisers Act"), or Rule 206(4)-4(b)
thereunder or of a broker-dealer under Section 15 of the Exchange Act, or
for disqualification as an investment adviser, employee, officer or director
of an investment company under Section 9 of the Investment Company Act; and
(s) The tax representation certificate to be delivered by Safeco Trust on
behalf of the Acquired Fund to the Acquiring Trust and Wilmer Cutler
Pickering Hale and Dorr LLP at the Closing pursuant to Paragraph 7.4 (the
"Acquired Fund Tax Representation Certificate") will not on the Closing Date
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein not misleading.
4.2 Except as set forth on Schedule 4.2 hereto, the Acquiring Trust, on
behalf of the Acquiring Fund, represents, warrants and covenants to the
Acquired Fund, which representations, warranties and covenants will be true and
correct on the date hereof and on the Closing Date as though made on and as of
the Closing Date, as follows:
(a) The Acquiring Fund is a series of the Acquiring Trust. The Acquiring
Trust is a [statutory][business] trust duly organized, validly existing and
in good standing under the laws of the [State of Delaware][Commonwealth of
Massachusetts]. The Acquiring Trust has the power to own all of its
properties and assets and to perform the 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 subject it to any material liability or disability. Each of the
Acquiring Trust and 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 Trust is a registered investment company classified as a
management company of the open-end type, and its registration with the
Commission as an investment company under the Investment Company Act is in
full force and effect;
(c) The Acquiring Fund's registration statement on Form N-1A that will be
in effect on the Closing Date, and the prospectus and statement of
additional information of the Acquiring Fund included therein, will conform
in all material respects with the applicable requirements of the Securities
Act and the Investment Company Act and the rules and regulations of the
Commission thereunder, and did not as of the effective date thereof and will
not as of the Closing Date contain 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 in
which they were made, not misleading;
(d) The Registration Statement, the Proxy Statement and statement of
additional information with respect to the Acquiring Fund, and any
amendments or supplements thereto in effect on or prior to the Closing Date
included in the Registration Statement (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) will conform in all
material respects to the applicable requirements of the Securities Act and
the Investment Company Act and the rules and regulations of the Commission
thereunder. Neither the Registration Statement nor the Proxy Statement
(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) includes or will include any untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;
(e) The Acquiring Trust is not in violation of, and the execution and
delivery of this Agreement and performance of its obligations under this
Agreement will not result in a violation of, any provisions of the
Declaration of Trust or by-laws of the Acquiring Trust or any material
agreement, indenture, instrument, contract, lease or other undertaking with
respect to the Acquiring Fund to which the Acquiring Trust is a party or by
which the Acquiring Fund or any of its assets is bound;
(f) No 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. The Acquiring Fund knows of no facts which might form the basis for
the institution of such proceedings. Neither the Acquiring Trust nor the
Acquiring Fund is a party to
A-7
or subject to the provisions of any order, decree or judgment of any court
or governmental body which materially adversely affects the Acquiring Fund's
business or its ability to consummate the transactions contemplated herein;
(g) The statement of assets and liabilities of the Acquiring Fund, and the
related statements of income and changes in NAV, as of and for the fiscal
year ended [most recent fiscal year end] have been audited by Ernst & Young
LLP, independent registered public accounting firm, and are in accordance
with GAAP consistently applied and fairly reflect, in all material respects,
the financial condition of the Acquiring Fund as of such date and the
results of its operations for the period then ended, and all known
liabilities, whether actual or contingent, of the Acquiring Fund as of the
date thereof are disclosed therein;
(h) Since [most recent fiscal year end], except as specifically disclosed
in the Acquiring Fund's prospectus, its statement of additional information
as in effect on the date of this Agreement, or its semi-annual report for
the period ended [ ], there has not been any material adverse change in
the Acquiring Fund's financial condition, assets, liabilities, business or
prospects, or any incurrence by the Acquiring Fund of indebtedness, except
for normal contractual obligations incurred in the ordinary course of
business or in connection with the settlement of purchases and sales of
portfolio securities. For the purposes of this subparagraph (h) (but not for
any other purpose of this Agreement), a decline in NAV per Acquiring Fund
Share arising out of its normal investment operations or a decline in market
values of securities in the Acquiring Fund's portfolio or a decline in net
assets of the Acquiring Fund as a result of redemptions shall not constitute
a material adverse change;
(i) (A) For each taxable year of its operation since its inception, the
Acquiring Fund has met, and for the current taxable year it will meet, the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company and will qualify as such as of the Closing Date
and will satisfy the diversification requirements of Section 851(b)(3) of the
Code without regard to the last sentence of Section 851(d) of the Code. The
Acquiring Fund has not taken any action, caused any action to be taken or
caused any action to fail to be taken which action or failure could cause the
Acquiring Fund to fail to qualify as a regulated investment company under the
Code;
(B) Within the times and in the manner prescribed by law, the Acquiring
Fund has properly filed on a timely basis all Tax Returns that it was
required to file, and all such Tax Returns were complete and accurate in
all respects. The Acquiring Fund has not been informed by any jurisdiction
that the jurisdiction believes that the Acquiring Fund was required to file
any Tax Return that was not filed; and the Acquiring Fund does not know of
any basis upon which a jurisdiction could assert such a position;
(C) The Acquiring Fund has timely paid, in the manner prescribed by
law, all Taxes that were due and payable or that were claimed to be due;
(D) All Tax Returns filed by the Acquiring Fund constitute complete and
accurate reports of the respective liabilities for Taxes and all attributes
of the Acquiring Fund or, in the case of information returns and payee
statements, the amounts required to be reported, and accurately set forth
all items required to be included or reflected in such returns;
(E) The Acquiring Fund has not waived or extended any applicable
statute of limitations relating to the assessment or collection of Taxes;
(F) The Acquiring Fund has not been notified that any examinations of
the Tax Returns of the Acquiring Fund are currently in progress or
threatened, and no deficiencies have been asserted or assessed against the
Acquiring Fund as a result of any audit by the Internal Revenue Service or
any state, local or foreign taxing authority, and, to its knowledge, no
such deficiency has been proposed or threatened;
(G) The Acquiring Fund has no actual or potential liability for any Tax
obligation of any taxpayer other than itself. The Acquiring Fund is not and
has never been a member of a group of corporations with which it has filed
(or been required to file) consolidated, combined or unitary Tax Returns.
The Acquiring Fund is not a party to any Tax allocation, sharing, or
indemnification agreement;
(H) The Acquiring Trust has delivered to Safeco Trust or made available
to Safeco Trust complete and accurate copies of all Tax Returns of the
Acquiring Fund, together with all related examination reports and
statements of deficiency for all periods not closed under the applicable
statutes of limitations and complete and correct copies of all private
letter rulings, revenue agent reports, information document requests,
notices of proposed deficiencies, deficiency notices, protests, petitions,
closing agreements, settlement agreements, pending ruling requests and any
similar documents submitted by, received by or agreed to by or on behalf of
the Acquiring Fund. The Acquiring Fund has disclosed on its federal income
Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of
Section 6662 of the Code;
(I) The Acquiring Fund has not undergone, has not agreed to undergo,
and is not required to undergo (nor will it be required as a result of the
transactions contemplated in this Agreement to undergo) a change in its
method of accounting resulting in
A-8
an adjustment to its taxable income pursuant to Section 481 of the Code.
The Acquiring Fund will not be required to include any item of income in,
or exclude any item of deduction from, taxable income for any taxable
period (or portion thereof) ending after the Closing Date as a result of
any (i) change in method of accounting for a taxable period ending on or
prior to the Closing Date under Section 481(c) of the Code (or any
corresponding or similar provision of state, local or foreign income Tax
law); (ii) "closing agreement" as described in Section 7121 of the Code
(or any corresponding or similar provision of state, local or foreign
income Tax law) executed on or prior to the Closing Date; (iii)
installment sale or open transaction disposition made on or prior to the
Closing Date; or (iv) prepaid amount received on or prior to the Closing
Date;
(J) The Acquiring Fund has not taken or agreed to take any action, and
is not aware of any agreement, plan or other circumstance, that is
inconsistent with the representations set forth in Annex A;
(K) The Acquiring Fund has not incurred (or been allocated) an "overall
foreign loss" as defined in Section 904(f)(2) of the Code which has not
been previously recaptured in full as provided in Sections 904(f)(2) and/or
904(f)(3) of the Code;
(L) The Acquiring Fund is not a party to a gain recognition agreement
under Section 367 of the Code;
(M) The Acquiring Fund's Tax attributes are not limited under the Code
(including but not limited to any capital loss carry forward limitations
under Sections 382 or 383 of the Code and the Treasury Regulations
thereunder) or comparable provisions of state law, except as set forth on
Schedule 4.2;
(j) The Acquiring Fund currently complies, and at all times since its
organization has complied, in all material respects with the requirements
of, and the rules and regulations under, the Investment Company Act, the
Securities Act, the Exchange Act, state "Blue Sky" laws and all other
applicable federal and state laws or regulations. The Acquiring Fund
currently complies in all material respects with, and since its organization
has complied in all material respects with, all investment objectives,
policies, guidelines and restrictions and any compliance procedures
established by the Acquiring Trust with respect to the Acquiring Fund. All
advertising and sales material used by the Acquiring Fund complies in all
material respects with and has complied in all material respects with the
applicable requirements of the Securities Act, the Investment Company Act,
the rules and regulations of the Commission, and, to the extent applicable,
the Conduct Rules of the NASD and any applicable state regulatory authority.
All registration statements, prospectuses, reports, proxy materials or other
filings required to be made or filed with the Commission, the NASD or any
state securities authorities by the Acquiring Fund have been duly filed and
have been approved or declared effective, if such approval or declaration of
effectiveness is required by law. Such registration statements,
prospectuses, reports, proxy materials and other filings under the
Securities Act, the Exchange Act and the Investment Company Act (i) are or
were in compliance in all material respects with the requirements of all
applicable statutes and the rules and regulations thereunder and (ii) do not
or did 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 in which they were made,
not false or misleading;
(k) The authorized capital of the Acquiring Fund consists of an unlimited
number of shares of beneficial interest, no par value per share. As of the
Closing Date, the Acquiring Fund will be authorized to issue an unlimited
number of shares of beneficial interest, no par value per share. The
Acquiring Fund Shares to be issued and delivered to the Acquired Fund for
the account of the Acquired Fund Shareholders pursuant to the terms of this
Agreement will have been duly authorized on the Closing Date and, when so
issued and delivered, will be duly and validly issued, fully paid and
non-assessable. 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;
(l) The Acquiring Trust has the trust power and authority to enter into
and perform its obligations under this Agreement. The execution, delivery
and performance of this Agreement have been duly authorized by all necessary
action on the part of the Acquiring Trust's Board of Trustees, and, assuming
due authorization, execution and delivery by the Acquired Fund, this
Agreement will constitute a valid and binding obligation of the Acquiring
Fund, enforceable in accordance with its terms, subject as to enforcement,
to bankruptcy, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors' rights and to general equity principles;
(m) The information to be furnished in writing by the Acquiring Fund or
the Acquiring Fund Adviser 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 in all material respects and shall comply in all material respects
with federal securities and other laws and regulations applicable thereto or
the requirements of any form for which its use is intended, and shall not
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the information provided not misleading;
(n) No consent, approval, authorization or order of or filing with any
court or governmental authority is required for the execution of this
Agreement or the consummation of the transactions contemplated by the
Agreement by the Acquiring Fund, except for the registration of the
Acquiring Fund Shares under the Securities Act and the Investment Company
Act;
A-9
(o) All of the issued and outstanding Acquiring Fund Shares 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 Acquired Fund;
(p) The prospectus and statement of additional information of the
Acquiring Fund and any amendments or supplements thereto, furnished to the
Acquired Fund, did not as of their dates or the dates of their distribution
to the public 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 in which such statements
were made, not misleading;
(q) Neither the Acquiring Fund nor, to the knowledge of the Acquiring
Fund, any "affiliated person" of the Acquiring Fund has been convicted of
any felony or misdemeanor, described in Section 9(a)(1) of the Investment
Company Act, nor, to the knowledge of the Acquiring Fund, has any affiliated
person of the Acquiring Fund been the subject, or presently is the subject,
of any proceeding or investigation with respect to any disqualification that
would be a basis for denial, suspension or revocation of registration as an
investment adviser under Section 203(e) of the Investment Advisers Act or
Rule 206(4)-4(b) thereunder or of a broker-dealer under Section 15 of the
Exchange Act, or for disqualification as an investment adviser, employee,
officer or director of an investment company under Section 9 of the
Investment Company Act; and
(r) The tax representation certificate to be delivered by the Acquiring
Trust on behalf of the Acquiring Fund to the Safeco Trust and Wilmer Cutler
Pickering Hale and Dorr LLP at Closing pursuant to Section 6.3 (the
"Acquiring Fund Tax Representation Certificate") will not on the Closing
Date contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein not misleading.
5. COVENANTS OF THE FUNDS
5.1 The Acquired Fund will operate the Acquired Fund's business in the
ordinary course of business between the date hereof and the Closing Date. It is
understood that such ordinary course of business will include the declaration
and payment of customary dividends and other distributions and any other
dividends and other distributions necessary or advisable (except to the extent
dividends or other distributions that are not customary may be limited by
representations made in connection with the issuance of the tax opinion
described in Paragraph 8.5 hereof), in each case payable either in cash or in
additional shares.
5.2 The Safeco Trust will call a special meeting of the Acquired Fund's
shareholders to consider approval of this Agreement and act upon the matters
set forth in the Proxy Statement.
5.3 The Acquiring Fund will prepare the notice of meeting, form of proxy
and Proxy Statement (collectively, "Proxy Materials") to be used in connection
with such meeting, and will promptly prepare and file with the Commission the
Registration Statement. The Safeco Trust will provide the Acquiring Fund with
information reasonably requested for the preparation of the Registration
Statement in compliance with the Securities Act, the Exchange Act, and the
Investment Company Act.
5.4 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.
5.5 The Acquired Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requires concerning the beneficial
ownership of the Acquired Fund Shares.
5.6 Subject to the provisions of this Agreement, each Fund will take, or
cause to be taken, all actions, and do or cause to be done, all things
reasonably necessary, proper or advisable to consummate the transactions
contemplated by this Agreement.
5.7 The Acquired Fund shall furnish to the Acquiring Fund on the Closing
Date a Statement of Assets and Liabilities of the Acquired Fund as of the
Closing Date setting forth the NAV (as computed pursuant to Paragraph 2.1) of
the Acquired Fund as of the Valuation Time, which statement shall be prepared
in accordance with GAAP consistently applied and certified by the Safeco
Trust's Treasurer or Assistant Treasurer. As promptly as practicable, but in
any case within 30 days after the Closing Date, the Safeco Trust shall furnish
to the Acquiring Trust, in such form as is reasonably satisfactory to the
Acquiring Trust, 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 under the Code, and which
statement will be certified by the Treasurer of the Safeco Trust.
5.8 Neither Fund shall take any action that is inconsistent with the
representations set forth in, with respect to the Acquired Fund, the Acquired
Fund Tax Representation Certificate and, with respect to the Acquiring Fund,
the Acquiring Fund Tax Representation Certificate.
5.9 From and after the date of this Agreement and until the Closing Date,
each of the Funds and the Safeco Trust and the Acquiring Trust shall use its
commercially reasonable efforts to cause the Reorganization to qualify, and
will not knowingly take any action, cause any action to be taken, fail to take
any action or cause any action to fail to be taken, which action or failure to
act could prevent the
A-10
Reorganization from qualifying, as a reorganization under the provisions of
Section 368(a) of the Code. The parties hereby adopt this Agreement as a "plan
of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of
the income tax regulations promulgated under the Code. Unless otherwise
required pursuant to a "determination" within the meaning of Section 1313(a) of
the Code, the parties hereto shall treat and report the transactions
contemplated hereby as a reorganization within the meaning of Section
368(a)(1)[insert (C) or (D), as applicable] of the Code and shall not take any
position inconsistent with such treatment.
5.10 From and after the date of this Agreement and through the time of the
Closing, each Fund shall use its commercially reasonable efforts to cause it to
qualify, and will not knowingly take any action, cause any action to be taken,
fail to take any action or cause any action to fail to be taken, which action
or failure to act could prevent it from qualifying as a regulated investment
company under the provisions of Subchapter M of the Code.
5.11 Each Fund shall prepare, or cause to be prepared, all of its Tax
Returns for taxable periods that end on or before the Closing Date and shall
timely file, or cause to be timely filed, all such Tax Returns. Each Fund shall
make any payments of Taxes required to be made by it with respect to any such
Tax Returns.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to complete 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, unless waived by the Acquired Fund in writing:
6.1 All representations and warranties by the Acquiring Trust on behalf of
the Acquiring Fund contained in this Agreement shall be true and correct 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;
6.2 The Acquiring Trust shall have delivered to the Safeco Trust on the
Closing Date a certificate of the Acquiring Trust on behalf of the Acquiring
Fund executed in its name by its President or Vice President and its Treasurer
or Assistant Treasurer, in form and substance satisfactory to the Safeco Trust
and dated as of the Closing Date, to the effect that the representations and
warranties of the Acquiring Trust 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, that each of the conditions to
Closing in this Article 6 have been met, and as to such other matters as the
Safeco Trust shall reasonably request;
6.3 The Acquiring Trust on behalf of the Acquiring Fund shall have
delivered to the Safeco Trust and Wilmer Cutler Pickering Hale and Dorr LLP an
Acquiring Fund Tax Representation Certificate, satisfactory to the Safeco Trust
and Wilmer Cutler Pickering Hale and Dorr LLP, substantially in the form
attached to this Agreement as Annex A, concerning certain tax-related matters
with respect to the Acquiring Fund;
6.4 With respect to the Acquiring Fund, the Board of Trustees of the
Acquiring Trust shall have determined that the Reorganization is in the best
interests of the Acquiring Fund and, based upon such determination, shall have
approved this Agreement and the transactions contemplated hereby; and
6.5 The Safeco Trust shall have received at the Closing a favorable
opinion as to the due authorization of this Agreement by the Acquiring Trust
and related matters of Wilmer Cutler Pickering Hale and Dorr LLP, dated as of
the Closing Date, in a form reasonably satisfactory to the Safeco Trust.
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 further
conditions, unless waived by the Acquiring Fund in writing:
7.1 All representations and warranties of the Safeco Trust on behalf of
the Acquired Fund contained in this Agreement shall be true and correct 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 Safeco Trust shall have delivered to the Acquiring Fund the
Statement of Assets and Liabilities of the Acquired Fund pursuant to Paragraph
5.7, 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 Safeco Trust's Treasurer or Assistant Treasurer;
A-11
7.3 The Safeco Trust shall have delivered to the Acquiring Trust on the
Closing Date a certificate of the Safeco Trust on behalf of the Acquired Fund
executed in its name by its President or Vice President and a Treasurer or
Assistant Treasurer, in form and substance reasonably satisfactory to the
Acquiring Trust and dated as of the Closing Date, to the effect that the
representations and warranties of the Safeco Trust contained 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, that each of the
conditions to Closing in this Article 7 have been met, and as to such other
matters as the Acquiring Trust shall reasonably request;
7.4 The Safeco Trust on behalf of the Acquired Fund shall have delivered
to the Acquiring Trust and Wilmer Cutler Pickering Hale and Dorr LLP an
Acquired Fund Tax Representation Certificate, satisfactory to the Acquiring
Trust and Wilmer Cutler Pickering Hale and Dorr LLP, substantially in the form
attached to this Agreement as Annex B, concerning certain tax-related matters
with respect to the Acquired Fund;
7.5 The Acquiring Trust shall have received at the Closing a favorable
opinion as to the due authorization of this Agreement by the Safeco Trust and
related matters of Kirkpatrick & Lockhart LLP, dated as of the Closing Date, in
a form reasonably satisfactory to Acquiring Trust; and
7.6 With respect to the Acquired Fund, the Board of Trustees of the Safeco
Trust shall have determined that the Reorganization is in the best interests of
the Acquired Fund and, based upon such determination, shall have approved this
Agreement and the transactions contemplated hereby.
8. FURTHER CONDITIONS PRECEDENT
If any of the conditions set forth below does not exist on or before the
Closing Date with respect to either party hereto, the other party to this
Agreement shall, at its option, not be required to consummate the transactions
contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the Acquired Fund's shareholders in
accordance with the provisions of the Safeco Trust's Trust Instrument 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. Notwithstanding anything herein to the contrary, neither
party hereto may waive the conditions set forth in this Paragraph 8.1;
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 either party hereto 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
either party hereto, provided that either party may waive any such conditions
for itself;
8.4 The Acquiring Trust's Registration Statement on Form N-14 shall have
become effective under the Securities Act and no stop orders suspending the
effectiveness of such Registration Statement 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 Securities Act;
8.5 The parties shall have received an opinion of Wilmer Cutler Pickering
Hale and Dorr LLP, satisfactory to the Safeco Trust and the Acquiring Trust and
subject to customary assumptions and qualifications, substantially to the
effect that for federal income tax purposes the acquisition by the Acquiring
Fund of the Acquired Assets solely in exchange for the issuance of Acquiring
Fund Shares to the Acquired Fund and the assumption of the Assumed 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 Acquired Fund
Shareholders in exchange for their Acquired Fund Shares and the termination of
the Acquired Fund, will constitute a "reorganization" within the meaning of
Section 368(a) of the Code;
8.6 The Acquired Fund shall have distributed to its shareholders, in a
distribution or distributions qualifying for the deduction for dividends paid
under Section 561 of the Code, all of its investment company taxable income (as
defined in Section 852(b)(2) of the Code determined without regard to Section
852(b)(2)(D) of the Code) for its taxable year ending on the Closing Date, all
of the excess of (i) its interest income excludable from gross income under
Section 103(a) of the Code over (ii) its deductions disallowed under Sections
265 and 171(a)(2) of the Code for its taxable year ending on the Closing Date,
and all of its net capital gain (as such term is used in Sections 852(b)(3)(A)
and (C) of the Code), after reduction by any available capital loss
carryforward, for its taxable year ending on the Closing Date; and
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8.7 The Acquiring Trust shall have made a distribution of capital gains to
its shareholders in November 2004 in accordance with its normal practices and,
unless the Acquiring Fund distributes income monthly, the dividend distribution
that the Acquiring Fund normally would make in December of 2004 shall have been
made to shareholders of record prior to the Closing.
9. BROKERAGE FEES AND EXPENSES
9.1 Each party hereto represents and warrants to the other party hereto
that there are no brokers or finders entitled to receive any payments in
connection with the transactions provided for herein.
9.2 The parties have been informed by Symetra Financial Corporation and
the Acquiring Fund Adviser -- and the parties have entered into this Agreement
in reliance on such information -- that such non-parties will pay all expenses
of the Funds associated with the Reorganization, including, the expenses
associated with the preparation, printing and mailing of any and all
shareholder notices, communications, proxy statements, and necessary filings
with the SEC or any other governmental authority in connection with the
transactions contemplated by this Agreement and the legal and Trustees' fees
and expenses incurred in connection with the Reorganization. Except for the
foregoing, the Acquiring Fund and the Acquired Fund shall each bear its own
expenses in connection with the transactions contemplated by this Agreement.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Trust and the Safeco Trust each agrees that neither
party has made any representation, warranty or covenant not set forth herein or
referred to in Paragraphs 4.1 or 4.2 hereof and that this Agreement constitutes
the entire agreement between the parties.
10.2 The representations and warranties contained in this Agreement or in
any document delivered pursuant hereto or in connection herewith shall not
survive the consummation of the transactions contemplated hereunder.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Trust and Safeco Trust. In addition, either party may at its option
terminate this Agreement at or prior to the Closing Date:
(a) because of a material breach by the other of any representation,
warranty, covenant or agreement contained herein to be performed at or prior
to the Closing Date;
(b) because of 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;
(c) by resolution of the Acquiring Trust's Board of Trustees if
circumstances should develop that, in the good faith opinion of such Board,
make proceeding with the Agreement not in the best interests of the
Acquiring Fund's shareholders;
(d) by resolution of the Safeco Trust's Board of Trustees if circumstances
should develop that, in the good faith opinion of such Board, make
proceeding with the Agreement not in the best interests of the Acquired
Fund's shareholders; or
(e) if the transactions contemplated by this Agreement shall not have
occurred on or prior to December 31, 2004 or such other date as the parties
may mutually agree upon in writing.
11.2 In the event of any such termination, there shall be no liability for
damages on the part of the Acquiring Fund, the Acquiring Trust, the Safeco
Trust or the Acquired Fund, or the trustees or officers of the Safeco Trust, or
the Acquiring Trust, but, subject to Paragraph 9.2, each party 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 Safeco
Trust and the Acquiring Trust; provided, however, that following the meeting of
the Acquired Fund's shareholders called by the Safeco Trust pursuant to
Paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions regarding the method for determining the number of
Acquiring Fund Shares to be received by the Acquired Fund Shareholders under
this Agreement to their detriment without their further approval; provided that
nothing contained in this Section 12 shall be construed to prohibit the parties
from amending this Agreement to change the Closing 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 Acquired Fund, c/o
Symetra Financial Corporation, 5069 154th Place,
A-13
N.E., Seattle, Washington 98052, Attention: Roger F. Harbin, with copies to R.
Darrell Mounts, Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W.,
Second Floor, Washington, DC 20036-1221, and to the Acquiring Fund, c/o Pioneer
Investment Management, Inc., 60 State Street, Boston, Massachusetts 02109,
Attention: Dorothy E. Bourassa, Esq., with copies to Wilmer Cutler Pickering
Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109, Attention:
David C. Phelan.
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 internal laws of the State of Delaware, without giving effect to conflict
of laws principles (other than Delaware Code Title 6 [sec] 2708); provided
that, in the case of any conflict between those laws and the federal securities
laws, the latter shall govern.
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
either party without the prior written consent of the other party hereto.
Nothing herein expressed or implied is intended or shall be construed to confer
upon or give any person, firm or corporation, or other entity, other than the
parties hereto and their respective successors and assigns, any rights or
remedies under or by reason of this Agreement.
14.5 It is expressly agreed that the obligations of the Acquiring Trust
and the Safeco Trust shall not be binding upon any of their respective
trustees, shareholders, nominees, officers, agents or employees personally, but
bind only to the property of the Acquiring Fund or the Acquired Fund, as the
case may be, as provided in the trust instruments of the Acquiring Trust and
the Instrument of Trust of the Safeco Trust, respectively. The execution and
delivery of this Agreement have been authorized by the trustees of the
Acquiring Trust and of the Safeco Trust and this Agreement has been executed by
authorized officers of the Acquiring Trust and the Safeco Trust, acting as
such, and neither such authorization by such trustees nor such execution and
delivery by such officers shall be deemed to have been made by any of them
individually or to imposed any liability on any of them personally, but shall
bind only the property of the Acquiring Fund and the Acquired Fund, as the case
may be, as provided in the trust instruments of the Acquiring Trust and the
Instrument of Trust of the Safeco Trust, respectively.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed as of the date first set forth above by its President or Vice
President and attested by its Secretary or Assistant Secretary.
Attest: [SAFECO TRUST] on behalf of
[SAFECO FUND]
By: __________________________________ By: __________________________________
Name: Name:
Title: Secretary Title: President
Attest: [PIONEER TRUST] on behalf of
[PIONEER FUND]
By: __________________________________ By: __________________________________
Name: Name:
Title: Secretary Title:
A-14
Annex A
TAX REPRESENTATION CERTIFICATE OF
[PIONEER TRUST] ON BEHALF OF [PIONEER FUND]
This certificate is being delivered in connection with the transactions to
be effected pursuant to the Agreement and Plan of Reorganization made as of
_____________ , 2004 between [Pioneer Trust], a [Delaware statutory]
[Massachusetts business] trust ("Acquiring Trust"), on behalf of its series
[Pioneer Fund] ("Acquiring Fund"), and [Safeco Trust], a Delaware statutory
trust, on behalf of its series [Safeco Fund] ("Acquired Fund") (the
"Agreement"). Pursuant to the Agreement, Acquiring Fund will acquire all of the
assets of Acquired Fund in exchange solely for (i) the assumption by Acquiring
Fund of the Assumed Liabilities of Acquired Fund and (ii) the issuance of
Investor Class shares of beneficial interest of Acquiring Fund (the "Acquiring
Fund Shares") to Acquired Fund, followed by the distribution by Acquired Fund,
in liquidation of Acquired Fund, of the Acquiring Fund Shares to the
shareholders of Acquired Fund and the termination of Acquired Fund (the
foregoing together constituting the "transaction").
The undersigned officer of Acquiring Trust, after consulting with its
counsel, auditors and tax advisers regarding the meaning of and factual support
for the following representations on behalf of Acquiring Fund, hereby certifies
and represents that the following statements are true, complete and correct and
will be true, complete and correct on the date of the transaction and
thereafter as relevant. Unless otherwise indicated, all capitalized terms used
but not defined herein shall have the meanings ascribed to them in the
Agreement.
1. Acquiring Fund is a series of Acquiring Trust, [a statutory] [business]
trust organized under the laws of the [State of Delaware] [Commonwealth of
Massachusetts], and Acquiring Fund is, and has been at all times, treated as a
separate corporation for federal tax purposes.
2. Neither Acquiring Fund nor any person "related" to Acquiring Fund (as
defined in Treasury Regulation Section 1.368-1(e)(3)), nor any partnership of
which Acquiring Fund or any such related person is a partner, has any plan or
intention to redeem or otherwise acquire any of the Acquiring Fund Shares
received by shareholders of Acquired Fund in the transaction except in the
ordinary course of Acquiring Fund's business in connection with its legal
obligation under Section 22(e) of the Investment Company Act of 1940, as
amended (the "1940 Act"), as a series of a registered open-end investment
company to redeem its own shares.
3. After the transaction, Acquiring Fund will continue the historic
business (as defined in Treasury Regulation Section 1.368-1(d)(2)) of Acquired
Fund or will use a significant portion of the historic business assets (as
defined in Treasury Regulation Section 1.368-1(d)(3)) acquired from Acquired
Fund in a business.
4. Acquiring Fund has no plan or intention to sell or otherwise dispose of
any assets of Acquired Fund acquired in the transaction, except for
dispositions made in the ordinary course of its business or to maintain its
qualification as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code").
5. Any expenses of Acquired Fund incurred in connection with the
transaction which are paid or assumed by Acquiring Fund will be expenses of
Acquired Fund solely and directly related to the transaction in accordance with
Rev. Rul. 73-54, 1973-1 C.B. 187. Acquiring Fund will not pay or assume the
expenses, if any, incurred by any Acquired Fund Shareholders in connection with
the transaction.
6. There is no, and never has been any, indebtedness between Acquiring Fund
and Acquired Fund.
7. Acquiring Fund has properly elected to be a regulated investment company
under Subchapter M of the Code, has qualified for the special tax treatment
afforded regulated investment companies under the Code for each taxable year
since inception and qualifies for such treatment as of the time of the Closing.
8. Acquiring Fund meets the requirements of an "investment company" in
Section 368(a)(2)(F) of the Code.
9. Acquiring Fund is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
10. Acquiring Fund does not now own and has never owned, directly or
indirectly, any shares of Acquired Fund.
11. As of the date of the transaction, the fair market value of the
Acquiring Fund Shares issued to Acquired Fund will be approximately equal to the
fair market value of the Acquired Assets minus the Assumed Liabilities.
Acquiring Fund will not furnish any consideration in connection with the
acquisition of the Acquired Assets other than the assumption of the Assumed
Liabilities and the issuance of such Acquiring Fund Shares.
A-15
12. Acquired Fund Shareholders [will/will not] be in control (within the
meaning of Sections 368(a)(2)(H)(i) and 304(c)(1) of the Code) of Acquiring
Fund after the transaction.
13. The transaction is being undertaken for valid and substantial business
purposes, including facilitating Acquired Fund's becoming a member of the
Pioneer family of mutual funds, which, in the long term, is intended to result
in lower expenses and increased assets.
14. No Acquired Fund shareholder is acting as agent for Acquiring Fund in
connection with the transaction or approval thereof. Acquiring Fund will not
reimburse any Acquired Fund shareholder for Acquired Fund Shares such
shareholder may have purchased or for other obligations such shareholder may
have incurred.
15. Acquiring Fund has no outstanding warrants, options, convertible
securities or any other type of right pursuant to which any person could
acquire stock in Acquiring Fund.
* * * * *
A-16
The undersigned officer of Acquiring Trust is authorized to make all of
the representations set forth herein, and the undersigned is authorized to
execute this certificate on behalf of Acquiring Fund. The undersigned
recognizes that Wilmer Cutler Pickering Hale and Dorr LLP will rely upon the
foregoing representations in evaluating the United States federal income tax
consequences of the transaction and rendering its opinion pursuant to Section
8.5 of the Agreement. If, prior to the date of the transaction, any of the
representations set forth herein ceases to be accurate, the undersigned agrees
to deliver immediately to Wilmer Cutler Pickering Hale and Dorr LLP a written
notice to that effect.
[PIONEER TRUST] on behalf of [Pioneer Fund]
By: __________________________________
Name: _____________________________
Title: ____________________________
Dated: ______________, 2004
A-17
Annex B
TAX REPRESENTATION CERTIFICATE OF
[SAFECO TRUST]
ON BEHALF OF [SAFECO FUND]
This certificate is being delivered in connection with the transactions to
be effected pursuant to the Agreement and Plan of Reorganization made as of ,
2004 between [Pioneer Trust], a [Delaware statutory] [Massachusetts business]
trust, on behalf of its series [Pioneer Fund] ("Acquiring Fund"), and [Safeco
Trust], a Delaware statutory trust ("Safeco Trust"), on behalf of its series
[Safeco Fund] ("Acquired Fund") (the "Agreement"). Pursuant to the Agreement,
Acquiring Fund will acquire all of the assets of Acquired Fund in exchange
solely for (i) the assumption by Acquiring Fund of the Assumed Liabilities of
Acquired Fund and (ii) the issuance of Investor Class shares of beneficial
interest of Acquiring Fund (the "Acquiring Fund Shares") to Acquired Fund,
followed by the distribution by Acquired Fund, in liquidation of Acquired Fund,
of the Acquiring Fund Shares to the shareholders of Acquired Fund and the
termination of Acquired Fund (the foregoing together constituting the
"transaction").
The undersigned officer of Safeco Trust, after consulting with its
counsel, auditors and tax advisers regarding the meaning of and factual support
for the following representations, on behalf of Acquired Fund, hereby certifies
and represents that the following statements are true, complete and correct and
will be true, complete and correct on the date of the transaction and
thereafter as relevant. Unless otherwise indicated, all capitalized terms used
but not defined herein shall have the meanings ascribed to them in the
Agreement.
1. Acquired Fund is a series of Safeco Trust, a statutory trust organized
under the laws of the State of Delaware, and Acquired Fund is, and has been at
all times, treated as a separate corporation for federal tax purposes.
2. As of the date of the transaction, the fair market value of the
Acquiring Fund Shares received by each shareholder that holds shares of
Acquired Fund (the "Acquired Fund Shares") will be approximately equal to the
fair market value of the Acquired Fund Shares with respect to which such
Acquiring Fund Shares are received, and the aggregate consideration received by
Acquired Fund shareholders in exchange for their Acquired Fund Shares will be
approximately equal to the fair market value of all of the outstanding Acquired
Fund Shares immediately prior to the transaction. No property other than
Acquiring Fund Shares will be distributed to shareholders of Acquired Fund in
exchange for their Acquired Fund Shares, nor will any such shareholder receive
cash or other property as part of the transaction.
3. Neither Acquired Fund nor any person "related" to Acquired Fund (as
defined in Treasury Regulation Section 1.368-1(e)(3)), nor any partnership in
which Acquired Fund or any such related person is a partner, has redeemed,
acquired or otherwise made any distributions with respect to any shares of
Acquired Fund as part of the transaction, or otherwise pursuant to a plan of
which the transaction is a part, other than redemptions and distributions made
in the ordinary course of Acquired Fund's business as a series of an open-end
investment company. To the best knowledge of management of Acquired Fund, there
is no plan or intention on the part of the shareholders of Acquired Fund to
engage in any transaction with Acquired Fund, Acquiring Fund, or any person
treated as related to Acquired Fund or Acquiring Fund under Treasury Regulation
Section 1.368-1(e)(3) or any partnership in which Acquired Fund, Acquiring
Fund, or any person treated as related to Acquired Fund or Acquiring Fund under
Treasury Regulation Section 1.368-1(e)(3) is a partner involving the sale,
redemption or exchange of any of the Acquired Fund Shares or any of the
Acquiring Fund Shares to be received in the transaction, as the case may be,
other than in the ordinary course of Acquired Fund's business as a series of an
open-end investment company.
4. Pursuant to the transaction, Acquired Fund will transfer to Acquiring
Fund, and Acquiring Fund will acquire, at least 90% of the fair market value of
the net assets, and at least 70% of the fair market value of the gross assets,
Acquired Fund held immediately before the transaction. For the purposes of the
foregoing, any amounts Acquired Fund uses to pay its transaction expenses and
to make redemptions and distributions immediately before the transaction
(except (a) redemptions in the ordinary course of its business required by
section 22(e) of the Investment Company Act and (b) regular, normal dividend
distributions made to conform to its policy of distributing all or
substantially all of its income and gains to avoid the obligation to pay
federal income tax and/or the excise tax under Section 4982 of the Code) will
be included as assets it held immediately before the transaction.
5. As of the date of the transaction, the fair market value of the
Acquiring Fund Shares issued to Acquired Fund will be approximately equal to
the fair market value of the Acquired Assets minus the Assumed Liabilities.
Acquired Fund will not receive any consideration from Acquiring Fund in
connection with the acquisition of the Acquired Assets other than the
assumption of the Assumed Liabilities and the issuance of such Acquiring Fund
Shares.
6. The Assumed Liabilities assumed by Acquiring Fund plus the Assumed
Liabilities, if any, to which the transferred assets are subject were incurred
by Acquired Fund in the ordinary course of its business. Acquired Fund is not
aware of any liabilities of any kind other than the Assumed Liabilities.
A-18
7. As of the Closing Date, the adjusted basis and fair market value of the
Acquired Assets will equal or exceed the Assumed Liabilities for purposes of
Section 357(d) of the Code.
8. Acquired Fund currently conducts its historic business within the
meaning of Treasury Regulation Section 1.368-1(d)(2), which provides that, in
general, a corporation's historic business is the business it has conducted
most recently, but does not include a business that the corporation enters into
as part of a plan of reorganization. All of the assets held by Acquired Fund as
of the opening of business on August 2, 2004 (the date the Acquiring Fund
Adviser became investment adviser to Acquired Fund) were Acquired Fund's
historic business assets within the meaning of Treasury Regulation Section
1.368-1(d)(3) (which provides that a corporation's historic business assets are
the assets used in its historic business).
9. Acquired Fund will distribute to its shareholders the Acquiring Fund
Shares it receives pursuant to the transaction, and its other properties, if
any, and will be liquidated promptly thereafter.
10. The expenses of Acquired Fund incurred by it in connection with the
transaction will be only such expenses that are solely and directly related to
the transaction in accordance with Rev. Rul. 73-54, 1973-1 C.B. 187. Acquired
Fund will not pay any expenses incurred by its shareholders in connection with
the transaction.
11. There is no, and never has been any, indebtedness between Acquiring
Fund and Acquired Fund.
12. Acquired Fund has properly elected to be a regulated investment
company under Subchapter M of the Code, has qualified for the special tax
treatment afforded regulated investment companies under Subchapter M of the
Code for each taxable year since inception, and qualifies for such treatment as
of the time of the Closing.
13. Acquired Fund meets the requirements of an "investment company" in
Section 368(a)(2)(F) of the Code.
14. Acquired Fund is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
15. Acquired Fund does not pay compensation to any shareholder-employee.
16. Acquired Fund shareholders will not have dissenters' or appraisal
rights in the transaction.
17. The transaction is being undertaken for valid and substantial business
purposes, including facilitating Acquired Fund's becoming a member of the
Pioneer family of material funds, which, in the long term, is intended to result
in lower expenses and increased assets.
18. Acquired Fund has no outstanding warrants, options, convertible
securities or any other type of right pursuant to which any person could acquire
stock in Acquired Fund.
* * * * *
A-19
The undersigned officer of Safeco Trust is authorized to make all of the
representations set forth herein, and the undersigned is authorized to execute
this certificate on behalf of Acquired Fund. The undersigned recognizes that
Wilmer Cutler Pickering Hale and Dorr LLP will rely upon the foregoing
representations in evaluating the United States federal income tax consequences
of the transaction and rendering its opinion pursuant to Section 8.5 of the
Agreement. If, prior to the date of the transaction, any of the representations
set forth herein ceases to be accurate, the undersigned agrees to deliver
immediately to Wilmer Cutler Pickering Hale and Dorr LLP a written notice to
that effect.
SAFECO TRUST, on behalf of SAFECO FUND
By: ____________________________________
Name: ______________________________
Title: _____________________________
A-20
Exhibit A-2 -- Form of Agreement and Plan of Reorganization (F Reorganization)
- ------------------------------------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made this
day of ______________, 2004, by and between [Pioneer Trust], a [Delaware
statutory][Massachusetts business] trust (the "Acquiring Trust"), on behalf of
its series [name of Pioneer Fund] (the "Acquiring Fund"), with its principal
place of business at 60 State Street, Boston, Massachusetts 02109, and [Safeco
Trust], a Delaware statutory trust (the "Safeco Trust"), on behalf of its
series [name of Safeco Fund] (the "Acquired Fund"), with its principal place of
business at 5069 154th Place N.E., Redmond, Washington 98052. The Acquiring
Fund and the Acquired Fund are sometimes referred to collectively herein as the
"Funds" and individually as a "Fund."
This Agreement is intended to be and is adopted as a plan of a
"reorganization" as defined in Section 368(a)(1)(F) of the United States
Internal Revenue Code of 1986, as amended (the "Code") and the Treasury
Regulations thereunder. The reorganization (the "Reorganization") will consist
of (1) the transfer of all of the assets of the Acquired Fund to the Acquiring
Fund in exchange solely for (A) the issuance of Investor Class shares of
beneficial interest of the Acquiring Fund (collectively, the "Acquiring Fund
Shares" and each, an "Acquiring Fund Share") to the Acquired Fund, and (B) the
assumption by the Acquiring Fund of the liabilities of the Acquired Fund
(collectively, the "Assumed Liabilities"), and (2) the distribution by the
Acquired Fund, on or promptly after the closing date of the Reorganization (the
"Closing Date") as provided herein, of the Acquiring Fund Shares to the
shareholders of the Acquired Fund in liquidation and dissolution of the
Acquired Fund, all upon the terms and conditions hereinafter set forth in this
Agreement.
WHEREAS, the Acquiring Trust and the Safeco Trust are each registered
investment companies classified as management companies of the open-end type.
WHEREAS, the Acquiring Fund is authorized to issue shares of beneficial
interest.
WHEREAS, the Board of Trustees of the Safeco Trust has determined that the
Reorganization is in the best interests of the Acquired Fund shareholders and
is not dilutive of the interests of those shareholders.
NOW, THEREFORE, 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 THE ACQUIRING
FUND SHARES AND ASSUMPTION OF THE ASSUMED LIABILITIES; LIQUIDATION AND
TERMINATION OF THE ACQUIRED FUND.
1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, the Acquired Fund will
transfer all of its assets as set forth in Paragraph 1.2 (the "Acquired
Assets") to the Acquiring Fund free and clear of all liens and encumbrances
(other than those arising under the Securities Act of 1933, as amended (the
"Securities Act"), liens for taxes not yet due and contractual restrictions on
the transfer of the Acquired Assets) and the Acquiring Fund agrees in exchange
therefor: (i) to issue to the Acquired Fund the number of Acquiring Fund
Shares, including fractional Acquiring Fund Shares, with an aggregate net asset
value ("NAV") equal to the NAV of the Acquired Fund, as determined in the
manner set forth in Paragraphs 2.1 and 2.2; and (ii) to assume the Assumed
Liabilities. Such transactions shall take place at the Closing (as defined in
Paragraph 3.1 below).
1.2 (a) The Acquired Assets shall consist of all of the Acquired Fund's
property, including, without limitation, all portfolio securities and
instruments, dividends and interest receivables, cash, goodwill, contractual
rights of the Acquired Fund or the Safeco Trust in respect of the Acquired
Fund, all other intangible property owned by the Acquired Fund, originals or
copies of all books and records of the Acquired Fund, and all other assets of
the Acquired Fund on the Closing Date. The Acquiring Fund shall also be
entitled to receive (or, to the extent agreed upon between the Safeco Trust and
the Acquiring Trust, be provided access to) copies of all records that the
Safeco Trust is required to maintain under the Investment Company Act of 1940,
as amended (the "Investment Company Act"), and the rules of the Securities and
Exchange Commission (the "Commission") thereunder to the extent such records
pertain to the Acquired Fund.
(b) The Acquired Fund has provided the Acquiring Fund with a list of all
of the Acquired Fund's securities and other assets as of the date of execution
of this Agreement, and the Acquiring Fund has provided the Acquired Fund with a
copy of the current fundamental investment policies and restrictions and fair
value procedures applicable to the Acquiring Fund. The Acquired Fund reserves
the right to sell any of such securities or other assets before the Closing
Date (except to the extent sales may be limited by representations of the
Acquired Fund contained herein and made in connection with the issuance of the
tax opinion provided for in Paragraph 8.5 hereof).
1.3 The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations that are or will become due prior to the Closing.
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1.4 On or as soon after the Closing Date as is conveniently practicable
(the "Liquidation Date"), the Safeco Trust shall liquidate the Acquired Fund
and distribute pro rata to its shareholders of record, determined as of the
close of regular trading on the New York Stock Exchange on the Closing Date
(the "Acquired Fund Shareholders"), the Acquiring Fund Shares received by the
Acquired Fund pursuant to Paragraph 1.1 hereof. Each Acquired Fund Shareholder
shall receive the number of Acquiring Fund Shares that have an aggregate NAV
equal to the aggregate NAV of the shares of beneficial interest of the Acquired
Fund ("Acquired Fund Shares") held of record by such Acquired Fund Shareholder
on the Closing Date. Such liquidation and distribution will be accomplished by
the Safeco Trust instructing the Acquiring Trust to transfer 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
established and maintained by the Acquiring Fund's transfer agent in the names
of the Acquired Fund Shareholders and representing the respective pro rata
number of the Acquiring Fund Shares due the Acquired Fund Shareholders. The
Safeco Trust shall promptly provide the Acquiring Trust with evidence of such
liquidation and distribution. All issued and outstanding Acquired Fund Shares
will simultaneously be cancelled on the books of the Acquired Fund, and the
Acquired Fund will be dissolved. The Acquiring Fund shall not issue
certificates representing the Acquiring Fund Shares in connection with such
exchange.
1.5 Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent for its Investor Class shares. Any certificates
representing ownership of Acquired Fund Shares that remain outstanding on the
Closing Date shall be deemed to be cancelled and shall no longer evidence
ownership of Acquired Fund Shares.
1.6 Any transfer taxes payable upon issuance of Acquiring Fund Shares in a
name other than the registered holder of the Acquired 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 Any reporting responsibility of the Safeco Trust with respect to the
Acquired Fund for taxable periods ending on or before the Closing Date,
including, but not limited to, the responsibility for filing of regulatory
reports, Tax Returns (as defined in Paragraph 4.1), or other documents with the
Commission, any state securities commissions, and any federal, state or local
tax authorities or any other relevant regulatory authority, is and shall remain
the responsibility of the Safeco Trust.
2. VALUATION
2.1 The NAV of the Acquiring Fund Shares and the NAV of the Acquired Fund
shall, in each case, be determined as of the close of business (4:00 p.m.,
Boston time) on the Closing Date (the "Valuation Time"). The NAV of each
Acquiring Fund Share shall be computed by Pioneer Investment Management, Inc.
(the "Acquiring Fund Adviser") in the manner set forth in the Acquiring Fund's
Declaration of Trust (the "Declaration"), or By-Laws, and the Acquiring Fund's
then-current prospectus and statement of additional information. The NAV of the
Acquired Fund and of each Institutional Class shares thereof shall be computed
by Safeco Asset Management, Inc. (the "Acquired Fund Administrator") by
calculating the value of the Acquired Assets and by subtracting therefrom the
amount of the liabilities of the Acquired Fund on the Closing Date included on
the Statement of Assets and Liabilities of the Acquired Fund delivered pursuant
to Paragraph 5.7 (the "Statement of Assets and Liabilities"), said assets and
liabilities to be valued in the manner set forth in the Acquired Fund's then
current prospectus and statement of additional information. Pioneer Investment
Management, Inc. (the "Acquiring Fund Adviser") shall confirm to the Acquiring
Fund the NAV of the Acquired Fund.
2.2 The number of Acquiring Fund Shares to be issued (including fractional
shares, if any) in exchange for the Acquired Assets and the assumption of the
Assumed Liabilities shall be determined by Pioneer Investment Management, Inc.
(the "Acquiring Fund Adviser") by dividing the NAV of the Acquired Fund, as
determined in accordance with Paragraph 2.1, by the NAV of each Acquiring Fund
Share, as determined in accordance with Paragraph 2.1.
2.3 The Acquired Fund shall cause the Acquired Fund Administrator to
deliver a copy of its valuation report to the Acquiring Fund at Closing. All
computations of value shall be made by the Acquired Fund Administrator in
accordance with its regular practice as pricing agent for the Acquired Fund.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be December 8, 2004, or such later date as the
parties may agree to in writing. All acts necessary to consummation the
Reorganization (the "Closing") shall be deemed to take place simultaneously as
of 5:00 p.m. (Eastern time) on the Closing Date unless otherwise provided. The
Closing shall be held at the offices of Wilmer Cutler Pickering Hale and Dorr
LLP, 60 State Street, Boston, Massachusetts, or at such other place as the
parties may agree.
3.2 Portfolio securities that are held other than in book-entry form in
the name of State Street Bank and Trust Company (the "Acquired Fund Custodian")
as record holder for the Acquired Fund shall be presented by the Acquired Fund
to Brown Brothers Harriman & Co.
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(the "Acquiring Fund Custodian") for examination no later than three business
days preceding the Closing Date. Such portfolio securities shall be delivered
by the Acquired Fund to the Acquiring Fund 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 Acquired Fund Custodian in
book-entry form on behalf of the Acquired Fund shall be delivered by the
Acquired Fund Custodian through the Depository Trust Company to the Acquiring
Fund Custodian and by the Acquiring Fund Custodian recording the beneficial
ownership thereof by the Acquiring Fund on the Acquiring Fund Custodian's
records. Any cash shall be delivered by the Acquired Fund Custodian
transmitting immediately available funds by wire transfer to the Acquiring Fund
Custodian the cash balances maintained by the Acquired Fund Custodian and the
Acquiring Fund Custodian crediting such amount to the account of the Acquiring
Fund.
3.3 The Acquiring Fund Custodian shall deliver within one business day
after the Closing a certificate of an authorized officer stating that: (a) the
Acquired Assets have been delivered in proper form to the Acquiring Fund on the
Closing Date, and (b) all necessary transfer taxes including all applicable
federal and state stock transfer stamps, if any, have been paid, or provision
for payment has been made in conjunction with the delivery of portfolio
securities as part of the Acquired Assets.
3.4 If on the Closing Date (a) the New York Stock Exchange is closed to
trading or trading thereon shall be restricted or (b) trading or the reporting
of trading on such exchange or elsewhere is disrupted so that accurate
appraisal of the NAV of the Acquired Fund pursuant to Paragraph 2.1 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.
3.5 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 and certificates of the Acquired Fund
Shareholders and the number and percentage ownership of outstanding Acquired
Fund Shares owned by each Acquired Fund Shareholder as of the Valuation Time,
certified by the President or a Secretary of the Safeco Trust and its
Treasurer, Secretary or other authorized officer (the "Shareholder List") as
being an accurate record of the information (a) provided by the Acquired Fund
Shareholders, (b) provided by the Acquired Fund Custodian, or (c) derived from
the Safeco Trust's records by such officers or one of the Safeco Trust's
service providers. The Acquiring Fund shall issue and deliver to the Acquired
Fund a confirmation evidencing the Acquiring Fund Shares to be credited on the
Closing 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, stock certificates, receipts or
other documents as such other party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1 Except as set forth on Schedule 4.1 hereto, the Safeco Trust, on
behalf of the Acquired Fund, represents, warrants and covenants to the
Acquiring Fund, which representations, warranties and covenants will be true
and correct on the date hereof and on the Closing Date as though made on and as
of the Closing Date, as follows:
(a) The Acquired Fund is a series of the Safeco Trust. The Safeco
Trust is a statutory trust 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, subject to approval by the Acquired Fund's
shareholders, 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 subject it to any
material liability or disability. Each of the Safeco Trust and 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 Safeco Trust is a registered investment company classified as
a management company of the open-end type, and its registration with the
Commission as an investment company under the Investment Company Act is in
full force and effect;
(c) The Safeco Trust is not in violation of, and the execution and
delivery of this Agreement and the performance of its obligations under
this Agreement in respect of the Acquired Fund will not result in a
violation of, any provision of the Safeco Trust's Trust Instrument or
By-Laws or any material agreement, indenture, instrument, contract, lease
or other undertaking with respect to the Acquired Fund to which the Safeco
Trust is a party or by which the Acquired Fund or any of its assets are
bound;
(d) No litigation or administrative proceeding or investigation of or
before any court or governmental body is currently pending or to its
knowledge threatened against the Acquired Fund or any of the Acquired
Fund's properties or assets. The Acquired Fund knows of no facts which
might form the basis for the institution of such proceedings. Neither the
Safeco Trust nor the Acquired Fund is a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body which materially adversely affects the Acquired Fund's business or its
ability to consummate the transactions contemplated herein or would be
binding upon the Acquiring Fund as the successor to the Acquired Fund;
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(e) The Acquired Fund has no material contracts or other commitments
(other than this Agreement or agreements for the purchase and sale of
securities entered into in the ordinary course of business and consistent
with its obligations under this Agreement) which will not be terminated at
or prior to the Closing Date and no such termination will result in
liability to the Acquired Fund (or the Acquiring Fund);
(f) The statement of assets and liabilities of the Acquired Fund, and
the related statements of income and changes in NAV, as of and for the
fiscal year ended December 31, 2003 have been audited by Ernst & Young LLP,
independent registered public accounting firm, and are in accordance with
generally accepted accounting principles ("GAAP") consistently applied and
fairly reflect, in all material respects, the financial condition of the
Acquired Fund as of such date and the results of its operations for the
period then ended, and all known liabilities, whether actual or contingent,
of the Acquired Fund as of the date thereof are disclosed therein. The
Statement of Assets and Liabilities will be in accordance with GAAP
consistently applied and will fairly reflect, in all material respects, the
financial condition of the Acquired Fund as of such date and the results of
its operations for the period then ended. Except for the Assumed
Liabilities, the Acquired Fund will not have any known or contingent
liabilities on the Closing Date. No significant deficiency, material
weakness, fraud, significant change or other factor that could
significantly affect the internal controls of the Acquired Fund has been
disclosed or is required to be disclosed in the Acquired Fund's reports on
Form N-CSR to enable the chief executive officer and chief financial
officer or other officers of the Acquired Fund to make the certifications
required by the Sarbanes-Oxley Act, and no deficiency, weakness, fraud,
change, event or other factor exists that will be required to be disclosed
in the Acquiring Fund's Form N-CSR after the Closing Date;
(g) Since December 31, 2003, except as specifically disclosed in the
Acquired Fund's prospectus, its statement of additional information as in
effect on the date of this Agreement, or its semi-annual report for the
period ended June 30, 2004, there has not been any material adverse change
in the Acquired Fund's financial condition, assets, liabilities, business
or prospects, or any incurrence by the Acquired Fund of indebtedness,
except for normal contractual obligations incurred in the ordinary course
of business or in connection with the settlement of purchases and sales of
portfolio securities. For the purposes of this subparagraph (g) (but not
for any other purpose of this Agreement), a decline in NAV per Acquired
Fund Share arising out of its normal investment operations or a decline in
market values of securities in the Acquired Fund's portfolio or a decline
in net assets of the Acquired Fund as a result of redemptions shall not
constitute a material adverse change;
(h) (A) For each taxable year of its operation since its inception,
the Acquired Fund has met, and for the current taxable year it will meet,
the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and will qualify as such as of
the Closing Date and will satisfy the diversification requirements of
Section 851(b)(3) of the Code without regard to the last sentence of
Section 851(d) of the Code. The Acquired Fund has not taken any action,
caused any action to be taken or caused any action to fail to be taken
which action or failure could cause the Acquired Fund to fail to qualify as
a regulated investment company under the Code;
(B) Within the times and in the manner prescribed by law, the
Acquired Fund has properly filed on a timely basis all Tax Returns (as
defined below) that it was required to file, and all such Tax Returns
were complete and accurate in all respects. The Acquired Fund has not
been informed by any jurisdiction that the jurisdiction believes that
the Acquired Fund was required to file any Tax Return that was not
filed; and the Acquired Fund does not know of any basis upon which a
jurisdiction could assert such a position;
(C) The Acquired Fund has timely paid, in the manner prescribed
by law, all Taxes (as defined below), which were due and payable or
which were claimed to be due;
(D) All Tax Returns filed by the Acquired Fund constitute
complete and accurate reports of the respective Tax liabilities and
all attributes of the Acquired Fund or, in the case of information
returns and payee statements, the amounts required to be reported, and
accurately set forth all items required to be included or reflected in
such returns;
(E) The Acquired Fund has not waived or extended any applicable
statute of limitations relating to the assessment or collection of
Taxes;
(F) The Acquired Fund has not been notified that any examinations
of the Tax Returns of the Acquired Fund are currently in progress or
threatened, and no deficiencies have been asserted or assessed against
the Acquired Fund as a result of any audit by the Internal Revenue
Service or any state, local or foreign taxing authority, and, to its
knowledge, no such deficiency has been proposed or threatened;
(G) The Acquired Fund has no actual or potential liability for
any Tax obligation of any taxpayer other than itself. The Acquired
Fund is not and has never been a member of a group of corporations
with which it has filed (or been required to file) consolidated,
combined or unitary Tax Returns. The Acquired Fund is not a party to
any Tax allocation, sharing, or indemnification agreement;
A-24
(H) The unpaid Taxes of the Acquired Fund for tax periods through
the Closing Date do not exceed the accruals and reserves for Taxes
(excluding accruals and reserves for deferred Taxes established to
reflect timing differences between book and Tax income) set forth on
the Statement of Assets and Liabilities, rather than in any notes
thereto (the "Tax Reserves"). All Taxes that the Acquired Fund is or
was required by law to withhold or collect have been duly withheld or
collected and, to the extent required, have been timely paid to the
proper governmental agency;
(I) The Acquired Fund has delivered to the Acquiring Fund or made
available to the Acquiring Fund complete and accurate copies of all
Tax Returns of the Acquired Fund, together with all related
examination reports and statements of deficiency for all periods not
closed under the applicable statutes of limitations and complete and
correct copies of all private letter rulings, revenue agent reports,
information document requests, notices of proposed deficiencies,
deficiency notices, protests, petitions, closing agreements,
settlement agreements, pending ruling requests and any similar
documents submitted by, received by or agreed to by or on behalf of
the Acquired Fund. The Acquired Fund has disclosed on its federal
income Tax Returns all positions taken therein that could give rise to
a substantial understatement of federal income Tax within the meaning
of Section 6662 of the Code;
(J) The Acquired Fund has not undergone, has not agreed to
undergo, and is not required to undergo (nor will it be required as a
result of the transactions contemplated in this Agreement to undergo)
a change in its method of accounting resulting in an adjustment to its
taxable income pursuant to Section 481 of the Code. The Acquired Fund
will not be required to include any item of income in, or exclude any
item of deduction from, taxable income for any taxable period (or
portion thereof) ending after the Closing Date as a result of any (i)
change in method of accounting for a taxable period ending on or prior
to the Closing Date under Section 481(c) of the Code (or any
corresponding or similar provision of state, local or foreign income
Tax law); (ii) "closing agreement" as described in Section 7121 of the
Code (or any corresponding or similar provision of state, local or
foreign income Tax law) executed on or prior to the Closing Date;
(iii) installment sale or open transaction disposition made on or
prior to the Closing Date; or (iv) prepaid amount received on or prior
to the Closing Date;
(K) The Acquired Fund has not taken or agreed to take any action,
and is not aware of any agreement, plan or other circumstance, that is
inconsistent with the representations set forth in Annex B;
(L) There are (and as of immediately following the Closing there
will be) no liens on the assets of the Acquired Fund relating to or
attributable to Taxes, except for Taxes not yet due and payable;
(M) The Tax bases of the assets of the Acquired Fund are
accurately reflected on the Acquired Fund's Tax books and records;
(N) The Acquired Fund has not incurred (or been allocated) an
"overall foreign loss" as defined in Section 904(f)(2) of the Code
which has not been previously recaptured in full as provided in
Sections 904(f)(2) and/or 904(f)(3) of the Code;
(O) The Acquired Fund is not a party to a gain recognition
agreement under Section 367 of the Code;
(P) The Acquired Fund does not own any interest in an entity that
is characterized as a partnership for income tax purposes;
(Q) The Acquired Fund's Tax attributes are not limited under the
Code (including but not limited to any capital loss carry forward
limitations under Sections 382 or 383 of the Code and the Treasury
Regulations thereunder) or comparable provisions of state law, except
as set forth on Schedule 4.1; and
(R) For purposes of this Agreement, "Taxes" or "Tax" shall mean
all taxes, charges, fees, levies or other similar assessments or
liabilities, including without limitation income, gross receipts, ad
valorem, premium, value-added, excise, real property, personal
property, sales, use, transfer, withholding, employment, unemployment,
insurance, social security, business license, business organization,
environmental, workers compensation, payroll, profits, license, lease,
service, service use, severance, stamp, occupation, windfall profits,
customs, duties, franchise and other taxes imposed by the United
States of America or any state, local or foreign government, or any
agency thereof, or other political subdivision of the United States or
any such government, and any interest, fines, penalties, assessments
or additions to tax resulting from, attributable to or incurred in
connection with any tax or any contest or dispute thereof; and "Tax
Returns" shall mean all reports, returns, declarations, statements or
other information required to be supplied to a governmental or
regulatory authority or agency, or to any other person, in connection
with Taxes and any associated schedules or work papers produced in
connection with such items;
(i) All issued and outstanding Acquired Fund Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid
and nonassessable by the Acquired Fund. All of the issued and outstanding
Acquired Fund Shares will, at the time of Closing, be held of record by the
persons and in the amounts set forth in the Shareholder List submitted to
the Acquiring Fund pursuant to
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Paragraph 3.5 hereof. The Acquired Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase any Acquired
Fund Shares, nor is there outstanding any security convertible into any
Acquired Fund Shares;
(j) At the Closing Date, the Acquired Fund will have good and
marketable title to the Acquired Assets, and full right, power and
authority to sell, assign, transfer and deliver the Acquired Assets to the
Acquiring Fund, and, upon delivery and payment for the Acquired Assets, the
Acquiring Fund will acquire good and marketable title thereto, subject to
no restrictions on the full transfer thereof, except such restrictions as
might arise under the Securities Act;
(k) The Safeco Trust has the trust power and authority to enter into
and perform its obligations under this Agreement. The execution, delivery
and performance of this Agreement have been duly authorized by all
necessary action on the part of the Safeco Trust's Board of Trustees, and,
subject to the approval of the Acquired Fund's shareholders, assuming due
authorization, execution and delivery by the Acquiring Fund, this Agreement
will constitute a valid and binding obligation of the Acquired Fund,
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating
to or affecting creditors' rights and to general equity principles;
(l) 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 and any information necessary to
compute the total return of the Acquired Fund shall be accurate and
complete and shall comply in all material respects with federal securities
and other laws and regulations applicable thereto;
(m) The information included in the proxy statement (the "Proxy
Statement") forming part of the Acquiring Fund's Registration Statement on
Form N-14 filed in connection with this Agreement (the "Registration
Statement") that has been furnished in writing by the Acquired Fund to the
Acquiring Fund for inclusion in the Registration Statement, on the
effective date of that Registration Statement and on the Closing Date, will
conform in all material respects to the applicable requirements of the
Securities Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the Investment Company Act and the rules and
regulations of the Commission thereunder and will 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 not
misleading;
(n) Upon the effectiveness of the Registration Statement, no consent,
approval, authorization or order of any court or governmental authority is
required for the consummation by the Safeco Trust or the Acquired Fund of
the transactions contemplated by this Agreement;
(o) All of the issued and outstanding Acquired Fund Shares 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;
(p) The prospectus and statement of additional information of the
Acquired Fund, and any amendments or supplements thereto, furnished to the
Acquiring Fund, did not as of their dates or the dates of their
distribution to the public 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 in which such
statements were made, not misleading;
(q) The Acquired Fund currently complies in all material respects
with, and since its organization has complied in all material respects
with, the requirements of, and the rules and regulations under, the
Investment Company Act, the Securities Act, the Exchange Act, state "Blue
Sky" laws and all other applicable federal and state laws or regulations.
The Acquired Fund currently complies in all material respects with, and
since its organization has complied in all material respects with, all
investment objectives, policies, guidelines and restrictions and any
compliance procedures established by the Safeco Trust with respect to the
Acquired Fund. All advertising and sales material used by the Acquired Fund
complies in all material respects with and has complied in all material
respects with the applicable requirements of the Securities Act, the
Investment Company Act, the rules and regulations of the Commission, and,
to the extent applicable, the Conduct Rules of the National Association of
Securities Dealers, Inc. (the "NASD") and any applicable state regulatory
authority. All registration statements, prospectuses, reports, proxy
materials or other filings required to be made or filed with the
Commission, the NASD or any state securities authorities by the Acquired
Fund have been duly filed and have been approved or declared effective, if
such approval or declaration of effectiveness is required by law. Such
registration statements, prospectuses, reports, proxy materials and other
filings under the Securities Act, the Exchange Act and the Investment
Company Act (i) are or were in compliance in all material respects with the
requirements of all applicable statutes and the rules and regulations
thereunder and (ii) do not or did 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 in which they were made, not false or misleading;
(r) The Acquired Fund has previously provided to the Acquiring Fund
(and at the Closing will provide an update through the Closing Date of such
information) data which supports a calculation of the Acquired Fund's total
return for all periods since the
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organization of the Acquired Fund. Such data has been prepared in
accordance in all material respects with the requirements of the Investment
Company Act and the regulations thereunder and the rules of the NASD;
(s) Neither the Acquired Fund nor, to the knowledge of the Acquired
Fund, any "affiliated person" of the Acquired Fund has been convicted of
any felony or misdemeanor, described in Section 9(a)(1) of the Investment
Company Act, nor, to the knowledge of the Acquired Fund, has any affiliated
person of the Acquired Fund been the subject, or presently is the subject,
of any proceeding or investigation with respect to any disqualification
that would be a basis for denial, suspension or revocation of registration
as an investment adviser under Section 203(e) of the Investment Advisers
Act of 1940, as amended (the "Investment Advisers Act"), or Rule
206(4)-4(b) thereunder or of a broker-dealer under Section 15 of the
Exchange Act, or for disqualification as an investment adviser, employee,
officer or director of an investment company under Section 9 of the
Investment Company Act; and
(t) The tax representation certificate to be delivered by Safeco Trust
on behalf of the Acquired Fund to the Acquiring Trust and Wilmer Cutler
Pickering Hale and Dorr LLP at the Closing pursuant to Paragraph 7.4 (the
"Acquired Fund Tax Representation Certificate") will not on the Closing
Date contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein not misleading.
4.2 Except as set forth on Schedule 4.2 hereto, the Acquiring Trust, on
behalf of the Acquiring Fund, represents, warrants and covenants to the
Acquired Fund, which representations, warranties and covenants will be true and
correct on the date hereof and on the Closing Date as though made on and as of
the Closing Date, as follows:
(a) The Acquiring Fund is a series of the Acquiring Trust. The
Acquiring Fund has not commenced operations and will not do so until the
Closing. The Acquiring Trust is a [statutory][business] trust duly
organized, validly existing and in good standing under the laws of the
[State of Delaware][Commonwealth of Massachusetts]. The Acquiring Trust has
the power to own all of its properties and assets and to perform the
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 subject it to any material liability or
disability. Each of the Acquiring Trust and 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 Trust is a registered investment company classified
as a management company of the open-end type, and its registration with the
Commission as an investment company under the Investment Company Act is in
full force and effect;
(c) The Acquiring Fund's registration statement on Form N-1A that will
be in effect on the Closing Date, and the prospectus and statement of
additional information of the Acquiring Fund included therein, will conform
in all material respects with the applicable requirements of the Securities
Act and the Investment Company Act and the rules and regulations of the
Commission thereunder, and did not as of the effective date thereof and
will not as of the Closing Date contain 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 in
which they were made, not misleading;
(d) The Registration Statement, the Proxy Statement and statement of
additional information with respect to the Acquiring Fund, each dated [ ],
2004, and any amendments or supplements thereto in effect on or prior to
the Closing Date included in the Registration Statement (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) will
conform in all material respects to the applicable requirements of the
Securities Act and the Investment Company Act and the rules and regulations
of the Commission thereunder. Neither the Registration Statement nor the
Proxy Statement (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) includes or will include any untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(e) The Acquiring Trust is not in violation of, and the execution and
delivery of this Agreement and performance of its obligations under this
Agreement will not result in a violation of, any provisions of the
Declaration of Trust or by-laws of the Acquiring Trust or any material
agreement, indenture, instrument, contract, lease or other undertaking with
respect to the Acquiring Fund to which the Acquiring Trust is a party or by
which the Acquiring Fund or any of its assets is bound;
(f) No 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. The Acquiring Fund knows of no facts which might form the basis for
the institution of such proceedings. Neither the Acquiring Trust nor the
Acquiring Fund is a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body which materially
adversely affects the Acquiring Fund's business or its ability to
consummate the transactions contemplated herein;
A-27
(g) The Acquiring Fund has no actual or potential liability for any
Tax obligation of any taxpayer other than itself. Acquiring Fund is not and
has never been a member of a group of corporations with which it has filed
(or been required to file) consolidated, combined or unitary Tax Returns.
The Acquiring Fund is not a party to any Tax allocation, sharing, or
indemnification agreement;
(h) The Acquiring Fund has not taken or agreed to take any action, and
is not aware of any agreement, plan or other circumstance, that is
inconsistent with the representations set forth in Annex A;
(i) The Acquiring Fund currently complies, and at all times since its
organization has complied, in all material respects with the requirements
of, and the rules and regulations under, the Investment Company Act, the
Securities Act, the Exchange Act, state "Blue Sky" laws and all other
applicable federal and state laws or regulations. The Acquiring Fund
currently complies in all material respects with, and since its
organization has complied in all material respects with, all investment
objectives, policies, guidelines and restrictions and any compliance
procedures established by the Acquiring Trust with respect to the Acquiring
Fund. All advertising and sales material used by the Acquiring Fund
complies in all material respects with and has complied in all material
respects with the applicable requirements of the Securities Act, the
Investment Company Act, the rules and regulations of the Commission, and,
to the extent applicable, the Conduct Rules of the NASD and any applicable
state regulatory authority. All registration statements, prospectuses,
reports, proxy materials or other filings required to be made or filed with
the Commission, the NASD or any state securities authorities by the
Acquiring Fund have been duly filed and have been approved or declared
effective, if such approval or declaration of effectiveness is required by
law. Such registration statements, prospectuses, reports, proxy materials
and other filings under the Securities Act, the Exchange Act and the
Investment Company Act (i) are or were in compliance in all material
respects with the requirements of all applicable statutes and the rules and
regulations thereunder and (ii) do not or did 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 in which they were made, not false or misleading;
(j) The authorized capital of the Acquiring Fund consists of an
unlimited number of shares of beneficial interest, no par value per share.
As of the Closing Date, the Acquiring Fund will be authorized to issue an
unlimited number of shares of beneficial interest, no par value per share.
The Acquiring Fund Shares to be issued and delivered to the Acquired Fund
for the account of the Acquired Fund Shareholders pursuant to the terms of
this Agreement will have been duly authorized on the Closing Date and, when
so issued and delivered, will be duly and validly issued, fully paid and
non-assessable. 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, nor will the Acquiring Fund have any issued or
outstanding shares on or before the Closing Date other than those issued to
Acquiring Fund Adviser or one of its affiliates, which shares shall be
redeemed, for an amount equal to the price paid therefor, at or before the
Closing;
(k) The Acquiring Trust has the trust power and authority to enter
into and perform its obligations under this Agreement. The execution,
delivery and performance of this Agreement have been duly authorized by all
necessary action on the part of the Acquiring Trust's Board of Trustees,
and, assuming due authorization, execution and delivery by the Acquired
Fund, this Agreement will constitute a valid and binding obligation of the
Acquiring Fund, enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors' rights and to general equity
principles;
(l) The information to be furnished in writing by the Acquiring Fund
or the Acquiring Fund Adviser 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 in all material respects and shall comply in all
material respects with federal securities and other laws and regulations
applicable thereto or the requirements of any form for which its use is
intended, and shall not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the information provided
not misleading;
(m) No consent, approval, authorization or order of or filing with any
court or governmental authority is required for the execution of this
Agreement or the consummation of the transactions contemplated by the
Agreement by the Acquiring Fund, except for the registration of the
Acquiring Fund Shares under the Securities Act and the Investment Company
Act;
(n) The prospectus and statement of additional information of the
Acquiring Fund, and any amendments or supplements thereto, furnished to the
Acquired Fund, did not as of their dates or the dates of their distribution
to the public 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 in which such
statements were made, not misleading;
(o) Neither the Acquiring Fund nor, to the knowledge of the Acquiring
Fund, any "affiliated person" of the Acquiring Fund has been convicted of
any felony or misdemeanor, described in Section 9(a)(1) of the Investment
Company Act, nor, to the knowledge
A-28
of the Acquiring Fund, has any affiliated person of the Acquiring Fund been
the subject, or presently is the subject, of any proceeding or
investigation with respect to any disqualification that would be a basis
for denial, suspension or revocation of registration as an investment
adviser under Section 203(e) of the Investment Advisers Act or Rule
206(4)-4(b) thereunder or of a broker-dealer under Section 15 of the
Exchange Act, or for disqualification as an investment adviser, employee,
officer or director of an investment company under Section 9 of the
Investment Company Act; and
(p) The tax representation certificate to be delivered by the
Acquiring Trust on behalf of the Acquiring Fund to the Safeco Trust and
Wilmer Cutler Pickering Hale and Dorr LLP at Closing pursuant to Section
6.3 (the "Acquiring Fund Tax Representation Certificate") will not on the
Closing Date contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein not
misleading.
5. COVENANTS OF THE FUNDS
5.1 The Acquired Fund will operate the Acquired Fund's business in the
ordinary course of business between the date hereof and the Closing Date. It is
understood that such ordinary course of business will include the declaration
and payment of customary dividends and other distributions and any other
dividends and other distributions necessary or advisable (except to the extent
dividends or other distributions that are not customary may be limited by
representations made in connection with the issuance of the tax opinion
described in Paragraph 8.5 hereof), in each case payable either in cash or in
additional shares.
5.2 The Safeco Trust will call a special meeting of the Acquired Fund's
shareholders to consider approval of this Agreement and act upon the matters
set forth in the Proxy Statement.
5.3 The Acquiring Fund will prepare the notice of meeting, form of proxy
and Proxy Statement (collectively, "Proxy Materials") to be used in connection
with such meeting, and will promptly prepare and file with the Commission the
Registration Statement. The Safeco Trust will provide the Acquiring Fund with
information reasonably requested for the preparation of the Registration
Statement in compliance with the Securities Act, the Exchange Act, and the
Investment Company Act.
5.4 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.
5.5 The Acquired Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requires concerning the beneficial
ownership of the Acquired Fund Shares.
5.6 Subject to the provisions of this Agreement, each Fund will take, or
cause to be taken, all actions, and do or cause to be done, all things
reasonably necessary, proper or advisable to consummate the transactions
contemplated by this Agreement.
5.7 The Acquired Fund shall furnish to the Acquiring Fund on the Closing
Date a Statement of Assets and Liabilities of the Acquired Fund as of the
Closing Date setting forth the NAV of the Acquired Fund as of the Valuation
Time, which statement shall be prepared in accordance with GAAP consistently
applied and certified by the Safeco Trust's Treasurer or Assistant Treasurer.
As promptly as practicable, but in any case within 30 days after the Closing
Date, the Safeco Trust shall furnish to the Acquiring Trust, in such form as is
reasonably satisfactory to the Acquiring Trust, 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 under the Code, and which statement will be certified by the
Treasurer of the Safeco Trust.
5.8 Neither Fund shall take any action that is inconsistent with the
representations set forth in, with respect to the Acquired Fund, the Acquired
Fund Tax Representation Certificate and, with respect to the Acquiring Fund,
the Acquiring Fund Tax Representation Certificate.
5.9 From and after the date of this Agreement and until the Closing Date,
each of the Funds and the Safeco Trust and the Acquiring Trust shall use its
commercially reasonable efforts to cause the Reorganization to qualify, and
will not knowingly take any action, cause any action to be taken, fail to take
any action or cause any action to fail to be taken, which action or failure to
act could prevent the Reorganization from qualifying, as a reorganization under
the provisions of Section 368(a) of the Code. The parties hereby adopt this
Agreement as a "plan of reorganization" within the meaning of Sections
1.368-2(g) and 1.368-3(a) of the income tax regulations promulgated under the
Code. Unless otherwise required pursuant to a "determination" within the
meaning of Section 1313(a) of the Code, the parties hereto shall treat and
report the transactions contemplated hereby as a reorganization within the
meaning of Section 368(a)(1)(F) of the Code and shall not take any position
inconsistent with such treatment.
5.10 From and after the date of this Agreement and through the time of the
Closing, each Fund shall use its commercially reasonable efforts to cause it to
qualify, and will not knowingly take any action, cause any action to be taken,
fail to take any action or cause any action
A-29
to fail to be taken, which action or failure to act could prevent it from
qualifying, as a regulated investment company under the provisions of
Subchapter M of the Code.
5.11 The Acquired Fund shall prepare, or cause to be prepared, all Tax
Returns of the Acquired Fund for taxable periods that end on or before the
Closing Date and shall timely file, or cause to be timely filed, all such Tax
Returns. The Acquired Fund shall make any payments of Taxes required to be made
by such Fund with respect to any such Tax Returns.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to complete 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, unless waived by the Acquired Fund in writing:
6.1 All representations and warranties by the Acquiring Trust on behalf of
the Acquiring Fund contained in this Agreement shall be true and correct 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;
6.2 The Acquiring Trust shall have delivered to the Safeco Trust on the
Closing Date a certificate of the Acquiring Trust on behalf of the Acquiring
Fund executed in its name by its President or Vice President and its Treasurer
or Assistant Treasurer, in form and substance satisfactory to the Safeco Trust
and dated as of the Closing Date, to the effect that the representations and
warranties of the Acquiring Trust 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, that each of the conditions to
Closing in this Article 6 have been met, and as to such other matters as the
Safeco Trust shall reasonably request;
6.3 The Acquiring Trust on behalf of the Acquiring Fund shall have
delivered to the Safeco Trust and Wilmer Cutler Pickering Hale and Dorr LLP an
Acquiring Fund Tax Representation Certificate, satisfactory to the Safeco Trust
and Wilmer Cutler Pickering Hale and Dorr LLP, substantially in the form
attached to this Agreement as Annex A, concerning certain tax-related matters
with respect to the Acquiring Fund;
6.4 With respect to the Acquiring Fund, the Board of Trustees of the
Acquiring Trust shall have determined that the Reorganization is in the best
interests of the Acquiring Fund and, based upon such determination, shall have
approved this Agreement and the transactions contemplated hereby; and
6.5 The Safeco Trust shall have received at the Closing a favorable
opinion as to the due authorization of this Agreement by the Acquiring Trust
and related matters of Wilmer Cutler Pickering Hale and Dorr LLP, dated as of
the Closing Date, in a form reasonably satisfactory to the Safeco Trust.
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 further
conditions, unless waived by the Acquiring Fund in writing:
7.1 All representations and warranties of the Safeco Trust on behalf of
the Acquired Fund contained in this Agreement shall be true and correct 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 Safeco Trust shall have delivered to the Acquiring Fund the
Statement of Assets and Liabilities of the Acquired Fund pursuant to Paragraph
5.7, 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 Safeco Trust's Treasurer or Assistant Treasurer;
7.3 The Safeco Trust shall have delivered to the Acquiring Trust on the
Closing Date a certificate of the Safeco Trust on behalf of the Acquired Fund
executed in its name by its President or Vice President and a Treasurer or
Assistant Treasurer, in form and substance reasonably satisfactory to the
Acquiring Trust and dated as of the Closing Date, to the effect that the
representations and warranties of the Safeco Trust contained 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, that each of the
conditions to closing in this Article 7 have been met, and as to such other
matters as the Acquiring Trust shall reasonably request;
7.4 The Safeco Trust on behalf of the Acquired Fund shall have delivered
to the Acquiring Trust and Wilmer Cutler Pickering Hale and Dorr LLP an
Acquired Fund Tax Representation Certificate, satisfactory to the Acquiring
Trust and Wilmer Cutler Pickering Hale and
A-30
Dorr LLP, substantially in the form attached to this Agreement as Annex B,
concerning certain tax-related matters with respect to the Acquired Fund;
7.5 The Acquiring Trust shall have received at the Closing a favorable
opinion as to the due authorization of this Agreement by the Safeco Trust and
related matters of Kirkpatrick & Lockhart LLP, dated as of the Closing Date, in
a form reasonably satisfactory to the Acquiring Trust; and
7.6 With respect to the Acquired Fund, the Board of Trustees of the Safeco
Trust shall have determined that the Reorganization is in the best interests of
the Acquired Fund and, based upon such determination, shall have approved this
Agreement and the transactions contemplated hereby.
8. FURTHER CONDITIONS PRECEDENT
If any of the conditions set forth below does not exist on or before the
Closing Date with respect to either party hereto, the other party to this
Agreement shall, at its option, not be required to consummate the transactions
contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the Acquired Fund's shareholders in
accordance with the provisions of the Safeco Trust's Trust Instrument 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. Notwithstanding anything herein to the contrary, neither
party hereto may waive the conditions set forth in this Paragraph 8.1;
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 either party hereto 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
either party hereto, provided that either party may waive any such conditions
for itself;
8.4 The Acquiring Trust's Registration Statement on Form N-14 shall have
become effective under the Securities Act and no stop orders suspending the
effectiveness of such Registration Statement 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 Securities Act; and
8.5 The parties shall have received an opinion of Wilmer Cutler Pickering
Hale and Dorr LLP, satisfactory to the Safeco Trust and the Acquiring Trust and
subject to customary assumptions and qualifications, substantially to the
effect that for federal income tax purposes the acquisition by the Acquiring
Fund of the Acquired Assets solely in exchange for the issuance of Acquiring
Fund Shares to the Acquired Fund and the assumption of the Assumed 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 Acquired Fund
Shareholders in exchange for their Acquired Fund Shares and the termination of
the Acquired Fund, will constitute a "reorganization" within the meaning of
Section 368(a) of the Code
9. BROKERAGE FEES AND EXPENSES
9.1 Each party hereto represents and warrants to the other party hereto
that there are no brokers or finders entitled to receive any payments in
connection with the transactions provided for herein.
9.2 The parties have been informed by Symetra Financial Corporation and
the Acquiring Fund Adviser -- and the parties have entered into this Agreement
in reliance on such information -- that such non-parties will pay all expenses
of the Funds associated with the Reorganization, including the expenses
associated with the preparation, printing and mailing of any and all
shareholder notices, communications, proxy statements, and necessary filings
with the SEC or any other governmental authority in connection with the
transactions contemplated by this Agreement and the legal and Trustees' fees
and expenses incurred in connection with the Reorganization. Except for the
foregoing, the Acquiring Fund and the Acquired Fund shall each bear its own
expenses in connection with the transactions contemplated by this Agreement.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Trust and the Safeco Trust each agree that neither
party has made any representation, warranty or covenant not set forth herein or
referred to in Paragraphs 4.1 or 4.2 hereof and that this Agreement constitutes
the entire agreement between the parties.
A-31
10.2 The representations and warranties contained in this Agreement or in
any document delivered pursuant hereto or in connection herewith shall not
survive the consummation of the transactions contemplated hereunder.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Trust and the Safeco Trust. In addition, either party may at its
option terminate this Agreement at or prior to the Closing Date:
(a) because of a material breach by the other of any representation,
warranty, covenant or agreement contained herein to be performed at or
prior to the Closing Date;
(b) because of 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;
(c) by resolution of the Acquiring Trust's Board of Trustees if
circumstances should develop that, in the good faith opinion of such
Board, make proceeding with the Agreement not in the best interests of
the Acquiring Fund's shareholders;
(d) by resolution of the Safeco Trust's Board of Trustees if circumstances
should develop that, in the good faith opinion of such Board, make
proceeding with the Agreement not in the best interests of the
Acquired Fund's shareholders; or
(e) if the transactions contemplated by this Agreement shall not have
occurred on or prior to December 31, 2004 or such other date as the
parties may mutually agree upon in writing.
11.2 In the event of any such termination, there shall be no liability for
damages on the part of the Acquiring Fund, the Acquiring Trust, the Safeco
Trust or the Acquired Fund, or the trustees or officers of the Safeco Trust, or
the Acquiring Trust, but, subject to Paragraph 9.2, each party 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 Safeco
Trust and the Acquiring Trust; provided, however, that following the meeting of
the Acquired Fund's shareholders called by the Safeco Trust pursuant to
Paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions regarding the method for determining the number of
Acquiring Fund Shares to be received by the Acquired Fund Shareholders under
this Agreement to their detriment without their further approval; provided that
nothing contained in this Section 12 shall be construed to prohibit the parties
from amending this Agreement to change the Closing 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 Acquired Fund, c/o
Symetra Financial Corporation, 5069 154th Place, N.E., Seattle, Washington
98052, Attention: Roger F. Harbin, with copies to R. Darrell Mounts,
Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W., Second Floor,
Washington, DC 20036-1221, and to the Acquiring Fund, c/o Pioneer Investment
Management, Inc., 60 State Street, Boston, Massachusetts 02109, Attention:
Dorothy E. Bourassa, Esq., with copies to Wilmer Cutler Pickering Hale and Dorr
LLP, 60 State Street, Boston, Massachusetts 02109, Attention: David C. Phelan.
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 internal laws of the State of Delaware, without giving effect to conflict
of laws principles (other than Delaware Code Title 6 [sec] 2708); provided
that, in the case of any conflict between those laws and the federal securities
laws, the latter shall govern.
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
either party without the prior written consent of the other party hereto.
Nothing herein expressed or implied is intended or shall be construed to confer
upon or give any person, firm or corporation, or other entity, other than the
parties hereto and their respective successors and assigns, any rights or
remedies under or by reason of this Agreement.
A-32
14.5 It is expressly agreed that the obligations of the Acquiring Trust
and the Safeco Trust shall not be binding upon any of their respective
trustees, shareholders, nominees, officers, agents or employees personally, but
bind only to the property of the Acquiring Fund or the Acquired Fund, as the
case may be, as provided in the trust instruments of the Acquiring Trust and
the Instrument of Trust of the Safeco Trust, respectively. The execution and
delivery of this Agreement have been authorized by the trustees of the
Acquiring Trust and of the Safeco Trust and this Agreement has been executed by
authorized officers of the Acquiring Trust and the Safeco Trust, acting as
such, and neither such authorization by such trustees nor such execution and
delivery by such officers shall be deemed to have been made by any of them
individually or to imposed any liability on any of them personally, but shall
bind only the property of the Acquiring Fund and the Acquired Fund, as the case
may be, as provided in the trust instruments of the Acquiring Trust and the
Instrument of Trust of the Safeco Trust, respectively.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed as of the date first set forth above by its President or Vice
President and attested by its Secretary or Assistant Secretary.
Attest: [SAFECO TRUST]
on behalf of
[SAFECO FUND]
By: ___________________________________ By: ___________________________________
Name: Name:
Title: Secretary Title: President
Attest: [PIONEER TRUST]
on behalf of
[PIONEER FUND]
By: ___________________________________ By: ___________________________________
Name: Name:
Title: Title:
A-33
Annex A
TAX REPRESENTATION CERTIFICATE OF
[PIONEER TRUST ON BEHALF OF PIONEER FUND]
This certificate is being delivered in connection with the transactions to
be effected pursuant to the Agreement and Plan of Reorganization made as of
__________ , 2004 between [Pioneer Trust], a [Delaware statutory][Massachusetts
business] trust (the "Acquiring Trust"), on behalf of its series [Pioneer Fund]
("Acquiring Fund"), and [Safeco Trust], a Delaware statutory trust, on behalf
of its series [Safeco Fund] ("Acquired Fund") (the "Agreement"). Pursuant to
the Agreement, Acquiring Fund will acquire all of the assets of Acquired Fund
in exchange solely for (i) the assumption by Acquiring Fund of the Assumed
Liabilities of Acquired Fund, and (ii) the issuance of Investor Class shares of
beneficial interest of Acquiring Fund (the "Acquiring Fund Shares") to Acquired
Fund, followed by the distribution by Acquired Fund, in liquidation of Acquired
Fund, of the Acquiring Fund Shares to the shareholders of Acquired Fund and the
termination of Acquired Fund (the foregoing together constituting the
"transaction").
The undersigned officer of Acquiring Trust, after consulting with its
counsel, auditors and tax advisers regarding the meaning of and factual support
for the following representations, on behalf of Acquiring Fund, hereby
certifies and represents that the following statements are true, complete and
correct and will be true, complete and correct on the date of the transaction
and thereafter as relevant. Unless otherwise indicated, all capitalized terms
used but not defined herein shall have the meanings ascribed to them in the
Agreement.
1. Acquiring Fund is a series of Acquiring Trust, a [statutory][business]
trust established under the laws of the [State of Delaware][Commonwealth of
Massachusetts], and Acquiring Fund will be treated after the Closing as a
separate corporation for federal tax purposes. Acquiring Fund was newly
organized solely for the purpose of effecting the transaction and continuing
thereafter to operate as a regulated investment company. Prior to the
transaction, Acquiring Fund did not and will not engage in any business
activities. There shall be no shares of Acquiring Fund issued and outstanding
prior to the Closing Date other than those issued to Pioneer Investment
Management, Inc. or one of its affiliates in connection with the creation of
Acquiring Fund, which shares shall be redeemed, for an amount equal to the
price paid therefor, at or before the Closing.
2. Neither Acquiring Fund nor any person "related" to Acquiring Fund (as
defined in Treasury Regulation Section 1.368-1(e)(3)), nor any partnership of
which Acquiring Fund or any such related person is a partner, has any plan or
intention to redeem or otherwise acquire any of the Acquiring Fund Shares
received by shareholders of Acquired Fund in the transaction except in the
ordinary course of Acquiring Fund's business in connection with its legal
obligation under Section 22(e) of the Investment Company Act of 1940, as
amended (the "1940 Act"), as a series of a registered open-end investment
company to redeem its own shares.
3. After the transaction, Acquiring Fund will continue the historic
business (as defined in Treasury Regulation Section 1.368-1(d)(2)) of Acquired
Fund or will use a significant portion of the historic business assets (as
defined in Treasury Regulation Section 1.368-1(d)(3)) of Acquired Fund in a
business.
4. Acquiring Fund has no plan or intention to sell or otherwise dispose of
any assets of Acquired Fund acquired in the transaction, except for
dispositions made in the ordinary course of its business or to maintain its
qualification as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code").
5. Any expenses of Acquired Fund incurred in connection with the
transaction which are paid or assumed by Acquiring Fund will be expenses of
Acquired Fund solely and directly related to the transaction in accordance with
Rev. Rul. 73 54, 1973 1 C.B. 187. Acquiring Fund will not pay or assume the
expenses, if any, incurred by any Acquired Fund Shareholders in connection with
the transaction.
6. There is no, and never has been any, indebtedness between Acquiring Fund
and Acquired Fund.
7. Acquiring Fund will qualify for the special tax treatment afforded
regulated investment companies under Subchapter M of the Code for all taxable
years ending after the date of the transaction.
8. Acquiring Fund meets the requirements of an "investment company" in
Section 368(a)(2)(F) of the Code.
9. Acquiring Fund is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
10. Acquiring Fund does not now own and has never owned, directly or
indirectly, any shares of Acquired Fund.
11. As of the date of the transaction, the fair market value of the
Acquiring Fund Shares issued to Acquired Fund will be approximately equal to
the fair market value of the Acquired Assets minus the Assumed Liabilities.
Acquiring Fund will not furnish any consideration
A-34
in connection with the acquisition of the Acquired Assets other than the
assumption of the Assumed Liabilities and the issuance of such Acquiring Fund
Shares.
12. Immediately following the transaction, the Acquired Fund Shareholders
will own all of the outstanding Acquiring Fund Shares and will own such shares
solely by reason of their ownership of the Acquired Fund Shares immediately
prior to the transaction. Acquiring Fund has no plan or intention to issue as
part of the transaction any shares of Acquiring Fund other than the Acquiring
Fund Shares issued in exchange for the Acquired Assets.
13. The transaction is being undertaken for valid and substantial business
purposes, including facilitating Acquired Fund's becoming a member of the
Pioneer family of mutual funds, which, in the long term, is intended to result
in lower expenses and increased assets.
14. No Acquired Fund shareholder is acting as agent for Acquiring Fund in
connection with the transaction or approval thereof. Acquiring Fund will not
reimburse any Acquired Fund shareholder for Acquired Fund Shares such
shareholder may have purchased or for other obligations such shareholder may
have incurred.
15. Acquiring Fund has no outstanding warrants, options, convertible
securities or any other type of right pursuant to which any person could
acquire stock in Acquiring Fund.
* * * * *
The undersigned officer of Acquiring Trust is authorized to make all of
the representations set forth herein, and the undersigned is authorized to
execute this certificate on behalf of Acquiring Fund. The undersigned
recognizes that Wilmer Cutler Pickering Hale and Dorr LLP will rely upon the
foregoing representations in evaluating the United States federal income tax
consequences of the transaction and rendering its opinion pursuant to Section
8.5 of the Agreement. If, prior to the date of the transaction, any of the
representations set forth herein ceases to be accurate, the undersigned agrees
to deliver immediately to Wilmer Cutler Pickering Hale and Dorr LLP a written
notice to that effect.
[PIONEER TRUST], on
behalf of [Pioneer Fund]
By: ___________________________________
Name: _____________________________
Title: ____________________________
Dated: ______________, 2004
A-35
Annex B
TAX REPRESENTATION CERTIFICATE OF
[SAFECO TRUST]
ON BEHALF OF [SAFECO FUND]
This certificate is being delivered in connection with the transactions to
be effected pursuant to the Agreement and Plan of Reorganization made as of
______________, 2004 between [Pioneer Trust], a [Delaware statutory]
[Massachusetts business] trust, on behalf of its series [Pioneer Fund]
("Acquiring Fund"), and [Safeco Trust], a Delaware statutory trust ("Safeco
Trust"), on behalf of its series [Safeco Fund] ("Acquired Fund") (the
"Agreement"). Pursuant to the Agreement, Acquiring Fund will acquire all of the
assets of Acquired Fund in exchange solely for (i) the assumption by Acquiring
Fund of the Assumed Liabilities of Acquired Fund and (ii) the issuance of
Investor Class shares of beneficial interest of Acquiring Fund (the "Acquiring
Fund Shares") to Acquired Fund, followed by the distribution by Acquired Fund,
in liquidation of Acquired Fund, of the Acquiring Fund Shares to the
shareholders of Acquired Fund and the termination of Acquired Fund (the
foregoing together constituting the "transaction").
The undersigned officer of Safeco Trust, after consulting with its
counsel, auditors and tax advisers regarding the meaning of and factual support
for the following representations, on behalf of Acquired Fund, hereby certifies
and represents that the following statements are true, complete and correct and
will be true, complete and correct on the date of the transaction and
thereafter as relevant. Unless otherwise indicated, all capitalized terms used
but not defined herein shall have the meanings ascribed to them in the
Agreement.
1. Acquired Fund is a series of Safeco Trust, a statutory trust organized
under the laws of the State of Delaware, and Acquired Fund is, and has been at
all times, treated as a separate corporation for federal tax purposes.
2. As of the date of the transaction, the fair market value of the
Acquiring Fund Shares received by each shareholder that holds shares of
Acquired Fund (the "Acquired Fund Shares") will be approximately equal to the
fair market value of the Acquired Fund Shares with respect to which such
Acquiring Fund Shares are received, and the aggregate consideration received by
Acquired Fund shareholders in exchange for their Acquired Fund Shares will be
approximately equal to the fair market value of all of the outstanding Acquired
Fund Shares immediately prior to the transaction. No property other than
Acquiring Fund Shares will be distributed to shareholders of Acquired Fund in
exchange for their Acquired Fund Shares, nor will any such shareholder receive
cash or other property as part of the transaction.
3. Neither Acquired Fund nor any person "related" to Acquired Fund (as
defined in Treasury Regulation Section 1.368-1(e)(3)), nor any partnership in
which Acquired Fund or any such related person is a partner, has redeemed,
acquired or otherwise made any distributions with respect to any shares of
Acquired Fund as part of the transaction, or otherwise pursuant to a plan of
which the transaction is a part, other than redemptions and distributions made
in the ordinary course of Acquired Fund's business as a series of an open-end
investment company. To the best knowledge of management of Acquired Fund, there
is no plan or intention on the part of the shareholders of Acquired Fund to
engage in any transaction with Acquired Fund, Acquiring Fund, or any person
treated as related to Acquired Fund or Acquiring Fund under Treasury Regulation
Section 1.368-1(e)(3) or any partnership in which Acquired Fund, Acquiring
Fund, or any person treated as related to Acquired Fund or Acquiring Fund under
Treasury Regulation Section 1.368-1(e)(3) is a partner involving the sale,
redemption or exchange of any of the Acquired Fund Shares or any of the
Acquiring Fund Shares to be received in the transaction, as the case may be,
other than in the ordinary course of Acquired Fund's business as a series of an
open-end investment company.
4. In the transaction, Acquired Fund will transfer its assets to Acquiring
Fund, which will assume the Assumed Liabilities, such that immediately
following the transfer, Acquiring Fund will possess all of the same assets and
liabilities as were possessed by Acquired Fund immediately prior to the
transaction, except for assets used to pay expenses incurred in connection with
the transaction and assets distributed to shareholders in redemption of their
shares immediately preceding, or in contemplation of, the transaction (other
than redemptions and distributions made in the ordinary course of Acquired
Fund's business as an open-end investment company) which assets constitute less
than 1% of the net assets of Acquired Fund.
5. As of the date of the transaction, the fair market value of the
Acquiring Fund Shares issued to Acquired Fund will be approximately equal to
the fair market value of the Acquired Assets minus the Assumed Liabilities.
Acquired Fund will not receive any consideration from Acquiring Fund in
connection with the acquisition of the Acquired Assets other than the
assumption of the Assumed Liabilities and the issuance of such Acquiring Fund
Shares.
A-36
6. The Assumed Liabilities assumed by Acquiring Fund plus the Assumed
Liabilities, if any, to which the transferred assets are subject were incurred
by Acquired Fund in the ordinary course of its business. Acquired Fund is not
aware of any liabilities of any kind other than the Assumed Liabilities.
7. As of the Closing Date, the adjusted basis and the fair market value of
the Acquired Assets will equal or exceed the Assumed Liabilities for purposes
of Section 357(d) of the Code.
8. Acquired Fund currently conducts its historic business within the
meaning of Treasury Regulation Section 1.368-1(d)(2), which provides that, in
general, a corporation's historic business is the business it has conducted
most recently, but does not include a business that the corporation enters into
as part of a plan of reorganization. All of the assets of the Acquired Fund
held by Acquiring Fund as of the opening of business on August 2, 2004 (the
date the Acquiring Fund Adviser became the investment adviser to Acquired Fund)
were Acquired Fund's historic business assets within the meaning of Treasury
Regulation Section 1.368-1(d)(3) (which provides that a corporation's historic
business assets are the assets used in its historic business).
9. Acquired Fund will distribute to its shareholders the Acquiring Fund
Shares it receives pursuant to the transaction, and its other properties, if
any, and will be liquidated promptly thereafter.
10. The expenses of Acquired Fund incurred by it in connection with the
transaction, if any, will be only such expenses that are solely and directly
related to the transaction in accordance with Rev. Rul. 73-54, 1973-1 C.B. 187.
Acquired Fund will not pay any expenses incurred by its shareholders in
connection with the transaction.
11. There is no, and never has been any, indebtedness between Acquiring
Fund and Acquired Fund.
12. Acquired Fund has properly elected to be a regulated investment
company under Subchapter M of the Code, has qualified for the special tax
treatment afforded regulated investment companies under Subchapter M of the
Code for each taxable year since inception, and qualifies for such treatment as
of the time of the Closing.
13. Acquired Fund meets the requirements of an "investment company" in
Section 368(a)(2)(F) of the Code.
14. Acquired Fund is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
15. Acquired Fund does not pay compensation to any shareholder-employee.
16. Immediately following the transaction, the Acquired Fund Shareholders
will own all of the outstanding Acquiring Fund Shares and will own such shares
solely by reason of their ownership of the Acquired Fund Shares immediately
prior to the transaction.
17. Acquired Fund shareholders will not have dissenters' or appraisal
rights in the transaction.
18. The transaction is being undertaken for valid and substantial business
purposes, including facilitating Acquired Fund's becoming a member of the
Pioneer family of mutual funds, which, in the long term, is intended to result
in lower expenses and increased assets.
19. Acquired Fund has no outstanding warrants, options, convertible
securities or any other type of right pursuant to which any person could
acquire stock in Acquired Fund.
* * * * *
A-37
The undersigned officer of the Safeco Trust is authorized to make all of
the representations set forth herein, and the undersigned is authorized to
execute this certificate on behalf of Acquired Fund. The undersigned recognizes
that Wilmer Cutler Pickering Hale and Dorr LLP will rely upon the foregoing
representations in evaluating the United States federal income tax consequences
of the transaction and rendering its opinion pursuant to Section 8.5 of the
Agreement. If, prior to the date of the transaction, any of the representations
set forth herein ceases to be accurate, the undersigned agrees to deliver
immediately to Wilmer Cutler Pickering Hale and Dorr LLP a written notice to
that effect.
[SAFECO TRUST], on
behalf of [SAFECO FUND]
By: _____________________________________
Name: _______________________________
Title: ______________________________
A-38
Exhibit B -- Form of Interim Advisory Agreement
AGREEMENT dated as of August 2, 2004, between Pioneer Investment
Management, Inc. ("Pioneer"), a Delaware corporation and a member of the
UniCreditio Italiano Banking Group, Register of Banking Groups, and [SAFECO
TRUST], a Delaware statutory trust (the "Trust"), on behalf of its series
[SAFECO FUNDS] (the "Fund").
Whereas, Safeco Asset Management Company has acted as investment adviser to
the Fund pursuant to an Investment Advisory Agreement dated (the "Prior
Agreement").
Whereas, the Prior Agreement has been approved by the Board of Trustees of
the Trust and the shareholders of the Fund.
Whereas, the Prior Agreement is being terminated as a result of assignment.
Whereas, the Board of Trustees has determined to appoint Pioneer as
investment adviser to the Fund.
Whereas, this Agreement is being entered into in reliance upon Rule 15a-4
under the Investment Company Act of 1940, as amended (the "Investment Company
Act").
Now therefore the Trust and Pioneer agree as follow:
Section 1. The Trust appoints Pioneer as investment adviser of the Funds
for the period and on the terms set forth herein. Pioneer accepts such
appointment.
Section 2. Pioneer and the Trust, on behalf of the Fund, hereby agree that
the provisions of the Prior Agreement (other than as to the term of the Prior
Agreement, the identity of the Adviser and the use of the "Safeco" name) are
incorporated herein by reference and made a part hereof as if references to the
Adviser were to Pioneer. Without limiting the forgoing, Pioneer shall be
entitled to the fee for its services provided for in the Prior Agreement from
(but exclusive of) the date hereof until the termination of this Agreement,
except as provided in Section 3 below.
Section 3. In the event that this Agreement is not approved by a majority
of the Trust's outstanding voting securities (as such term is used in the
Investment Company Act), Pioneer shall be entitled to a fee equal to the cost to
Pioneer of performing its services under this Agreement in lieu of the fee
provided for in Section 2. For purposes of this Agreement, Pioneer's costs in
providing the services under this Agreement shall be equal to the pro rata
portion of Pioneer's expenses for the term of this Agreement attributable to its
investment company advisory business, calculated as follows: Pioneer cost in
providing investment advisory services to its investment companies of the same
type (i.e., domestic equity, international, fixed income, money market)
multiplied by a fraction the numerator of which shall be the average daily net
assets of the Fund during the term of this Agreement and the denominator of
which shall be the average month end net assets under Pioneer's management of
all of its investment company clients.
Section 4. The compensation earned by Pioneer under Section 2 of this
Agreement shall be held in an interest bearing escrow account with the Fund's
custodian. If a majority of the outstanding voting securities approves this
Agreement prior to the end of its term, the amount in the escrow account
(including any interest earned) shall be paid to Pioneer. If a majority of the
outstanding voting securities do not approve this Agreement prior to the end of
its term, Pioneer shall be entitled to be paid, out of the escrow account the
lesser of (i) the amount in the escrow account (including any interest earned on
that amount while in escrow) and (ii) the fee provided for in Section 3 (plus
any interest on that amount while in escrow), with any remaining amount in the
escrow account being returned to the Fund.
Section 5. This Agreement shall become effective on August 2, 2004. Unless
terminated as provided below, this Agreement shall remain in full force and
effect until the earliest of (i) the closing of the reorganization of the Fund
into [name of Pioneer Fund], (ii) approval of a Management Contract between the
Fund and Pioneer and (iii) a date that is the later of 150 days after the date
of the termination of the Prior Agreement or such later date as may be
consistent with a rule or interpretive position (formal or informal) of the
staff of the Securities and Exchange Commission. This Agreement may be
terminated at any time without payment of penalty by vote of the Trustees of the
Trust or by vote of a majority of the outstanding voting securities of the Fund.
Pioneer may terminate this Agreement at any time without payment of any penalty
on not less than 60 days written notice to the Fund. This Agreement shall
automatically terminate upon its assignment as defined in the Investment Company
Act.
B-1
In witness whereof, the parties hereto have executed this Agreement as the
2nd day of August 2004.
[SAFECO TRUST]
By: ____________________________________
Its: ___________________________________
PIONEER INVESTMENT MANAGEMENT, INC.
By: ____________________________________
Its: ___________________________________
B-2
Exhibit C -- Additional Information Pertaining to Pioneer
PORTFOLIO TRANSACTION POLICIES
All orders for the purchase or sale of portfolio securities are placed on
behalf of each fund by Pioneer pursuant to authority contained in the fund's
management contract. Pioneer seeks to obtain the best execution on portfolio
trades. The price of securities and any commission rate paid are always factors,
but frequently not the only factors, in judging best execution. In selecting
brokers or dealers, Pioneer considers various relevant factors, including, but
not limited to, the size and type of the transaction; the nature and character
of the markets for the security to be purchased or sold; the execution
efficiency, settlement capability and financial condition of the dealer; the
dealer's execution services rendered on a continuing basis; and the
reasonableness of any dealer spreads. Transactions in non-U.S. equity securities
are executed by broker-dealers in non-U.S. countries in which commission rates
may not be negotiable (as such rates are in the U.S.).
Pioneer may select broker-dealers that provide brokerage and/or research
services to a fund and/or other investment companies or other accounts managed
by Pioneer. In addition, consistent with Section 28(e) of the Exchange Act, if
Pioneer determines in good faith that the amount of commissions charged by a
broker-dealer is reasonable in relation to the value of the brokerage and
research services provided by such broker, the fund may pay commissions to such
broker-dealer in an amount greater than the amount another firm may charge. Such
services may include advice concerning the value of securities; the advisability
of investing in, purchasing or selling securities; the availability of
securities or the purchasers or sellers of securities; providing stock quotation
services, credit rating service information and comparative fund statistics;
furnishing analyses, electronic information services, manuals and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy, and performance of accounts and particular investment
decisions; and effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement). Pioneer maintains a
listing of broker-dealers who provide such services on a regular basis. However,
because many transactions on behalf of a fund and other investment companies or
accounts managed by Pioneer are placed with broker-dealers (including
broker-dealers on the listing) without regard to the furnishing of such
services, it is not possible to estimate the proportion of such transactions
directed to such dealers solely because such services were provided. Pioneer
believes that no exact dollar value can be calculated for such services.
The research received from broker-dealers may be useful to Pioneer in
rendering investment management services to any of the funds as well as other
investment companies or other accounts managed by Pioneer, although not all such
research may be useful to any of the funds. Conversely, such information
provided by brokers or dealers who have executed transaction orders on behalf of
such other accounts may be useful to Pioneer in carrying out its obligations to
any of the funds. The receipt of such research has not reduced Pioneer's normal
independent research activities; however, it enables Pioneer to avoid the
additional expenses which might otherwise be incurred if it were to attempt to
develop comparable information through its own staff.
In circumstances where two or more broker-dealers offer comparable prices
and executions, preference may be given to a broker-dealer which has sold shares
of a fund as well as shares of other investment companies managed by Pioneer.
This policy does not imply a commitment to execute all portfolio transactions
through all broker-dealers that sell shares of the fund.
None of the funds used any brokers affiliated with Pioneer during its most
recently completed fiscal year in connection with its portfolio transactions.
SIMILAR FUNDS
Pioneer serves as the investment adviser to each fund in the Pioneer Family
of Funds. The following table identifies other funds in the Pioneer Family of
Funds that have similar investment objectives to the Funds described in this
Proxy Statement/Prospectus and provides other information regarding the similar
funds.
- -----------------------------------------------------------------------------------------------------------------
Net assets of Fund Management fee rate
Fund (as of September 30, 2004) (as a percentage of average daily net assets)
- -----------------------------------------------------------------------------------------------------------------
Pioneer Balanced Fund $ 44,418,013 0.65% of the Funds average net assets up to $1
billion, 0.60% of the next $4 billion; and 0.55% of
the excess over $5 billion.
- -----------------------------------------------------------------------------------------------------------------
Pioneer Emerging Markets Fund $268,254,326 1.15%
- -----------------------------------------------------------------------------------------------------------------
Pioneer Equity Income Fund $874,304,393 0.60 of the funds average net assets up to $10
billion and 0.575% on the assets over $10 billion.
- -----------------------------------------------------------------------------------------------------------------
C-1
- ----------------------------------------------------------------------------------------------------------------------
Net assets of Fund Management fee rate
Fund (as of September 30, 2004) (as a percentage of average daily net assets)
- ----------------------------------------------------------------------------------------------------------------------
Pioneer Europe Fund $ 171,301,516 1.00% of the Funds average net assets up to $300
million, 0.85% of the next $200 million and 0.75%
of the excess over $500 million.
- ----------------------------------------------------------------------------------------------------------------------
Pioneer Europe Select Fund $ 6,725,644 1.00% of the Funds average net assets up to $300
million, 0.85% of the next $200 million and 0.75%
of the excess over $500 million.
- ----------------------------------------------------------------------------------------------------------------------
Pioneer Fund $6,131,707,342 0.60% +/- 10% depending on performance vs. S&P
500 Index.
- ----------------------------------------------------------------------------------------------------------------------
Pioneer Growth Shares $ 663,767,737 0.70% of the Funds average net assets up to $500
million, 0.65% of the next $500 million and 0.625%
of the excess over $1 billion.
+/- 10% depending on performance vs. Russell 1000
Index.
- ----------------------------------------------------------------------------------------------------------------------
Pioneer International Equity Fund $ 36,478,202 1.00% of the Funds average net assets up to $300
million, 0.85% of the next $200 million and 0.75%
of the excess over $500 million.
- ----------------------------------------------------------------------------------------------------------------------
Pioneer International Value Fund $ 130,773,125 1.00% of the Funds average net assets up to $300
million, 0.85% of the next $200 million and 0.75%
of the excess over $500 million.
- ----------------------------------------------------------------------------------------------------------------------
Pioneer Large Cap Growth Fund $ 1,694,987 0.75%
- ----------------------------------------------------------------------------------------------------------------------
Pioneer Mid Cap Growth Fund $ 559,334,106 0.625% +/- .20% depending on performance vs. S&P
Mid Cap 400 Index.
- ----------------------------------------------------------------------------------------------------------------------
Pioneer Mid Cap Value Fund $1,842,494,003 0.70% of the Funds average net assets up to $500
million, 0.65% of the next $500 million and 0.625%
of the excess over $1 billion.
+/- .10% depending on performance vs. Russell Mid
Cap Value Index.
- ----------------------------------------------------------------------------------------------------------------------
Pioneer Oak Ridge Large Cap $ 39,073,966 0.75% of the next $1 billion and 0.70% of the
Growth Fund excess over $1 billion.
- ----------------------------------------------------------------------------------------------------------------------
Pioneer Oak Ridge Small Cap $ 47,438,259 0.85% of the next $1 billion and 0.80% of the
Growth Fund excess over $1 billion.
- ----------------------------------------------------------------------------------------------------------------------
Pioneer Papp America-Pacific $ 20,219,066 0.75% of the next $1 billion and 0.70% of the
Rim Fund excess over $1 billion.
- ----------------------------------------------------------------------------------------------------------------------
Pioneer Papp Small and Mid Cap $ 40,835,919 0.85% of the next $1 billion and 0.80% of the
Growth Fund excess over $1 billion.
- ----------------------------------------------------------------------------------------------------------------------
Pioneer Papp Stock Fund $ 43,972,353 0.75% of the next $1 billion and 0.70% of the
excess over $1 billion.
- ----------------------------------------------------------------------------------------------------------------------
Pioneer Papp Strategic Growth Fund $ 43,117,493 0.75% of the next $1 billion and 0.70% of the
excess over $1 billion.
- ----------------------------------------------------------------------------------------------------------------------
Pioneer Research Fund $ 18,315,138 0.75% of the next $1 billion and 0.70% of the
excess over $1 billion.
- ----------------------------------------------------------------------------------------------------------------------
Pioneer Select Equity Fund $ 496,845 0.75%
- ----------------------------------------------------------------------------------------------------------------------
Pioneer Small Cap Value Fund $ 517,033,022 0.85%
- ----------------------------------------------------------------------------------------------------------------------
C-2
- --------------------------------------------------------------------------------------------------------------------
Net assets of Fund Management fee rate
Fund (as of September 30, 2004) (as a percentage of average daily net assets)
- --------------------------------------------------------------------------------------------------------------------
Pioneer Small Company Fund $ 186,036,475 0.85%
- --------------------------------------------------------------------------------------------------------------------
Pioneer Value Fund $3,788,405,005 0.60% +/- .10% depending on performance vs.
Lipper Growth and Income Fund Index.
- --------------------------------------------------------------------------------------------------------------------
Pioneer Variable Contracts Trust
- --------------------------------------------------------------------------------------------------------------------
Pioneer Balanced VCT Portfolio $ 44,699,291 0.65%
- --------------------------------------------------------------------------------------------------------------------
Pioneer Equity Income VCT Portfolio $ 874,304,393 0.65%
- --------------------------------------------------------------------------------------------------------------------
Pioneer Emerging Markets VCT $ 33,358,556 1.15%
Portfolio
- --------------------------------------------------------------------------------------------------------------------
Pioneer Europe VCT Portfolio $ 14,946,105 1.00%
- --------------------------------------------------------------------------------------------------------------------
Pioneer Fund VCT Portfolio $ 265,027,924 0.65%
- --------------------------------------------------------------------------------------------------------------------
Pioneer Growth Shares VCT Portfolio $ 36,316,518 0.70%
- --------------------------------------------------------------------------------------------------------------------
Pioneer International Value VCT $ 23,107,772 1.00%
Portfolio
- --------------------------------------------------------------------------------------------------------------------
Pioneer Mid Cap Value VCT Portfolio $ 660,212,326 0.65%
- --------------------------------------------------------------------------------------------------------------------
Pioneer Oak Ridge Large Cap $ 2,528,521 0.75% of the next $1 billion and 0.70% of the
Growth VCT Portfolio excess over $1 billion.
- --------------------------------------------------------------------------------------------------------------------
Pioneer Papp America-Pacific Rim $ 909,585 0.75% of the next $1 billion and 0.70% of the
VCT Portfolio excess over $1 billion.
- --------------------------------------------------------------------------------------------------------------------
Pioneer Papp Small and Mid Cap $ 1,525,336 0.75% of the next $1 billion and 0.70% of the
Growth VCT Portfolio excess over $1 billion.
- --------------------------------------------------------------------------------------------------------------------
Pioneer Small Cap Value VCT $ 22,800,093 0.75%
Portfolio
- --------------------------------------------------------------------------------------------------------------------
Pioneer Small Company VCT $ 12,241,934 0.75%
Portfolio
- --------------------------------------------------------------------------------------------------------------------
Pioneer Value VCT Portfolio $ 7,738,878 0.75%
- --------------------------------------------------------------------------------------------------------------------
C-3
Exhibit D -- Portfolio Manager's Discussion of Performance
Report From the Fund Managers
Safeco Balanced Fund
As of June 30, 2004
How did the Fund perform?
The Safeco Balanced Fund underperformed its benchmark -- a 60/40 mix of the
Russell 1000 Value and Lehman Aggregate Bond indices, for the six-month period
ending June 30, 2004.
What factors impacted the Fund's performance?
The two dominant factors effecting performance over the past six months
were the rise in interest rates in the second quarter, and the dramatic
outperformance of smaller, lower-quality stocks in the first quarter. Higher
interest rates caused a decline in fixed-income assets over the past three
months, resulting in an essentially flat bond market over the six-month period.
Rising interest rates also had a negative impact on financial stocks, our
largest equity sector. Asset allocation had a favorable impact, as 64.9% of the
assets were invested in equities, which had a somewhat higher return than fixed
income assets year-to-date. This allocation is toward the upper end of our
allowable range of 50% to 70% equity exposure. Year-to-date both stocks and
bonds lagged their respective indices. Most of the underperformance in equities
occurred early in the year, when lower quality stocks performed exceptionally
well.
For the year-to-date, the Fund's best-performing sector was energy, which
returned around 10%. Performance here was led by Conoco-Philips, up nearly 20%,
and British Petroleum, up around 10%. This sector was up primarily due to the
rise in oil prices, and the resulting improved outlook for earnings. Consumer
discretionary stocks were our next best group, returning around 8%. Materials
and consumer staples were our third and fourth best-performing sectors.
On the negative side, our worst sectors were technology and health care,
both of which declined by around 2%. Technology was hurt primarily by a large
decline in both Nokia and Texas Instruments. Nokia has been losing market share
in the cell phone market, and Texas Instruments is one of their suppliers.
Finance stocks, the largest sector in both our index and the Fund, were held
back by the negative impact that rising interest rates are expected to have on
earnings. This essentially led to flat performance for the six-month period.
The bond portion of the Fund benefited from a relatively short duration of
4.48 compared to the 4.7 duration of the Lehman Aggregate Index. This is because
longer duration bonds declined more than shorter ones after rates began rising.
The Fund also benefited from being underweight in Treasury securities, as
Treasuries were the worst-performing sector of the bond market for the six-month
period.
We were hurt in the fixed-income portion of the portfolio by being
underweight in mortgages, which were the bond market's best-performing sector.
Being overweight in corporate debt also negatively impacted performance, even
though we were mostly overweight in A-rated bonds, which performed better than
lower-quality bonds.
What changes did you make to the Fund and why?
During the past six months, we made several changes to the equity portion
of the Fund. As always, the changes were designed to own the stocks we find most
attractive and to adjust sector weightings to what we believe are appropriate
levels.
Stocks added to the portfolio included PMI Group, Weyerhaeuser, and Polaris
Industries. PMI Group, a mortgage insurer, was added because it's a rarity among
financial stocks in that rising rates should actually help earnings as the pace
of refinancing slows. Weyerhaeuser, a stock we have wanted to own for some time
in order to gain exposure to forest products, finally reached what we believe to
be an attractive valuation. Polaris Industries is a maker of all-terrain
vehicles, a market we expect will continue to experience good growth, especially
as the economy improves and the outlook for jobs gets better. We also initiated
positions in Allstate Insurance, Coca Cola and Illinois Tool Works, all of which
we believe were selling at attractive valuations.
We eliminated holdings of Disney, which rose after receiving an unsolicited
takeover offer. We also sold Eli Lilly, Anheuser-Busch and Hubbell based on
valuation, as they had appreciated to levels that were very near our target
prices.
We reduced our position in the finance sector, mainly to reduce our
exposure during what we expect to be a period of rising interest rates. We are
currently marginally underweight in finance relative to the Russell 1000 value
Index. We also reduced our exposure to producer durables due to these stocks
having performed very well. We do however remain overweighted in this sector by
just over 2% as we expect these stocks to continue to perform well as the
economy improves. We are overweight in the materials sector for the same reason,
and
D-1
have added to our position in this sector, primarily by buying Weyerhaeuser as
discussed earlier. We also added to our exposure to what Russell calls "other"
(primarily includes multi-industry companies, such as GE), as this sector went
from 1.6% to 6.6% of the index at the June re-configuration.
In the fixed income portion of the Fund, over the past six months we
increased our holdings in corporate debt, where we are overweight. We also added
to our holdings in government debt, while decreasing the portion of the assets
invested in mortgages. We also reduced the duration of the bonds, and currently
have a lower duration than the index.
Rex Bentley, CFA -- Portfolio Manager/Equity Analyst
Lynette Sagvold, CFA -- Portfolio Manager/Equity Analyst
Lesley Fox -- Portfolio Manager
Gregory Card, CFA -- Portfolio Manager
Tim Hokari -- Portfolio Manager
Nancy McFadden, CFA -- Portfolio Manager
D-2
Performance Overview & Highlights
Safeco Balanced Fund
(Unaudited)
INVESTOR CLASS
- --------------------------------------------------------------------------------------------------
Average Annual Total Return Since
for the periods ended June 30, 2004 Six Month* 1 Year 5 Year Inception**
- --------------------------------------------------------------------------------------------------
Safeco Balanced Fund 1.05% 9.97% 1.78% 6.28%
60% Russell 1000 Value/40%
Lehman Brothers Aggregate Bond Index 2.42% 12.81% 3.90% 8.90%
S&P 500 Index 3.46% 19.13% (2.20)% 8.90%
Lipper, Inc. (Balanced Funds) 1.79% 11.65% 1.67% N/A
* Not annualized.
** Graph and average annual return comparison begins January 31, 1996,
inception date of the Fund. Performance does not reflect the deduction for
taxes that a shareholder would pay on Fund distributions or the redemption
of Fund shares.
- --------------------------------------------------------------------------------------------------
[Plot Points To Come for Line Chart]
The performance graph compares a hypothetical $10,000 investment in the Investor
Class to a hypothetical investment in a relevant market index. The index is
unmanaged and includes no operating expenses or transaction costs. Past
performance is not predictive of future results. Principal value may fluctuate
so that shares, when redeemed, may be worth more or less than their original
cost.
Percent of
TOP FIVE INDUSTRIES (Common Stocks) Net Assets
- ------------------------------------------------------
Diversified Banks 7.6%
Integrated Oil & Gas 6.7
Integrated Telecommunications Services 3.9
Multi-Line Insurance 3.8
Electric Utilities 2.3
Percent of
TOP TEN COMMON STOCK HOLDINGS Net Assets
- ------------------------------------------------------------------------------
ChevronTexaco Corp. (Integrated Oil & Gas) 2.3%
Exxon Mobil Corp. (Integrated Oil & Gas) 2.3
Citigroup, Inc. (Other Diversified Financial Services) 2.2
U.S. Bancorp (Diversified Banks) 1.8
Hartford Financial Services Group, Inc. (Multi-Line Insurance) 1.7
General Electric Co. (Industrial Conglomerates) 1.6
Wells Fargo & Co. (Diversified Banks) 1.5
Bank of America Corp. (Diversified Banks) 1.4
Kimberly-Clark Corp. (Household Products) 1.3
American International Group, Inc. (Multi-Line Insurance) 1.3
TOP FIVE PURCHASES (Common Stocks)
For the Period Ended June 30, 2004 Cost (000's)
- ----------------------------------------------------
MBNA Corp. $210
Mellon Financial Corp. 172
Air Products and Chemicals, Inc. 168
Allstate Corp. 157
General Electric Co. 144
TOP FIVE SALES (Common Stocks) Proceeds
For the Period Ended June 30, 2004 (000's)
- ---------------------------------------------------------
Travelers Property Casualty Corp. (Class B) $172
Kroger Co. 133
American Express Co. 131
United Parcel Service, Inc. (Class B) 129
Costco Wholesale Corp. 117
WEIGHTINGS AS A PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
[DATA BELOW IS REPRESENTED BY A PIE CHART IN THE ORIGINAL REPORT]
Large - Common Stocks: 62.3%
($4 Bil. and above)
Medium - Common Stocks: 2.1%
($1.5 Bil. - $4 Bil.)
Small - Common Stocks: 0.7%
(Less than $1.5 Bil.)
Corporate Bonds: 10.2%
Asset Backed Securities: 0.5%
Collateralized Mortgage Obligations: 1.4%
U.S. Government Agency -
Mortgage Backed Securities: 7.6%
U.S. Government & Agency Obligations: 12.0%
Municipal Bonds: 0.4%
Cash & Other: 2.8%
D-3
Report From the Fund Managers
Safeco Core Equity Fund
As of June 30, 2004
How did the Fund perform?
The Safeco Core Equity Fund underperformed its benchmark Index, the S&P
500, for the six-month period ending June 30, 2004.
What factors impacted the Fund's performance?
Trends that hurt the Fund in the fourth quarter of 2003 continued. Cyclical
stocks, companies without earnings, and lower-quality companies continued to
perform better than the stocks in the Fund's benchmark.
During the first half of this year, virtually every sector had stocks that
performed well. Some of these stocks, such as Ball Corp., Illinois Tool Works
and Leggett & Platt performed well as the economy strengthened. Others like
Hartford Financial and Schlumberger performed well because trends in the
insurance and energy industries remained positive. Finally, others like Estee
Lauder, Harley Davidson and PepsiCo are simply solid companies that continue to
do well.
The Fund had several poor performing stocks in the first half, including
some in the health care sector. In this sector, patent expirations (Abbott),
legal issues (Wyeth) and concerns regarding future growth rates (Amgen) weighed
on the stocks. The technology sector had several losers. Nokia is suffering from
newer entrants and its own product cycle. Texas Instruments and Applied
Materials remain volatile due to concerns regarding the strength and length of
the cycle in their end markets.
What changes did you make to the Fund and why?
Diversification is increasing -- we added two utilities stocks. The largest
position sizes are decreasing: positions over 3% at year-end 2003 are down to
zero at mid-year. The percentage of the funds in its top-10 holdings is
decreasing (28.2% at year-end 2003 versus 24% now) and the average market
capitalization is decreasing, achieved by reducing positions in Citigroup and
Pfizer. The intent of these moves is to improve the relative performance of the
Fund.
At the same time we were undertaking the activities outlined above, we
continued to look for the correct buy and hold stocks for the Fund. This
included such moves as adding to existing positions in Illinois Tool Works and
Cardinal Health and initiating new positions, such as in SunGard Data Systems
and Best Buy.
We eliminated our position in Altria when it reached our price objective,
as well as our position in PeopleSoft, because we found a better alternative.
Rich Meagley, CFA -- Portfolio Manager/Equity Analyst
Darcy MacLaren, CFA -- Portfolio Manager
D-4
Performance Overview & Highlights
Safeco Core Equity Fund
(Unaudited)
INVESTOR CLASS
- ---------------------------------------------------------------------------------------------------
Average Annual Total Return Since
for the periods ended June 30, 2004 Six Month* 1 Year 5 Year Inception**
- ---------------------------------------------------------------------------------------------------
Safeco Core Equity Fund 1.76% 14.16% (5.70)% 7.99%
S&P 500 Index 3.46% 19.13% (2.20)% 11.82%
Lipper, Inc. (Large-Cap Core Funds) 2.03% 16.13% (3.17)% 9.79%
* Not annualized.
Performance does not reflect the deduction for taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
- ---------------------------------------------------------------------------------------------------
[Plot Points To Come for Line Chart]
The performance graph compares a hypothetical $10,000 investment in the
Investor Class to a hypothetical investment in a relevant market index. The
index is unmanaged and includes no operating expenses or transaction costs.
Past performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
TOP FIVE INDUSTRIES Percent of
(Common Stocks) Net Assets
- ------------------------------------
Pharmaceuticals 8.7%
Diversified Banks 4.9
Integrated Oil & Gas 4.3
Industrial Machinery 4.2
Multi-Line Insurance 3.3
Percent of
TOP TEN COMMON STOCK HOLDINGS Net Assets
- ---------------------------------------------------------
General Electric Co. 2.8%
(Industrial Conglomerates)
Microsoft Corp. 2.7
(Systems Software)
Citigroup, Inc. 2.5
(Other Diversified Financial Services)
Pfizer, Inc. 2.5
(Pharmaceuticals)
Wells Fargo & Co. 2.4
(Diversified Banks)
Exxon Mobil Corp. 2.4
(Integrated Oil & Gas)
United Technologies Corp. 2.3
(Aerospace & Defense)
American International Group, Inc. 2.2
(Multi-Line Insurance)
Cisco Systems, Inc. 2.1
(Communication Equipment)
Procter & Gamble Co. 2.1
(Household Products)
TOP FIVE PURCHASES Cost
For the Period Ended June 30, 2004 (000's)
- -----------------------------------------------
SunGard Data Systems, Inc. $7,637
Apache Corp. 7,522
Ball Corp. 7,448
FirstEnergy Corp. 7,125
Exelon Corp. 6,711
TOP FIVE SALES Proceeds
For the Period Ended June 30, 2004 (000's)
- ------------------------------------------------
American International Group, Inc. $8,284
Pfizer, Inc. 8,091
PepsiCo, Inc. 7,374
Citigroup, Inc. 6,750
Oracle Corp. 6,412
WEIGHTINGS AS A PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
[DATA BELOW IS REPRESENTED BY A PIE CHART IN THE ORIGINAL REPORT]
Large - Common Stocks: 97.8%
($4 Bil. and above)
Medium - Common Stocks: 0.8%
($1.5 Bil. - $4 Bil.)
Cash & Other: 1.4%
D-5
Report From the Fund Managers
Safeco Growth Opportunities Fund
As of June 30, 2004
How did the Fund perform?
The Safeco Growth Opportunities Fund outperformed its benchmark index, the
Russell 2000 Index[RegTM], for the six-month period ending June 30, 2004.
What factors impacted the Fund's performance?
The biggest factor affecting the Fund's strong performance has been from
stock selection. We have many stable, liquid and less volatile small-cap
holdings. Our view continues to be that earnings growth comparisons for many
companies will moderate as the economy continues to recover, thus we have
positioned the portfolio toward companies with sustainable growth in earnings.
Some of the Fund's outperformance was a result of 46% of the Fund having a
market capitalization of greater than $1 billion currently. This is the segment
of the market-cap spectrum that we added to during late 2003. Year-to date, the
Russell 2000 Index[RegTM] sectors that contributed the most were producer
durables, consumer discretionary and healthcare -- all overweighted sectors in
the Fund. Our underweight in technology helped as well.
What changes did you make to the Fund and why?
The turnover in the Fund remains quite low for a small-cap fund, as
compared to the turnover of other funds of its type. What this symbolizes is a
management team with a long-term view of the investments made in the portfolio.
We continue to upgrade the quality of the portfolio to more stable, more
liquid and thereby less volatile stocks. We seek high quality companies that
have consistent growth in profits, strong return on investor capital (or
increasing), an ability to fund growth internally, and a seasoned management
team.
Jeffrey Schwartz, CFA -- Portfolio Manager/Equity Analyst
Bill Whitlow, CFA -- Portfolio Manager/Equity Analyst
D-6
Performance Overview & Highlights
Safeco Growth Opportunities Fund
(Unaudited)
INVESTOR CLASS
- ---------------------------------------------------------------------------------------------
Average Annual Total Return
for the periods ended June 30, 2004 Six Month* 1 Year 5 Year 10 Year
- ---------------------------------------------------------------------------------------------
Safeco Growth Opportunities Fund 8.40% 32.82% 4.75% 11.92%
Russell 2000 Index 6.76% 33.37% 6.63% 10.93%
Lipper, Inc. (Small-Cap Core Funds) 7.14% 33.47% 10.61% 12.54%
* Not annualized.
Performance does not reflect the deduction for taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
- ---------------------------------------------------------------------------------------------
[Plot Points To Come for Line Chart]
The performance graph compares a hypothetical $10,000 investment in the Investor
Class to a hypothetical investment in a relevant market index. The index is
unmanaged and includes no operating expenses or transaction costs. Past
performance is not predictive of future results. Principal value may fluctuate
so that shares, when redeemed, may be worth more or less than their original
cost.
Percent of
TOP FIVE INDUSTRIES Net Assets
- ------------------------------------------
Specialty Stores 5.6%
Thrifts & Mortgage Finance 5.2
Homebuilding 4.1
Casinos & Gaming 4.0
Health Care Services 3.9
Percent of
TOP TEN COMMON STOCK HOLDINGS Net Assets
- --------------------------------------------------------
MICROS Systems, Inc. 2.9%
(Application Software)
Nu Skin Enterprises, Inc. (Class A) 2.6
(Personal Products)
PolyMedica Corp. 2.6
(Health Care Supplies)
Rent-A-Center, Inc. 2.6
(Specialty Stores)
Iron Mountain, Inc. 2.5
(Data Processing & Outsourced Services)
Websense, Inc. 2.5
(Internet Software & Services)
American Healthways, Inc. 2.4
(Health Care Services)
Station Casinos, Inc. 2.3
(Casinos & Gaming)
Textronix, Inc. 2.1
(Electronic Equipment Manufacturers)
W Holding Co., Inc. 2.1
(Thrifts & Mortgage Finance)
TOP FIVE PURCHASES Cost
For the Period Ended June 30, 2004 (000's)
- -----------------------------------------------
Florida Rock Industries, Inc. $9,506
Scientific Games Corp. 8,266
Timberland Co. (Class A) 8,074
W Holding Co., Inc. 7,938
Scotts Co. (Class A) 5,966
TOP FIVE SALES Cost
For the Period Ended June 30, 2004 (000's)
- -------------------------------------------------
Conceptus, Inc. $9,279
NCO Group, Inc. 9,264
Nastech Pharmaceutical Co., Inc. 7,681
Matria Healthcare, Inc. 6,791
iShare Russell 2000 Value Index Fund 6,615
WEIGHTINGS AS A PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
[DATA BELOW IS REPRESENTED BY A PIE CHART IN THE ORIGINAL REPORT]
Small - Common Stocks: 52.5%
(Less than $1.5 Bil.)
Indexed Securities: 6.4%
Warrants: 0.4%
Cash & Other: 2.4%
Large - Common Stocks: 3.1%
($4 Bil. and above)
Medium - Common Stocks: 35.2%
($1.5 Bil. - $4 Bil.)
D-7
Report From the Fund Manager
Safeco International Stock Fund
As of June 30, 2004
How did the Fund perform?
The Safeco International Fund underperformed its benchmark index, the MSCI
EAFE Net Index, for the six-month period ending June 30, 2004.
What factors impacted the Fund's performance?
Against a backdrop of improved economic conditions, global equity markets
posted moderate gains in most instances for the first six months of 2004.
However, concern about the future sustainability of the economic improvement,
peaking of the corporate profit cycle, rising interest rates, persistent
geopolitical strains and the ascent in the crude oil price counteracted some of
the gains in stocks.
The American and Japanese economies -- the world's largest and second
largest -- and China, produced much of the economic vigor. These economies also
provided the tonic for the rest of the world that buoyed corporate earnings'
prospects and underpinned the equity markets' advance.
Performance of the Fund was mixed over the first half of the year. Some of
the factors that weighed on performance during 2003 persisted while others
dissipated. Smaller companies continued to outperform their larger peers during
the first half of 2004. This continues to negatively impact the Fund as our
focus is large-cap companies.
However, encouragingly, we have begun to see a broadening out of
performance in the markets. Many of the low quality, "recovery play" stocks
which led the markets last year have begun to lag and high quality companies
which generate consistent earnings growth have begun to come back into favor.
Lastly, the Fund was held back somewhat by its underexposure to the
strongly performing Japanese market, however, as evidenced by the Fund's
increased weighting in Japan and greater Asia, we are encouraged by developments
in the region.
What changes did you make to the Fund and why?
There was considerable activity in the Fund during the first half of the
year, with much of the activity occurring in the Asia region. The Fund's
exposure to a particular country or sector is strictly a residual of the stock
selection process; however we have identified a number of attractive investment
opportunities in Japan and Asia in general.
Several Japanese financial services companies were added to the Fund
including, Sumitomo Mitsui Financial Group NPV, Millea Holdings Incorporated NPV
and Mitsui Sumitomo Insurance Company. The recovery in the Japanese economy
continues to gain momentum and, more importantly the underlying causes appear to
be more structural rather than cyclical and therefore more sustainable.
Financial services companies should be among the beneficiaries of this recovery.
Similarly Hong Kong banking group Hang Seng Bank was added to the fund.
Hang Seng Bank is one of the largest financial services companies in Hong Kong
and is well placed to benefit from the recovery in the Hong Kong economy as well
as the strong growth in mainland China where it is the largest foreign investor
in any Chinese bank.
During the second quarter, Japan Tobacco and Taiwan Semiconductor (TSMC)
were added to the Fund. Japan Tobacco is the dominate tobacco company in Japan
and owns the international rights to three of the top six global cigarette
brands. There is potential for re-rating of the stock as management pursues a
number of restructuring initiatives. TSMC is a global leader in the design and
manufacture of integrated circuit chips. The company is well positioned to
benefit from the growth in outsourcing of chip manufacturing yet trades on an
attractive multiple relative to its peers and historical growth record.
Positions disposed of during the period include Lloyds TSB, Shell T&T and
China Life. Shell's announcement that it has overstated proven reserves by 20%
raised a credibility issue about the management and we felt better opportunities
were available elsewhere. We participated in the IPO of China Life in December
of 2003. Shares in the company soared shortly thereafter making the stock look
expensive in our view.
Although Lloyds TSB is the highest yielding of the U.K. banks, we had
concerns regarding the sustainability of the dividend given the potential need
for capital support for its insurance subsidiary, Scottish Widows. Further, we
believe that other financial companies, in particular Royal Bank of Scotland and
BNP Paribas (also purchased during the period) are more attractive at this time.
Bank of Ireland
Asset Management (U.S.) Limited
D-8
Performance Overview & Highlights
Safeco International Stock Fund
(Unaudited)
INVESTOR CLASS
- ------------------------------------------------------------------------------------------
Average Annual Total Return Since
for the periods ended June 30, 2004 Six Month* 1 Year 5 Year Inception**
- ------------------------------------------------------------------------------------------
Safeco International Stock Fund 2.35% 23.29% (2.72)% 2.74%
MCSI EAFE Index 4.56% 32.37% 0.06% 3.59%
Lipper, Inc. (International Funds) 2.49% 25.48% (1.31)% N/A
* Not annualized.
** Graph and average annual return comparison begins January 31, 1996, inception date
of the Fund. Performance does not reflect the deduction for taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares.
- ------------------------------------------------------------------------------------------
[Plot Points To Come for Line Chart]
The performance graph compares a hypothetical $10,000 investment in the Investor
Class to a hypothetical investment in a relevant market index. The index is
unmanaged and includes no operating expenses or transaction costs. Past
performance is not predictive of future results. Principal value may fluctuate
so that shares, when redeemed, may be worth more or less than their original
cost.
TOP FIVE COUNTRIES Percent of
(Common Stocks) Net Assets
- ----------------------------------
United Kingdom 23.5%
Japan 17.4
Switzerland 12.2
France 9.7
Netherlands 8.3
TOP TEN COMMON STOCK HOLDINGS Percent of
(Common Stocks) Net Assets
- -----------------------------------------------------------
Nestle SA 3.6%
(Food Retail)
Total SA 3.4
(Integrated Oil & Gas)
Canon, Inc. 3.1
(Office Electronics)
UBS AG 2.9
(Investment Banking & Brokerage)
E.On AG 2.4
(Electric Utilities)
ING Groep NV 2.4
(Other Diversified Financial Services)
Nippon Telegraph & Telephone Corp. 2.2
(Integrated Telecommunications Services)
Samsung Electronics Co., Ltd. 2.2
(Electronic Equipment Manufacturers)
HSBC Holdings, plc 2.2
(Diversified Banks)
Novartis AG 2.2
(Pharmaceuticals)
TOP FIVE PURCHASES
For the Period Ended June 30, 2004 Cost (000's)
- -------------------------------------------------------
Royal Bank of Scotland Group, plc $539
BNP Paribas SA 528
Sumitomo Mitsui Financial Group, Inc. 341
HSBC Holdings, plc 325
Japan Tobacco, Inc. 299
TOP FIVE SALES Proceeds
For the Period Ended June 30, 2004 (000's)
- ------------------------------------------------
Lloyds TSB Group, plc $585
Shell Transport & Trading Co., plc 548
Aventis SA 169
Barclays, plc 160
Acom Co., Ltd. 149
D-9
Report From the Fund Managers
Safeco Large-Cap Growth Fund
As of June 30, 2004
How did the Fund perform?
For the six-month period ending June 30, 2004, the Safeco Large-Cap Growth
Fund underperformed its benchmark, the Russell 1000 Growth Index.
The Fund's performance since inception in late 2001 also trails its
benchmark, although the majority of the Fund's underperformance since inception
occurred in calendar year 2003, when smaller stocks with no earnings and
speculative characteristics significantly outperformed the overall market.
Conversely, stocks with better fundamentals such as high levels of profitability
and balance sheet strength underperformed in 2003. This provided a major
headwind to our quality investment style. While volatile conditions may persist
near term, we believe that we are in the midst of a transitional phase, into an
environment in which investors again return to high quality large cap stocks
with sustainable growth characteristics.
What factors impacted the Fund's performance?
Many companies have been demonstrating very strong fundamentals and
exceptional earnings growth. Returns have been muted, however, due in part to
investor anxieties regarding inflation, rising interest rates, slowing growth in
China, the Iraqi Government transition, terrorism, near record oil prices and
the upcoming presidential election.
Returns were helped most by internet software and services holdings, while
the largest detractors from returns came from software. Individual stocks that
had a major impact on performance included:
o Yahoo! Inc. appreciated by 62% over the half-year, helped by increases
in paid search activity and online advertising, along with a growing
user base.
o Avon Products was also a top performer, benefiting from growth in
developing markets such as central/eastern Europe, Latin America, and
China.
o Software storage firm Veritas lost 25% over the period, and recently
announced that revenues and earnings would come in below investor
expectations. We trimmed our holding in the stock and are monitoring
developments closely.
What changes did you make to the Fund and why?
The relatively flat first half returns masked an erratic period in which
market leadership shifted frequently between cyclical and defensive areas of the
market. Since the beginning of the year, we reduced our holdings of technology
stocks, and the Fund is now slightly underweight in technology. We also took
profits in some areas of health care, notably in health care equipment and
supplies. Some proceeds were re-deployed into biotechnology. The Fund's largest
position remained with the global, research-based pharmaceutical firm, Pfizer
Inc.
Energy was one of the best performing segments in the Fund, appreciating by
over 25%. We continue to like the operating environment for several energy and
oil services companies, which are indirectly benefiting from high oil and gas
prices, limited supply growth and increasing demand associated with the global
economic recovery. Accordingly, we added to this sector over the period, and
hold an overweight position here.
RCM Capital Management LLC, formerly Dresdner RCM Global Investors LLC acts
as an investment sub-advisor to the Safeco Large-Cap Growth Fund.
Peter Goetz, MBA, CFA -- Portfolio Manager
Seth A. Reicher, CFA -- Portfolio Manager
D-10
Performance Overview & Highlights
Safeco Large-Cap Growth Fund
(Unaudited)
INVESTOR CLASS
- ------------------------------------------------------------------------------------------
Average Annual Total Return Since
for the periods ended June 30, 2004 Six Month* 1 Year Inception**
- ------------------------------------------------------------------------------------------
Safeco Large-Cap Growth Fund 0.65% 10.77% (2.30)%
Russell 1000 Growth Index 2.74% 17.88% 1.91%
Lipper, Inc. (Large-Cap Growth Funds) 2.35% 15.56% N/A
* Not annualized.
** Total return comparison begins October 31, 2001, inception date of the Fund.
Performance does not reflect the deduction for taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
- ------------------------------------------------------------------------------------------
Plot Points To Come for Line Chart]
The performance graph compares a hypothetical $10,000 investment in the
Investor Class to a hypothetical investment in a relevant market index. The
index is unmanaged and includes no operating expenses or transaction costs.
Past performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
Percent of
TOP FIVE INDUSTRIES Net Assets
- --------------------------------------------
Pharmaceuticals 12.4%
Industrial Conglomerates 6.3
Systems Software 6.3
Communication Equipment 5.1
Internet Software & Services 4.5
Percent of
TOP TEN COMMON STOCK HOLDINGS Net Assets
- ----------------------------------------------------
Pfizer, Inc. 5.4%
(Pharmaceuticals)
Intel Corp. 3.4
(Semiconductors)
Cisco Systems, Inc. 3.3
(Communications Equipment)
Minnesota Mining & Manufacturing Co. 3.3
(Industrial Conglomerates)
Yahoo, Inc. 3.3
(Internet Software and Services)
General Electric Co. 3.0
(Industrial Conglomerates)
Wal-Mart Stores 2.6
(General Merchandise Stores)
Dell, Inc. 2.6
(Computer Hardware)
Procter & Gamble 2.4
(Household Products)
Microsoft Corp. 2.2
(Systems Software)
TOP FIVE PURCHASES Cost
For the Period Ended June 30, 2004 (000's)
- ------------------------------------------------
Paychex, Inc. $123
Guidant Corp. 122
International Game Technology, Inc. 115
Coca-Cola Co. 114
Agilent Technologies, Inc. 104
TOP FIVE SALES Proceeds
For the Period Ended June 30, 2004 (000's)
- ------------------------------------------------
St. Jude Medical, Inc. $117
Lowe's Companies, Inc. 113
General Electric Co. 93
Agilent Technologies, Inc. 76
Microsoft Corp. 75
WEIGHTINGS AS A PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
[DATA BELOW IS REPRESENTED BY A PIE CHART IN THE ORIGINAL REPORT]
Large - Common Stocks: 97.0%
($4 Bil. and above)
Mid-Cap - Common Stocks: 0.4%
($1.5 Bil. - $4 Bil.)
Cash & Other: 2.6%
D-11
Report From the Fund Managers
Safeco Large-Cap Value Fund
As of June 30, 2004
How did the Fund perform?
The Safeco Large-Cap Value Fund underperformed its benchmark, the Russell
1000 Value[RegTM] Index, for the six-month period ending June 30, 2004.
What factors impacted the Fund's performance?
The Fund's performance was primarily due to stock selection and aided by a
one-time settlement of a class action lawsuit regarding a former holding.
As usual, there were multiple factors affecting performance. One factor
that has helped so far this year, after hurting last year, was the relative
outperformance of large companies over smaller ones. This helped the Fund's
relative performance as we own mostly larger companies. It also helped that
higher quality companies tended to perform better than lower quality ones. This
too is a change from recent periods.
For the year-to-date, the Fund's best performing sector was energy, which
returned around 10%. Performance here was led by Conoco-Philips, up nearly 20%,
and British Petroleum, up around 10%. This sector was up primarily due to the
rise in oil prices, and the resulting improved outlook for earnings. Consumer
discretionary stocks were our next best group, returning around 8%. Materials
and consumer staples were our third and fourth best performing sectors.
On the negative side, our worst sectors were technology and health care,
both of which declined by around 2%. Technology was hurt primarily by a large
decline in both Nokia and Texas Instruments. Nokia has been losing market share
in the cell phone market, and Texas Instruments is one of their suppliers.
Finance stocks, the largest sector in both our Index and the Fund, were held
back by rising interest rates and the negative impact this is expected to have
on earnings. Finance stocks were essentially flat for the past six months.
What changes did you make to the Fund and why?
During the past six months, we made several changes to the Fund. As always,
the changes were designed to own the stocks we find most attractive and to
adjust sector weightings to what we believe are appropriate levels. Some recent
sector weighting adjustments were due to the annual Russell Value Index
re-configuration which occurred at the end of June.
Stocks added to the portfolio included PMI Group, Weyerhaeuser, and Polaris
Industries. PMI Group, a mortgage insurer, was added because it's a rarity among
financial stocks in that rising rates should actually help earnings as the pace
of refinancing slows. Weyerhaeuser, a stock we have wanted to own for some time
in order to gain exposure to forest products, finally reached what we believe to
be an attractive valuation. Polaris Industries is a maker of all-terrain
vehicles, a market we expect will continue to experience good growth, especially
as the economy improves and the outlook for jobs gets better. We also initiated
positions in Allstate Insurance, Coca Cola and Illinois Tool Works, all of which
we believe were selling at attractive valuations.
We eliminated holdings of Disney, which rose after receiving an unsolicited
takeover offer. We also sold Eli Lilly, Anheuser-Busch and Hubbell based on
valuation, as they had appreciated to levels that were very near our target
prices.
We reduced our position in the finance sector by 2.1%, mainly to lessen our
exposure during what we expect to be a period of rising interest rates. We are
currently 1.7% underweight in finance relative to the Russell 1000 Value Index.
We reduced our exposure to stocks in the producer durables sector, which
performed very well. We do, however, remain overweighted in this sector by 2.0%
as we expect these stocks to continue to perform well as the economy improves.
We are overweighted in the materials sector for the same reason, and have added
to our position, primarily by buying Weyerhaeuser as discussed earlier. We also
added to our exposure to what Russell calls "other" (primarily includes
multi-industry companies, such as GE), as this sector went from 1.6% to 6.6% of
the Index at the June re-configuration.
Rex Bentley, CFA -- Portfolio Manager/Equity Analyst
Lynette Sagvold, CFA -- Portfolio Manager/Equity Analyst
D-12
Performance Overview & Highlights
Safeco Large-Cap Value Fund
(Unaudited)
INVESTOR CLASS
- -----------------------------------------------------------------------------------------------
Average Annual Total Return
for the periods ended June 30, 2004 Six Month* 1 Year 5 Year 10 Year
- -----------------------------------------------------------------------------------------------
Safeco Large-Cap Value Fund 3.37% 18.91% (1.71)% 7.52%
Russell 1000 Value Index 3.94% 21.13% 1.87% 12.64%
Lipper, Inc. (Equity-Income Funds) 3.24% 19.19% 0.67% 10.41%
* Not annualized.
Performance does not reflect the deduction for taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
- -----------------------------------------------------------------------------------------------
[Plot Points To Come for Line Chart]
The performance graph compares a hypothetical $10,000 investment in the Investor
Class to a hypothetical investment in a relevant market index. The index is
unmanaged and includes no operating expenses or transaction costs. Past
performance is not predictive of future results. Principal value may fluctuate
so that shares, when redeemed, may be worth more or less than their original
cost.
Percent of
TOP FIVE INDUSTRIES Net Assets
- ------------------------------------------------------
Diversified Banks 11.2%
Integrated Oil & Gas 10.2
Multi-Line Insurance 5.8
Integrated Telecommunications Services 5.7
Pharmaceuticals 3.5
Percent of
TOP TEN COMMON STOCK HOLDINGS Net Assets
- -------------------------------------------------------
Chevron Texaco Corp. 3.7%
(Integrated Oil & Gas)
Citigroup, Inc. 3.3
(Other Diversified Financial Services)
Exxon Mobil Corp. 2.9
(Integrated Oil & Gas)
Hartford Financial Services Group, Inc. 2.7
(Multi-Line Insurance)
U.S. Bancorp 2.6
(Diversified Banks)
General Electric Co. 2.6
(Industrial Conglomerates)
Wells Fargo & Co. 2.3
(Diversified Banks)
Bank of America Corp. 2.1
(Diversified Banks)
Kimberly-Clark Corp. 2.0
(Household Products)
American International Group, Inc. 1.9
(Multi-Line Insurance)
TOP FIVE PURCHASES Cost
For the Period Ended June 30, 2004 (000's)
- -----------------------------------------------
MBNA Corp. $2,441
Mellon Financial Corp. 2,013
General Electric Co. 1,958
Allstate Corp. 1,828
Praxair, Inc. 1,755
TOP FIVE SALES Proceeds
For the Period Ended June 30, 2004 (000's)
- ------------------------------------------------
Travelers Property Casualty Corp. $2,048
(Class B)
American Express Co. 1,619
Northrop Grumman Corp. 1,585
Nokia Oyj (ADR) 1,579
Kroger Co. 1,512
WEIGHTINGS AS A PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
[DATA BELOW IS REPRESENTED BY A PIE CHART IN THE ORIGINAL REPORT]
Large - Common Stocks: 94.0%
($4 Bil. and above)
Medium - Common Stocks: 3.1%
($1.5 Bil. - $4 Bil.)
Small - Common Stocks: 0.8%
(Less than $1.5 Bil.)
Cash & Other 2.1%
D-13
Report From the Fund Managers
Safeco Multi-Cap Core Fund
As of June 30, 2004
How did the Fund perform?
The Safeco Multi-Cap Core Fund outperformed its benchmark Index, the
Russell 3000[RegTM] Index, for the six-month period ending June 30, 2004.
What factors impacted the Fund's performance?
The market posted a modest gain during the first half of the year as the
improving economy and strong corporate earnings outweighed investors' concerns
about rising rates, the conflict in Iraq and higher oil prices.
During the period, small- and mid-cap stocks outperformed large-cap stocks.
In the first half of this year, the Russell 2000[RegTM] Index of small-cap
stocks advanced 6.76% and the Russell Mid-Cap Index advanced 6.67% versus a 3.3%
rise in the Russell 1000[RegTM] Index of large-cap issues.
We attribute our better performance in the period to the Fund's high
exposure to mid- and small-cap stocks relative to the benchmark.
What changes did you make to the Fund and why?
During the first half we continued our strategy of increasing
diversification to improve the risk/reward trade-off in the Fund. We added 17
new positions, and deleted six, bringing our total number of names to 73. The
additions were mostly economically sensitive companies in the mid-cap size
range. The deletions were all small-cap companies which had not been performing
well. We continue to seek a better balance among market capitalizations as we
modestly reduce our exposure to small-caps relative to our benchmark.
Four of the five top performers for the period -- Coldwater Creek,
Starbucks, Expeditors International and Nordstrom -- are cyclical companies. Our
poor performers were either companies that had company-specific problems, like
Performance Food Group, Intuit and Penwest Pharmaceutical, or stocks that
retreated after a good run, like Primus Knowledge.
Bill Whitlow, CFA -- Portfolio Manager/Equity Analyst
Brian Clancy, CFA -- Portfolio Manager/Equity Analyst
D-14
Performance Overview & Highlights
Safeco Multi-Cap Core Fund
(Unaudited)
INVESTOR CLASS
- -----------------------------------------------------------------------------------------------
Average Annual Total Return
for the periods ended June 30, 2004 Six Month* 1 Year 5 Year 10 Year
- -----------------------------------------------------------------------------------------------
Safeco Multi-Cap Core Fund 4.86% 25.78% 2.32% 9.53%
Russell 3000 Index 3.59% 20.46% (1.07)% 11.66%
S&P 500 Index 3.46% 19.13% (2.20)% 11.82%
Lipper, Inc. (Multi-Cap Core Funds) 3.34% 19.72% 1.66% 11.38%
* Not annualized.
Performance does not reflect the deduction for taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
- -----------------------------------------------------------------------------------------------
[Plot Points To Come for Line Chart]
The performance graph compares a hypothetical $10,000 investment in the Investor
Class to a hypothetical investment in a relevant market indexes. The indexes are
unmanaged and include no operating expenses or transaction costs. Past
performance is not predictive of future results. Principal value may fluctuate
so that shares, when redeemed, may be worth more or less than their original
cost.
Percent of
TOP FIVE INDUSTRIES Net Assets
- --------------------------------------------------
Diversified Banks 5.6%
Pharmaceuticals 5.2
Semiconductors 4.0
Oil & Gas Exploration & Production 3.7
Electronic Equipment Manufacturers 3.6
Percent of
TOP TEN COMMON STOCK HOLDINGS Net Assets
- ------------------------------------------------------------
StanCorp Financial Group, Inc. 2.5%
(Life & Health Insurance)
Tektronix, Inc. 2.5
(Electronic Equipment Manufacturers)
Starbucks Corp. 2.4
(Restaurants)
Expeditors International of Washington, Inc. 2.3
(Air Freight & Logistics)
Nordstrom, Inc. 2.3
(Department Stores)
Kroger Co. 2.2
(Food Retail)
Costco Wholesale Corp. 2.2
(Hypermarkets & Super Centers)
Pfizer, Inc. 2.1
(Pharmaceuticals)
Microsoft Corp. 2.1
(Systems Software)
U.S. Bancorp 2.0
(Diversified Banks)
TOP FIVE PURCHASES Cost
For the Period Ended June 30, 2004 (000's)
- -----------------------------------------------
Performance Food Group Co. $1,388
A.G. Edwards, Inc. 1,354
Investors Financial Services Corp. 1,274
Accredo Health, Inc. 1,098
American Healthways, Inc. 1,043
TOP FIVE SALES Proceeds
For the Period Ended June 30, 2004 (000's)
- ------------------------------------------------
Coldwater Creek, Inc. $2,028
Monaco Coach Corp. 1,267
Starbucks Corp. 1,169
Penford Corp. 1,020
Tektronix, Inc. 978
WEIGHTINGS AS A PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
[DATA BELOW IS REPRESENTED BY A PIE CHART IN THE ORIGINAL REPORT]
Large - Common Stocks: 58.2%
($4 Bil. and above)
Medium - Common Stocks: 17.6%
($1.5 Bil. - $4 Bil.)
Small - Common Stocks: 23.0%
(Less than $1.5 Bil.)
Cash & Other: 1.2%
D-15
Report From the Fund Manager
Safeco Small-Cap Value Fund
As of June 30, 2004
How did the Fund perform?
Overall the Fund essentially matched the performance of our benchmark
Russell 2000 Value index for the six-month period ending June 30, 2004. All the
positive contributions took place in the first quarter, and then the small-cap
market seesawed down and up from April through June. In retrospect, the first
few months were a continuation of the "take off" phase of the market cycle that
began last March. The April/May timeframe saw the first significant correction
since that rally began.
What factors impacted the Fund's performance?
Market leadership by higher quality stocks has continued, following a trend
that began in the fourth quarter of last year. I define high quality as
companies with stock prices above $5 per share, with positive earnings, low P/E
ratios versus the universe, and market capitalization above $250 million.
This trend helped the Fund, since it owns stocks all across the
small-cap-size spectrum and the weighted average tends towards the middle of the
small-cap-size range. Also, the Fund has less of its assets invested in
companies that are not currently more profitable than the index, and we didn't
have much exposure to under-$5 price stocks.
In early April, one single government report of job growth was all it took
to crystallize the market's worry that the Federal Reserve would start raising
short-term interest rates. This precipitated a fast and steep correction in the
Fund's most interest-rate-sensitive stocks. Those stocks have made a partial
recovery since then.
What changes did you make to the Fund and why?
I added new stocks, which I believed were not discounting their full
potential or had not participated in the "lift off" phase of the early market
cycle. From the March 2003 bottom, the entire market experienced a "rising tide"
effect. That effect has run its course, and so I've tried to find stocks that
represent value opportunities in the traditional sense of the word.
For example, Pacer International was bought on price weakness after I had
multiple meetings with management to cement an understanding of their business.
Pacer arranges for the transportation of ocean freight containers by reselling
space on the railroads in a service called the Stack Train. They produce
significant free cash flow, but their service offering is aligned with the Union
Pacific and CSX railroads, and those companies are experiencing a period of poor
service quality that has temporarily hurt Pacer. In time this will change.
However, Pacer's stock was down based on the current view of conditions, not
what they'll be in the future. The future is where I see the stock's
opportunity.
I also exited positions that I believe have run their course, or have taken
a turn for the worse. Examples of the former include the last of the utility
preferred stocks in the Fund. An example of the latter would be the company
Osteotech, which abandoned one of its product lines in January, calling into
doubt its growth prospects and valuation. I was fortunate to exit the stock
before the worst of the damage was done.
I continue to believe stocks with traditional "value" characteristics, in
terms of their overall valuation and free cash flow generation, are a successful
strategy to own for the long term. I am a believer in owning stocks that are
priced cheaper than the overall market, and that have sustainable businesses and
cash flows. I think the Fund is currently positioned this way.
Greg Eisen, CFA -- Portfolio Manager/Equity Analyst
D-16
Performance Overview & Highlights
Safeco Small-Cap Value Fund
(Unaudited)
INVESTOR CLASS
- --------------------------------------------------------------------------------------------------
Average Annual Total Return Since
for the periods ended June 30, 2004 Six Month* 1 Year 5 Year Inception**
- --------------------------------------------------------------------------------------------------
Safeco Small-Cap Value Fund 7.82% 31.58% 14.80% 10.05%
Russell 2000 Value Index 7.83% 35.17% 12.82% 13.26%
Lipper, Inc. (Small-Cap Value Funds) 8.15% 34.14% 13.08% N/A
* Not annualized.
** Graph and average annual return comparison begins January 31, 1996, inception date of
the Fund.
Performance does not reflect the deduction for taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
- --------------------------------------------------------------------------------------------------
[Plot Points To Come for Line Chart]
The performance graph compares a hypothetical $10,000 investment in the Investor
Class to a hypothetical investment in a relevant market index. The index is
unmanaged and includes no operating expenses or transaction costs. Past
performance is not predictive of future results. Principal value may fluctuate
so that shares, when redeemed, may be worth more or less than their original
cost.
Percent of
TOP FIVE INDUSTRIES Net Assets
- --------------------------------------------
Real Estate Investment Trust 6.7%
Specialty Stores 6.4
Regional Banks 5.9
Trucking 5.3
Consumer Finance 4.8
Percent of
TOP TEN COMMON STOCK HOLDINGS Net Assets
- ---------------------------------------------------
World Fuel Services Corp. 3.3%
(Integrated Oil & Gas)
Lone Star Technologies, Inc. 2.9
(Oil & Gas Equipment & Services)
Cash America International, Inc. 2.5
(Consumer Finance)
Imation Corp. 2.5
(Computer Storage & Peripherals)
Foot Locker, Inc. 2.4
(Specialty Stores)
Champion Enterprises, Inc. 2.4
(Homebuilding)
AmeriCredit Corp. 2.3
(Consumer Finance)
Precision Castparts Corp. 2.3
(Diversified Metals & Mining)
Hollywood Entertainment Corp. 2.3
(Specialty Stores)
Insight Enterprises, Inc. 2.2
(Catalog Retail)
TOP FIVE PURCHASES Cost
For the Period Ended June 30, 2004 (000's)
- -----------------------------------------------
Champion Enterprises, Inc. $1,534
Pacer International, Inc. 1,371
Apollo Investment Corp. 1,188
Hanger Orthopedic Group, Inc. 1,149
Impac Mortgage Holdings, Inc. 1,134
TOP FIVE SALES Proceeds
For the Period Ended June 30, 2004 (000's)
- ---------------------------------------------------
Pacific Crest Capital, Inc. $1,310
Nordic American Tanker Shipping, Ltd. 1,003
Isle of Capri Casinos, Inc. 731
Furniture Branks International, Inc. 721
SonoSite, Inc. 680
WEIGHTINGS AS A PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
[DATA BELOW IS REPRESENTED BY A PIE CHART IN THE ORIGINAL REPORT]
Indexed Securities: 3.6%
Cash & Other: 3.0%
Mid-Cap - Common Stocks: 22.8%
($1.5 Bil. - $4 Bil.)
Small Cap - Common Stocks Under ($1.5 Bil.)
a) Large (Over $750 Mil.): 40.2%
b) Medium ($250 Mil. - $750 Mil.): 25.8%
c) Small (Under $250 Mil.): 4.6%
D-17
PIONEER BALANCED FUND
Performance Update 6/30/04 Class A Shares
Share Prices and Distributions
6/30/04 12/31/03
Net Asset Value per Share $9.57 $9.47
Distributions per Share Net Short-Term Long-Term
(1/1/04 - 6/30/04) Investment Capital Gains Capital Gains
Income
$0.0500 $ $
Investment Returns
The mountain chart shows the change in value of a $10,000 investment made in
Pioneer Balanced Fund at public offering price, compared to that of the Standard
& Poor's 500 Index and the Lehman Brothers Aggregate Bond Index.
[DATA BELOW IS REPRESENTED BY A LINE CHART IN THE ORIGINAL REPORT]
Value of $10,000 Investment
Lehman
Pioneer Brothers Standard &
Balanaced Aggregate Poor's 500
Fund* Bond Index Index
6/94 9550 10000 10000
9573 10099 10486
11679 11965 14420
12/96 12834 12398 17725
14621 13597 23635
12/98 14788 14776 30394
15253 14652 36787
12/00 16074 16356 33444
15612 17737 29480
12/02 13863 19557 22966
16080 20360 29550
6/04 16335 20391 30567
Average Annual Total Returns
(As of June 30, 2004)
Period Net Asset Value Public Offering Price *
- ---------------------------------------------------------
10 Years 5.51% 5.03%
5 Years 1.34 0.40
1 Year 8.51 3.64
* Reflects deduction of the maximum 4.5% sales charge at the beginning of the
period and assumes reinvestment of distributions at net asset value.
Performance data shown represents past performance. Past performance does not
guarantee future results. Assumes reinvestment of all distributions at net asset
value. Investment return and principal value fluctuate, and shares, when
redeemed, may be worth more or less than their original cost. Current
performance may be lower or higher than the performance shown. For performance
data that is current to the most recent month-end, please call 1-800-225-6292 or
visit our web site www.pioneerfunds.com. The performance table and graph do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
The Fund adopted its current name and investment objective on February 3, 1997.
Prior to that date, the Fund's name was Pioneer Income Fund and its objective
was income from a portfolio of income-producing bonds and stocks.
The Standard & Poor's (S&P) 500 Index is an unmanaged measure of 500 widely held
common stocks listed on the New York Stock Exchange, American Stock Exchange and
the over-the-counter market. The Lehman Brothers Aggregate Bond Index is a
widely recognized market value-weighted index composed of the Lehman Brothers
Government/Credit, Mortgage-backed, Asset-Backed and Commercial Mortgage-Based
Securities indices. Index returns assume reinvestment of dividends and, unlike
Fund returns, do not reflect any fees, expenses or sales charges. You cannot
invest directly in any Index.
D-18
Portfolio Manager's Discussion 6/30/04
While the economy grew and corporate profits rose during the first half of
2004, stock market returns were muted by worries about rising interest rates as
well as geopolitical issues around the world. In the fixed income markets, the
jump in interest rates midway through the six months sent many bond prices
lower, resulting in weak returns in most sectors. In the following interview,
Timothy Mulrenan, who is responsible for the equity portfolio of Pioneer
Balanced Fund, and Richard Schlanger, who is responsible for the Fund's fixed
income portfolio, discuss the markets and their investment strategies during the
six months ended June 30, 2004.
Q: How did the Fund perform during the first six months of 2004?
A: Pioneer Balanced Fund's Class A shares had a total return of 1.59% during
the six months ended June 30, 2004, while Class B and Class C shares
returned, respectively, 1.18% and 1.06%, all at net asset value. During the
same six months, the average return of the funds in Lipper's Balanced Fund
category was 1.79%.
Q: What were the factors that affected performance?
A: The domestic equity market produced generally positive returns for the six
months, but those returns masked the underlying volatility and tensions
between conflicting influences. Supporting equity valuations were an
expanding economy and robust corporate profits. Reported earnings tended to
be 25% higher than in the comparable period of 2003. The competing negative
factors included the spike in market interest rates midway through the six
months, as well as uncertainty brought on by concerns over issues such as
energy prices, stability in Iraq and presidential election-year politics.
In the fixed income markets, interest rates tended to rise, with
shorter-maturity rates rising farther than longer-term rates. The price
losses brought on by the higher rates as well as the flattening of the
yield curve -- or difference between short-term and long-term yields --
resulted in volatility in the bond market. The key factor was the widely
anticipated announcement by the Federal Reserve Board on the final day of
the period to begin tightening monetary policy by starting to raise the
influential overnight lending rate -- the Fed Funds rate. The initial hike
was from 1.00% to 1.25%, but the expectation was that the Fed would raise
rates further in the months to come in an effort to guard against
inflationary pressures.
Q: What were the principal strategies during the period?
A: We kept the allocation between equities and bonds consistent during the six
months. On June 30, about 64% of assets were invested in stocks -- about
the same percentage as at the start of the period. The remaining assets
were invested in fixed income assets, including corporate bonds, government
securities, and mortgage-backed securities, with a small allocation in
foreign bonds and less than 2% in cash. There also were no major changes in
the equity portfolio, although we did trim our energy position to take
profits and to reduce our vulnerability to the area during a time when we
expected increased price volatility. We remained over weighted in energy
stocks, however, and remain positive about the sector's longer-term
fundamentals. We modestly increased the Fund's health care holdings, adding
medical device company Guidant and pharmaceutical company Eli Lilly. We
thought Guidant's stock price had become compellingly attractive after it
fell because of an announcement about a delay in a new product
introduction. We like Lilly because it has well-developed research and
development activities that should produce a flow of new products. In
addition, we initiated a position in Liz Claiborne, the apparel company. We
think it is attractive because of its strong distribution during a time
when the industry is beginning to gain greater control over pricing. We
substantially reduced our holdings in two stocks that had performed very
well -- software company Symantec and auto insurance company Progressive.
We also eliminated our position in Devon Energy, an exploration and
production company, because of our concerns about its internal cost
structure. In the fixed income portfolio, we raised overall quality of the
portfolio, with average credit quality moving from A+ to AA-. Interestrate
sensitivity -- as measured by duration -- was about even with that of the
benchmark Lehman Brothers Aggregate Bond Index, although it declined
slightly during the six months from 4.52 years to 4.34 years. We increased
our exposure to mortgage-backed securities -- the best-performing part of
the investment-grade sector -- from 43.6% of fixed income assets to 47.7%.
Mortgages tend to be less vulnerable to declining prices than Treasuries
and other government securities in a rising interest-rate environment. We
reduced our exposure to corporates, taking profits when their yield
advantage over Treasuries began to narrow. At the end of the period, 25.9%
of the fixed income portfolio was invested in industrial and utility bonds,
compared to 31.4% at the start of the period. At the same time, we also
reduced our banking and financial services bond holdings from 10.7% to 9.0%
of fixed income assets. When we invest in corporates, we tend to favor new
issues, which have a greater yield advantage over Treasuries than existing
issues available on the secondary market. When invested in Treasury bonds,
we tended to hold TIPS, or inflation-protected Treasuries, although we sold
them near the end of the period when the Federal Reserve made it clear it
intended to control inflationary pressures.
D-19
Q: What types of investments had the greatest influence on performance?
A: In our equity portfolio, our emphasis on consumer staples companies helped
considerably as stock investors began to recognize the value of
higher-quality, stable growth companies that had been overlooked in the
rally of 2003. Holdings such as Gillette, PepsiCo and Wrigley performed
very well. Our technology positions also did well, led by Symantec, whose
share price went up 27% during the six months. Detracting from performance,
however, was security selection in the consumer discretionary sector.
Family Dollar Stores had disappointing earnings, which may have been caused
by higher gasoline prices, but we still favor the company and continue to
hold it at the end of the period. Newmont Mining, which had been a strong
contributor to Fund performance prior to the period, fell 20% during the
period in response to slumping gold prices. However, we still believe the
company is attractive and continue to hold a position in it on June 30.
In the fixed income portfolio, our overweight position in mortgages helped
substantially, as did our exposure to corporate bonds -- both high yield
and investment-grade. Performance was held back, however, by our
concentration in intermediate-term securities, as short- and
intermediate-term interest rates rose more than the rates on long-term
bonds during the six months.
Q: What is your investment outlook?
A: We believe the June 30 announcement by the U.S. Federal Reserve that it was
starting to raise short-term rates is the start of a long process of
interest-rate hikes that is likely to continue at least through the end of
2005. We anticipate moving to a barbelled strategy over time with respect
to maturity allocations, concentrating on both short-term securities and
long-term bonds while de-emphasizing intermediate-term bonds that we think
are most vulnerable in the present environment. We believe the equity
market will continue to be choppy, with no major trends either up or down
in stock price averages. The outlooks for gross domestic product (GDP) and
for corporate earnings both are favorable, although the rate of corporate
profit growth may slow somewhat. The big question hanging over investors'
minds will be what happens to interest rates. In addition, uncertainty
about geopolitical events and the outcome of the presidential election will
influence investor psychology. We think the most likely scenario is that
the major stock averages will show moderate growth over the next several
months.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Fund's historical or future performance are
statements of the opinion of Fund management as of the date of this report.
These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
D-20
PIONEER FUND
Performance Update 6/30/04 Class A Shares
Share Prices and Distributions
6/30/04 12/31/03
$38.64 $38.00
Distributions per Share Net Short-Term Long-Term
(1/1/04 - 6/30/04) Investment Capital Gains Capital Gains
Income
$0.1300 $ $
Investment Returns
The mountain chart on the right shows the change in value of a $10,000
investment made in Pioneer Fund at public offering price, compared to that of
the Standard & Poor's (S&P) 500 Index.
[DATA BELOW IS REPRESENTED BY A LINE CHART IN THE ORIGINAL REPORT]
Value of $10,000 Investment
Pioneer S&P 500
Fund* Index
6/94 9425 10000
9618 10486
12180 14420
12/96 14580 17725
20189 23635
12/98 26044 30394
30112 36787
12/00 30147 33444
26793 29480
12/02 21364 22966
26615 29550
6/04 27155 30567
Average Annual Total Returns
(As of June 30, 2004)
Period Net Asset Value Public Offering Price *
- ---------------------------------------------------------
10 Years 11.16% 10.51%
5 Years -1.14 -2.31
1 Year 18.13 1.34
* Reflects deduction of the maximum 5.75% sales charge at the beginning of
the period and assumes reinvestment of distributions at net asset value.
Performance data shown represents past performance. Past performance does not
guarantee future results. Assumes reinvestment of all distributions at net asset
value. Investment return and principal value fluctuate, and shares, when
redeemed, may be worth more or less than their original cost. Current
performance may be lower or higher than the performance shown. For performance
data that is current to the most recent month-end, please call 1-800-225-6292 or
visit our web site www.pioneerfunds.com. The performance table and graph do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
The S&P 500 Index is an unmanaged measure of 500 widely held common stocks
listed on the New York Stock Exchange, American Stock Exchange and the
over-the-counter market. Index returns assume reinvestment of dividends and,
unlike Fund returns, do not reflect any fees, expenses or sales charges. You
cannot invest directly in any Index.
D-21
Portfolio Manager's Discussion 6/30/04
In the following discussion, portfolio manager John Carey, reviews the
investment environment and the performance of Pioneer Fund over the six months
ended June 30, 2004.
Q: How did the portfolio perform over the first six months of 2004?
A: Pioneer Fund recorded a positive total return of 2.03% at net asset value
on Class A shares in the six months ended June 30, 2004. Class B, C, R and
Y shares returned 1.59%, 1.63%, 2.03% and 2.27% at net asset value. That
exactly matched the return of the average fund in the Lipper Large-Cap Core
group, which was also up 2.03%. Both Pioneer Fund and the Lipper average
lagged the Standard & Poor's 500 Index, which showed a total return of
3.44% over the same period. While the mild returns might suggest a calm
market, the reality was a market of sharp contrasts. With reference to
performance of the respective sectors in the S&P 500, information
technology, the darling of investors in 2003, barely moved, with a gain of
0.44% for the period, while energy, industrials and consumer staples
advanced, respectively, 12.97%, 7.42%, and 6.12%. Investors appeared to be
"rotating" out of more highly priced stocks and into shares more moderately
priced, with dividends and steadier earnings outlooks.
Q: Please discuss the Fund's performance versus the S&P 500 Index.
A: Our underperformance versus the S&P 500 was attributable mainly to our
stock holdings in four sectors: information technology, materials,
industrials and telecommunications services. Our strongest positive
contributors were our investments in consumer discretionary, consumer
staples and health care. Taking first the negative contributors, our
technology holdings showed an overall decline of 1.59% versus the S&P 500
sector gain of 0.44%. The main culprits were our positions in Texas
Instruments, Novellus Systems, Synopsys and Nokia. After analyzing the
different situations, we retained shares in Texas Instruments and Nokia,
but liquidated our positions in Novellus and Synopsys. With regard to
materials, where again we showed a negative return (3.80%) versus a slight
positive return (0.71%) for the S&P 500 sector, the largest factor was our
position in Rio Tinto. In the case of materials, we believe that the
fundamentals are strong for the group looking out at least over the next
couple of years and that it was mainly "profit taking" behind the weak
share prices. Perhaps, too, there was some concern about a potential
slow-down in the Chinese economy, which has been a prime user of many raw
materials as that country rapidly industrializes. Following our evaluation
of the pros and cons, we retained Rio Tinto, a prominent worldwide mining
company, as well as our shares of other companies in the sector.
Industrials presented a mixed picture, with our investments rising 5.13%
versus an increase for the sector of 7.42%. We had very good performance
from our railroad holding Norfolk Southern, but our capital-goods stocks
were more sluggish. Finally, in telecommunication services, we did not own
AT&T Wireless, which received a premium take-over bid, but instead owned
BellSouth and SBC Communications, the companies in the joint venture
Cingular, that made the bid. BellSouth and SBC both declined as investors
worried that they "overpaid." On the bright side, we had some nice gains
from stocks in consumer discretionary, consumer staples and health care.
They were, respectively, John Wiley & Sons, publisher of scientific and
technical books and journals and also owner of the "For Dummies" imprint;
Colgate-Palmolive, major brand in toothpaste; and Becton Dickinson,
provider of medical supplies including disposable syringes.
Q: What changes have you made to the portfolio so far this year?
A: We were fairly active during the six months, adding 18 positions and
eliminating 18. The combined effect of securities transactions and market
fluctuations produced overall increases for our weightings in the energy,
consumer discretionary, consumer staples, health care and financials
sectors; overall decreases for our weightings in industrials and
information technology; and no meaningful change for our weightings in
materials, telecommunications services and utilities. In energy, we
initiated positions in Apache, British Petroleum, Pioneer Natural Resources
and Occidental Petroleum and sold positions in Transocean, Royal Dutch
Petroleum, and Shell Transport & Trading. We believed that Transocean was
fairly valued, and in the cases of Royal Dutch and the allied Shell
Transport we had developed reservations about management in the wake of
significant downward revisions in oil and gas reserves estimates. On the
other hand, we thought that prospects were positive for the companies we
added and that the larger number of holdings would provide the portfolio
with more diversification. In consumer discretionary we invested in three
companies we thought were poised to do better with the stronger economy,
Ford Motor, Liz Claiborne, and Walt Disney, and sold two stocks that had
been longer-term disappointments, Dow Jones and Eastman Kodak. We also
added Clorox, formulator of bleaches and other household cleansers, and
Estee Lauder, cosmetics manufacturer, in consumer staples. Our health care
additions were among our most significant and included equipment makers
Guidant and St. Jude Medical, distributor Cardinal Health, and generic-drug
companies Barr Pharmaceuticals and Mylan Laboratories. One of our purchases
in financials proved to be particularly well timed, as South Trust, a
regional bank headquartered in Birmingham, Alabama, received a generous
acquisition offer from another bank, Wachovia, not long after we had bought
it. Another entry we made to the portfolio was U.S. Bancorp, based in
Minneapolis, Minnesota. In other sectors, we bought, in materials, Ecolab,
supplier of industrial and institutional cleaning chemicals, and, in
information technology, Apple Computer, survivor, against all odds, in the
personal-
D-22
computer business as well as innovative producer of the very hot iPod
digital-music player. Along with the seven names already mentioned in
energy and consumer discretionary and (above) in information technology, we
deleted the following: Boeing, Lockheed Martin, Robert Half, Union Pacific,
Medco Health Solutions, Bank of America, Electronics Data Systems, BMC
Software, Cisco Systems, QUALCOMM and Altera. As always, we had a variety
of reasons, in some instances recognizing difficulties for the companies
that appeared beyond a reasonable time horizon in their resolution, in
other instances seeing a fully valued stock relative to identifiable
earnings power, and in still other cases just thinking we had more
attractive alternatives.
Q: What is your outlook on the stock market and economy for the remainder of
2004?
A: At the midpoint of 2004, the market appears in disarray. Truth be told,
interest rates have not really moved very much at all, but there appears
great anxiety about greater moves to come. Inflation is not a current
problem, yet the high oil and raw-materials prices, as well as the prospect
of rising wages with growth in employment, provide the worriers a reason to
focus on the risk of inflation. Corporate earnings are generally very
strong and also strongly up from last year, but the expressed concern is
with respect to slowing of the impressive comparisons. And so it is as well
when it comes to discussion of international events and
corporate-governance issues and much else: every glass on the counter seems
to be half empty, none are thought to be half full, as the common
expression goes. From our point of view, a half glass of water is just
that, and the market to us remains attractive, even if more moderately
attractive than it was in early 2003 then prices were much lower and the
economy was still just poised for its rebound rather than underway with the
rebound as it is currently. We see especially good values, however, among
the good companies with good long-term records in which we like to invest
on your behalf and which were relatively neglected by investors up until
recently.
Betting which way the market might go on a short-term basis has never
seemed to us like a particularly fruitful endeavor. For one thing, what is
to be gained from that activity unless one is just speculating, for
example, in market-index futures, an activity we would not recommend to any
but the real gamblers. For in the actual day-to-day world, one makes or
loses money on individual stocks bought and sold, embraced or avoided. One
never makes a dime guessing which way the market will go; it is the actual
investments one does or does not make that determine your results. So our
intention is, as always, to stay invested over the coming months, and
years, and to stay invested in the solid kinds of companies we always aim
to own in your portfolio. Thank you for your support.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Fund's historical or future performance are
statements of the opinion of Fund management as of the date of this report.
These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
D-23
PIONEER INTERNATIONAL EQUITY FUND
Performance Update 3/31/04 Class A Shares
Share Prices and Distributions
3/31/04 3/31/03
$17.55 $11.64
Distributions per Share Net Short-Term Long-Term
(4/1/03 - 3/31/04) Investment Capital Gains Capital Gains
Income
$ $ $
Investment Returns
The mountain chart on the right shows the change in value of a $10,000
investment made in Pioneer International Equity Fund at public offering price,
compared to that of the Morgan Stanley Capital International (MSCI) EAFE Index.
[DATA BELOW IS REPRESENTED BY A LINE CHART IN THE ORIGINAL REPORT]
Value of $10,000 Investment
Pioneer MSCI
International EAFE
Equity Fund Index
10/96 9425 10000
3/97 10488 10103
12728 11982
3/99 11797 12705
17542 15895
3/01 11410 11785
10841 10833
3/03 7917 8279
11936 13040
9/04 12413 13036
Average Annual Total Returns
(As of March 31, 2004)
Period Net Asset Value Public Offering Price*
- --------------------------------------------------------------
Life-of-Class
(10/31/96) 3.24% 2.41%
5 Years 0.22 -0.95
1 Year 50.77 42.11
* Reflects deduction of the maximum 5.75% sales charge at the beginning of
the period and assumes reinvestment of distributions at net asset value.
The Fund's investment advisor, Pioneer Investment Management, Inc., reduced its
management fee and subsidized other Fund expenses; otherwise, returns would have
been lower. The MSCI EAFE (Europe, Australasia, Far East) Index is an unmanaged,
capitalization weighted measure of 21 international stock markets. 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.
Performance data shown represents past performance. Past performance does not
guarantee future results. Assumes reinvestment of all distributions at net asset
value. Investment return and principal value fluctuate, and shares, when
redeemed, may be worth more or less than their original cost. Current
performance may be lower or higher than the performance shown. For performance
data that is current to the most recent month-end, please call 1-800-225-6292 or
visit our website www.pioneerfunds.com. The performance table and graph do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
D-24
Portfolio Manager's Discussion 3/31/04
Investor optimism lifted international markets during the 12 months ended
March 31, 2004. The upbeat mood was supported by a resurging Japanese economy
and stronger-than-expected job growth in the United States, both of which are
expected to be positive for the European economy. As Stefano Pregnolato, the
Fund's lead portfolio manager, mentions in the following interview, the rally
was broad based -- led by cyclical stocks and lesser quality companies that had
underperformed in the multi-year correction in equity markets.
Q: How did the Fund perform during the rally?
A: The positive trends that we witnessed in the first half of Pioneer
International Equity Fund's fiscal year continued into the second half.
However, the momentum for global economic growth shifted to Asia in the
first quarter of 2004. Investors are looking more favorably upon Japan and
its economy, which is showing signs of resurgence. For the 12 months ended
March 31, 2004, the Fund's Class A, B and C shares posted gains of 50.77%,
49.32% and 48.85% at net asset value, respectively. In comparison, the
Morgan Stanley Capital International (MSCI) EAFE Index grew 57.54% for the
same period. We believe the Fund's relative underperformance to this
benchmark is the result of two factors. First, Japanese stocks appreciated
strongly during the first quarter of 2004. The Fund's investments in
Japanese stocks, although significant at 21.5% of total assets on March 31,
remained below that of the benchmark throughout the fiscal year -- thereby
limiting the degree of its relative performance. While we think the
economic recovery in Japan is a welcome development, we believe it's too
early to know if Japan has turned the corner. We may consider increasing
the Fund's exposure there, once we're convinced that Japan is solidly on
the road to recovery.
Secondly, the rally in international markets has benefited cyclical stocks,
that is, companies whose fate is closely linked with the strength of
economic growth, as well as lower-quality investments. Your Fund has a
considerable exposure to cyclical stocks, which was very beneficial during
the fiscal year. However, we refuse to be tempted by short-term trends or
invest in lower-quality companies just because they are selling at steep
discounts today. Rather, we invest for the long term, selecting the
highest-quality, financially sound companies that meet our strict
investment criteria.
Q: What is contributing to the rise of Japanese stocks?
A: After a multi-year recession, the outlook for Japan is improving. Japanese
consumers are increasing their spending, businesses are buying more
equipment, and trade with other Asian countries experiencing good growth is
strong. All these factors are attracting foreign investors and driving
Japanese stock prices higher. Midway through the fiscal year, Japanese
investments represented 9.4% of total assets. By the close of the fiscal
year on March 31, Japanese holdings had climbed to 21.5% of assets through
price appreciation and addition to existing holdings, while we trimmed the
overall number of Japanese holdings in the portfolio.
Q: Were you adding domestic or export-oriented stocks in Japan?
A: We've been adding to positions in both domestic and export oriented stocks.
Domestic-demand stocks are benefiting from increased consumer spending,
which is partially supported by the secular trend of a declining savings
rate. One of the Fund's best performing stocks, Fast Retailing, which sells
high-end apparel and accessories, was a major contributor to performance
for the second half of the fiscal year. The stock's dramatic price
appreciation left the stock overvalued in our estimation, and we sold the
entire position in January. Food retailer Ajinomoto is a high-quality
consumer staple holding with defensive qualities that did well leading up
to the recovery. It has also done well in the rally, but not nearly to the
degree of Fast Retailing. Generally speaking, prices of consumer
discretionary stocks, such as Fast Retailing, posted some of the greatest
gains during the rally -- bolstered by rising consumer confidence and
spending.
Q: Are the Fund's Pacific Rim investments outside Japan also doing well?
A: Yes. Strong fundamentals, robust intra-regional growth and exports combined
with strong global demand for cyclical investments are supporting our
decision to overweight investments in the Pacific Rim outside Japan. In
many sectors, we believe stocks offer better value than in Europe --
including semiconductor manufacturer Samsung Electronics (South Korea) and
telecommunications services provider SK Telecom (South Korea).
Q: Europe still represents the majority of the Fund's holdings. How are these
investments faring?
A: All of the global markets rose sharply during the fiscal year, and European
stocks -- including those held by your Fund -- were no exception. This
performance is illustrated by the fact that the MSCI Europe Index, a
commonly used benchmark for the region, rose 53.96% for the 12 months ended
March 31, 2004. With nearly 70% of the Fund's assets invested in the
developed markets of Europe, we are maintaining a slightly overweight
position in European equities relative to the benchmark. We think stock
price valuations are
D-25
fair and are supported by strong dividend yields. Growth across Europe is
more moderate than outside the region, and this fact is discounted in stock
prices. The appreciation of the euro continues to be a risk for European
exporters, and we will be closely following the monetary policy of the Bank
of England and the European Central Bank (ECB) on that front. (Just
following the close of the fiscal year, the ECB decided to leave rates
unchanged.)
Q: Could you name some of the companies that exemplify your strategy?
A: Much like other world markets, European cyclical stocks posted some of the
most dramatic gains, including those in the materials, industrial,
automobile and consumer discretionary sectors. Porsche (Germany) exceeded
our expectations, as did software producer Indira Systems (Spain). On the
other hand, capital goods producer Sandvik (Sweden) performed well, but not
as strongly as the sector in general. Pharmaceutical Schering is another
stock that underperformed its sector for the year, when news of a product
patent expiration last summer left the stock trailing many of its peers.
Q: What is your outlook for the upcoming fiscal year?
A: During fiscal 2004, we saw a change in market psychology, with investors
demonstrating a greater appetite for risk. Not only did investors move
assets from relatively more stable fixed-income investments into equities,
but within the equity markets from higher-quality companies to more
leveraged, lower-quality companies.
Companies that were considered to be in severe financial distress were
reclassified as recovery stocks. This paradigm shift benefited many stocks,
particularly in the technology sector, but left other sectors, such as
consumer staples and health care underperforming. As history has proven,
this is to be expected in the early stages of a recovery, when economic
fundamentals improve and the relatively low stock prices begin to look very
attractive.
Our outlook for 2004 is quite optimistic. The recovery appears to be well
on its way, business confidence is high and the cash flow of companies has
been substantially improved, thanks to successful restructuring and
de-leveraging enacted over the last two years. We'll endeavor to position
the Fund in response to this improving economic picture.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Fund's historical or future performance are
statements of the opinion of Fund management as of the date of this report.
These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
D-26
PIONEER GROWTH SHARES
Performance Update 6/30/04 Class A Shares
Share Prices and Distributions
6/30/04 12/31/03
$11.27 $11.42
Distributions per Share Net Short-Term Long-Term
(1/1/04 - 6/30/04) Investment Capital Gains Capital Gains
Income
$ $ $
Investment Returns
The mountain chart on the right shows the change in value of a $10,000
investment made in Pioneer Growth Shares at public offering price, compared to
that of the Russell 1000 Growth Index.
[DATA BELOW IS REPRESENTED BY A LINE CHART IN THE ORIGINAL REPORT]
Value of $10,000 Investment
Pioneer Russell
Growth 1000 Growth
Shares* Index
6/94 9425 10000
11247 10849
14600 14884
12/96 18536 18324
26651 23909
12/98 35591 33163
38225 44158
12/00 34569 34255
27920 27261
12/02 18178 19658
22939 25508
6/04 22637 26205
Average Annual Total Returns
(As of June 30, 2004)
Period Net Asset Value Public Offering Price*
- --------------------------------------------------------
10 Years 9.16% 8.51%
5 Years -10.46 -11.52
1 Year 9.31 3.02
* Reflects deduction of the maximum 5.75% sales charge at the beginning of
the period and assumes reinvestment of distributions at net asset value.
Performance data shown represents past performance. Past performance does not
guarantee future results. Assumes reinvestment of all distributions at net asset
value. Investment return and principal value fluctuate, and shares, when
redeemed, may be worth more or less than their original cost. Current
performance may be lower or higher than the performance shown. For performance
data that is current to the most recent month-end, please call 1-800-225-6292 or
visit our web site www.pioneerfunds.com.
The performance table and graph do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.
The Fund adopted its current name and investment adviser (Pioneer Investment
Management, Inc.) on December 1, 1993. Prior to that date, the Fund's name was
Mutual of Omaha Growth Fund, Inc., and its investment adviser was Mutual of
Omaha Fund Management Company. The Russell 1000 Growth Index contains those
Russell 1000 securities with greater-than-average growth orientation. Companies
in this index tend to exhibit higher price-to-book and price-to-earnings ratios,
lower dividend yields and higher forecasted growth values than the value
universe. Index returns assume reinvestment of dividends and, unlike Fund
returns, do not reflect any fees, expenses or sales charges. You cannot invest
directly in the Index.
D-27
Portfolio Manager's Discussion 6/30/04
The economy continued to grow during the first half of 2004, but the
general investment environment for equities began turning slightly negative as
rising corporate profit trends began to weaken, consumer spending was not as
strong as expected, and markets started anticipating a tighter monetary policy
from the Federal Reserve. In the following interview, Christopher Galizio
discusses the factors that affected the performance of Pioneer Growth Shares
during the six month period ended June 30, 2004. Mr. Galizio is a member of the
Fund's management team.
Q: How did the Fund perform during the first half of 2004?
A: For the six-month period ended June 30, 2004, the Fund's Class A shares
returned -1.31%, while Class B and Class C shares had returns of -1.80% and
-1.78%, respectively, all at net asset value. For the same period, the
Russell 1000 Growth Index returned 2.74%, while the average return was
2.35% for the 639 funds in the Large-Cap Growth Funds category tracked by
Lipper Inc. (Lipper is an independent firm that measures mutual fund
performance.)
The Fund lagged the benchmark Russell 1000 Growth Index as well as the
Lipper peer group, principally because of the comparatively larger position
in technology, especially semiconductor companies, early in the six-month
period.
Q: What was the general investment environment like during the period?
A: The overall market sentiment appeared to be turning negative late in the
six-month period. The stock market surge that had begun in March 2003
appeared to lose some energy. Several major corporations, including ones in
the retail and semiconductor industries, began to report earnings
disappointments, and we saw some weakening in profit trends, notably in the
consumer and technology sectors. Consumer spending trends, in particular,
appeared weak as over-extended consumers finally began to retrench from
their high-spending patterns. As stock market investors anticipated the
June 30 announcement by the Federal Reserve Board that it would begin to
tighten monetary policy by raising short-term interest rates, the share
prices of some consumer-oriented financial institutions began to fade.
Industrial stocks, however, tended to outperform the overall market.
Q: What were your principal strategies during the period?
A: We restructured the portfolio during the period, focusing on large cap
companies that we believed offered long-term value, above average revenue
growth, strong returns on capital and reasonable valuations in relation to
their earnings potential. This strategy led to a reduced emphasis on the
semiconductor industry and increased weightings in the software, consumer
discretionary and financial services areas. We reduced our semi-conductor
holdings, eliminating positions in Applied Materials, Cypress
Semiconductor, Texas Instruments and Maxim Technology. We did add Taiwan
Semiconductor, a major manufacturer with an attractive stock valuation.
Overall, however, semiconductor stocks went from an overweight to an
underweight position, relative to the benchmark S&P 500. The reduced
weightings in technology tended to support performance. Conversely, we
increased the portfolio's emphasis on software companies, adding companies
such as Macrovision, which has developed a technology to protect DVDs, CDs
and other disc based products from piracy, as well as Take-Two Interactive,
the developer of video games, including Grand Theft Auto -- the most
successful game in history, with a new version soon to be introduced. We
also added Fair Isaac, which has developed software to help credit card
companies analyze the credit-worthiness of applicants. Fair Isaac tended to
detract from performance late in the six-month period as it reported
disappointing earnings, but we continued to hold it because of its
attractive valuation. We moved from an underweight to an overweight in the
consumer discretionary sector, taking advantage of attractive valuations of
Disney, whose media and theme park properties have improved earnings
outlooks, and Viacom, the owner of the CBS and MTV television networks
among other properties. Among retailers, we sold our Wal-Mart position
before the stock fell hard, investing in Target, Kohl's and Ross Stores. In
addition, we increased the emphasis on financial services stocks, focusing
on insurance companies with excellent valuations that were not as
vulnerable to interest-rate increases as banks and other lenders. We
continued to de-emphasize consumer staples, although we added Altria (the
former Philip Morris), which offered a high dividend yield and an
attractive stock price that we believed was the result of overly
pessimistic market evaluations of the company's tobacco liability. In
addition, we invested in First Data, the leader in processing of credit
card transactions and owner of the Western Union system, and Accenture, an
information-technology services consulting firm.
Q: What were some of the investments that influenced performance?
A: Among newer holdings, Macrovision rose significantly during the period as
its revenue grew faster than had been expected. Sepracor, a pharmaceutical
company and a new holding, also advanced on positive news of a drug under
development. Zimmer Holdings, a world leader in orthopedic products,
including hip and knee replacements, was another health-care position that
did very well. The timely sale of Wal-Mart Stores also supported
performance. The overweight position in the semiconductor industry early in
the six-month
D-28
period held back performance, as valuations in that group fell hard.
Corinthian Colleges, operator of adult vocational educational colleges and
programs, was another detractor, as the SEC began an investigation of its
financial records. However, we took advantage of the price decline to add
to the position in Corinthian because of its good long-term fundamentals.
Lexar and Sandisk, two manufacturers of flash memories for cameras and cell
phones, also fell on disappointing sales. Freeport-McMoRan, a leader in the
copper mining industry and a strong support for performance in 2003, also
declined both because of problems at one of its mines and because of fears
of an economic slowdown in China, an important importer of copper. We
increased our investment in the company because of its attractive price. We
also believed it experienced some short-term production problems that would
be resolved.
Q: What is your investment outlook?
A: We are cautious about the near-term opportunities in the domestic stock
market, as stock valuations appear relatively expensive and the Federal
Reserve Board has moved to a less accommodating monetary policy. The home
refinancing boom of the past two years may hurt the future earnings of
banks, while the technology industry faces a number of challenges, from
pricing pressure on its products to calls to change the way many companies
have treated stock options in their accounting. Health care stocks,
however, appear to be more reasonably valued. Given this outlook, we are
paying very strict attention to our analysis and selection of individual
companies. We also have somewhat reduced our exposure to the domestic stock
market with investments in Europe and the emerging markets. We have, for
example, increased our position in Vodafone, the world's largest wireless
communications service company, and we have added small holdings from
Korea, Taiwan and Israel.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Fund's historical or future performance are
statements of the opinion of Fund management as of the date of this report.
These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
D-29
PIONEER VALUE FUND
Performance Update 3/31/04 Class A Shares
Share Prices and Distributions
3/31/04 9/30/03
$18.72 $16.25
Distributions per Share Net Short-Term Long-Term
(10/1/03 - 3/31/04) Investment Capital Gains Capital Gains
Income
$0.0783 $ - $0.0404
Investment Returns
The mountain chart on the right shows the change in value of a $10,000
investment made in Pioneer Value Fund at public offering price, compared to
that of the Russell 1000 Value Index.
[DATA BELOW IS REPRESENTED BY A LINE CHART IN THE ORIGINAL REPORT]
Value of $10,000 Investment
Pioneer Russell
Value 1000 Value
Fund* Index
3/94 9425 10000
9/94 10095 10321
12105 13181
9/96 13580 15546
19820 22124
9/98 15069 22921
16857 27213
9/00 19604 29369
17864 26998
9/02 14867 22422
18277 27884
3/04 21198 32805
Average Annual Total Returns
(As of March 31, 2004)
Period Net Asset Value Public Offering Price*
- --------------------------------------------------------
10 Years 8.44% 7.80%
5 Years 4.80 3.56
1 Year 37.69 29.75
All returns reflect investment of distributions at net asset value.
* Reflects deduction of the maximum 5.75% sales charge at the beginning of
the period.
The Russell 1000 Value Index is a measure of the performance of the
value-oriented stocks in the Russell 1000 Index. Index returns assume
reinvestment of dividends and, unlike Fund returns, do not reflect any fees,
expenses or sales charges. You cannot invest directly in any index.
Data shown represents past performance. Past performance does not guarantee
future results. Assumes reinvestment of all distributions at net asset value.
Investment return and principal value fluctuate, and shares, when redeemed, may
be worth more or less than their original cost. Current performance may be lower
or higher than the performance shown. For performance data that is current to
the most recent month-end, please call 1-800-225-6292 or visit our web site
www.pioneerfunds.com.
D-30
Portfolio Management's Discussion 3/31/04
The stock market continued to rise through the final quarter of 2003 and
into this year, then took a modest breather late in this year's first quarter.
The period favored the Fund's value discipline, as value stocks in general
outperformed their growth counterparts. In the following discussion, portfolio
manager Rod Wright describes those events and the decisions that affected
Pioneer Value Fund's performance over the last six months.
Q: Please describe the investment background over the last six months.
A: As the economic recovery gathered strength, investors were encouraged by
the increase being reported in corporate profits. Fueling the recovery in
large measure were the lowest short-term interest rates in over 40 years
and broad federal income tax cuts that put added cash into the hands of
individuals and businesses. However, the markets stalled in March, as
unemployment remained stubbornly high despite the continued economic
expansion. Renewed geopolitical concerns and a dip in consumer confidence
added to market uncertainty. Consumers account for more than half of US
economic activity, and any pullback in their spending is taken as a
negative sign.
Q: How did Pioneer Value Fund perform against that background?
A: For the six months ended March 31, 2004, Pioneer Value Fund's Class A, B, C
and R shares had total returns at net asset value of 15.98%, 15.30%, 15.27%
and 15.82%, respectively. In comparison, the Russell 1000 Value Index, the
Fund's benchmark, returned 17.65% for the same period. The Fund's Lipper
Large-Cap Value peers returned 15.94% for the six months ended March 31,
2004.
Q: Which of your decisions or strategies had the most impact on performance?
A: Stock selection was generally favorable over this period, but sector
emphasis hurt results, accounting for the Fund's relative underperformance
versus the benchmark. In particular, we were underweight compared to our
benchmark in financial stocks, a decision based on our expectation that
interest rates would begin to rise and put pressure on the earnings of
financial companies. But rates stayed low, and financials were one of the
market's better-performing sectors over this period. A number of mergers
within the industry also pushed up prices. In addition, the stronger
economy had a positive impact on credit quality, favoring lending
institutions. Countrywide Financial, a mortgage lender, was the Fund's
biggest gainer among financial issues. Countrywide rose on news of
surprisingly strong earnings as mortgage rates remained low and home
refinancings continued. Citigroup, the Fund's largest holding, also rose
during the period.
Q: What other decisions or strategies had an impact on performance?
A: Our overweight commitment to energy stocks aided results, as rising oil
prices boosted their profit outlook. Successful stock selection added to
the Fund's strong performance in this sector. Suncor Energy, which extracts
oil from oil-bearing sands by means of a costly process, benefited when oil
prices reached levels that allowed for profitable operations. Transocean
Inc., a leading offshore drilling company, also saw increased activity as
oil prices moved higher. Utilities companies generally added to Fund
results, but Dominion Resources underperformed. Results benefited from good
stock selection in the telecommunications sector, an area in which we
maintained a neutral weighting compared to the benchmark. AT&T Wireless was
a standout performer, rising sharply when news broke of its pending
acquisition by Cingular. In technology, Motorola rose when operating
results improved for the first time in three years. Strategic steps by
Motorola's new management, including sale of the company's semiconductor
unit, also benefited results. Tyco International, a diversified industrial
company, rose as disciplined new management distanced the company from
earlier problems, eliminated some non-essential business units and
strengthened the firm's balance sheet by cutting outstanding debt. Another
industrial company, Waste Management, rose on the basis of a successful
turnaround. Management cut costs and upgraded systems while successfully
integrating a number of acquisitions. The growing economy also boosted
results, as waste volumes are tied to the level of business activity.
In healthcare, Wellpoint Health Networks, a leading managed-care company,
rose on the basis of earnings increases, increased market share and the
imposition of higher premiums. Wellpoint has also agreed to merge with
Anthem, another major health benefits company. In a related area, our
overweight position in Merck hurt results; large pharmaceutical companies
were laggards over the period.
Q: Which of the Fund's other holdings held back results?
A: Shares of Freddie Mac (The Federal Home Loan Mortgage Corporation), an
issuer of mortgage-backed securities, declined. Shares weakened when
questions arose about its method of calculating earnings, raising the
possibility of more stringent regulation and greater government involvement
with its operations. Among industrial issues, the rising price of oil
pulled down the Fund's transportation stocks.
D-31
In addition, Southwest Airlines was hurt by an unresolved contract dispute
with flight attendants. Donaldson Co., which manufactures filtration
systems, declined following a disappointing earnings report.
Q: What is your outlook for the economy and for value stocks?
A: We believe the economy will continue expanding in the months ahead.
However, some of the good economic news we anticipate may already be
reflected in stock prices. In addition, if the expansion begins to generate
inflationary forces in the economy, the Federal Reserve Board is likely to
raise interest rates, a move that would dampen investor enthusiasm.
Nevertheless, we are still finding good values, and with corporate
fundamentals strong and improving, we expect good returns on equities for
the balance of this year.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Fund's historical or future performance are
statements of the opinion of Fund management as of the date of this report.
These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
D-32
PIONEER MID CAP VALUE FUND
Performance Update 4/30/04 Class A Shares
Share Prices and Distributions
4/30/04 10/31/03
$23.77 $22.25
Distributions per Share Net Short-Term Long-Term
(11/1/03 - 4/30/04) Investment Capital Gains Capital Gains
Income
$0.0306 $0.1778 $0.3145
Investment Returns
The mountain chart on the right shows the change in value of a $10,000
investment made in Pioneer Mid Cap Value Fund at public offering price, compared
to that of the Russell Midcap Value Index.
[DATA BELOW IS REPRESENTED BY A LINE CHART IN THE ORIGINAL REPORT]
Value of $10,000 Investment
Pioneer Russell
Mid Cap Midcap
Value Value
Fund* Index
4/94 9425 10000
10544 10260
10/95 12581 12563
14231 15222
10/97 17457 20163
15932 21323
10/99 17529 22538
21036 25211
10/01 21425 24866
20141 24126
26470 32199
4/04 28950 34870
Average Annual Total Returns
(As of April 30, 2004)
Period Net Asset Value Public Offering Price*
- --------------------------------------------------------
10 Years 11.87% 11.22%
5 Years 9.65 8.37
1 Year 36.78 28.89
All returns reflect reinvestment of distributions at net asset value.
* Reflects deduction of the maximum 5.75% sales charge at the beginning of
the period.
Data shown represents past performance. Past performance does not guarantee
future results. Assumes reinvestment of all distributions at net asset value.
Investment return and principal value fluctuate, and shares, when redeemed, may
be worth more or less than their original cost. Current performance may be lower
or higher than the performance shown. For performance data that is current to
the most recent month-end, please call 1-800-225-6292 or visit our web site
www.pioneerfunds.com. The performance table and graph do not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or the
redemption of Fund shares.
The Russell Midcap Value Index measures the performance of those Russell Midcap
companies with lower price-to-book and lower forecasted growth values. Index
returns assume reinvestment of dividends and, unlike Fund returns, do not
reflect any fees, expenses or sales charges. You cannot invest directly in the
Index.
D-33
Portfolio Management Discussion 4/30/04
Stock prices continued to climb during the six months ended April 30, 2004,
although new worries about the direction of interest rate moves, and concerns
about instability in Iraq, added to the volatility of the market. In the
following discussion, Rod Wright, leader of the team that manages Pioneer Mid
Cap Value Fund, provides an update on the Fund, its investment strategies and
the economic environment during the six-month period.
Q: How did the Fund perform?
A: The Fund did very well during a period of changing sentiment in the market.
The Fund's Class A shares had a total return of 9.37% for the six months
ended April 30, 2004, while Class B and Class C shares returned 8.89% and
8.85%, respectively, all at net asset value. During the same period, the
Standard & Poor's 500 Index, a benchmark for large-cap stocks, rose by
6.27%, while the Russell Midcap Value Index gained 8.30%.
Q: How would you characterize the market during the six months?
A: It was a period of volatility and shifting trends. During the first two
months of the period -- the final two months of 2003 -- we saw a
continuation of the pattern that had characterized much of the year. As
optimism grew that the economy was finally emerging from its slump and that
corporate profits would continue to increase, stock prices rose, led by
lower quality companies with weaker balance sheets. Technology stocks
typically were among the performance leaders. That pattern began to change
and the market became more volatile in the early weeks of 2004, amid
worries that interest rates were beginning to rise and that the situation
in Iraq was more troublesome than earlier believed. Interest rates did rise
substantially from the middle of March through the end of April, which
undermined the valuations of many technology companies, as well as the
stocks in sectors particularly sensitive to changes in interest rates, such
as financial services and utilities. Fortunately, the Fund was well
positioned for this change in the direction of interest rates. Our
underweight positions among financial and utility companies helped
performance, as did our de-emphasis of technology companies.
Q: What types of investments tended to help performance?
A: Our strategy emphasizes fundamental analysis of companies and individual
stock-picking, rather than major sector decisions based on macroeconomic
trends. We seek good companies at attractive valuations, irrespective of
their industry. The biggest single contributor to performance was sports
retailer Foot Locker, a major holding, which posted strong earnings gains
during the period. But we also enjoyed excellent results from our
selections in the healthcare and energy sectors. In the health-care sector,
top performers included medical-supply company Becton, Dickinson, and
dental-supply company Apogent Technologies, which received a takeover offer
during the period.
Our investment in Wellpoint Health Networks, an HMO, also appreciated
sharply as it merged with Anthem. In the energy sector, top performers
included Transocean, a deepwater drilling company, and Occidental
Petroleum, a fully integrated energy corporation. While the stock prices of
many technology companies discouraged us from investing, we did have some
excellent results in the sector, including NCR, a hardware and systems
company, and Autodesk, a software firm. We also enjoyed excellent results
from ConAgra, an agricultural products and food-processing firm, and
Republic Services, a waste-disposal corporation.
Q: What types of investments were disappointing during the period?
A: Basic materials companies, which had supported the Fund's performance
during 2003, tended to detract from results as interest rates began to
rise. A good example was mining company Freeport-McMoRan, which we have
eliminated from the portfolio. Securities transaction processor Investment
Technology Group declined when its trading volumes declined, while toy
maker Mattel fell when analysts began doubting the continued strength of
the Barbie line.
Q: What is your investment outlook?
A: We continue to be encouraged by the strong economy and the inexpensive
dollar, which helps domestic companies compete globally. While interest
rates have started to increase and the Federal Reserve is expected to raise
short-term rates this year, rates are likely to remain relatively low when
compared to historical standards. However, the stock market has enjoyed an
extraordinary rally since March 2003, and many companies already are
selling at high valuations based on anticipations of strong future earnings
growth. As a result, while we are optimistic about the economy, we are more
guarded about opportunities in the overall market, and we will continue to
emphasize strong companies with attractive stock valuations.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Fund's historical or future performance are
statements of the opinion of Fund management as of the date of this report.
These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
D-34
PIONEER SMALL CAP VALUE FUND
Performance Update 5/31/04 Class A Shares
Share Prices and Distributions
5/31/04 11/30/03
$29.70 $27.10
Distributions per Share Net Short-Term Long-Term
(12/1/03 - 5/31/04) Investment Capital Gains Capital Gains
Income
$ - $ - $ -
Investment Returns
The mountain chart on the right shows the change in value of a $10,000
investment in Pioneer Small Cap Value Fund, at public offering price, compared
to that of the Russell 2000 Value Index.
[DATA BELOW IS REPRESENTED BY A LINE CHART IN THE ORIGINAL REPORT]
Value of $10,000 Investment
Russell Pioneer
2000 Small Cap
Value Value
Index Fund*
2/97 10000 9425
12436 11206
11/98 11665 9282
11499 11661
11/00 13142 13674
15637 15851
11/02 15355 15192
20714 19227
5/04 22024 21071
Average Annual Total Returns
(As of May 31, 2004)
Period Net Asset Value Public Offering Price*
- --------------------------------------------------------------
Life-of-Class
(2/28/97) 11.72% 10.81%
5 Years 14.37 13.02
1 Year 29.55 22.08
All returns reflect reinvestment of distributions at net asset value.
* Reflects the deduction of the maximum 5.75% sales charge at the beginning
of the period.
Performance data shown represents past performance. Past performance does not
guarantee future results. Assumes reinvestment of all distributions at net asset
value. Investment return and principal value fluctuate, and shares, when
redeemed, may be worth more or less than their original cost. Current
performance may be lower or higher than the performance shown. For performance
data that is current to the most recent month-end, please call 1-800-225-6292 or
visit our web site www.pioneerfunds.com. The performance table and graph do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
The Russell 2000 Value Index is a measure of the performance of the
value-oriented stocks in the Russell 2000 Index. You cannot invest directly in
any index. Small-cap stocks may be subject to greater short-term price
fluctuations than securities of larger companies.
D-35
Portfolio Management's Discussion 5/31/04
A shift by investors away from speculative issues into higher quality,
small-capitalization stocks helped Pioneer Small Cap Value Fund outperform its
benchmark index over the past six months. In the following discussion, portfolio
manager David Adams and assistant portfolio manager Jack McPherson review their
investment strategies and the factors that led to these favorable results.
Q: What were market conditions like over this period and how did you respond?
A. Strong growth in the last quarter of 2003 extended into this year as a
broad-based economic recovery continued to take shape. At the same time,
increased global demand pushed up prices for most commodities, triggering
inflation concerns and increasing the possibility that the Federal Reserve
Board will raise interest rates over the summer.
We were rewarded over this period for staying with our long established
investment discipline. Late in 2003, the Fund's results, although positive,
nevertheless lagged the benchmark because we do not invest in the kinds of
high-risk issues that were market leaders at the time. More recently,
better quality issues that fit our criteria for valuation, financial
strength and earnings potential have attracted the market's attention. By
the end of the period, Fund performance had swung from trailing the
benchmark because of stocks we did not own, to outperforming our benchmark
thanks to successful stock selection.
Q: Given that background, how did the Fund perform?
A. For the six-month period ended May 31, 2004, Pioneer Small Cap Value Fund's
Class A, B, C and R shares returned 9.59%, 9.13% 9.09% and 9.59%
respectively, all at net asset value. These results outdistanced the 6.32%
return of the Russell 2000 Value Index, the Fund's benchmark, for the same
period.
Q: Which of your decisions aided Fund performance?
A. In our bottom-up process, our stock choices produce the portfolio's sector
weightings. A shortage of attractive values and the possibility of higher
interest rates left the portfolio underweighted in financial services
companies compared to the benchmark. That stance helped performance, as
many financial issues were poor performers. Also beneficial was our
decision to downplay companies that are most vulnerable to higher rates --
thrifts that rely heavily on mortgage financing, and real estate investment
trusts. Instead, we emphasized commercial banks that can gain earning power
as economic activity pushes rates higher just when businesses are
increasing their borrowing. We took profits in Irwin
Financial, which has a large mortgage lending subsidiary. Texas Capital
Bancshares and Virginia-based Cardinal Financial both are expected to
benefit from the fallout of the merger activity taking place among the
larger national banking companies, as well as the improving business
environment for their small- and mid-size business customers.
Overweighting and successful selection of energy stocks aided results as
investors took notice of attractive valuations. Coal producer Massey Energy
was the Fund's most successful holding over this period. Global energy
demand drove up the price of Appalachian coal. In addition, as the US
dollar weakened, the price of US coal fell in terms of foreign currencies,
making the price of our coal competitive in world markets for the first
time in years. Southwestern Energy, Penn Virginia and Swift Energy also
moved higher.
Q: What other sectors or stocks had an impact, for better or worse?
A. Our slightly overweight position in transportation stocks led to positive
results that ran contrary to the industrials sector's trend. Stelmar
Shipping, based in Greece, continues to benefit as available tanker
capacity lags behind the demands of a growing world economy and not enough
new ships are being built. In addition, a high percentage of Stelmar's
fleet already meets the mandate for double-hulled ships, allowing it to
charge premium rates. Genesee & Wyoming, which acquires and operates short
line railroads in North America and Australia, saw a pickup in demand for
hauling iron ore and coal as well as large harvests of grain in Australia.
Genesee also has lower labor costs than some large railroads. We bought
Wabtec, which makes components parts for railcars, at a low point in its
business cycle. Shares moved higher when industrial growth began to absorb
the oversupply of railcars and orders for new cars came in. Pediatrix
Medical Group, which runs specialized neonatology practices in hospitals,
continued to deliver good results, as did Pacificare Health Systems, a
leading Medicare HMO. Chattem, marketer of Gold Bond, Icy Hot and other
consumer healthcare brands, rebounded sharply after resolving pending
litigation. In commercial services, our patience with Central Parking was
rewarded as the better economic environment and the return of the company
founder in the role of CEO has begun to have a positive impact on their
business. But PRG Schultz, which provides specialized auditing services,
continued to wrestle with merger related problems. Technology, where our
relatively small exposure hurt results, was also a disappointment. Remec, a
maker of microwave and other wireless transmission equipment, ran afoul of
internal problems and is undergoing a management shakeup. We believe
Remec's core business is solid and that a new management team enhances its
outlook. Shares of software maker SPSS fell back, while Borland Software
continued to
D-36
tread water. Insight Enterprises, a distributor of computers and
peripherals to mid-sized businesses, slipped back slightly following a very
strong run late last year and into the beginning of this year. We think
Insight remains an attractive way to capitalize on possible increases in
corporate technology spending. Insituform's sewer maintenance business
continued to feel the constraints of tight municipal budgets. Our
performance among insurance stocks trailed the benchmark.
Q: What is your outlook for the next several months?
A. The economic recovery has by now benefited most sectors of the market. But
it is not yet clear whether the expansion is merely satisfying pent-up
demand or we are at the beginning of a sustained period of growth. High
prices for industrial and other commodities give pause, as inflation
remains a threat to the recovery. The upcoming presidential election and
geopolitical tensions may also have unforeseeable market impacts.
Nevertheless, we continue to find good companies that seem mispriced in the
marketplace, given their potential for earnings expansion over the next two
or three years.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Fund's historical or future performance are
statements of the opinion of Fund management as of the date of this report.
These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
D-37
COMBINED PROXY STATEMENT OF
SAFECO TAXABLE BOND TRUST
on behalf of its Series:
Safeco Intermediate-Term U.S. Government Fund
Safeco High-Yield Bond Fund
SAFECO TAX-EXEMPT BOND TRUST
on behalf of its Series:
Safeco Intermediate-Term Municipal Bond Fund
Safeco California Tax-Free Income Fund
Safeco Municipal Bond Fund
SAFECO MANAGED BOND TRUST
on behalf of its Series:
Safeco Intermediate-Term Bond Fund
SAFECO MONEY MARKET TRUST
on behalf of its Series:
Safeco Money Market Fund
Safeco Tax-Free Money Market Fund
(each, "your Safeco Fund" and collectively, the "Safeco Funds")
The address and telephone number of each Safeco Fund is:
4854 154th Place N.E., Redmond, WA 98052
1-800-624-5711
PROSPECTUS
FOR INVESTOR CLASS SHARES OF
PIONEER AMERICA INCOME TRUST
PIONEER BOND FUND
PIONEER CALIFORNIA TAX FREE INCOME FUND
PIONEER CASH RESERVES FUND
PIONEER HIGH YIELD FUND
PIONEER MUNICIPAL BOND FUND
PIONEER TAX FREE INCOME FUND
PIONEER TAX FREE MONEY MARKET FUND
(each, a "Pioneer Fund" and collectively, the "Pioneer Funds")
The address and telephone number of each Pioneer Fund is:
60 State Street, Boston, Massachusetts 02109 and 1-800-622-3265 or
1-800-225-6292.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
SCHEDULED FOR DECEMBER 8, 2004
To the Shareholders of the Funds:
A joint special meeting of shareholders (the "Meeting") for each of the
Safeco Funds will be held at the offices of Safeco Mutual Funds, King
Auditorium, 4854 154th Place, N.E., Redmond, WA 98052 on December 8, 2004 at
2:00 p.m., local time, to consider the following:
1. With respect to each Safeco Fund, a proposal to approve an Agreement and
Plan of Reorganization. Under the Agreement and Plan of Reorganization,
your Safeco Fund will transfer all of its assets to an investment company
(each a "Pioneer Fund") managed by Pioneer Investment Management, Inc.
("Pioneer") in exchange for Investor Class shares of the Pioneer Fund. The
Pioneer Fund also will assume your Safeco Fund's liabilities that are
included in the calculation of your Safeco Fund's net assets at the
closing. Generally, each Pioneer Fund is an existing mutual fund with a
substantially similar investment objective and similar investment policies
as your Safeco Fund. In the case of certain Safeco Funds, the Pioneer Fund
is a newly organized mutual fund with a substantially similar investment
objective and similar investment policies as your Safeco Fund. Holders of
all share classes of your Safeco Fund will receive Investor Class shares of
the corresponding Pioneer Fund. Investor Class shares of the applicable
Pioneer Fund will be distributed to shareholders in proportion to the
relative net asset value of their share holdings on the closing date of the
reorganization. Following the reorganization, your Safeco Fund will then be
dissolved. As a result of the reorganization you will become shareholders
of the Pioneer Fund. Your Board of Trustees recommends that you vote FOR
this proposal.
2. With respect to each Safeco Fund, a proposal to approve an interim
investment advisory agreement between your Safeco Fund and Pioneer.
Pioneer has provided advisory services for your Safeco Funds pursuant to
this agreement since August 2, 2004, when the advisory agreement between
your Safeco Fund and Safeco Asset Management Company terminated. Approval
of the interim investment advisory agreement will enable Pioneer to
receive advisory fees currently held in escrow. Your Board of Trustees
recommends that you vote FOR this proposal.
3. Any other business that may properly come before the Meeting.
Shareholders of record as of the close of business on October 8, 2004, are
entitled to vote at the Meeting and any related follow-up meetings.
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 Safeco Fund may be required to make additional
solicitations.
By order of the Boards of
Trustees,
[Name]
[Title]
October , 2004
COMBINED PROXY STATEMENT OF
SAFECO TAXABLE BOND TRUST
on behalf of its Series:
Safeco Intermediate-Term U.S. Government Fund
Safeco High-Yield Bond Fund
SAFECO TAX-EXEMPT BOND TRUST
on behalf of its Series:
Safeco Intermediate-Term Municipal Bond Fund
Safeco California Tax-Free Income Fund
Safeco Municipal Bond Fund
SAFECO MANAGED BOND TRUST
on behalf of its Series:
Safeco Intermediate-Term Bond Fund
SAFECO MONEY MARKET TRUST
on behalf of its Series:
Safeco Money Market Fund
Safeco Tax-Free Money Market Fund
(each, "your Safeco Fund" and collectively, the "Safeco Funds")
The address and telephone number of each Safeco Fund is: 4854 154th Place
N.E., Redmond, WA 98052 1-800-624-5711.
PROSPECTUS
FOR INVESTOR CLASS SHARES OF
PIONEER AMERICA INCOME TRUST
PIONEER BOND FUND
PIONEER CALIFORNIA TAX FREE INCOME FUND
PIONEER CASH RESERVES FUND
PIONEER HIGH YIELD FUND
PIONEER MUNICIPAL BOND FUND
PIONEER TAX FREE INCOME FUND
PIONEER TAX FREE MONEY MARKET FUND
(each, a "Pioneer Fund" and collectively, the "Pioneer Funds")
The address and telephone number of each Pioneer Fund is: 60 State Street,
Boston, Massachusetts 02109 and 1-800-622-3265 or 1-800-225-6292.
Shares of the Pioneer Funds have not been approved or disapproved by the
Securities and Exchange Commission (the "SEC"). The SEC has not passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
An investment in any Safeco Fund or Pioneer Fund is not a bank deposit and
is not insured or guaranteed by the federal deposit insurance corporation or
any other government agency.
2
This combined proxy statement and prospectus ("Proxy
Statement/Prospectus"), dated October 25, 2004, is being furnished to
shareholders of the series listed above (each a "Safeco Fund") of Safeco
Taxable Bond Trust, Safeco Tax-Exempt Bond Trust, Safeco Money Market Trust and
Safeco Managed Bond Trust (each, a "Safeco Trust," and collectively, the
"Safeco Trusts") in connection with the solicitation by the respective Boards
of Trustees (the "Boards," or the "Trustees") of the Safeco Trusts of proxies
to be used at a joint meeting of shareholders of the Safeco Funds (the
"Meeting") to be held at Safeco Mutual Funds, King Auditorium, 4854 154th
Place, N.E., Redmond, WA 98052 on December 8, 2004 at 2:00 p.m., local time.
The Proxy Statement/Prospectus contains information you should know before
voting on (i) the approval of a proposed Agreement and Plan of Reorganization
(each a "Plan") that provides for the reorganization of each Safeco Fund into a
corresponding Pioneer Fund (each a "Reorganization"), and (ii) the approval of
an interim investment advisory agreement for each Safeco Fund. The following
table indicates (a) the corresponding Pioneer Fund shares that each Safeco Fund
shareholder would receive if each Plan is approved, (b) which Safeco Fund
shareholders may vote on which proposals and (c) on what page of this Proxy
Statement/Prospectus the discussion regarding each proposal begins.
Shareholders of each class of shares of a Safeco Fund will vote together as a
single class on each proposal. Although each Reorganization is similar in
structure, you should read carefully the specific discussion regarding your
Safeco Fund's Reorganization.
- ----------------------------------------------------------------------------------------------------------------------------
Safeco Fund Pioneer Fund Shareholders Entitled to Vote Page
- ----------------------------------------------------------------------------------------------------------------------------
Proposal 1(a) Safeco California Pioneer California Safeco California Tax-Free Income Fund shareholders 8
Tax-Free Income Fund Tax Free Income Fund
- ----------------------------------------------------------------------------------------------------------------------------
Proposal 1(b) Safeco High-Yield Pioneer High Yield Safeco High-Yield Bond Fund shareholders 23
Bond Fund Fund
- ----------------------------------------------------------------------------------------------------------------------------
Proposal 1(c) Safeco Pioneer Bond Fund Safeco Intermediate-Term Bond Fund shareholders 37
Intermediate-Term
Bond Fund
- ----------------------------------------------------------------------------------------------------------------------------
Proposal 1(d) Safeco Pioneer Tax Free Safeco Intermediate-Term Municipal Bond Fund 52
Intermediate-Term Income Fund shareholders
Municipal Bond Fund
- ----------------------------------------------------------------------------------------------------------------------------
Proposal 1(e) Safeco Pioneer America Safeco Intermediate-Term U.S. Government Fund 68
Intermediate-Term Income Trust shareholders
U.S. Government Fund
- ----------------------------------------------------------------------------------------------------------------------------
Proposal 1(f) Safeco Money Market Pioneer Cash Safeco Money Market Fund shareholders 84
Fund Reserves Fund
- ----------------------------------------------------------------------------------------------------------------------------
Proposal 1(g) Safeco Municipal Bond Pioneer Municipal Safeco Municipal Bond Fund shareholders 97
Fund Bond Fund
- ----------------------------------------------------------------------------------------------------------------------------
Proposal 1(h) Safeco Tax-Free Pioneer Tax Free Safeco Tax-Free Money Market Fund shareholders 112
Money Market Fund Money Market Fund
- ----------------------------------------------------------------------------------------------------------------------------
Proposal 2(a)-(h) Each Fund Not applicable Shareholders of each Fund voting separately 127
as to the proposal that affects their Fund
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Where to Get More Information
- ----------------------------------------------------------------------------------------------------------------------------
The Safeco Funds' prospectuses dated April 30, 2004, as Available to you free of charge by calling 1-800-624-5711.
supplemented August 2, 2004 and August 3, 2004. Each prospectus, which is also on file with the SEC, is
incorporated by reference into this Proxy Statement/
The Safeco Funds' annual report dated December 31, 2003 Prospectus.
and semiannual report dated June 30, 2004.
Available to you free of charge by calling 1-800-624-5711.
Also on file with the SEC. See "Available Information." These
reports are incorporated by reference into this Proxy
Statement/Prospectus.
- ----------------------------------------------------------------------------------------------------------------------------
Each Pioneer Fund's current prospectus and each Pioneer Available to you free of charge by calling 1-800-225-6292.
Fund's most recent annual and semiannual reports and These prospectuses and reports are also on file with the SEC.
supplements (as they apply) to shareholders. These prospectuses and reports are incorporated by reference
into this Proxy Statement/Prospectus.
- ----------------------------------------------------------------------------------------------------------------------------
A statement of additional information for this joint Proxy Available to you free of charge by calling 1-800-225-6292.
Statement/Prospectus (the "SAI"), dated October 25, 2004. It Also on file with the SEC. This SAI is incorporated by
contains additional information about your Safeco Funds and reference into this Proxy Statement/Prospectus.
the Pioneer Funds.
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To ask questions about this Proxy Statement/Prospectus. Call your Safeco Fund's toll-free telephone number:
1-800-624-5711.
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3
Background to the Reorganizations
Safeco Asset Management Company ("SAM"), the Safeco Funds' investment
adviser until August 2, 2004, was a subsidiary of Safeco Corporation, a
multi-line insurance company. On August 2, 2004, Symetra Financial Corporation
("Symetra") acquired certain assets from Safeco Corporation, including all of
the capital stock of SAM. While reviewing the operations of SAM in anticipation
of that transaction, Symetra determined that engaging in the business of
investment adviser to the Safeco Funds was not a core business that it intended
to continue. After investigating and discussing several alternatives for
ongoing investment management of the Safeco Funds with the Trustees, Symetra
conducted a search for a new investment adviser for the Safeco Funds.
Ultimately Symetra decided to recommend to the Boards that Pioneer Investment
Management, Inc. ("Pioneer") be hired to manage the Safeco Funds on an interim
basis until the Reorganizations occur and the Safeco Funds be reorganized into
similar mutual funds managed by Pioneer.
The Boards met at a series of meetings in July 2004. At these meetings
your Trustees received and evaluated materials regarding Pioneer and the
Pioneer Funds, including the performance record and expense structure of each
of the Pioneer Funds, the impact of the proposed Reorganizations on the Safeco
Funds' shareholders, and the quality of the services offered by Pioneer. At
these meetings, the Trustees met with representatives of Pioneer. In addition
to these general factors, the Trustees also considered these and other factors
specifically in the context of each Reorganization. On July 30, 2004, the
Boards of Trustees, including all of the Trustees who are not interested
persons of SAM (the "Independent Trustees"), unanimously voted to approve each
of the Reorganizations. In approving the Reorganization, the Board determined
that the Reorganizations were in the best interests of the Safeco Funds'
shareholders and the interests of existing Safeco Funds' shareholders will not
be diluted as a result of the Reorganizations.
Pioneer believes that it can offer favorable long-term investment
performance and enhanced shareholder services to the Safeco Funds'
shareholders. The Reorganizations will, by combining the assets of two mutual
funds and, by being part of a family of funds with greater distribution
capabilities, offer the potential for increased economies of scale. Increased
economies of scale have the potential of benefiting the shareholders of your
Safeco Funds and the Pioneer Funds by spreading fixed costs over a larger asset
base and reducing expenses on a per share basis. There can be no assurance that
such economies of scale will be realized.
Why the Trustees are Recommending the Reorganizations
The Trustees believe that reorganizing your Safeco Fund into a portfolio
with a substantially similar investment objective and similar investment
policies that is part of the Pioneer family of funds offers you potential
benefits. These potential benefits and considerations include:
o SAM, the investment adviser to each of the Safeco Funds until August 2,
2004, was acquired by Symetra. Symetra informed the Board that it was not
interested in continuing to provide investment advisory services to the
Safeco Funds. Therefore, a change in your Safeco Fund's investment adviser
was necessary;
o The track record of Pioneer in managing the Pioneer Funds as compared to
the historical performance of the Safeco Funds;
o The resources of Pioneer, including its infrastructure in shareholder
services;
o The opportunity to be part of a significantly larger family of funds, with
additional product offerings and enhanced shareholder servicing options;
o Pioneer's commitment until December 10, 2006, or such later date that is
the second anniversary of the day on which each Reorganization closes (the
"Closing Date") to limit the total operating expenses of the Investor
Class shares of each Pioneer Fund; and
o Shareholders who own shares in their name as of the closing of the
Reorganization (i.e., not in the name of a broker or other intermediary)
and maintain their account may purchase Class A shares of the
corresponding Pioneer Fund through such account in the future or may
exchange those shares for Class A shares of another Pioneer Fund or
purchase Class A share of another Pioneer Fund without paying any sales
charge. Investor Class shares will not be offered after the
Reorganizations.
How Each Reorganization will Work
o Safeco Fund shareholder-directed exchanges and purchases made by check,
ACH, or wire will be accepted up until 1 p.m. (Pacific Time) on Wednesday,
December 8, 2004. Exchange and purchase requests received after this
deadline will be rejected and returned. Purchase and exchange requests
made by Safeco Fund shareholders through financial institutions or
advisers must do so earlier to ensure the trade can be processed within
this deadline. Financial institutions and advisers that trade
electronically (NSCC) with the Safeco Funds can place exchange and
purchase requests up until 1 p.m. (Pacific Time) on Tuesday, December 7,
2004.
4
Exchanges and purchases received after this deadline will be rejected and
returned. The Safeco Funds will not process purchases made via automatic
investment method (AIM) after December 8, 2004. Dividend/capital gain
reinvestment and established systematic exchanges will continue through
December 10, 2004.
o Each Safeco Fund will transfer all of its assets to a corresponding
Pioneer Fund. Each Pioneer Fund will assume the corresponding Safeco
Fund's liabilities that are included in the calculation of such Safeco
Fund's net asset value at the closing of the Reorganization (the "Closing
Date").
o Each Pioneer Fund will issue Investor Class shares to the corresponding
Safeco Fund in amounts equal to the aggregate net asset value of that
Safeco Fund's shares. Shareholders of your Safeco Fund will receive
Investor Class shares of the corresponding Pioneer Fund. These shares will
be distributed to shareholders in proportion to the relative net asset
value of their share holdings on the Closing Date. On the Closing Date,
shareholders will hold the shares of the Pioneer Fund with the same
aggregate net asset value as the shares of your Safeco Fund that you held
immediately prior to the Reorganization.
o Each Safeco Fund will be dissolved after the Closing Date.
o Shares of the Investor Class of a Pioneer Fund will automatically convert
to Class A shares of the Pioneer Fund at the end of the calendar month
that is two years after the Closing Date.
o Pioneer acts as investment adviser to each Pioneer Fund. Until December
10, 2006, or such later date that is the second anniversary of the Closing
Date, Pioneer has agreed to limit each Pioneer Fund's expenses (excluding
extraordinary expenses) for Investor Class shares. Pioneer is not required
to limit any expenses after the second anniversary of the Closing Date.
o The Reorganizations are intended to result in no income, gain or loss
being recognized for federal income tax purposes to any of the Pioneer
Funds, the Safeco Funds or the shareholders of the Safeco Funds.
o In recommending each of the Reorganizations, the Trustees of your Safeco
Fund have determined that the Reorganization is in the best interest of
your Safeco Fund and will not dilute the interests of shareholders of your
Safeco Fund. The Trustees have made that determination on the basis of the
factors listed above and discussed in more detail under each proposal. A
reorganization might not be in the best interest of the shareholders of a
mutual fund if the surviving fund had higher expenses, less experienced
management or the adviser did not have adequate resources to manage the
affairs of the mutual fund.
o If the Reorganizations are approved, the Safeco Trust will file with the
SEC an application for deregistration on Form N-8F under the Investment
Company Act of 1940, as amended (the "Investment Company Act") and will
cease to exist as an investment company after such application is
approved.
Who is Pioneer
Pioneer is registered as an investment adviser under the Investment
Advisers Act of 1940, as amended, and acts as investment adviser to mutual fund
and institutional accounts. Pioneer or its predecessors have been managing
mutual funds since 1928 and at June 30, 2004 had, together with its affiliates,
over $35 billion in assets under management. Pioneer is an indirect,
wholly-owned subsidiary of UniCredito Italiano S.p.A., an Italian Bank.
In addition to the Investor Class shares to be issued in the
Reorganization, each Pioneer Fund also offers Class A shares (subject to an
initial sales load and a Rule 12b-1 Plan), Class B shares (subject to a
contingent deferred sales charge and a Rule 12b-1 Plan), and Class C shares
(subject to a contingent deferred sales charge and a Rule 12b-1 Plan). In
addition, most of the Pioneer Funds also offer Class Y shares (which are an
institutional class of shares and are not subject to a sales charge or a Rule
12b-1 Plan) and Class R shares (which are offered only to certain retirement
plans).
Who Bears the Expenses Associated with the Reorganizations
Pioneer and Symetra will pay all out of pocket expenses of the Safeco
Funds and the Pioneer Funds associated with the Reorganizations, including, but
not limited to: (1) the expenses associated with the preparation, printing and
mailing of any shareholder communications, including this joint Proxy
Statement/Prospectus, and any filings with the SEC and other governmental
authorities in connection with the Reorganizations; (2) the fees and expenses
of any proxy solicitation firm retained in connection with the Reorganizations;
(3) the legal fees and expenses incurred by the Safeco Funds in connection with
the Reorganizations; and (4) the Trustee's fees and out of pocket expenses
incurred as a result of the Reorganizations.
5
Will Pioneer and Symetra Benefit from the Reorganizations
Pioneer will benefit from managing a larger pool of assets. Pioneer is
also acquiring certain assets associated with SAM's mutual funds and
institutional account advisory business. In consideration for the acquisition
of these assets and certain covenants from Symetra and SAM, including their
assistance in facilitating the Reorganizations and their obligation to
indemnify Pioneer against certain liabilities, Pioneer has agreed to pay
Symetra up to $30 million. This amount is subject to downward adjustment if the
net assets of the Safeco Funds that approve the Reorganizations (together with
assets in certain other accounts) are less than $2.6 billion. Under this
agreement, Pioneer and Symetra have also agreed, among other things, that (i)
once the Investor Class converts to Class A shares, Pioneer Funds Distributor,
Inc. ("PFD"), the principal underwriter of the Pioneer Funds, shall make
payments to Safeco Securities, Inc. ("Safeco Securities"), the principal
underwriter of the Safeco Funds, pursuant to a Rule 12b-1 plan equal to 0.25%
of the average daily net assets attributable to accounts maintained by former
shareholders of the Safeco Funds; (ii) PFD will make additional continuing
payments out of its own resources to Safeco Securities, following Pioneer's
acquisition of assets from SAM, at an annual rate of 0.05% of the average daily
net assets of any Pioneer Fund held by or for the account of any former
shareholders of the Safeco Funds (including assets invested in any Pioneer Fund
as a result of the Reorganization or otherwise) and, in connection with
purchases of shares of the Pioneer Funds by former shareholders of the Safeco
Funds after the acquisition, PFD will pay out of its own resources to Safeco
Securities an amount equal to 0.20% of the amount of such purchases; and (iii)
Symetra and SAM will be subject to certain non-competition provisions.
Why is an Interim Investment Advisory Agreements being Voted On
Having determined to recommend the Reorganizations, the Trustees elected
to appoint Pioneer as investment adviser to each Safeco Fund until the closing
of the Reorganizations given that Symetra had indicated that it did not wish to
continue to offer investment advisory services to the Safeco Funds.
Under the Investment Company Act, shareholders must approve any new
investment advisory agreement for a Safeco Fund. However, Rule 15a-4 under the
Investment Company Act permits the Board to appoint an adviser on an interim
basis without prior shareholder approval of an investment advisory agreement
with the adviser if the new adviser agrees to provide such services on the same
terms as the previous adviser. An adviser may act on such an interim basis for
a period of 150 days. Because Pioneer will be making the payment to Symetra as
discussed above, any fees that Pioneer would be entitled to under the interim
investment advisory agreement will be held in escrow until shareholder approval
of that agreement is obtained. If shareholders of a Safeco Fund do not approve
the interim investment advisory agreement, Pioneer will not receive the fee
under the current investment advisory agreement with SAM but instead would be
paid a fee based upon Pioneer's cost in managing the Safeco Fund. If the
Reorganizations and the interim investment advisory agreements are not approved
by December 30, 2004, Pioneer will no longer provide advisory services to the
Safeco Funds, unless an extension of the 150 day period is permitted by a rule
or independent position of the staff of the SEC. If both the Reorganization and
appointment of Pioneer are approved, the interim investment advisory agreement
will continue in effect until the closing of the Reorganization.
What Happens if a Reorganization is not Approved
If a Reorganization is not approved by shareholders, the Board will
consider what action to take. Such action could include liquidating the Safeco
Fund or seeking SEC relief to permit Pioneer to serve as investment adviser
beyond the 150-day limitation period.
Who is Eligible to Vote
Shareholders of record on October 8, 2004 are entitled to attend and vote
at the Meeting or any adjournment of the Meeting. On each proposal, all
shareholders of a Safeco Fund, regardless of the class of shares held, will
vote together as a single class. 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 and the interim advisory agreement with
Pioneer. If any other business comes before the Meeting, your shares will be
voted at the discretion of the persons named as proxies.
6
TABLE OF CONTENTS
Page
---
INTRODUCTION ..................................................................... 3
PROPOSAL 1(a) -- SAFECO CALIFORNIA TAX-FREE INCOME FUND .......................... 8
PROPOSAL 1(b) -- SAFECO HIGH-YIELD BOND FUND ..................................... 23
PROPOSAL 1(c) -- SAFECO INTERMEDIATE-TERM BOND FUND .............................. 37
PROPOSAL 1(d) -- SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND .................... 52
PROPOSAL 1(e) -- SAFECO INTERMEDIATE-TERM U.S. GOVERNMENT FUND ................... 68
PROPOSAL 1(f) -- SAFECO MONEY MARKET FUND ........................................ 84
PROPOSAL 1(g) -- SAFECO MUNICIPAL BOND FUND ...................................... 97
PROPOSAL 1(h) -- SAFECO TAX-FREE MONEY MARKET FUND ............................... 112
TERMS OF EACH AGREEMENT AND PLAN OF REORGANIZATION ............................... 125
TAX STATUS OF EACH REORGANIZATION ................................................ 125
PROPOSAL 2(a)-(h) -- APPROVAL OF PIONEER AS INVESTMENT ADVISER FOR EACH FUND ..... 127
VOTING RIGHTS AND REQUIRED VOTE .................................................. 130
ADDITIONAL INFORMATION ABOUT THE PIONEER FUNDS ................................... 130
FINANCIAL HIGHLIGHTS ............................................................. 137
INFORMATION CONCERNING THE MEETING ............................................... 142
OWNERSHIP OF SHARES OF THE FUNDS ................................................. 144
EXPERTS .......................................................................... 149
AVAILABLE INFORMATION ............................................................ 149
EXHIBIT A-1 -- FORM OF AGREEMENTS AND PLANS OF REORGANIZATION (C/D) .............. A-1
EXHIBIT A-2 -- FORM OF AGREEMENTS AND PLANS OF REORGANIZATION (F) ................ A-21
EXHIBIT B -- FORM OF INTERIM ADVISORY AGREEMENT .................................. B-1
EXHIBIT C -- ADDITIONAL INFORMATION REGARDING PIONEER ............................ C-1
EXHIBIT D -- PORTFOLIO MANAGER'S DISCUSSION OF PERFORMANCE ....................... D-1
7
Safeco California Tax-Free Income Fund and
Pioneer California Tax Free Income Fund
PROPOSAL 1(a)
Approval of Agreement and Plan of Reorganization
SUMMARY
The following is a summary of more complete information appearing later in
this Proxy Statement/Prospectus or incorporated herein. You should read
carefully the entire Proxy Statement/Prospectus, including the form of
Agreement and Plan of Reorganization attached as EXHIBIT A-2 because they
contain details that are not in the summary.
The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses per
share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor
Class shares, Pioneer is not required to limit the expenses attributable to
Class A shares.
In the table below, if a row extends across the entire table, the policy
disclosed applies to both your Safeco Fund and the Pioneer Fund.
Comparison of Safeco California Tax-Free Income Fund to the Pioneer California
Tax Free Income Fund
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Safeco California Tax-Free Income Fund Pioneer California Tax Free Income Fund
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Business A series of Safeco Tax-Exempt Bond Trust, a A newly organized series of Pioneer Series
diversified open-end management investment Trust II, an open-end management investment
company organized as a Delaware statutory trust. company registered under the Investment
Company Act and organized as a Delaware
statutory trust.
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Net assets as of $82.4 million None. The Pioneer California Tax Free Income
June 30, 2004 Fund is newly organized and does not expect
to commence investment operations until the
Reorganization occurs.
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Investment advisers and Investment adviser (until August 2, 2004): Investment adviser:
portfolio managers SAM Pioneer
Portfolio Managers (until August 2, 2004): Portfolio Managers:
Stephen C. Bauer (since 1983) Day-to-day management of the Fund's
President and Director, SAM portfolio will be the responsibility of a team of
fixed income portfolio managers led by
Mary Metastasio (since 2003) Kenneth J. Taubes.
Vice President, SAM
Mr. Taubes joined Pioneer as a senior vice
Currently Pioneer is investment adviser to president in September 1998 and has been an
Safeco California Tax-Free Income Fund. The investment professional since 1982.
Portfolio Managers of Pioneer California Tax
Fund, as indicated in the next column,
currently manage your Safeco Fund.
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Investment objective Each Fund seeks to provide as high a level of current interest income exempt from federal income
tax and California state personal income tax as is consistent with the relative stability of capital.
The investment objective of each Fund is fundamental and cannot be changed without shareholder
approval.
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8
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Safeco California Tax-Free Income Fund Pioneer California Tax Free Income Fund
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Primary investments To achieve its investment objective, each Fund invests primarily in investment-grade municipal bonds
issued by the state of California or its political subdivisions and having average maturities of 15
years or longer. Under normal circumstances, each Fund invests:
o At least 80% of its assets in securities the interest on which is exempt from federal
income tax and California personal income tax
o At least 65% of its assets in investment-grade municipal bonds with a maturity of more than one year
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Pioneer California Tax Free Income Fund's
investments may have fixed or variable
principal payments and all types of interest
rate payment and reset terms, including
fixed and floating rates, inverse floating
rate, zero coupon, contingent, deferred and
payment in kind and auction rate features.
Pioneer California Tax Free Income Fund
may invest in tax-exempt securities of
issuers located outside the state of
California. The Fund will not invest in
securities the interest on which is a tax
preference item for purposes of the federal
alternative minimum tax.
Pioneer California Tax Free Income Fund
may invest in municipal securities of any
maturity, although under normal
circumstances it is anticipated that the Fund
will generally invest in longer-term
investments. Municipal securities with
longer maturities are generally more volatile
than other fixed income securities with
shorter maturities.
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9
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Safeco California Tax-Free Income Fund Pioneer California Tax Free Income Fund
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Investment strategies When evaluating a bond to buy, SAM considers Pioneer considers both broad economic
among other things: factors and issuer specific factors in selecting
a portfolio designed to achieve the Fund's
o Yield investment objective. In assessing the
o Maturity appropriate maturity and rating weighting of
o Structural features such as an issuer's right the Fund's portfolio, Pioneer considers a
to buy the bond back at a stated price (a variety of factors that are expected to
"call") or the Fund's right to require the influence economic activity and interest rates.
issuer to buy the bond back at a stated price These factors include fundamental economic
(a "put") indicators, such as the rates of economic
o Credit quality (including the underlying rating growth and inflation, Federal Reserve
of insured bonds) monetary policy and the relative value of the
o The project the issuer is financing U.S. dollar compared to other currencies.
o The original offering price
o Any state or local tax exemption Once Pioneer determines the preferable
o The amount of discount off or premium on portfolio characteristics, Pioneer selects
the stated principal amount of the bond individual securities based upon the terms of
represented by the price offered the securities (such as yields compared to
o Whether the bond appears to offer the best U.S. Treasuries or comparable issues),
overall value when compared to other liquidity and rating and issuer diversification.
available bonds
Pioneer also employs due diligence and
SAM historically favored long-term maturity fundamental research, an evaluation of the
bonds in essential services that offer a issuer based on its financial statements and
significant degree of protection against issuer operations, to assess an issuer's credit quality,
repurchase rights prior to maturity and good taking into account financial condition, future
value relative to their peers. SAM may use the capital needs and potential for change in
rating services provided by Moody's, S&P, or rating. In making these portfolio decisions,
Fitch. Bond ratings indicate an issuer's financial Pioneer relies on the knowledge, experience
strength and ability to meet its debt and judgment of its staff who have access to
obligations. a wide variety of research.
Safeco California Tax-Free Income Fund sold
bonds when:
o They become fully valued
o More attractively valued bonds become
available;
o Cash is needed to meet shareholder
redemptions
Because it often takes years for attractive
relative valuations to be recognized by the
municipal securities market, turnover of the
Fund's portfolio can be low.
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10
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Safeco California Tax-Free Income Fund Pioneer California Tax Free Income Fund
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Other investments Safeco California Tax-Free Income Fund will Pioneer California Tax Free Income Fund may
limit its investment in municipal obligations the invest up to 20% of its net assets in securities
interest on which is payable from the revenues of other investment companies, investment
of similar types of projects to less than 25% of grade commercial paper, U.S. government
each Funds' total assets. As a matter of securities, U.S. or foreign bank instruments
operating policy, "similar types of projects" and repurchase agreements.
may include sports, convention or trade show
facilities; airports or mass transportation; Pioneer California Tax Free Income Fund may
sewage or solid waste disposal facilities; or air invest up to 10% of its net assets in debt
and water pollution control projects. securities rated below investment grade or, if
unrated, of equivalent quality as determined
Safeco California Tax-Free Income Fund may by Pioneer. Debt securities rated below
invest in any of the following short-term, investment grade are commonly referred to as
tax-exempt obligations: municipal notes of "junk bonds" and are considered speculative.
issuers rated, at the time of the purchase, Below investment grade debt securities involve
within one of the three highest grades greater risk of loss, are subject to greater
assigned by a nationally recognized statistical price volatility and are less liquid, especially
rating organization ("NRSRO"); unrated during periods of economic uncertainty or
municipal notes offered by issuers having change, than higher quality debt securities.
outstanding municipal bonds rated within one
of the three highest grades assigned by an Pioneer California Tax Free Income Fund may
NRSRO; notes issued by or on behalf of invest up to 10% of its net assets in inverse
municipal issuers that are guaranteed by the floating rate obligations (a type of derivative
U.S. government; tax-exempt commercial paper instrument). Inverse floating rate obligations
assigned one of the two highest grades by an represent interests in tax-exempt bonds. The
NRSRO; certificates of deposit issued by banks interest rate on inverse floating rate
with assets of $1,000,000,000 or more; and obligations will generally decrease as short-
municipal obligations that have a maturity of term interest rates increase, and increase as
one year or less from the date of purchase. short-term rates decrease. Due to their
leveraged structure, the sensitivity of the
Safeco California Tax-Free Income Fund may market value of an inverse floating rate
invest in obligations of the U.S. government, obligation to changes in interest rates is
its agencies or instrumentalities or in qualified generally greater than a comparable long-term
repurchase agreements, the net interest on bond issued by the same municipality and
which is taxable for federal income tax with similar credit quality, redemption and
purposes. maturity provisions. Inverse floating rate
obligations may be volatile and involve
leverage risk.
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Temporary defensive Safeco California Tax-Free Income Fund may Pioneer California Tax Free Income Fund may
strategies hold cash or as a temporary defensive invest all or part of its assets in securities
measure when market conditions so warrant. with remaining maturities of less than one
year, cash equivalents or may hold cash.
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Diversification Each Fund is diversified for the purpose of the Investment Company Act, and each Fund is
subject to diversification requirements under the Internal Revenue Code of 1986, as amended
("the Code").
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Industry concentration Each Fund will not make investments that will result in the concentration (as that term may be
defined in the Investment Company Act, any rule or order thereunder, or SEC staff interpretation
thereof) of its investments in the securities of issuers primarily engaged in the same industry,
provided that this restriction does not limit each Fund from investing in obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities.
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11
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Safeco California Tax-Free Income Fund Pioneer California Tax Free Income Fund
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Restricted and illiquid If immediately after and as a result of such Pioneer California Tax Free Income Fund will
securities action the value of the following securities, in not invest more than 10% of its net assets in
the aggregate, would exceed 10% of Safeco illiquid and other securities that are not readily
California Tax-Free Income Fund's net assets, marketable. Repurchase agreements maturing
the Fund will not (i) purchase securities for in more than seven days will be included for
which there is no readily available market, (ii) purposes of the foregoing limit. Securities
purchase time deposits maturing in more than subject to restrictions on resale under the
seven days, (iii) purchase over-the-counter 1933 Act, are considered illiquid unless they
(OTC) options or hold assets set aside to cover are eligible for resale pursuant to Rule 144A
OTC options written by the Fund, (iv) enter into or another exemption from the registration
repurchase agreements maturing in more than requirements of the 1933 Act and are
seven days, or (v) invest in interests in real determined to be liquid by Pioneer.
estate investment trusts which are not readily
marketable or interests in real estate limited
partnerships which are not listed or traded on
the NASDAQ Stock Market.
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Borrowing Safeco California Tax-Free Income Fund may Pioneer California Tax Free Income Fund may
borrow money (i) from banks or (ii) by not borrow money, except on a temporary
engaging in reverse repurchase agreements. basis and to the extent permitted by applicable
law, as amended and interpreted or modified
from time to time by any regulatory authority
having jurisdiction. Under current regulatory
requirements, the Fund may: (a) borrow from
banks or through reverse repurchase
agreements in an amount up to 33 1/3% of
the fund's total assets (including the amount
borrowed); (b) borrow up to an additional 5%
of the fund's assets for temporary purposes;
(c) obtain such short-term credits as are
necessary for the clearance of portfolio
transactions; (d) purchase securities on
margin to the extent permitted by applicable
law; and (e) engage in transactions in
mortgage dollar rolls that are accounted for
as financings.
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12
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Safeco California Tax-Free Income Fund Pioneer California Tax Free Income Fund
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Lending Safeco California Tax-Free Income Fund may Pioneer California Tax Free Income Fund may
lend securities to qualified institutional not make loans, except that the Fund may
investors with a value of up to 33% of the (i) lend portfolio securities in accordance with
Fund's total assets. the Fund's investment policies, (ii) enter into
repurchase agreements, (iii) purchase all or
a portion of an issue of publicly distributed
debt securities, bank loan participation
interests, bank certificates of deposit, bankers'
acceptances, debentures or other securities,
whether or not the purchase is made upon
the original issuance of the securities,
(iv) participate in a credit facility whereby the
Fund may directly lend to and borrow money
from other affiliated funds to the extent
permitted under the Investment Company Act
or an exemption therefrom, and (v) make
loans in any other manner consistent with
applicable law, as amended and interpreted or
modified from time to time by any regulatory
authority having jurisdiction.
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Derivative instruments Safeco California Tax-Free Income Fund may Pioneer California Tax Free Income Fund may
not purchase securities on margin. However, use futures and options on securities, indices
the Fund may (i) obtain short-term credits as and currencies, forward currency exchange
necessary to clear its purchases and sales of contracts and other derivatives. The Fund
securities, and (ii) make margin deposits in does not use derivatives as a primary
connection with its use of financial options and investment technique and generally limits their
futures, forward and spot currency contracts, use to hedging. However, the Fund may use
swap transactions and other financial contracts derivatives for a variety of non-principal
or derivative instruments. purposes, including:
o As a hedge against adverse changes in
stock market prices, interest rates or
currency exchange rates
o As a substitute for purchasing or selling
securities
o To increase the Fund's return as a non-
hedging strategy that may be considered
speculative
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Other investment policies and As described above, the Funds have substantially
restrictions similar principal investment strategies and
policies. Certain of the non-principal investment
policies and restrictions are different. For a
more complete discussion of each Fund's other
investment policies and fundamental and non-
fundamental investment restrictions, see the SAI.
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13
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Safeco California Tax-Free Income Fund Pioneer California Tax Free Income Fund
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Buying, Selling and Exchange Shares
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Sales charges Purchases under $1,000,000 of Class A shares The Investor Class shares of Pioneer California
of Safeco California Tax-Free Income Fund are Tax Free Income Fund you receive in the
subject to a 4.50% front-end sales charge. Reorganization will not be subject to any
sales charge. Moreover, if you own shares
A contingent deferred sales charge of up to in your own name as of the closing of the
5.00% if you redeem Class B shares within six Reorganization (i.e., not in the name of a
years of purchase. broker or other intermediary) and maintain
your account, you may purchase Class A
A contingent deferred sales charge of up to shares of Pioneer California Tax Free Income
1.00% if you redeem Class C shares within Fund and Class A shares of any fund in the
one year of purchase. Pioneer family of funds through such account
in the future without paying any sales charge.
Purchases of Investor Class shares of the Fund
are not subject to a sales load. Except as described above, Class A shares of
Pioneer California Tax Free Income Fund are
The Fund assesses a mandatory redemption subject to a front-end sales charge of up
fee of 2%, as a percentage of the amount to 4.50%.
redeemed or exchanged, on Class A and
Investor Class shares held less than 30 days.
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Management and other fees Safeco California Tax-Free Income Fund pays Pioneer California Tax Free Income Fund will
an advisory fee on a monthly basis at an pay Pioneer an advisory fee as follows: 0.50%
annual rate as follows: of the fund's average daily net assets on the
first $250 million, 0.45% on assets greater
$0-$250,000,000: 0.50 of 1% than $250 million to $750 million and 0.40%
$250,000,001-$750,000,000: 0.45 of 1% on assets greater than $750 million. The fee is
Over $750,000,00: 0.40 of 1% computed daily and paid monthly.
SAM serves as administrator and fund In addition, the Fund will reimburse Pioneer
accounting agent for Safeco California Tax-Free for certain fund accounting and legal expenses
Income Fund. The Fund pays SAM an incurred on behalf of the Fund and pays a
administrative services fee of 0.05% of the separate shareholder servicing/transfer agency
Fund's average daily net assets up to the first fee to Pioneer Investment Management
$200,000,000 and 0.01% of its net assets Shareholder Services ("PIMSS"), an affiliate of
thereafter, and an accounting fee of 0.04% Pioneer.
of the Fund's average daily net assets up to
the first $200,000,000 and 0.01% of its net Pioneer has agreed until the second
assets thereafter. anniversary of the closing of the
Reorganization to limit the expenses
During its most recent fiscal year, Safeco (excluding extraordinary expenses) of the
California Tax-Free Income Fund paid aggregate Investor Class to 0.63% of the average daily
advisory and administration fees at an average net assets attributable to the Investor Class.
rate of 0.59% of average daily net assets.
The Investor Class shares to be issued in the
SAM had contractually agreed until April 30, Reorganization will convert to Class A shares
2009, to pay certain fund operating expenses after two years. Class A shares will have
(but not all of the operating expenses of the higher expenses per share than Investor Class
Fund) that exceeded the rate of 0.40% per shares due to the Rule 12b-1 Plan. In
annum of the Fund's average daily net assets. addition, although Pioneer has agreed to limit
This arrangement included all Fund operating the expenses attributable to Investor Class
expenses except management fees, Rule 12b-1 shares, Pioneer is not required to limit the
fees, brokerage commissions, interest, and expenses attributable to Class A shares.
extraordinary expenses.
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14
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Safeco California Tax-Free Income Fund Pioneer California Tax Free Income Fund
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Management and other fees In 2003, SAM began voluntarily reimbursing
(continued) the Fund to the extent that its total expenses
exceeded the rate of 0.86% per annum of the
Fund's average daily net assets for Class A
shares, 1.61% per annum for Class B and
Class C shares, and 0.63% per annum for
Investor Class shares.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for
Class A shares were 1.06%. After giving effect
to the voluntary expense reimbursement, the
operating expenses for Class A shares
were 0.86%.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for Class
B shares were 1.76%. After giving effect to
the voluntary expense reimbursement, the
operating expenses for Class B shares
were 1.61%.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for Class
C shares, after giving effect to the contractual
expense reimbursement, were 1.90%, and
without giving effect to the expense limitation
were 4.09%. After giving effect to the voluntary
expense reimbursement, the operating
expenses for Class C shares were 1.61%.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for
Investor Class shares were 0.75%. After giving
effect to the voluntary expense reimbursement,
the operating expenses for Investor Class
shares were 0.63%.
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Distribution and service Investor Class shares of the Pioneer Fund are not subject to a Rule 12b-1 fee. Pioneer Investor
(12b-1) fee Class shares will convert into Class A shares after two years. Class A shares of each Fund are
subject to a Rule 12b-1 fee equal to 0.25% annually of average daily net assets.
- ------------------------------------------------------------------------------------------------------------------------------------
15
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Safeco California Tax-Free Income Fund Pioneer California Tax Free Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Buying shares You may buy shares of Safeco California You may buy shares from any investment firm
Tax-Free Income Fund directly through Safeco that has a sales agreement with PFD, Pioneer
Securities, the Fund's principal underwriter or California Tax Free Income Fund's distributor.
through brokers, registered investment Existing shareholders of Safeco California
advisers, banks and other financial institutions Tax-Free Income Fund who own shares in their
that have entered into selling agreements with own name as of the closing date of the
the Fund's principal underwriter, as described Reorganization and who maintain their
in the Fund's prospectus. accounts may buy shares of any fund in the
Pioneer family of funds through such accounts
Certain account transactions may be done in the future without paying sales charges.
by telephone.
If the account is established in the
shareholder's own name, shareholders may
also purchase additional shares of Pioneer
California Tax Free Income Fund by telephone
or online.
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Exchange privilege There are no sales charges on shares you You may exchange shares of Pioneer
acquire through dividend reinvestment or other California Tax Free Income Fund without
fund distributions. incurring any fee on the exchange with the
more than 62 other Pioneer Funds. Your
Certain account transactions may be done by exchange would be for Class A shares, which
telephone. would be subject to a Rule 12b-1 fee. An
exchange generally is treated as a sale and a
new purchase of shares for federal income
tax purposes.
If the account is established in the
shareholder's own name, shareholders may
also exchange shares of Pioneer California Tax
Free Income Fund for shares of other Pioneer
Funds by telephone or online.
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Selling shares Investor Class shares will be sold at net asset value per share next calculated after the Fund
receives your request in good order.
- ------------------------------------------------------------------------------------------------------------------------------------
You may sell your shares by contacting Safeco Normally, your investment firm will send your
California Tax-Free Income Fund directly in request to sell shares to PIMSS. You can also
writing or by contacting a financial intermediary sell your shares by contacting the Fund directly
as described in the Fund's prospectus. if your account is registered in your name.
If the account is established in the
shareholder's own name, shareholders may
also redeem shares of Pioneer California Tax
Free Income Fund by telephone or online.
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16
Comparison of Principal Risks of Investing in the Funds
Because each Fund has a similar investment objective, primary investment
policies and strategies, the Funds are subject to the same principal risks. You
could lose money on your investment or not make as much as if you invested
elsewhere if:
o Interest rates go up, causing the value of the Fund's investments to
decline
o The issuer of a security owned by the Fund defaults on its obligation to
pay principal and/or interest or has its credit rating downgraded
o The investment adviser's judgment about the credit quality, attractiveness
or relative value of a particular security proves to be incorrect
The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses per
share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor
Class shares, Pioneer is not required to limit the expenses attributable to
Class A shares.
Investing in mutual fund shares is not the same as making a bank deposit.
Your investment is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. You could lose money by investing
in either Fund.
Past Performance
Set forth below is performance information for Safeco California Tax-Free
Income Fund. The bar charts show how Safeco California Tax-Free Income Fund's
total return (not including any deduction for sales charges) has varied from
year to year for each full calendar year. The tables show average annual total
return (before and after taxes) for Safeco California Tax-Free Income Fund over
time for each class of shares (including deductions for sales charges, if
applicable) compared with a broad-based securities market index. The bar chart
gives an indication of the risks of investing in Safeco California Tax-Free
Income Fund, including the fact that you could incur a loss and experience
volatility of returns year to year. Past performance before and after taxes
does not indicate future results. Because Pioneer California Tax Free Income
Fund is a newly organized mutual fund, it has no past performance.
Safeco California Tax-Free Income Fund -- Investor Class
Calendar Year Total Returns*
[THE FOLLOWING DATA WAS REPRESENTED BY A BAR CHART IN THE PRINTED DOCUMENT.]
'94 -9.20
'95 26.14
'96 2.53
'97 11.55
'98 6.19
'99 -9.18
'00 18.79
'01 4.12
'02 8.76
'03 4.97
* During the period shown in the bar chart, Safeco California Tax-Free Income
Fund's highest quarterly return was 10.59% for the quarter ended March 31,
1995, and the lowest quarterly return was -6.16% for the quarter ended March
31, 1994.
17
Safeco California Tax-Free Income Fund
Average Annual Total Returns as of December 31, 2003
- ----------------------------------------------------------------------------------------------------
1 Year 5 Years 10 Years
- ----------------------------------------------------------------------------------------------------
Safeco California Tax-Free Income Fund, Class A shares
- ----------------------------------------------------------------------------------------------------
Return Before Taxes 0.05% 3.84% 5.25%
- ----------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(1) -0.01% 3.74% 5.07%
- ----------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(1) 1.51% 3.85% 5.07%
- ----------------------------------------------------------------------------------------------------
Safeco California Tax-Free Income Fund, Class B shares
- ----------------------------------------------------------------------------------------------------
Return Before Taxes -1.04% 3.68% 5.26%
- ----------------------------------------------------------------------------------------------------
Safeco California Tax-Free Income Fund, Class C shares
- ----------------------------------------------------------------------------------------------------
Return Before Taxes 2.97% 4.02% 5.16%
- ----------------------------------------------------------------------------------------------------
Safeco California Tax-Free Income Fund, Investor Class shares
- ----------------------------------------------------------------------------------------------------
Return Before Taxes 4.97% 5.10% 5.96%
- ----------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(1) 4.91% 5.00% 5.78%
- ----------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(1) 4.87% 4.99% 5.74%
- ----------------------------------------------------------------------------------------------------
Lehman Brothers Long Municipal Bond Index(2)
(reflects no deduction for fees, taxes or expenses) 6.13% 5.95% 6.40%
- ----------------------------------------------------------------------------------------------------
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on your situation and may
differ from those shown.
(2) The Lehman Brothers Long Municipal Bond Index, an unmanaged index of bonds
with a minimum credit rating of BAA3, issued as part of a deal of at least
$50 million, having an amount of at least $5 million and maturing in 22 or
more years, is for reference only, is not limited to California issuers,
does not mirror the Fund's investments.
The most recent portfolio manager's discussion of the Safeco Fund's
performance is attached as Exhibit D.
18
The Funds' Fees and Expenses
Shareholders of both Funds pay various fees and expenses, either directly
or indirectly. The tables below show the fees and expenses that you would pay
if you were to buy and hold shares of each Fund. The expenses in the tables
appearing below are based on (i) for Safeco California Tax-Free Income Fund,
the expenses of Safeco California Tax-Free Income Fund for the period ended
December 31, 2003 and (ii) for Pioneer California Tax Free Income Fund,
estimated expenses of Pioneer California Tax Free Income Fund. Future expenses
for all share classes may be greater or less.
Pro Forma
Safeco Pioneer
Safeco Safeco Safeco California California
California California California Tax-Free Tax Free
Tax-Free Tax-Free Tax-Free Income Fund Income Fund
Income Fund Income Fund Income Fund Investor Investor
Shareholder transaction fees Class A Class B Class C Class Class(9)
(paid directly from your investment) ------------- ------------- ------------- ------------- ------------
Maximum sales charge (load) when you buy shares
as a percentage of offering price ........................ 4.50%(6) None None None None(1)
Maximum deferred sales charge (load) as a percentage
of purchase price or the amount you receive when you
sell shares, whichever is less ........................... None 5.00%(7) 1.00%(8) None None
Redemption fees for shares held less than 30 days ......... 2.00% None None 2.00% N/A
Wire redemption fee ....................................... $ 20(4) $ 20(4) $ 20(4) $ 20(4) $ 10
Annual low balance fee .................................... $ 12(5) $ 12(5) $ 12(5) $ 12(5) N/A
Annual fund operating expenses (deducted from
fund assets) (as a % of average net assets)
Management fee ............................................ 0.50% 0.50% 0.50% 0.50% 0.50%
Distribution and service (12b-1) fee ...................... 0.25% 1.00% 1.00% None None
Other expenses ............................................ 0.31% 0.26% 2.59% 0.25% 0.26%
Total fund operating expenses ............................. 1.06% 1.76% 4.09% 0.75% 0.76%
Expense reimbursement / reduction ......................... None(2) None(2) 2.19%(2) None(2) 0.13%(3)
Net fund operating expenses ............................... 1.06% 1.76% 1.90% 0.75% 0.63%
- ----------
(1) No sales load will apply to shares received in the Reorganization by
shareholders of your Safeco Fund who become shareholders of record of
Pioneer California Tax Free Income Fund through the Reorganization. In
addition, shareholders of your Safeco Fund who own shares in their own name
(i.e., not in the name of a broker or other intermediary) and maintain such
account as of the closing of the Reorganization may purchase Class A shares
of Pioneer California Tax Free Income Fund or of any fund in the Pioneer
family of funds through such account in the future without paying this
sales charge.
(2) As described above, SAM had contractually agreed to reimburse Safeco
California Tax-Free Income Fund for certain fund operating expenses (but
not all of the operating expenses of the Fund) that exceeded the rate of
0.40% per annum of the Fund's average daily net assets. This arrangement
included all fund operating expenses except management fees, Rule 12b-1
fees, brokerage commissions, interest, and extraordinary expenses. In 2003,
SAM began voluntarily reimbursing the Fund to the extent that its total
expenses exceeded the rate of 0.86% per annum of the Fund's average daily
net assets for Class A shares, 1.61% per annum for Class B and Class C
shares, and 0.63% per annum for Investor Class shares. The above table
reflects "contractual" expense reimbursements from SAM, if any, but does
not reflect "voluntary" expense reimbursements by SAM.
(3) Pioneer has agreed that through the second anniversary of the closing of
the Reorganization, Pioneer will limit the expenses (excluding
extraordinary expenses) of the Investor Class shares of Pioneer California
Tax Free Income Fund to 0.63% of average daily net assets.
(4) There is a higher charge for international wire redemptions, which may vary
by country or dollar amount.
(5) A low balance fee is charged once each year in December for accounts with
balances under $1,000 in your Safeco Fund.
(6) Purchases of $1,000,000 or more of Class A shares of your Safeco Fund are
not subject to a front-end sales charge, but a 1.00% deferred sales charge
will apply to redemptions made in the first twelve months.
(7) The contingent deferred sales charge on Class B shares of your Safeco Fund
reduces to zero after six years from purchase, and the Class B shares
convert to Class A shares at that time.
(8) The contingent deferred sales charge on Class C shares applies only to
redemptions made in the first twelve months after purchase.
19
9 The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses
per share than Investor Class shares due to the Rule 12b-1 Plan. In
addition, although Pioneer has agreed to limit the expenses attributable to
Investor Class shares, Pioneer is not required to limit the expenses
attributable to Class A shares.
The hypothetical example below helps you compare the cost of investing in each
Fund. It assumes that: (a) you invest $10,000 in each Fund for the time periods
shown, (b) you reinvest all dividends and distributions, (c) your investment
has a 5% return each year, (d) each Fund's gross operating expenses remain the
same, (e) the expense limitations are in effect for five years for Safeco
California Tax-Free Income Fund and two years for Pioneer California Tax Free
Income Fund and (f) and the Investor Class shares of Pioneer California
Tax-Free Income Fund convert to Class A shares after two years. The examples
are for comparison purposes only and are not a representation of either Fund's
actual expenses or returns, either past or future.
Example
Safeco California Tax-Free Income Fund
Class A shares
Year 1 ...................... $ 553
Year 3 ...................... $ 772
Year 5 ...................... $1,008
Year 10 ..................... $1,686
Class B shares With redemption Without redemption
Year 1 ...................... $ 679 $ 179
Year 3 ...................... $ 854 $ 554
Year 5 ...................... $1,154 $ 954
Year 10 ..................... $1,719 $1,719
Class C shares With redemption Without redemption
Year 1 ...................... $ 293 $ 193
Year 3 ...................... $ 597 $ 597
Year 5 ...................... $1,026 $1,026
Year 10 ..................... $2,306 $2,306
Investor Class shares
Year 1 ...................... $77
Year 3 ...................... $240
Year 5 ...................... $417
Year 10 ..................... $930
Pro Forma Pioneer California Tax Free Income Fund
Investor Class shares
Year 1 ...................... $ 64
Year 3 ...................... $265
Year 5 ...................... $547
Year 10 ..................... $1,350
Reasons for the Proposed Reorganization
The Trustees believe that the proposed Reorganization is in the best
interests of Safeco California Tax-Free Income Fund. The Trustees considered
the following matters, among others, in approving the proposal.
First, SAM, the investment adviser to the Fund until August 2, 2004, was
acquired by Symetra. Symetra informed the Trustees that it did not intend to
continue to provide investment advisory services to the Safeco Funds.
Consequently, a change in your Safeco Fund's investment adviser was necessary.
Second, the resources of Pioneer. At June 30, 2004, Pioneer managed over
62 investment companies and accounts with approximately $35 billion in assets.
Pioneer is part of the global asset management group of UniCredito Italiano
S.p.A., one of the largest banking groups in Italy, providing investment
management and financial services to mutual funds, institutional and other
clients. As of June 30, 2004, assets under management of UniCredito Italiano
S.p.A. were approximately $151 billion worldwide. Shareholders of your Safeco
Fund would become part of a significantly larger family of funds that offers a
more diverse array of investment options and enhanced shareholder account
20
options. The Pioneer family of mutual funds offers over 62 funds, including
domestic and international equity and fixed income funds and a money market
fund that will be available to your Safeco Fund's shareholders through
exchanges. In addition, Pioneer offers shareholders additional options for
their accounts, including the ability to transact and exchange shares over the
telephone or online and the ability to access account values and transaction
history in all of the shareholder's direct accounts in the Pioneer Funds over
the telephone or online.
Third, Pioneer's commitment until the second anniversary of the
Reorganization to limit the expenses (excluding extraordinary expenses) of the
Investor Class of Pioneer California Tax Free Income Fund to 0.63% of average
daily net assets. This expense ratio is lower than both the gross expenses and
expenses net of expense reimbursement of the Class A shares and lower than the
net expenses of Investor Class shares of your Safeco Fund. Although you will
experience higher expenses once the Investor Class shares convert to Class A
shares after two years, your expenses will remain the same until the second
anniversary of the Reorganization.
Fourth, shareholders who own shares in their name as of the closing of the
Reorganization (i.e., not in the name of a broker or other intermediary) and
maintain their account may purchase additional Class A shares of the
corresponding Pioneer Fund through such account in the future or may exchange
those shares for Class A shares of another Pioneer Fund or purchase Class A
share of another Pioneer Fund without paying any sales charge.
Fifth, the Investor Class shares of Pioneer California Tax Free Income
Fund received in the Reorganization will provide Safeco California TF Income
Fund shareholders with exposure to substantially the same investment product as
they currently have.
Pioneer and Symetra will pay all out of pocket expenses of the Safeco
Funds and the Pioneer Funds associated with the Reorganizations, including, but
not limited to: (1) the expenses associated with the preparation, printing and
mailing of any shareholder communications, including this joint Proxy
Statement/Prospectus, and any filings with the SEC and other governmental
authorities in connection with the Reorganizations; (2) the fees and expenses
of any proxy solicitation firm retained in connection with the Reorganizations;
(3) the legal fees and expenses incurred by the Safeco Funds in connection with
the Reorganizations; and (4) the Trustee fees and out of pocket expenses
incurred as a result of the Reorganizations.
The Trustees also considered that Pioneer and Symetra will benefit from
the Reorganization. See "Certain Agreements between Pioneer and Symetra."
The Board of Trustees of Pioneer California Tax Free Income Fund also
considered that the Reorganization presents an excellent opportunity for the
Pioneer California Tax Free Income Fund to acquire investment assets without
the obligation to pay commissions or other transaction costs that a fund
normally incurs when purchasing securities. This opportunity provides an
economic benefit to Pioneer California Tax Free Income Fund.
21
CAPITALIZATION
The following table sets forth the capitalization of each Fund, as of
September 30, 2004, and the pro forma capitalization of the combined Fund as of
September 30, 2004.
Pro Forma
Safeco Pioneer Pioneer
California California California
Tax-Free Tax Free Tax Free
Income Fund Income Fund Income Fund
September 30, 2004 September 30, 2004 September 30, 2004
-------------------- -------------------- -------------------
Total Net Assets (in thousands) $99,315 N/A $99,315
Class A shares ................ $ 1,159 N/A N/A
Class B shares ................ $ 495 N/A N/A
Class C shares ................ $ 101 N/A N/A
Investor Class shares . . $97,561 N/A $99,315
Net Asset Value Per Share
Class A shares ................ $ 12.72 N/A N/A
Class B shares ................ $ 12.69 N/A N/A
Class C shares ................ $ 12.69 N/A N/A
Investor Class shares ......... $ 12.71 N/A $ 12.71
Shares Outstanding
Class A shares ................ 91,125 N/A N/A
Class B shares ................ 38,970 N/A N/A
Class C shares ................ 7,980 N/A N/A
Investor Class shares ......... 7,677,020 N/A 7,813,926
It is impossible to predict how many shares of Pioneer California Tax Free
Income Fund will actually be received and distributed by your Safeco Fund on
the Reorganization date. The table should not be relied upon to determine the
amount of Pioneer California Tax-Free Income Fund's shares that will actually
be received and distributed.
BOARD'S EVALUATION AND RECOMMENDATION
For the reasons described above, the Trustees, including the Independent
Trustees, approved the Reorganization. In particular, the Trustees determined
that the Reorganization is in the best interests of your Safeco Fund.
Similarly, the Board of Trustees of Pioneer California Tax Free Income Fund,
including its Independent Trustees, approved the Reorganization. They also
determined that the Reorganization is in the best interests of Pioneer
California Tax Free Income Fund.
The Trustees recommend that the shareholders of your Safeco Fund vote FOR
the proposal to approve the Agreement and Plan of Reorganization.
22
Safeco High-Yield Bond Fund and
Pioneer High Yield Fund
PROPOSAL 1(b)
Approval of Agreement and Plan of Reorganization
SUMMARY
The following is a summary of more complete information appearing later in
this Proxy Statement/Prospectus or incorporated herein. You should read
carefully the entire Proxy Statement/Prospectus, including the form of
Agreement and Plan of Reorganization attached as EXHIBIT A-1 because they
contain details that are not in the summary.
The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have a higher expenses
per share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor
Class shares, Pioneer is not required to limit the expenses attributable to
Class A shares.
In the table below, if a row extends across the entire table, the policy
disclosed applies to both your Safeco Fund and the Pioneer Fund.
Comparison of Safeco High-Yield Bond Fund to the Pioneer High Yield Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Safeco High-Yield Bond Fund Pioneer High Yield Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Business A series of Safeco Taxable Bond Trust, a A diversified open-end management
diversified open-end management investment investment company registered under the
company organized as a Delaware statutory trust. Investment Company Act and organized as a
Delaware statutory trust.
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets as of $38 million $7,665 million
June 30, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
Investment advisers and Investment adviser (until August 2, 2004): Investment adviser:
portfolio managers SAM Pioneer
Portfolio Managers: Portfolio Managers:
Greg Card (since 2001 and until August 2, Margaret D. Patel (since inception)
2004) Joined Pioneer in 1999
Assistant Vice President, SAM Investment professional for over 25 years
Joined SAM in 2001
Beverly Denny (since July 2003)
Assistant Vice President, SAM
Associated with SAM since 1991
Currently Pioneer is acting as investment
adviser to Safeco High-Yield Bond Fund. The
Portfolio Manager of Pioneer High Yield Fund,
as indicated in the next column, currently
manages your Safeco Fund.
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Investment objective Safeco High-Yield Bond Fund seeks to provide Pioneer High Yield Fund seeks to maximize
a high level of current interest income through total return through a combination of income
the purchase of high-yield debt securities. and capital appreciation.
- ------------------------------------------------------------------------------------------------------------------------------------
Each Fund provides written notice to shareholders at least 60 days prior to any change to its
investment objective as described above.
- ------------------------------------------------------------------------------------------------------------------------------------
23
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Safeco High-Yield Bond Fund Pioneer High Yield Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Primary investments Under normal market conditions, Safeco Under normal market conditions, the Fund
High-Yield Bond Fund invests at least 80% of invests at least 80% of net assets (plus any
net assets (plus any borrowings for investment borrowings for investment purposes) in below
purposes) in high-yield debt securities. investment grade (high yield) debt securities
and preferred stocks.
- ------------------------------------------------------------------------------------------------------------------------------------
Investment strategies Safeco High-Yield Bond Fund uses a "value" Pioneer High Yield Fund uses a "value" style
style of management and seeks to invest in an of management and seeks securities selling at
issuer that is a good value relative to its peers. reasonable prices or substantial discounts to
SAM historically evaluated an issuer's their underlying values and then holds these
creditworthiness, liquidity and prospects for securities for their incremental yields or until
growing earnings and cash flow. the market values reflect their intrinsic values.
- ------------------------------------------------------------------------------------------------------------------------------------
Other investments Safeco High-Yield Bond Fund may invest up to Pioneer High Yield Fund's investments may
20% of its assets in unrated securities. In have fixed or variable principal payments and
addition, the Fund may invest up to 5% of its all types of interest rate and dividend payment
total assets in securities which are in default. and reset terms, including fixed rate,
adjustable rate, zero coupon, contingent,
Safeco High-Yield Bond Fund may invest in deferred, payment in kind and auction rate
restricted securities that are exempt from features. The Fund invests in securities with a
registration requirements and eligible for resale broad range of maturities.
to qualified institutional investors under Rule
144A or Section 4(2). Pioneer High Yield Fund may invest in
mortgage-backed and asset-backed securities.
Safeco High-Yield Bond Fund may invest in To the extent the Fund invests significantly in
Yankee sector debt securities. Yankee debt asset-backed and mortgage-related securities,
securities are securities issued in the U.S. its exposure to prepayment and extension
by foreign issuers. These bonds involve risks may be greater than if it invested in
investment risks that are different from those other fixed income securities.
of domestic issuers.
Pioneer High Yield Fund may invest in
Safeco High-Yield Bond Fund may invest in mortgage derivatives and structured securities.
securities that are direct obligations of the U.S. Mortgage derivatives can become illiquid and
Treasury and supported by the full faith and hard to value in declining markets.
credit of the U.S. government. The Fund may
invest in other U.S. Government Securities, Consistent with its objective, Pioneer High
including (a) securities supported by the full Yield Fund may invest in equity securities
faith and credit of the U.S. government but issued by both U.S. and non-U.S. issuers,
that are not direct obligations of the U.S. including common stocks, depositary receipts,
Treasury, (b) securities that are not supported warrants, rights and other equity interests
by the full faith and credit of the U.S. when Pioneer believes they offer the potential
government but are supported by the issuer's for capital appreciation or to diversity the
ability to borrow from the U.S. Treasury, and Fund's portfolio.
(c) securities supported solely by the
creditworthiness of the issuer. Pioneer High Yield Fund may invest in
securities of Canadian issuers to the same
Safeco High-Yield Bond Fund may invest up to extent as U.S. issuers. The Fund may invest
20% of assets in foreign securities. up to 15% of its total assets in securities of
non-U.S. and non-Canadian issuers, including
debt and equity securities of corporate issuers
and debt securities of government issuers in
developed and emerging markets.
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24
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Safeco High-Yield Bond Fund Pioneer High Yield Fund
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Temporary defensive Safeco High-Yield Bond Fund may hold cash Pioneer High Yield Fund may invest all or part
strategies or invest in high-quality, short-term securities of its assets in securities with remaining
issued by an agency or instrumentality of the maturities of less than one year, cash
U.S. government, high-quality commercial equivalents or may hold cash.
paper, certificates of deposit, shares of no-
load, open-end money market funds, or
repurchase agreements.
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Diversification Each Fund is diversified for the purpose of the Investment Company Act, and each Fund is
subject to diversification requirements under the Code.
- ------------------------------------------------------------------------------------------------------------------------------------
Industry concentration Each Fund may not invest more than 25% of its assets in any one industry.
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Restricted and illiquid If immediately after and as a result of such Pioneer High Yield Fund may not invest more
securities action the value of the following securities, in than 15% of its net assets in securities which
the aggregate, would exceed 15% of Safeco are illiquid and other securities which are not
High-Yield Bond Fund's net assets, the Fund readily marketable.
will not (i) purchase securities for which there
is no readily available market, (ii) purchase
time deposits maturing in more than seven
days, (iii) purchase over-the-counter (OTC)
options or hold assets set aside to cover OTC
options written by the Fund, (iv) enter into
repurchase agreements maturing in more than
seven days, or (v) invest in interests in real
estate investment trusts which are not readily
marketable or interests in real estate limited
partnerships which are not listed or traded on
the NASDAQ Stock Market.
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Borrowing Safeco High-Yield Bond Fund may borrow Pioneer High Yield Fund may not borrow
money (i) from banks or (ii) by engaging in money, except the Fund may: (a) borrow from
reverse repurchase agreements. banks or through reverse repurchase
agreements in an amount up to 33 1/3% of the
Fund's total assets (including the amount
borrowed); (b) to the extent permitted by
applicable law, borrow up to an additional 5%
of the Fund's assets for temporary purposes;
(c) obtain such short-term credits as are
necessary for the clearance of portfolio
transactions; (d) purchase securities on
margin to the extent permitted by applicable
law; and (e) engage in transactions in
mortgage dollar rolls that are accounted for
as financings.
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Lending Safeco High-Yield Bond Fund may lend Pioneer High Yield Fund may lend portfolio
securities to qualified institutional investors securities with a value that may not exceed
with a value of up to 33% of the Fund's total 33 1/3% of the value of its assets.
assets.
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25
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Safeco High-Yield Bond Fund
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Derivative instruments Safeco High-Yield Bond Fund may not Pioneer High Yield Fund may use futures and
purchase securities on margin. However, the options on securities, indices and currencies,
Fund may (i) obtain short-term credits as forward currency exchange contracts and
necessary to clear its purchases and sales of other derivatives. The Fund does not use
securities, and (ii) make margin deposits in derivatives as a primary investment technique
connection with its use of financial options and and generally limits their use to hedging.
futures, forward and spot currency contracts, However, the Fund may use derivatives for a
swap transactions and other financial contracts variety of non-principal purposes, including:
or derivative instruments.
o As a hedge against adverse changes in
stock market prices, interest rates or
currency exchange rates
o As a substitute for purchasing or selling
securities
o To increase the Fund's return as a non-
hedging strategy that may be considered
speculative
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Other investment policies As described above, the Funds have substantially similar principal investment strategies and
and restrictions policies. Certain of the non-principal investment policies and restrictions are different. For a
more complete discussion of each Fund's other investment policies and fundamental and non-
fundamental investment restrictions, see the SAI.
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Buying, Selling and Exchanging Shares
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Sales charges Purchases under $1,000,000 of Class A shares The Investor Class shares of Pioneer High
of Safeco High-Yield Bond Fund are subject to Yield Fund you receive in the Reorganization
a 4.50% front-end sales charge. will not be subject to any sales charge.
Moreover, if you own shares in your own
Contingent deferred sales charge of up to 5% name as of the closing of the Reorganization
if you redeem Class B shares within six years (i.e., not in the name of a broker or other
of purchase. intermediary) and maintain your account, you
may purchase Class A shares of Pioneer High
Contingent deferred sales charge of 1% if you Yield Fund and Class A shares of any fund in
redeem Class C shares within one year of the Pioneer family of funds through such
purchase. account in the future without paying any
sales charge.
Purchases of Investor Class shares of Fund are
not subject to a sales load. Except as described above, Class A shares of
Pioneer High Yield Fund are subject to a
Safeco High-Yield Bond Fund assesses a front-end sales charge of up to 4.50%.
mandatory redemption fee of 2%, as a
percentage of the amount redeemed or
exchanged, on Class A and Investor Class
shares held less than 30 days.
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26
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Safeco High-Yield Bond Fund Pioneer High Yield Fund
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Management and other fees Safeco High-Yield Bond Fund pays an advisory Pioneer High Yield Fund pays Pioneer a
fee on a monthly basis at an annual rate as management fee equal to:
follows:
0.70% of average daily net assets up to
$0-$250,000,000: 0.65 of 1% $500 million;
$250,000,001-$750,000,000: 0.55 of 1% 0.65% of the next $500 million;
Over $750,000,000: 0.50 of 1% 0.60% of the next $4 billion;
0.55% of the next $1 billion;
SAM serves as administrator and fund 0.50% of the next $1 billion;
accounting agent for Safeco High-Yield Bond 0.45% of the next $1 billion;
Fund. The Fund pays SAM an administrative 0.40% of the next $1 billion;
services fee of 0.05% of the Fund's average 0.35% of the next $1 billion; and
daily net assets up to the first $200,000,000 0.30% on assets over $10 billion.
and 0.01% of its net assets thereafter, and an
accounting fee of 0.04% of the Fund's average During its most recent fiscal year, Pioneer
daily net assets up to the first $200,000,000 High Yield Fund paid an advisory fee at
and 0.01% of its net assets thereafter. an average rate of 0.61% of average daily
net assets.
During its most recent fiscal year, Safeco
High-Yield Bond Fund paid aggregate advisory In addition, Pioneer High Yield Fund
and administration fees at an average rate of reimburses Pioneer for certain fund
0.74% of average daily net assets. accounting and legal expenses incurred on
behalf of the Fund and pays a separate
SAM had contractually agreed until April 30, shareholder servicing/transfer agency fee to
2009, to pay certain fund operating expenses PIMSS, an affiliate of Pioneer.
(but not all of the operating expenses of the
Fund) that exceeded the rate of 0.40% per Through October 31, 2005, Pioneer may
annum of the Fund's average daily net assets. recover expenses that it incurred under a prior
This arrangement included all Fund operating expense limitation (within three years of being
expenses except management fees, Rule 12b-1 incurred) from the Fund if the expense ratio of
fees, brokerage commissions, interest, and the Class A shares is less than 1.00%. Each
extraordinary expenses. class will reimburse Pioneer no more than
the amount by which that class' expenses
In 2003, SAM began voluntarily reimbursing were reduced.
the Fund to the extent that its total expenses
exceeded the rate of 1.15% per annum of the For the fiscal year ended October 31, 2003,
Fund's average daily net assets for Class A Pioneer High Yield Fund's total annual
shares, 1.90% per annum for Class B and operating expenses for Class A shares were
Class C shares, and 0.90% per annum for 1.06% of average daily net assets. The Fund
Investor Class shares. currently does not have an expense limitation
for its Class A shares
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for Class
A shares, after giving effect to the contractual
expense limitation were 1.30%, and without
giving effect to the expense limitation, were
1.41%. After giving effect to the voluntary
expense reimbursement, the operating
expenses for Class A shares were 1.15%.
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27
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Safeco High-Yield Bond Fund Pioneer High Yield Fund
- ------------------------------------------------------------------------------------------------------------------------------------
For the fiscal year ended December 31, 2003, Pioneer has agreed until the second
the Fund's annual operating expenses for Class anniversary of the closing of the
B shares, after giving effect to the contractual Reorganization to limit the expenses
expense limitation were 2.05%, and without (excluding extraordinary expenses) of the
giving effect to the expense limitation, were Investor Class to 0.90% of the average daily
2.88%. After giving effect to the voluntary net assets attributable to the Investor Class.
expense reimbursement, the operating The Investor Class shares to be issued in the
expenses for Class A shares were 1.90%. Reorganization will convert to Class A shares
after two years. Class A shares will have
For the fiscal year ended December 31, 2003, higher expenses per share than Investor Class
the Fund's annual operating expenses for Class shares due to the Rule 12b-1 Plan. In
C shares, after giving effect to the contractual addition, although Pioneer has agreed to limit
expense limitation were 2.05%, and without the expenses attributable to Investor Class
giving effect to the expense limitation, were shares, Pioneer is not required to limit the
2.45%. After giving effect to the voluntary expenses attributable to Class A shares.
expense reimbursement, the operating
expenses for Class A shares were 1.90%.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for
Investor Class shares, after giving effect to the
contractual expense limitation were 1.05%, and
without giving effect to the expense limitation,
were 1.27%. After giving effect to the voluntary
expense reimbursement, the operating
expenses for Investor Class shares were 0.90%.
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Distribution and service Investor Class shares of each Fund are not subject to a Rule 12b-1 fee. Pioneer Investor Class
(12b-1) fee shares will convert into Class A shares after two years. Class A shares of each Fund are subject
to a Rule 12b-1 fee equal to 0.25% annually of average daily net assets.
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Buying shares You may buy shares of Safeco High-Yield Bond You may buy shares from any investment firm
Fund directly through Safeco Securities, the that has a sales agreement with PFD, Pioneer
Fund's principal underwriter or through High Yield Fund's distributor. Existing
brokers, registered investment advisers, banks shareholders of Safeco High-Yield Bond Fund
and other financial institutions that have who own shares in their own name as of the
entered into selling agreements with the Fund's closing date of the Reorganization and who
principal underwriter, as described in the maintain their accounts may buy shares of
Fund's prospectus. any fund in the Pioneer family of funds
through such accounts in the future without
Certain account transactions may be done paying sales charges.
by telephone.
If the account is established in the
shareholder's own name, shareholders may
also purchase additional shares of Pioneer
High Yield Fund by telephone or online.
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28
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Safeco High-Yield Bond Fund Pioneer High Yield Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Exchange privilege There are no sales charges on shares you You may exchange shares of Pioneer High
acquire through dividend reinvestment or other Yield Fund without incurring any fee on the
fund distributions or for Class A shares that exchange with the more than 62 other Pioneer
you have exchanged for Class A shares of Funds. Your exchange would be for Class A
another fund. shares, which would be subject to Rule 12b-1
fees. An exchange generally is treated as a
Certain account transactions may be done sale and a new purchase of shares for federal
by telephone. income tax purposes.
If the account is established in the
shareholder's own name, shareholders may
also exchange shares of Pioneer High Yield
Fund for shares of other Pioneer Funds by
telephone or online.
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Selling shares Each class of shares is sold at the net asset value per share next calculated after the Fund
receives your request in good order.
- ------------------------------------------------------------------------------------------------------------------------------------
You may sell your shares by contacting Safeco Normally, your investment firm will send your
High-Yield Bond Fund directly in writing or by request to sell shares to PIMSS. You can also
contacting a financial intermediary as described sell your shares by contacting the Fund
in the Fund's prospectus. directly if your account is registered in
your name.
If the account is established in the
shareholder's own name, shareholders may
also redeem shares of Pioneer High Yield
Fund by telephone or online.
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Comparison of Principal Risks of Investing in the Funds
Because each Fund has a similar investment objective, primary investment
policies and strategies, the Funds are subject to the same principal risks. You
could lose money on your investment in either Fund or not make as much as if
you invested elsewhere if:
o Interest rates go up, causing the value of debt securities in the Fund's
portfolio to decline
o The issuer of a security owned by a Fund defaults on its obligation to
pay principal and/or interest or has its credit rating downgraded
o During periods of declining interest rates, the issuer of a security may
exercise its option to prepay principal earlier than scheduled, forcing
the Fund to reinvest in lower yielding securities. This is known as call
or prepayment risk
o During periods of rising interest rates, the average life of certain types
of securities may be extended because of slower than expected principal
payments. This may lock in a below market interest rate, increase the
security's duration (the estimated period until the security is paid in
full) and reduce the value of the security. This is known as extension
risk
o The investment adviser's judgment about the attractiveness, relative value
or potential appreciation of a particular sector, security or investment
strategy proves to be incorrect
o A downturn in equity markets causes the price of convertible securities to
drop even when the prices of below investment grade bonds otherwise would
not go down
Investment in high yield securities involves substantial risk of loss.
High yield securities are considered speculative with respect to the issuer's
ability to pay interest and principal and are susceptible to default or decline
in market value due to adverse economic and business developments. The market
values for high yield securities tend to be very volatile, and these securities
are less liquid than investment grade debt securities. For these reasons, an
investment in either Fund is subject to the following specific risks:
29
o Increased price sensitivity to changing interest rates and deteriorating
economic environment
o Greater risk of loss due to default or declining credit quality
o Adverse company-specific events are more likely to render the issuer
unable to make interest and/or principal payments
o A negative perception of the high yield market develops, depressing the
price and liquidity of high yield securities. This negative perception
could last for a significant period of time
In addition, each Fund holds a material percentage of the outstanding debt
securities of certain high yield issuers, which practice may adversely impact
the liquidity and market value of those investments. Investments in the Funds
are not bank deposits and are not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. You could lose money by
investing in either Fund.
The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses per
share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor
Class shares, Pioneer is not required to limit the expenses attributable to
Class A shares.
Past Performance
Set forth below is performance information for each Fund. The bar charts
show how each Fund's total return (not including any deduction for sales
charges) has varied from year to year for each full calendar year. The tables
show average annual total return (before and after taxes) for each Fund over
time for each class of shares (including deductions for sales charges) compared
with a broad-based securities market index. The bar charts give an indication
of the risks of investing in each Fund, including the fact that you could incur
a loss and experience volatility of returns year to year. Past performance
before and after taxes does not indicate future results.
Safeco High-Yield Bond Fund -- Investor Class
Calendar Year Total Returns*
[THE FOLLOWING DATA WAS REPRESENTED BY A BAR CHART IN THE PRINTED DOCUMENT.]
'94 -2.25
'95 15.14
'96 10.39
'97 12.79
'98 4.45
'99 3.74
'00 -5.52
'01 -2.05
'02 -17.47
'03 30.50
* During the period shown in the bar chart, your Safeco Fund's highest
quarterly return was 10.53% for the quarter ended June 30, 2003, and the
lowest quarterly return was -12.38% for the quarter ended June 30, 2002.
30
Pioneer High Yield Fund -- Class A shares
Calendar Year Total Returns*
[THE FOLLOWING DATA WAS REPRESENTED BY A BAR CHART IN THE PRINTED DOCUMENT.]
'99 27.06
'00 12.70
'01 16.74
'02 -2.70
'03 32.13
* During the period shown in the bar chart, since the Fund's inception on
February 12, 1998, Pioneer High Yield Fund's highest quarterly return was
11.10% for the quarter ended December 31, 1999, and the lowest quarterly
return was -8.97% for the quarter ended September 30, 2002.
Safeco High-Yield Bond Fund
Average Annual Total Returns for the Period Ended December 31, 2003
- ----------------------------------------------------------------------------------------------------------
1 Year 5 Years 10 Years
- ----------------------------------------------------------------------------------------------------------
Safeco High-Yield Bond Fund, Class A shares
- ----------------------------------------------------------------------------------------------------------
Return Before Taxes 24.55% -0.45% 3.65%
- ----------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(1) 20.85% -3.67% 0.20%
- ----------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(1) 15.68% -2.35% 0.95%
- ----------------------------------------------------------------------------------------------------------
Safeco High-Yield Bond Fund, Class B shares
- ----------------------------------------------------------------------------------------------------------
Return Before Taxes 24.21% -0.58% 3.66%
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Safeco High-Yield Bond Fund, Class C shares
- ----------------------------------------------------------------------------------------------------------
Return Before Taxes 28.35% -0.27% 3.59%
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Safeco High-Yield Bond Fund, Investor Class shares
- ----------------------------------------------------------------------------------------------------------
Return Before Taxes 30.50% 0.67% 4.28%
- ----------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(1) 26.51% -2.68% 0.75%
- ----------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(1) 19.53% -1.49% 1.44%
- ----------------------------------------------------------------------------------------------------------
Merrill Lynch High-Yield Master II Index(2)
(reflects no deduction for fees, expenses or taxes) 28.15% 5.02% 7.05%
- ----------------------------------------------------------------------------------------------------------
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on your situation and may
differ from those shown. Furthermore, the after-tax returns shown are not
relevant to those who hold their shares through tax-deferred arrangements
such as 401(k) plans or IRA accounts, or to investors that are tax-exempt.
(2) The Merrill Lynch High-Yield Master II Index, an unmanaged index of
outstanding debt of domestic market issuers rated below investment grade,
but not in default, is for reference only and does not mirror the Fund's
investments.
31
Pioneer High Yield Fund -- Class A shares
Average Annual Total Returns for the Period Ended October 31, 2003
- -----------------------------------------------------------------------------------------------------------
Since
1 Year 5 Years Inception(1)
- -----------------------------------------------------------------------------------------------------------
Pioneer High Yield Fund, Class A shares
- -----------------------------------------------------------------------------------------------------------
Return Before Taxes 26.15% 15.49% 11.71%
- -----------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(2) 23.09% 11.39% 7.99%
- -----------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(2) 16.78% 10.72% 7.63%
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Merrill Lynch High-Yield Master II Index(3)
(reflects no deduction for fees, expenses or taxes) 28.15% 5.02% 4.45%
- -----------------------------------------------------------------------------------------------------------
Merrill Lynch Index of Convertible Bonds(4)
(speculative quality)
(reflects no deduction for fees, expenses or taxes) 35.99% 7.11% 7.17%
- -----------------------------------------------------------------------------------------------------------
(1) The Fund commenced operations on February 12, 1998.
(2) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on your situation and may
differ from those shown. Furthermore, the after-tax returns shown are not
relevant to those who hold their shares through tax-deferred arrangements
such as 401(k) plans or IRA accounts, or to investors that are tax-exempt.
(3) The Merrill Lynch High-Yield Master II Index, an unmanaged index of
outstanding debt of domestic market issuers rated below investment grade,
but not in default, is for reference only and does not mirror the Fund's
investments.
(4) The Merrill Lynch Index of Convertible Bonds (Speculative Quality) is a
market capitalization weighted index including mandatory and non-mandatory
domestic corporate convertible securities.
Pioneer High Yield Fund's Investor Class shares will not be outstanding
prior to the closing of the Reorganization and consequently have no performance
history. However, the performance record of the Investor Class would be
modestly higher than the performance of Class A shares due to the lower
expenses applicable to the Investor Class.
The most recent portfolio manager's discussion of each Fund's performance
is attached as Exhibit D.
32
The Funds' Fees and Expenses
Shareholders of both Funds pay various fees and expenses, either directly
or indirectly. The tables below show the fees and expenses that you would pay
if you were to buy and hold shares of each Fund. The expenses in the tables
appearing below are based on (i) for Safeco High-Yield Bond Fund, the expenses
of Safeco High-Yield Bond Fund for the year ended December 31, 2003 and (ii)
for Pioneer High Yield Fund, the expenses of Pioneer High Yield Fund for the
year ended October 31, 2003. Future expenses for all share classes may be
greater or less.
Pro Forma
Pioneer
Safeco Safeco Safeco Safeco High Yield
High-Yield High-Yield High-Yield High-Yield Fund
Bond Fund Bond Fund Bond Fund Bond Fund Investor
Shareholder transaction fees (paid directly from Class A Class B Class C Investor Class Class(9)
your investment) ------------ ------------ --------------- ---------------- -----------
Maximum sales charge (load) when you buy shares
as a percentage of offering price ..................... 4.50%(6) None None None None(1)
Maximum deferred sales charge (load) as a percentage
of purchase price or the amount you receive when you
sell shares, whichever is less ........................ None 5.00%(7) 1.00%(8) None None
Redemption fees for shares held less than 30 days ...... 2.00% None None 2.00% N/A
Wire redemption fee .................................... $ 204 $ 204 $ 204 $ 204 $ 10
Annual low balance fee ................................. $ 125 $ 125 $ 125 $ 125 N/A
Annual fund operating expenses (deducted from
fund assets) (as a % of average net assets)
Management fee ......................................... 0.65% 0.65% 0.65% 0.65% 0.58%
Distribution and service (12b-1) fee ................... 0.25% 1.00% 1.00% None None
Other expenses ......................................... 0.51% 1.23% 0.80% 0.62% 0.38%
Total fund operating expenses .......................... 1.41% 2.88% 2.45% 1.27% 0.96%
Expense reimbursement/reduction ........................ 0.11%(2) 0.83%(2) 0.40%(2) 0.22%(2) 0.06%(3)
Net fund operating expenses ............................ 1.30% 2.05% 2.05% 1.05% 0.90%
- ----------
(1) No sales load will apply to shares received in the Reorganization by
shareholders of your Safeco Fund who become shareholders of record of
Pioneer High Yield Fund through the Reorganization. In addition,
shareholders of your Safeco Fund who own shares in their own name (i.e.,
not in the name of a broker or other intermediary) and maintain such
account as of the closing of the Reorganization may purchase Class A shares
of Pioneer High Yield Fund or of any fund in the Pioneer family of funds
through such account in the future without paying this sales charge.
(2) As described above, SAM had contractually agreed to reimburse Safeco
High-Yield Bond Fund for certain fund operating expenses (but not all of
the operating expenses of the Fund) that exceeded the rate of 0.40% per
annum of the Fund's average daily net assets. This arrangement included all
fund operating expenses except management fees, Rule 12b-1 fees, brokerage
commissions, interest, and extraordinary expenses. In 2003, SAM began
voluntarily reimbursing the Fund to the extent that its total expenses
exceeded the rate of 1.15% per annum of the Fund's average daily net assets
for Class A shares, 1.90% per annum for Class B and Class C shares, and
0.90% per annum for Investor Class shares. The above table reflects
"contractual" expense reimbursements from SAM, if any, but does not reflect
"voluntary" expense reimbursements by SAM.
(3) Pioneer has agreed that through the second anniversary of the closing of
the Reorganization, Pioneer will limit the expenses (excluding
extraordinary expenses) of the Investor Class shares of Pioneer High Yield
Fund to 0.90% of average daily net assets.
(4) There is a higher charge for international wire redemptions, which may vary
by country or dollar amount.
(5) A low balance fee is charged once each year in December for accounts with
balances under $1,000 in your Safeco Fund.
(6) Purchases of $1,000,000 or more of Class A shares of your Safeco Fund are
not subject to a front-end sales charge, but a 1.00% deferred sales charge
will apply to redemptions made in the first twelve months except with
respect to participant-directed redemptions from qualified retirement
plans.
(7) The contingent deferred sales charge on Class B shares of your Safeco Fund
reduces to zero after six years from purchase, and the Class B shares
convert to Class A shares at that time.
(8) The contingent deferred sales charge on Class C shares applies only to
redemptions made in the first twelve months after purchase.
33
(9) The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses
per share than Investor Class shares due to the Rule 12b-1 Plan. In
addition, although Pioneer has agreed to limit the expenses attributable to
Investor Class shares, Pioneer is not required to limit the expenses
attributable to Class A shares. Class A shares do not currently have an
expense limitation and may be subject to higher total operating expenses.
The hypothetical example below helps you compare the cost of investing in
each Fund. It assumes that: (a) you invest $10,000 in each Fund for the time
periods shown, (b) you reinvest all dividends and distributions, (c) your
investment has a 5% return each year, (d) each Fund's gross operating expenses
remain the same, (e) the expense limitations are in effect for five years for
Safeco High-Yield Bond Fund and two years for Pioneer High Yield Fund and (f)
and the Investor Class shares of Pioneer High Yield Fund convert to Class A
shares after two years. The examples are for comparison purposes only and are
not a representation of either Fund's actual expenses or returns, either past
or future.
Example
Safeco High-Yield Bond Fund
Class A shares
Year 1 ...................... $ 576
Year 3 ...................... $ 844
Year 5 ...................... $1,131
Year 10 ..................... $2,014
Class B shares With redemption Without redemption
Year 1 ...................... $ 708 $ 208
Year 3 ...................... $ 943 $ 643
Year 5 ...................... $1,303 $1,103
Year 10 ..................... $2,155 $2,155
Class C shares With redemption Without redemption
Year 1 ...................... $ 308 $ 208
Year 3 ...................... $ 643 $ 643
Year 5 ...................... $1,103 $1,103
Year 10 ..................... $2,613 $2,613
Investor Class shares
Year 1 ...................... $107
Year 3 ...................... $334
Year 5 ...................... $579
Year 10 ..................... $1,425
Pro Forma Pioneer High Yield Fund
Investor Class shares
Year 1 ...................... $ 92
Year 3 ...................... $ 300
Year 5 ...................... $ 539
Year 10 ..................... $1,225
Reasons for the Proposed Reorganization
The Trustees believe that the proposed Reorganization is in the best
interests of Safeco High-Yield Bond Fund. The Trustees considered the following
matters, among others, in approving the proposal.
First, SAM, the investment adviser to the Safeco Fund until August 2,
2004, was acquired by Symetra. Symetra informed the Trustees that it did not
intend to continue to provide investment advisory services to the Safeco Funds.
Consequently, a change in your Safeco Fund's investment adviser was necessary.
Second, the investment performance of Pioneer High Yield Fund, which has
one of the best performance records of any mutual fund specializing in high
yield securities. For the one and five year periods ended June 30, 2004, Class
A shares of Pioneer High Yield Fund had an average annual return of 11.63% and
14.31% compared to an average annual return of the Class A shares and Investor
Class shares
34
of 6.42% and 11.67% (one year) and -0.42% and 0.74% (five years), respectively,
during the same period. In addition, the Trustees considered the track record
of Pioneer in managing equity and fixed income mutual funds.
Third, the resources of Pioneer. At June 30, 2004, Pioneer managed over 62
investment companies and accounts with approximately $35 billion in assets.
Pioneer is part of the global asset management group of UniCredito Italiano
S.p.A., one of the largest banking groups in Italy, providing investment
management and financial services to mutual funds, institutional and other
clients. As of June 30, 2004, assets under management of UniCredito Italiano
S.p.A. were approximately $151 billion worldwide. Shareholders of your Safeco
Fund would become part of a significantly larger family of funds that offers a
more diverse array of investment options and enhanced shareholder account
options. The Pioneer family of mutual funds offers over 62 funds, including
domestic and international equity and fixed income funds and a money market
fund that will be available to your Safeco Fund's shareholders through
exchanges. In addition, Pioneer offers shareholders additional options for
their accounts, including the ability to transact and exchange shares over the
telephone or online and the ability to access account values and transaction
history in all of the shareholder's direct accounts in the Pioneer Funds over
the telephone or online.
Fourth, Pioneer High Yield Fund's lower operating expenses and Pioneer's
commitment until the second anniversary of the Reorganization to limit the
expenses (excluding extraordinary expenses) of the Investor Class of Pioneer
High Yield Fund to 0.90% of average daily net assets. The estimated expenses of
the Investor Class shares of Pioneer High Yield Fund are below both the gross
expenses and expenses net of contractual expense reimbursement of each class of
shares of your Safeco Fund. Although you will experience higher expenses once
the Investor Class shares convert to Class A shares after two years, Pioneer
High Yield Fund's Class A expense ratio for the most recent fiscal year was
1.06% of average daily net assets, which was below the net expenses of the
Class A shares of your Safeco Fund and only one basis point above the net
expenses of the Investor Class of your Safeco Fund.
Fifth, the substantially larger size of Pioneer High Yield Fund offers
greater opportunity for diversification of the investment portfolio, which
should help to reduce risks.
Sixth, shareholders who own shares in their name as of the closing of the
Reorganization (i.e., not in the name of a broker or other intermediary) and
maintain their account may purchase additional Class A shares of the
corresponding Pioneer Fund through such account in the future or may exchange
those shares for Class A shares of another Pioneer Fund or purchase Class A
share of another Pioneer Fund without paying any sales charge.
Seventh, the Investor Class shares of Pioneer High Yield Fund received in
the Reorganization will provide Safeco High-Yield Bond Fund shareholders with
exposure to substantially the same investment product as they currently have.
Pioneer and Symetra will pay all of out of pocket expenses of the Safeco
Funds and the Pioneer Funds associated with the Reorganizations, including, but
not limited to: (1) the expenses associated with the preparation, printing and
mailing of any shareholder communications, including this joint Proxy
Statement/Prospectus, and any filings with the SEC and other governmental
authorities in connection with the Reorganizations; (2) the fees and expenses
of any proxy solicitation firm retained in connection with the Reorganizations;
(3) the legal fees and expenses incurred by the Safeco Funds in connection with
the Reorganizations; and (4) the Trustee fees and out of pocket expenses
incurred as a result of the Reorganizations.
The Trustees considered that Pioneer and Symetra will benefit from the
Reorganization. See "Certain Agreements between Pioneer and Symetra."
The Board of Trustees of Pioneer High Yield Fund also considered that the
Reorganization presents an excellent opportunity for the Pioneer High Yield
Fund to acquire investment assets without the obligation to pay commissions or
other transaction costs that a fund normally incurs when purchasing securities.
This opportunity provides an economic benefit to Pioneer High Yield Fund and
its shareholders.
35
CAPITALIZATION
The following table sets forth the capitalization of each Fund as of
September 30, 2004, and the pro forma capitalization of the combined Fund as of
September 30, 2004.
Safeco Pro Forma
High-Yield Pioneer Pioneer
Bond Fund High Yield Fund High Yield Fund
September 30, 2004 September 30, 2004 September 30, 2004
-------------------- -------------------- -------------------
Total Net Assets (in thousands) $39,683 $7,811,801 $7,851,484
Class A shares ................ $ 1,857 $3,469,718 $3,469,718
Class B shares ................ $ 465 $1,780,040 $1,780,040
Class C shares ................ $ 261 $2,411,841 $2,411,841
Investor Class shares ......... $37,101 N/A $ 39,683
Class Y shares ................ N/A $ 143,957 $ 143,957
Class R shares ................ N/A $ 6,245 $ 6,245
Net Asset Value Per Share
Class A shares ................ $ 5.78 $ 11.72 $ 11.72
Class B shares ................ $ 5.78 $ 11.77 $ 11.77
Class C shares ................ $ 5.79 $ 11.88 $ 11.88
Investor Class shares ......... $ 5.78 N/A $ 11.72
Class Y shares ................ N/A $ 11.69 $ 11.69
Class R shares ................ N/A $ 12.87 $ 12.87
Shares Outstanding
Class A shares ................ 321,002 295,917,476 295,917,476
Class B shares ................ 480,411 151,211,694 151,211,694
Class C shares ................ 45,023 203,097,222 203,097,222
Investor Class shares ......... 6,417,136 N/A 3,385,922
Class Y shares ................ N/A 12,311,037 12,311,037
Class R shares ................ N/A 485,113 485,113
It is impossible to predict how many shares of Pioneer High Yield Fund
will actually be received and distributed by your Safeco Fund on the
Reorganization date. The table should not be relied upon to determine the
amount of Pioneer High Yield Fund's shares that will actually be received and
distributed.
BOARD'S EVALUATION AND RECOMMENDATION
For the reasons described above, the Trustees, including the Independent
Trustees, approved the Reorganization. In particular, the Trustees determined
that the Reorganization is in the best interests of your Safeco Fund.
Similarly, the Board of Trustees of Pioneer High Yield Fund, including its
Independent Trustees, approved the Reorganization. They also determined that
the Reorganization is in the best interests of Pioneer High Yield Fund.
The Trustees recommend that the shareholders of your Safeco Fund vote FOR
the proposal to approve the Agreement and Plan of Reorganization.
36
Safeco Intermediate-Term Bond Fund and
Pioneer Bond Fund
PROPOSAL 1(c)
Approval of Agreement and Plan of Reorganization
SUMMARY
The following is a summary of more complete information appearing later in
this Proxy Statement/Prospectus or incorporated herein. You should read
carefully the entire Proxy Statement/Prospectus, including the form of
Agreement and Plan of Reorganization attached as EXHIBIT A-1 because they
contain details that are not in the summary.
The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have a higher expenses
per share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor
Class shares, Pioneer is not required to limit the expenses attributable to
Class A shares.
In the table below, if a row extends across the entire table, the policy
disclosed applies to both your Safeco Fund and the Pioneer Fund.
Comparison of Safeco Intermediate-Term Bond Fund to the Pioneer Bond Fund
- ------------------------------------------------------------------------------------------------------------------------
Safeco Intermediate-Term Bond Fund Pioneer Bond Fund
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Business A series of Safeco Managed Bond Trust, a A diversified open-end management
diversified open-end management investment investment company registered under the
company organized as a Delaware statutory Investment Company Act and organized as a
trust. Delaware statutory trust.
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Net assets as of $10 million $259 million
June 30, 2004
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Investment advisers and Investment adviser (until August 2, 2004): Investment adviser:
portfolio managers SAM Pioneer
Portfolio Managers (since 2004 and until Portfolio Managers:
August 2, 2004): Day-to-day management of the Fund's
Greg Card portfolio is the responsibility of a team of
Assistant Vice President, SAM fixed income portfolio managers led by
Joined SAM in 2001 Kenneth J. Taubes.
Tim Hokari Mr. Taubes joined Pioneer as a senior vice
Assistant Vice President, SAM president in September 1998 and has been an
Joined SAM in 2000 investment professional since 1982.
Lesley Fox
Assistant Vice President, SAM
Joined SAM in 2000
Nancy McFadden
Fixed Income Analyst, SAM
Joined SAM in 2001
Currently Pioneer is acting as investment
adviser to Safeco Intermediate-Term Bond
Fund. The Portfolio Managers of the Pioneer
Bond Fund, as indicated in the next column,
are currently managing your Safeco Fund.
- ------------------------------------------------------------------------------------------------------------------------
37
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Safeco Intermediate-Term Bond Fund Pioneer Bond Fund
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Investment objective Safeco Intermediate-Term Bond Fund seeks a Pioneer Bond Fund seeks current income by
high level of current income as is consistent investing primarily in an investment-grade
with the preservation of capital. portfolio, consistent with capital preservation
and prudent investment risk.
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Each Fund provides written notice to shareholders at least 60 days prior to any change to its
investment objective as described above.
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Primary investments Under normal circumstances, Safeco Under normal market conditions, Pioneer
Intermediate-Term Bond Fund invests at least Bond Fund invests at least 80% of total
80% of net assets (plus any borrowings for assets in:
investment purposes) in bonds, including but
not limited to corporate, government and o Debt securities issued or guaranteed by the
mortgage bonds, most of which will be U.S. government or its agencies and
investment-grade quality, whether rated instrumentalities
or unrated.
o Debt securities, including convertible debt,
The dollar weighted average maturity of Safeco of corporate and other issuers rated at least
Intermediate-Term Bond Fund generally ranges investment grade at the time of investment,
between three and ten years. and comparably rated commercial paper
o Cash and cash equivalents, certificates of
deposit, repurchase agreements maturing in
one week or less and bankers' acceptances
- ---------------------------------------------------------------------------------------------------------------------------------
Investment strategies In managing the portfolio and selecting Pioneer considers both broad economic and
securities, SAM historically considered: issuer specific factors in selecting a portfolio
designed to achieve the fund's investment
o The price of the security relative to its rating objective. In assessing the appropriate
and market sector maturity, rating and sector weighting of the
o Structural features, such as an issuer's right fund's portfolio, Pioneer considers a variety of
to buy the bond back at a stated price or the factors that are expected to influence
Fund's right to require the issuer to buy the economic activity and interest rates. These
bond back at a stated price factors include fundamental economic
o The effect the security might have on indicators, such as the rates of economic
existing diversification of Fund assets and growth and inflation, Federal Reserve
allocation among various market sectors monetary policy and the relative value of the
o The effect the security might have on the U.S. dollar compared to other currencies.
yield and sensitivity to interest rate changes Once Pioneer determines the preferable
of the Fund's overall portfolio portfolio characteristics, it selects individual
securities based upon the terms of the
Safeco Intermediate-Term Bond Fund may securities (such as yields compared to U.S.
engage in short-term trading to achieve Treasuries or comparable issuers), liquidity
its objective. and rating, sector and issuer diversification.
- ---------------------------------------------------------------------------------------------------------------------------------
38
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Safeco Intermediate-Term Bond Fund Pioneer Bond Fund
- ---------------------------------------------------------------------------------------------------------------------------------
Other investments Safeco Intermediate-Term Bond Fund may Pioneer Bond Fund may invest up to 20% of
invest up to 20% of its assets in high yield its total assets in debt securities rated below
debt securities rated below investment grade investment grade or, if unrated, of equivalent
("junk" or "high-risk" bonds) and may invest in quality as determined by Pioneer.
Yankee sector bonds and Eurodollar bonds.
Up to 15% of its total assets in equity and
Safeco Intermediate-Term Bond Fund may also debt securities of non-U.S. corporate issuers
invest in mortgage-backed or asset-backed and in debt securities of non-U.S. government
securities. issuers.
Safeco Intermediate-Term Bond Fund may Pioneer Bond Fund will not invest more than
invest up to 20% of assets in foreign securities. 5% of its total assets in the securities of
emerging markets issuers.
Pioneer Bond Fund may invest a substantial
portion of its assets in mortgage-related
securities, which represent interests in pools
of mortgage loans assembled for sale to
investors by various U.S. governmental
agencies, government-related organizations
and private issuers. These investments may
include mortgage-related derivative securities
such as collateralized mortgage obligations.
Pioneer Bond Fund may invest in securities of
Canadian issuers to the same extent as
securities of U.S. issuers.
- ---------------------------------------------------------------------------------------------------------------------------------
Temporary defensive Safeco Intermediate-Term Bond Fund may hold Pioneer Bond Fund may invest all or part of
strategies cash or invest in high-quality, short-term its assets in securities with remaining
securities issued by an agency or maturities of less than one year, cash
instrumentality of the U.S. government, high- equivalents or may hold cash.
quality commercial paper, certificates of
deposit, shares of no-load, open-end money
market funds, or repurchase agreements.
- ---------------------------------------------------------------------------------------------------------------------------------
Diversification Each Fund is diversified for the purpose of the Investment Company Act, and each Fund is
subject to diversification requirements under the Code.
- ---------------------------------------------------------------------------------------------------------------------------------
Industry concentration Each Fund may not invest more than 25% of its assets in any one industry.
- ---------------------------------------------------------------------------------------------------------------------------------
39
- ---------------------------------------------------------------------------------------------------------------------------------
Safeco Intermediate-Term Bond Fund Pioneer Bond Fund
- ---------------------------------------------------------------------------------------------------------------------------------
Restricted and illiquid If immediately after and as a result of such Pioneer Bond Fund may not invest more than
securities action the value of the following securities, in 15% of its net assets in securities which are
the aggregate, would exceed 15% of Safeco illiquid and other securities which are not
Intermediate-Term Bond Fund's net assets, the readily marketable.
Fund will not (i) purchase securities for which
there is no readily available market, (ii)
purchase time deposits maturing in more than
seven days, (iii) purchase over-the-counter
(OTC) options or hold assets set aside to cover
OTC options written by the Fund, (iv) enter into
repurchase agreements maturing in more than
seven days, or (v) invest in interests in real
estate investment trusts which are not readily
marketable or interests in real estate limited
partnerships which are not listed or traded on
the NASDAQ Stock Market.
- ---------------------------------------------------------------------------------------------------------------------------------
Borrowing Safeco Intermediate-Term Bond Fund may Pioneer Bond Fund may not borrow money,
borrow money (i) from banks or (ii) by except the Fund may: (a) borrow from banks
engaging in reverse repurchase agreements. or through reverse repurchase agreements in
an amount up to 33 1/3% of the Fund's total
assets (including the amount borrowed); (b)
to the extent permitted by applicable law,
borrow up to an additional 5% of the Fund's
assets for temporary purposes; (c) obtain
such short-term credits as are necessary for
the clearance of portfolio transactions; (d)
purchase securities on margin to the extent
permitted by applicable law; and (e) engage in
transactions in mortgage dollar rolls that are
accounted for as financings.
- ---------------------------------------------------------------------------------------------------------------------------------
Lending Safeco Intermediate-Term Bond Fund may lend Pioneer Bond Fund may lend portfolio
securities to qualified institutional investors securities with a value that may not exceed
with a value of up to 33% of the Fund's total 33 1/3% of the value of its total assets.
assets.
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Derivative instruments Safeco Intermediate-Term Bond Fund may not Pioneer Bond Fund may use futures and
purchase securities on margin. However, the options on securities, indices and currencies,
Fund may (i) obtain short-term credits as forward currency exchange contracts and
necessary to clear its purchases and sales of other derivatives. The Fund does not use
securities, and (ii) make margin deposits in derivatives as a primary investment technique
connection with its use of financial options and and generally limits their use to hedging.
futures, forward and spot currency contracts, However, the Fund may use derivatives for a
swap transactions and other financial contracts variety of non-principal purposes, including:
or derivative instruments.
o As a hedge against adverse changes in
stock market prices, interest rates or
currency exchange rates
o As a substitute for purchasing or selling
securities
o To increase the Fund's return as a non-
hedging strategy that may be considered
speculative
- ---------------------------------------------------------------------------------------------------------------------------------
40
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Safeco Intermediate-Term Bond Fund Pioneer Bond Fund
- ---------------------------------------------------------------------------------------------------------------------------------
Other investment policies and As described above, the Funds have substantially similar principal investment strategies and
restrictions policies. Certain of the non-principal investment policies and restrictions are different. For a
more complete discussion of each Fund's other investment policies and fundamental and non-
fundamental investment restrictions, see the SAI.
- ---------------------------------------------------------------------------------------------------------------------------------
Buying, Selling and Exchanging Shares
- ---------------------------------------------------------------------------------------------------------------------------------
Sales charges Purchases under $1,000,000 of Class A shares The Investor Class shares of Pioneer Bond
of Safeco Intermediate-Term Bond Fund are Fund you receive in the Reorganization will
subject to a 3.50% front-end sales charge. not be subject to any sales charge. Moreover,
if you own shares in your own name as of the
Contingent deferred sales charge of up to 4% closing of the Reorganization (i.e., not in the
if you redeem Class B shares within five years name of a broker or other intermediary) and
of purchase. maintain your account, you may purchase
Class A shares of Pioneer Bond Fund and
Contingent deferred sales charge of 1% if you Class A shares of any fund in the Pioneer
redeem Class C shares within one year of family of funds through such account in the
purchase. future without paying any sales charge.
Purchases of Investor Class shares of the Fund Except as described above, Class A shares of
are not subject to a sales load. Pioneer Bond Fund are subject to a front-end
sales charge of up to 4.50%.
The Fund assesses a mandatory redemption
fee of 2%, as a percentage of the amount
redeemed or exchanged, on Class A and
Investor Class shares held less than 30 days.
- ---------------------------------------------------------------------------------------------------------------------------------
41
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Safeco Intermediate-Term Bond Fund Pioneer Bond Fund
- ---------------------------------------------------------------------------------------------------------------------------------
Management and other fees Safeco Intermediate-Term Bond Fund pays an Pioneer Bond Fund pays Pioneer a
advisory fee on a monthly basis at an annual management fee equal to 0.50% of the Fund's
rate as follows: average daily net assets.
$0-750,000,000: 0.50 of 1% During its most recent fiscal year, Pioneer
$750,000,001-$1,250,000,000 0.45 of 1% Bond Fund paid an advisory fee at an average
Over $1,250,000,000: 0.40 of 1% rate of 0.50% of average daily net assets.
SAM serves as administrator and fund In addition, the Fund reimburses Pioneer for
accounting agent for Safeco Intermediate- certain fund accounting and legal expenses
Term Bond Fund. The Fund pays SAM an incurred on behalf of the Fund and pays a
administrative services fee of 0.05% of the separate shareholder servicing/transfer agency
Fund's average daily net assets up to the first fee to PIMSS, an affiliate of Pioneer.
$200,000,000 and 0.01% of its net assets
thereafter, and an accounting fee of 0.04% of For the fiscal year ended June 30, 2004, the
the Fund's average daily net assets up to the Fund's total annual operating expenses for
first $200,000,000 and 0.01% of its net assets Class A shares were 1.14% of average daily
thereafter. net asset. The Fund does not currently have
an expense limitation for its Class A shares.
During its most recent fiscal year, Safeco
Intermediate-Term Bond Fund paid aggregate Pioneer has agreed until the second
advisory and administration fees at an average anniversary of the closing of the
rate of 0.59% of average daily net assets. Reorganization to limit the expenses
(excluding extraordinary expenses) of the
SAM had contractually agreed until April 30, Investor Class to 0.74% of the average daily
2009, to pay certain fund operating expenses net assets attributable to the Investor Class.
(but not all of the operating expenses of the
Fund) that exceeded the rate of 0.40% per The Investor Class shares to be issued in the
annum of the Fund's average daily net assets. Reorganization will convert to Class A shares
This arrangement included all Fund operating after two years. Class A shares will have
expenses except management fees, Rule 12b-1 higher expenses per share than Investor Class
fees, brokerage commissions, interest, and shares due to the Rule 12b-1 Plan. In
extraordinary expenses. addition, although Pioneer has agreed to limit
the expenses attributable to Investor Class
In 2003, SAM began voluntarily reimbursing shares, Pioneer is not required to limit the
the Fund to the extent that its total expenses expenses attributable to Class A shares.
exceeded the rate of 0.99% per annum of the
Fund's average daily net assets for Class A
shares, 1.74% per annum for Class B and
Class C shares, and 0.74% per annum for
Investor Class shares.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for Class
A shares, after giving effect to the contractual
expense limitation were 1.15%, and without
giving effect to the expense limitation, were
2.05%. After giving effect to the voluntary
expense reimbursement, the operating
expenses for Class A shares were 0.99%.
- ---------------------------------------------------------------------------------------------------------------------------------
42
- ---------------------------------------------------------------------------------------------------------------------------------
Safeco Intermediate-Term Bond Fund Pioneer Bond Fund
- ---------------------------------------------------------------------------------------------------------------------------------
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for Class
B shares, after giving effect to the contractual
expense limitation were 1.90%, and without
giving effect to the expense limitation, were
2.78%. After giving effect to the voluntary
expense reimbursement, the operating
expenses for Class B shares were 1.74%.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for Class
C shares, after giving effect to the contractual
expense limitation were 1.90%, and without
giving effect to the expense limitation, were
42.54%. After giving effect to the voluntary
expense reimbursement, the operating
expenses for Class C shares were 1.74%.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for
Investor Class shares, after giving effect to the
contractual expense limitation were 0.90%, and
without giving effect to the expense limitation,
were 1.53% per share. After giving effect to
the voluntary expense reimbursement, the
operating expenses for Investor Class shares
were 0.74%.
- ---------------------------------------------------------------------------------------------------------------------------------
Distribution and service Investor Class shares of each Fund are not subject to a Rule 12b-1 fee. Pioneer Investor Class
(12b-1) fee shares will convert into Class A shares after two years. Class A shares of each Fund are subject
to a Rule 12b-1 fee equal to 0.25% annually of average daily net assets.
- ---------------------------------------------------------------------------------------------------------------------------------
Buying shares You may buy shares of Safeco Intermediate- You may buy shares from any investment firm
Term Bond Fund directly through Safeco that has a sales agreement with PFD, Pioneer
Securities or through brokers, registered Bond Fund's distributor. Existing shareholders
investment advisers, banks and other financial of Safeco Intermediate-Term Bond Fund who
institutions that have entered into selling own shares in their own name as of the
agreements with the Fund's principal closing date of the Reorganization and who
underwriter, as described in the Fund's maintain their accounts may buy shares of
prospectus. any fund in the Pioneer family of funds
through such accounts in the future without
Certain account transactions may be done paying sales charges.
by telephone.
If the account is established in the
shareholder's own name, shareholders may
also purchase additional shares of Pioneer
Bond Fund by telephone or online.
- ---------------------------------------------------------------------------------------------------------------------------------
43
- ---------------------------------------------------------------------------------------------------------------------------------
Safeco Intermediate-Term Bond Fund Pioneer Bond Fund
- ---------------------------------------------------------------------------------------------------------------------------------
Exchange privilege There are no sales charges on shares you You may exchange shares of Pioneer Bond
acquire through dividend reinvestment or other Fund without incurring any fee on the
fund distributions or for Class A shares that exchange with the more than 62 other Pioneer
you have exchanged for Class A shares of Funds. Your exchange would be for Class A
another fund. shares, which would be subject to Rule 12b-1
fees. An exchange generally is treated as a
Certain account transactions may be done sale and a new purchase of shares for federal
by telephone. income tax purposes.
If the account is established in the
shareholder's own name, shareholders may
also exchange shares of Pioneer Bond Fund
for shares of other Pioneer Funds by
telephone or online.
- ---------------------------------------------------------------------------------------------------------------------------------
Selling shares Each class of shares will be sold at net asset value per share next calculated after the Fund
receives your request in good order.
- ---------------------------------------------------------------------------------------------------------------------------------
You may sell your shares by contacting Safeco Normally, your investment firm will send your
Intermediate-Term Bond Fund directly in writing request to sell shares to PIMSS. You can also
or by contacting a financial intermediary as sell your shares by contacting the Fund
described in the Fund's prospectus. directly if your account is registered in
your name.
If the account is established in the
shareholder's own name, shareholders may
also redeem shares of Pioneer Bond Fund by
telephone or online.
- ---------------------------------------------------------------------------------------------------------------------------------
Comparison of Principal Risks of Investing in the Funds
Because each Fund has a similar investment objective, primary investment
policies and strategies, the Funds are subject to the same principal risks. The
market value of fixed income securities tends to be more volatile the longer
the maturity of such security. Since Pioneer Bond Fund may invest in securities
of longer maturity than your Safeco Fund, an investment in Pioneer Bond Fund
may have correspondingly greater risk. You could lose money on your investment
in either Fund or not make as much as if you invested elsewhere if:
o Interest rates go up, causing the value of debt securities in the Fund's
portfolio to decline.
o The issuer of a security owned by a Fund defaults on its obligation to pay
principal and/or interest or has its credit rating downgraded.
o During periods of declining interest rates, the issuer of a security may
exercise its option to prepay principal earlier than scheduled, forcing
the Fund to reinvest in lower yielding securities. This is known as call
or prepayment risk.
o During periods of rising interest rates, the average life of certain types
of securities may be extended because of slower than expected principal
payments. This may lock in a below market interest rate, increase the
security's duration (the estimated period until the security is paid in
full) and reduce the value of the security. This is known as extension
risk.
o The investment adviser's judgment about the attractiveness, relative value
or potential appreciation of a particular sector, security or investment
strategy proves to be incorrect.
o A downturn in equity markets causes the price of convertible securities to
drop even when the prices of below investment grade bonds otherwise would
not go down.
o To the extent that the Fund invests significantly in high yield
securities, its exposure to the credit risks associated with such
securities may be greater, its income and net asset value may be more
volatile, and it may be more difficult to achieve preservation of
principal.
44
Government sponsored entities such as the Federal Home Loan Mortgage
Corporation (Freddie Mac), the Federal National Mortgage Association (FNMA) and
the Federal Home Loan Banks (FHLB), although chartered or sponsored by
Congress, are not funded by congressional appropriations and the debt and
mortgage-backed securities issued by them are neither guaranteed nor issued by
the U.S. government. To the extent the Funds invest significantly in
mortgage-backed securities, its exposure to prepayment and extension risks may
be greater than if it invested in other fixed income securities.
The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses per
share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor
Class shares, Pioneer is not required to limit the expenses attributable to
Class A shares.
Past Performance
Set forth below is performance information for each Fund. The bar charts
show how each Fund's total return (not including any deduction for sales
charges) has varied from year to year for each full calendar year. The tables
show average annual total return (before and after taxes) for each Fund over
time for each class of shares (including deductions for sales charges) compared
with a broad-based securities market index. The bar charts give an indication
of the risks of investing in each Fund, including the fact that you could incur
a loss and experience volatility of returns year to year. Past performance
before and after taxes does not indicate future results.
Safeco Intermediate-Term Bond Fund -- Investor Class
Calendar Year Total Returns*
[THE FOLLOWING DATA WAS REPRESENTED BY A BAR CHART IN THE PRINTED DOCUMENT.]
'95 17.35
'96 0.02
'97 8.23
'98 8.43
'99 -3.82
'00 11.57
'01 6.95
'02 7.44
'03 3.56
* During the period shown in the bar chart, your Safeco Fund's highest
quarterly return since the Fund's inception on February 28, 1994 was 5.74%
for the quarter ended June 30, 1995, and the lowest quarterly return was
-3.27% for the quarter ended March 31, 1996.
45
Pioneer Bond Fund -- Class A shares
Calendar Year Total Returns*
[THE FOLLOWING DATA WAS REPRESENTED BY A BAR CHART IN THE PRINTED DOCUMENT.]
'94 -4.20
'95 18.16
'96 1.96
'97 9.16
'98 7.69
'99 -3.20
'00 8.45
'01 7.54
'02 8.77
'03 8.85
* During the period shown in the bar chart, Pioneer Bond Fund's highest
quarterly return was 6.11% for the quarter ended June 30, 1995, and the
lowest quarterly return was -3.03% for the quarter ended March 31, 1994.
Safeco Intermediate-Term Bond Fund
Average Annual Total Returns as of December 31, 2003
- ------------------------------------------------------------------------------------------------------------
Since
1 Year 5 Years Inception(1)
- ------------------------------------------------------------------------------------------------------------
Safeco Intermediate-Term Bond Fund, Class A shares
- ------------------------------------------------------------------------------------------------------------
Return Before Taxes -0.31% 3.96% 4.95%
- ------------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(2) -1.67% 2.01% 2.81%
- ------------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(2) -0.21% 2.14% 2.87%
- ------------------------------------------------------------------------------------------------------------
Safeco Intermediate-Term Bond Fund, Class B shares
- ------------------------------------------------------------------------------------------------------------
Return Before Taxes -1.33% 3.77% 4.80%
- ------------------------------------------------------------------------------------------------------------
Safeco Intermediate-Term Bond Fund, Class C shares
- ------------------------------------------------------------------------------------------------------------
Return Before Taxes 1.47% 3.90% 4.69%
- ------------------------------------------------------------------------------------------------------------
Safeco Intermediate-Term Bond Fund, Investor Class shares
- ------------------------------------------------------------------------------------------------------------
Return Before Taxes 3.56% 5.01% 5.58%
- ------------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(2) 2.05% 2.94% 3.34%
- ------------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and
Sale of Fund Shares(2) 2.30% 2.97% 3.35%
- ------------------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index(3)
(reflects no deduction for fees, expenses or taxes) 4.10% 6.62% 7.11%
- ------------------------------------------------------------------------------------------------------------
(1) The Fund commenced operations on February 28, 1994.
(2) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on your situation and may
differ from those shown. Furthermore, the after-tax
46
returns shown are not relevant to those who hold their shares through
tax-deferred arrangements such as 401(k) plans or IRA accounts, or to
investors that are tax-exempt.
(3) The Lehman Brothers Aggregate Bond Index, an unmanaged index of securities
from the Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed
Securities Index, and Asset Backed Securities Index, is for reference only
and does not mirror the Fund's investments.
Pioneer Bond Fund -- Class A shares
Average Annual Total Returns as of December 31, 2003
- ---------------------------------------------------------------------------------------------------------
1 Year 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------
Pioneer Bond Fund, Class A shares
- ---------------------------------------------------------------------------------------------------------
Return Before Taxes 6.76% 43.54% 3.50%
- ---------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(1) 5.71% 3.54% 3.53%
- ---------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares(1) 2.51% 2.71% 3.11%
- ---------------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index(2)
(reflects no deduction for fees, expenses or taxes) 4.10% 6.62% 6.95%
- ---------------------------------------------------------------------------------------------------------
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on your situation and may
differ from those shown. Furthermore, the after-tax returns shown are not
relevant to those who hold their shares through tax-deferred arrangements
such as 401(k) plans or IRA accounts, or to investors that are tax-exempt.
(2) The Lehman Brothers Aggregate Bond Index, an unmanaged index of securities
from the Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed
Securities Index, and Asset Backed Securities Index, is for reference only
and does not mirror the Fund's investments.
Pioneer Bond Fund's Investor Class shares will not be outstanding prior to
the closing of the Reorganization and consequently have no performance history.
However, the performance record of the Investor Class would be modestly higher
than the performance of Class A, B and C shares due to the lower expenses
applicable to the Investor Class.
The most recent portfolio manager's discussion of each Fund's performance
is attached as Exhibit D.
47
The Funds' Fees and Expenses
Shareholders of both Funds pay various fees and expenses, either directly
or indirectly. The tables below show the fees and expenses that you would pay
if you were to buy and hold shares of each Fund. The expenses in the tables
appearing below are based on (i) for your Safeco Fund, the expenses of your
Safeco Fund for the period ended December 31, 2003 and (ii) for Pioneer Bond
Fund, the expenses of Pioneer Bond Fund for the period ended June 30, 2004.
Future expenses for all share classes may be greater or less.
Safeco
Intermediate- Pro Forma
Safeco Safeco Safeco Term Bond Pioneer
Intermediate- Intermediate- Intermediate- Fund Bond Fund
Term Bond Fund Term Bond Fund Term Bond Fund Investor Investor
Shareholder transaction fees Class A Class B Class C Class Class(9)
(paid directly from your investment) --------------- ---------------- ---------------- --------------- ------------
Maximum sales charge (load) when you buy shares
as a percentage of offering price ................... 3.50%(6) None None None None(1)
Maximum deferred sales charge (load) as a percentage
of purchase price or the amount you receive when you
sell shares, whichever is less ...................... None 4.00%(7) 1.00%(8) None None
Redemption fees for shares held less than 30 days .... 2.00% None None 2.00% N/A
Wire redemption fee .................................. $ 204 $ 204 $ 204 $ 204 $ 10
Annual low balance fee ............................... $ 125 $ 125 $ 125 $ 125 N/A
Annual fund operating expenses (deducted from
fund assets) (as a % of average net assets)
Management fee ....................................... 0.50% 0.50% 0.50% 0.50% 0.50%
Distribution and service (12b-1) fee ................. 0.25% 1.00% 1.00% None None
Other expenses ....................................... 1.30% 1.28% 41.04% 1.03% 0.45%
Total fund operating expenses ........................ 2.05% 2.78% 42.54% 1.53% 0.95%
Expense reimbursement/reduction ...................... 0.90%(2) 0.88%(2) 40.64%(2) 0.63%(2) 0.214%(3)
Net fund operating expenses .......................... 1.15% 1.90% 1.90% 0.90% 0.74%
- ----------
(1) No sales load will apply to shares received in the Reorganization by
shareholders of your Safeco Fund who become shareholders of record of
Pioneer Bond Fund through the Reorganization. In addition, shareholders of
your Safeco Fund who own shares in their own name (i.e., not in the name of
a broker or other intermediary) and maintain such account as of the closing
of the 59Reorganization may purchase Class A shares of Pioneer Bond Fund or
of any fund in the Pioneer family of funds through such account in the
future without paying this sales charge.
(2) As described above, SAM had contractually agreed to reimburse Safeco
Intermediate-Term Bond Fund for certain Fund operating expenses (but not
all of the operating expenses of the Fund) that exceeded the rate of 0.40%
per annum of the Fund's average daily net assets. This arrangement included
all fund operating expenses except management fees, Rule 12b-1 fees,
brokerage commissions, interest, and extraordinary expenses. In 2003, SAM
began voluntarily reimbursing the Fund to the extent that its total
expenses exceeded the rate of 0.99% per annum of the Fund's average daily
net assets for Class A shares, 1.74% per annum for Class B and Class C
shares, and 0.74% per annum for Investor Class shares. The above table
reflects "contractual" expense reimbursements from SAM, if any, but does
not reflect "voluntary" expense reimbursements by SAM.
(3) Pioneer has agreed that through the second anniversary of the closing of
the Reorganization, Pioneer will limit the expenses (excluding
extraordinary expenses) of the Investor Class shares of Pioneer Bond Fund
to 0.74% of average daily net assets.
(4) There is a higher charge for international wire redemptions, which may vary
by country or dollar amount.
(5) A low balance fee is charged once in year in December for accounts with
balances under $1,000 in your Safeco Fund.
(6) Purchases of $1,000,000 or more of Class A shares of your Safeco Fund are
not subject to a front-end sales charge, but a 1.00% deferred sales charge
will apply to redemptions made in the first twelve months except with
respect to participant-directed redemptions from qualified retirement
plans.
(7) The contingent deferred sales charge on Class B shares of your Safeco Fund
reduces to zero after five years from purchase, and the Class B shares
convert to Class A shares at that time.
(8) The contingent deferred sales charge on Class C shares applies only to
redemptions made in the first twelve months after purchase.
48
(9) The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses
per share than Investor Class shares due to the Rule 12b-1 Plan. In
addition, although Pioneer has agreed to limit the expenses attributable to
Investor Class shares, Pioneer is not required to limit the expenses
attributable to Class A shares.
The hypothetical example below helps you compare the cost of investing in
each Fund. It assumes that: (a) you invest $10,000 in each Fund for the time
periods shown, (b) you reinvest all dividends and distributions, (c) your
investment has a 5% return each year, (d) each Fund's gross operating expenses
remain the same, (e) the expense limitations are in effect five years Safeco
Intermediate-Term Bond Fund and two years for Pioneer Bond Fund and (f) and the
Investor Class shares of Pioneer Bond Fund convert to Class A shares after two
years. The examples are for comparison purposes only and are not a
representation of either Fund's actual expenses or returns, either past or
future.
Example
Safeco Intermediate-Term Bond Fund
Class A shares
Year 1 .............. $ 463
Year 3 .............. $ 703
Year 5 .............. $ 961
Year 10 ............. $2,247
Class B shares With Redemption Without Redemption
Year 1 .............. $ 593 $ 193
Year 3 .............. $ 797 $ 597
Year 5 .............. $1,126 $1,026
Year 10 ............. $2,389 $2,389
Class C shares With Redemption Without Redemption
Year 1 .............. $ 293 $ 193
Year 3 .............. $ 597 $ 597
Year 5 .............. $1,026 $1,026
Year 10 ............. $2,709 $2,709
Investor Class shares
Year 1 .............. $ 92
Year 3 .............. $ 287
Year 5 .............. $ 498
Year 10 ............. $1,518
Pro Forma Pioneer Bond Fund
Investor Class shares
Year 1 .............. $ 76
Year 3 .............. $ 281
Year 5 .............. $ 548
Year 10 ............. $1,312
Reasons for the Proposed Reorganization
The Trustees believe that the proposed Reorganization is in the best
interests of Safeco Intermediate-Term Bond Fund. The Trustees considered the
following matters, among others, in approving the proposal.
First, SAM, the investment adviser to the Safeco Fund until August 2,
2004, was acquired by Symetra. Symetra informed the Trustees that it did not
intend to continue to provide investment advisory services to the Safeco Funds.
Consequently, a change in your Safeco Fund's investment adviser was necessary.
Second, the investment performance of Pioneer Bond Fund, which has
outperformed your Safeco Fund over the most recent one, five and ten year
periods. For the one, five and ten year periods ended June 30, 2004, Class A
shares of Pioneer Bond Fund had an average annual return of 2.98%, 6.70% and
6.72%, respectively, compared to an average annual return of the Class A shares
and Investor Class shares of 3.66% and 0.02% (one year), 4.86% and 5.86% (five
years) and 5.24% and 5.88% (ten years), respectively, during the same period.
In addition, the Trustees considered the track record of Pioneer in managing
equity and fixed income mutual funds.
49
Third, the resources of Pioneer. At June 30, 2004, Pioneer managed over 62
investment companies and accounts with approximately $35 billion in assets.
Pioneer is part of the global asset management group of UniCredito Italiano
S.p.A., one of the largest banking groups in Italy, providing investment
management and financial services to mutual funds, institutional and other
clients. As of June 30, 2004, assets under management of UniCredito Italiano
S.p.A. were approximately $151 billion worldwide. Shareholders of your Safeco
Fund would become part of a significantly larger family of funds that offers a
more diverse array of investment options and enhanced shareholder account
options. The Pioneer family of mutual funds offers over 62 funds, including
domestic and international equity and fixed income funds and a money market
fund that will be available to your Safeco Fund's shareholders through
exchanges. In addition, Pioneer offers shareholders additional options for
their accounts, including the ability to transact and exchange shares over the
telephone or online and the ability to access account values and transaction
history in all of the shareholder's direct accounts in the Pioneer Funds over
the telephone or online.
Fourth, Pioneer Bond Fund's lower gross expenses and Pioneer's commitment
until the second anniversary of the Reorganization to limit the expenses
(excluding extraordinary expenses) of the Investor Class of Pioneer Bond Fund
to 0.74 % of average daily net assets. The gross expense ratio of Pioneer Bond
Fund's Class A shares is lower than the gross expense ratio of each class of
shares of your Safeco Fund. In addition, the net expense ratio of the Investor
Class of Pioneer Bond Fund is lower than the net expenses of the Class A, Class
B and Class C shares of your Safeco Fund and the same as the net expenses of
the Investor Class. Although you will experience higher expenses once the
Investor Class shares convert to Class A shares after two years, your expenses
will remain the same until the second anniversary of the Reorganization.
Fifth, the substantially larger size of Pioneer Bond Fund offers greater
opportunity for diversification of the investment portfolio, which should help
to reduce risks.
Sixth, shareholders who own shares in their name as of the closing of the
Reorganization (i.e., not in the name of a broker or other intermediary) and
maintain their account may purchase additional Class A shares of the
corresponding Pioneer Fund through such account in the future or may exchange
those shares for Class A shares of another Pioneer Fund or purchase Class A
share of another Pioneer Fund without paying any sales charge.
Seventh, the Trustees also considered the differences in the investment
policies of the two Funds, particularly Pioneer Bond Fund's ability to invest
in securities with longer maturities than your Safeco Fund. While this may
result in Pioneer Bond Fund having greater volatility of net asset value than
your Safeco Fund, the Trustees believe that the factors in favor of the
Reorganization mitigate this risk.
Pioneer and Symetra will pay all out of pocket expenses of the Safeco
Funds and the Pioneer Funds associated with the Reorganizations, including, but
not limited to: (1) the expenses associated with the preparation, printing and
mailing of any shareholder communications, including this joint Proxy
Statement/Prospectus, and any filings with the SEC and other governmental
authorities in connection with the Reorganizations; (2) the fees and expenses
of any proxy solicitation firm retained in connection with the Reorganizations;
(3) the legal fees and expenses incurred by the Safeco Funds in connection with
the Reorganizations; and (4) the Trustee fees and out of pocket expenses
incurred as a result of the Reorganizations.
The Trustees considered that Pioneer and Symetra will benefit from the
Reorganization. See "Certain Agreements between Pioneer and Symetra."
The Board of Trustees of Pioneer Bond Fund also considered that the
Reorganization presents an excellent opportunity for the Pioneer Bond Fund to
acquire investment assets without the obligation to pay commissions or other
transaction costs that a fund normally incurs when purchasing securities. This
opportunity provides an economic benefit to Pioneer Bond Fund and its
shareholders.
50
CAPITALIZATION
The following table sets forth the capitalization of each Fund as of
September 30, 2004, and the pro forma capitalization of the combined Fund as of
September 30, 2004.
Safeco Pro Forma
Intermediate-Term Pioneer Pioneer
Bond Fund Bond Fund Bond Fund
September 30, 2004 September 30, 2004 September 30, 2004
-------------------- -------------------- -------------------
Total Net Assets (in thousands) $9,598 $265,836 $275,434
Class A shares ................ $1,608 $163,765 $163,765
Class B shares ................ $ 604 $ 56,548 $ 56,548
Class C shares ................ $ 99 $ 28,246 $ 28,245
Investor Class shares ......... $7,286 N/A $ 9,598
Class Y shares ................ N/A $ 16,894 $ 16,894
Class R shares ................ N/A $ 383 $ 383
Net Asset Value Per Share
Class A shares ................ $ 8.51 $ 9.36 $ 9.36
Class B shares ................ $ 8.51 $ 9.32 $ 9.32
Class C shares ................ $ 8.51 $ 9.30 $ 9.30
Investor Class shares ......... $ 8.52 N/A $ 9.36
Class Y shares ................ N/A $ 9.30 $ 9.30
Class R shares ................ N/A $ 9.30 $ 9.37
Shares Outstanding
Class A shares ................ 188,948 17,479,859 17,479,859
Class B shares ................ 70,949 6,061,254 6,061,254
Class C shares ................ 11,688 3,036,946 3,036,946
Investor Class shares ......... 854,733 N/A 1,025,427
Class Y shares ................ N/A 16,894,081 16,894,081
Class R shares ................ N/A 383,073 383,073
It is impossible to predict how many shares of Pioneer Bond Fund will
actually be received and distributed by your Safeco Fund on the Reorganization
date. The table should not be relied upon to determine the amount of Pioneer
Bond Fund's shares that will actually be received and distributed.
Board's Evaluation and Recommendation
For the reasons described above, the Trustees, including the Independent
Trustees, approved the Reorganization. In particular, the Trustees determined
that the Reorganization is in the best interests of your Safeco Fund.
Similarly, the Board of Trustees of Pioneer Bond Fund, including its
Independent Trustees, approved the Reorganization. They also determined that
the Reorganization is in the best interests of Pioneer Bond Fund.
The Trustees recommend that the shareholders of your Safeco Fund vote FOR
the proposal to approve the Agreement and Plan of Reorganization.
51
Safeco Intermediate-Term Municipal Bond Fund and
Pioneer Tax Free Income Fund
PROPOSAL 1(d)
Approval of Agreement and Plan of Reorganization
SUMMARY
The following is a summary of more complete information appearing later in
this Proxy Statement/Prospectus or incorporated herein. You should read
carefully the entire Proxy Statement/Prospectus, including the Agreement and
Plan of Reorganization attached as EXHIBIT A-1 because they contain details that
are not in the summary.
The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses per
share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor
Class shares, Pioneer is not required to limit the expenses attributable to
Class A shares.
In the table below, if a row extends across the entire table, the policy
disclosed applies to both your Safeco Fund and the Pioneer Fund.
Comparison of Safeco Intermediate-Term Municipal Bond Fund to the Pioneer Tax
Free Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Safeco Intermediate-Term
Municipal Bond Fund Pioneer Tax Free Income Fund
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Business A series of Safeco Tax-Exempt Bond Trust, a A diversified open-end management
diversified open-end management investment investment company registered under the
company organized as a Delaware statutory Investment Company Act and organized as a
trust. Delaware statutory trust.
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets as of $16.4 million $332 million
June 30, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
Investment advisers and Investment adviser (until August 2, 2004): Investment adviser:
portfolio managers SAM Pioneer
Portfolio Managers (until August 2, 2004): Portfolio Managers:
Mary Metastasio (since 1996) Day-to-day management of the Fund's
Vice President, SAM portfolio is the responsibility of a team of
fixed income portfolio managers led by
Stephen C. Bauer (since 2003) Kenneth J. Taubes.
President and Director, SAM
Associated with SAM since 1971 Mr. Taubes joined Pioneer as a senior vice
president in September 1998 and has been
Currently Pioneer is acting as investment an investment professional since 1982.
adviser to Safeco Intermediate-Term Municipal
Bond Fund. The Portfolio Managers of the
Pioneer Tax Free Income Fund, as indicated in
the next column, currently manages your
Safeco Fund.
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Investment objective Safeco Intermediate-Term Municipal Bond Fund Pioneer Tax Free Income Fund seeks as high a
seeks to provide a high level of current interest level of current income exempt from federal
income exempt from federal income tax as is income taxes as possible consistent with the
consistent with prudent investment risk. preservation of capital.
- ------------------------------------------------------------------------------------------------------------------------------------
The investment objective of each Fund is fundamental and cannot be changed without
shareholder approval.
- ------------------------------------------------------------------------------------------------------------------------------------
52
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Safeco Intermediate-Term
Municipal Bond Fund Pioneer Tax Free Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Primary investments Under normal circumstances, Safeco Normally, Pioneer Tax Free Income Fund
Intermediate-Term Municipal Bond Fund invests invests at least 80% of its total assets in
at least 80% of its net assets (plus any investment grade securities that provide
borrowings for investment purposes) in income that is exempt from regular federal
investment grade municipal bonds with income tax and may not be subject to the
maturities of more than one year and the alternative minimum tax. These investments
interest on which is exempt from federal include bonds, notes and other debt
income tax. instruments issued by or on behalf of states,
counties, municipalities, territories and
Safeco Intermediate-Term Municipal Bond Fund possessions of the United States and the
will not invest in securities the income interest District of Columbia and their authorities,
on which is a tax preference item for purposes political subdivisions, agencies or
of the federal alternative minimum tax. instrumentalities.
Safeco Intermediate-Term Municipal Bond Fund Pioneer Tax Free Income Fund may invest in
will maintain an average dollar-weighted securities the income interest on which is a
maturity of between three and ten years. tax preference item for purposes of the federal
alternative minimum tax.
Pioneer Tax Free Income Fund may invest in
securities of any maturity.
Pioneer Tax Free Income Fund may invest
25% or more of its assets in issuers in any
one or more states 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 up to 20% of its assets in industrial
development bonds.
Pioneer Tax Free Income Fund's investments
may have fixed or variable principal payments
and all types of interest rate payment and
reset terms, including fixed and floating rates,
inverse floating rate, zero coupon, contingent,
deferred and payment in kind and auction
rate features.
- ------------------------------------------------------------------------------------------------------------------------------------
53
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Safeco Intermediate-Term
Municipal Bond Fund Pioneer Tax Free Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Investment strategies In managing the portfolio and selecting Pioneer considers both broad economic
securities, SAM historically considered, among factors and issuer-specific factors in selecting
other things: a portfolio designed to achieve Pioneer Tax
Free Income Fund's investment objective. In
o Yield assessing the appropriate maturity and rating
o Maturity weighting of the Fund's portfolio, Pioneer
o Structural features such as an issuer's right considers a variety of factors that are
to buy the bond back at a stated price or expected to influence economic activity
the Fund's right to buy the bond back at a and interest rates. These factors include
stated price fundamental economic indicators such as
o Credit quality (including the underlying the rates of economic growth and inflation,
rating of insured bonds) Federal Reserve monetary policy and the
o The purpose the issuer is financing; relative value of the U.S. dollar compared to
o The original offering price other currencies. Once Pioneer determines
o Any state or local tax exemption the preferable portfolio characteristics, Pioneer
o The amount of discount off or premium on selects individual securities based upon the
the stated principal amount of the bond terms of the securities (such as yields
represented by the price offered compared to U.S. Treasuries or comparable
issues), liquidity and rating and issuer
After evaluating a bond, SAM compared the diversification.
bond to other available bonds, which may have
had different features, and would buy the bond
if it appeared to offer the best relative value.
- ------------------------------------------------------------------------------------------------------------------------------------
54
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Safeco Intermediate-Term
Municipal Bond Fund Pioneer Tax Free Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Other investments Safeco Intermediate-Term Municipal Bond Fund Pioneer Tax Free Income Fund may invest up
may invest up to 20% of its assets in unrated to 20% of its assets in industrial development
municipal bonds, as long as the adviser bonds.
determines they are of comparable quality to
investment-grade securities. Unrated securities Pioneer Tax Free Income Fund may invest up
are not necessarily lower in quality than rated to 20% of its net assets in securities of other
securities but may not be as attractive to as investment companies, investment grade
many investors as rated securities. commercial paper, U.S. government securities,
U.S. or foreign bank instruments and
Safeco Intermediate-Term Municipal Bond Fund repurchase agreements.
will invest no more than 33% of its total assets
in municipal bonds rated in the fourth highest Pioneer Tax Free Income Fund may invest up
grade (or in comparable unrated bonds subject to 10% of its net assets in debt securities
to the 20% limit). Such bonds are of medium rated below investment grade or, if unrated, of
grade, have speculative characteristics, and are equivalent quality as determined by Pioneer.
more likely to have a weakened capacity to make Debt securities rated below investment grade
principal and interest payments under changing are commonly referred to as "junk bonds" and
economic conditions or upon deterioration in the are considered speculative. Below investment
financial condition of the issuer. grade debt securities involve greater risk of
loss, are subject to greater price volatility and
Safeco Intermediate-Term Municipal Bond Fund are less liquid, especially during periods of
will not hold more than 5% of its net assets economic uncertainty or change, than higher
in below investment-grade securities or, if quality debt securities.
unrated, in securities that cease to be
comparable to a rated investment-grade Pioneer Tax Free Income Fund may invest up
security (such below investment-grade to 10% of its net assets in inverse floating
securities are commonly referred to as "high rate obligations (a type of derivative
yield" or "junk" bonds). instrument). Inverse floating rate obligations
represent interests in tax-exempt bonds.
Safeco Intermediate-Term Municipal Bond The interest rate on inverse floating rate
Fund may invest up to 20% of assets in obligations will generally decrease as short-
foreign securities. term interest rates increase, and increase as
short-term rates decrease. Inverse floating
rate obligations may be volatile and involve
leverage risk.
Pioneer Tax Free Income Fund's investments
may have fixed or variable principal payments
and all types of interest rate payment and
reset terms, including fixed and floating rates,
inverse floating rate, zero coupon, contingent,
deferred and payment in kind and auction
rate features.
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Temporary defensive Safeco Intermediate-Term Municipal Bond Fund Pioneer Tax Free Income Fund may invest
strategies may hold cash or invest in high-quality, short- all or part of its assets in securities with
term securities issued by an agency or remaining maturities of less than one year,
instrumentality of the U.S. government, high- cash equivalents or may hold cash.
quality commercial paper, certificates of
deposit, shares of no-load, open-end money
market funds, or repurchase agreements.
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55
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Safeco Intermediate-Term
Municipal Bond Fund Pioneer Tax Free Income Fund
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Diversification Each Fund is diversified for the purpose of the Investment Company Act, and each Fund is
subject to diversification requirements under the Code.
- ------------------------------------------------------------------------------------------------------------------------------------
Industry concentration Safeco Intermediate-Term Municipal Bond Fund Pioneer Tax Free Income Fund may invest
may not invest more than 25% of its assets in 25% or more of its assets in issuers in any
any one industry. one or more states or securities the payments
on which are derived from gas, electric,
telephone, sewer and water segments of the
municipal bond market.
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Restricted and If immediately after and as a result of such Pioneer Tax Free Income Fund will not invest
illiquid securities action the value of the following securities, in more than 10% of its net assets in illiquid
the aggregate, would exceed 15% of Safeco and other securities that are not readily
Intermediate-Term Municipal Bond Fund's net marketable. Repurchase agreements maturing
assets, the Fund will not (i) purchase securities in more than seven days will be included for
for which there is no readily available market, purposes of the foregoing limit. Securities
(ii) purchase time deposits maturing in more subject to restrictions on resale under the
than seven days, (iii) purchase over-the- 1933 Act are considered illiquid unless they
counter (OTC) options or hold assets set aside are eligible for resale pursuant to Rule 144A
to cover OTC options written by the Fund, (iv) or another exemption from the registration
enter into repurchase agreements maturing in requirements of the 1933 Act and are
more than seven days, or (v) invest in interests determined to be liquid by Pioneer.
in real estate investment trusts which are not
readily marketable or interests in real estate
limited partnerships which are not listed or
traded on the NASDAQ Stock Market.
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Borrowing Safeco Intermediate-Term Municipal Bond Fund Pioneer Tax Free Income Fund may not
may borrow money (i) from banks or (ii) by borrow money, except from a bank for
engaging in reverse repurchase agreements. temporary or emergency purposes and not
for investment purposes, and then only in an
amount not exceeding 5% of the value of the
Fund's total assets at the time of borrowing.
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Lending Safeco Intermediate-Term Municipal Bond Fund Pioneer Tax Free Income Fund may not
may lend securities to qualified institutional make loans, except through the purchase of
investors with a value of up to 33% of the securities, including repurchase agreements,
Fund's total assets. in accordance with its investment objective,
policies and limitations.
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56
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Safeco Intermediate-Term
Municipal Bond Fund Pioneer Tax Free Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Derivative instruments Safeco Intermediate-Term Municipal Bond Fund Pioneer Tax Free Income Fund may use
may not purchase securities on margin. futures and options on securities, indices and
However, the Fund may (i) obtain short-term currencies, forward currency exchange
credits as necessary to clear its purchases and contracts and other derivatives. The Fund
sales of securities, and (ii) make margin does not use derivatives as a primary
deposits in connection with its use of financial investment technique and generally limits their
options and futures, forward and spot currency use to hedging. However, the Fund may use
contracts, swap transactions and other derivatives for a variety of non-principal
financial contracts or derivative instruments. purposes, including:
o As a hedge against adverse changes in
stock market prices, interest rates or
currency exchange rates
o As a substitute for purchasing or selling
securities
o To increase the Fund's return as a non-
hedging strategy that may be considered
speculative
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Other investment policies and As described above, the Funds have substantially similar principal investment strategies and
restrictions policies. Certain of the non-principal investment policies and restrictions are different. For a
more complete discussion of each Fund's other investment policies and fundamental and non-
fundamental investment restrictions, see the SAI.
- ------------------------------------------------------------------------------------------------------------------------------------
Buying, Selling and Exchanging Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Sales charges Purchases under $1,000,000 of Class A shares The Investor Class shares of Pioneer Tax Free
of the Fund are subject to a 3.50% front-end Income Fund you receive in the Reorganization
sales charge. will not be subject to any sales charge.
Moreover, if you own shares in your own
Contingent deferred sales charge of up to 4% name as of the closing of the Reorganization
if you redeem Class B shares within five years (i.e., not in the name of a broker or other
of purchase. intermediary) and maintain your account, you
may purchase Class A shares of Pioneer Tax
Contingent deferred sales charge of 1% if you Free Income Fund and Class A shares of any
redeem Class C shares within one year of fund in the Pioneer family of funds through
purchase. such account in the future without paying any
sales charge.
Purchases of Investor Class shares of the Fund
are not subject to a sales load. Except as described above, Class A shares of
Pioneer Tax Free Income Fund are subject to a
The Fund assesses a mandatory redemption front-end sales charge of up to 4.50%.
fee of 2%, as a percentage of the amount
redeemed or exchanged, on Class A and
Investor Class shares held less than 30 days.
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57
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Safeco Intermediate-Term
Municipal Bond Fund Pioneer Tax Free Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Management and other fees Safeco Intermediate-Term Municipal Bond Fund Pioneer Tax Free Income Fund pays Pioneer
pays an advisory fee on a monthly basis at an a management fee equal to:
annual rate as follows:
0.50% of average daily net assets up to
$0-$250,000,000: 0.50 of 1% $250 million;
$250,000,001-$750,000,000: 0.45 of 1% 0.48% of the next $50 million; and
Over $750,000,000: 0.40 of 1% 0.45% on assets over $300 million.
SAM serves as administrator and fund During its most recent fiscal year, Pioneer
accounting agent for the Fund. The Fund pays Tax Free Income Fund paid an advisory fee
SAM an administrative services fee of 0.05% at an average rate of 0.49% of average daily
of the Fund's average daily net assets up to the net assets.
first $200,000,000 and 0.01% of its net assets
thereafter, and an accounting fee of 0.04% of In addition, the Fund reimburses Pioneer for
the Fund's average daily net assets up to the certain fund accounting and legal expenses
first $200,000,000 and 0.01% of its net incurred on behalf of the Fund and pays a
assets thereafter. separate shareholder servicing/transfer agency
fee to PIMSS, an affiliate of Pioneer.
During its most recent fiscal year, Safeco
Intermediate-Term Municipal Bond Fund paid For the fiscal year ended December 31, 2003,
aggregate advisory and administration fees at the Fund's total annual operating expenses for
an average rate of 0.59% of average daily Class A shares were 0.93% of average daily
net assets. net assets. The Fund currently does not have
an expense limitation for its Class A shares.
SAM had contractually agreed until April 30,
2009, to pay certain Fund operating expenses Pioneer has agreed until the second
(but not all of the operating expenses of the anniversary of the closing of the
Fund) that exceeded the rate of 0.40% per Reorganization to limit the expenses
annum of the Fund's average daily net assets. (excluding extraordinary expenses) of the
This arrangement included all Fund operating Investor Class to 0.70% of the average daily
expenses except management fees, Rule 12b-1 net assets attributable to the Investor Class.
fees, brokerage commissions, interest, and
extraordinary expenses. The Investor Class shares to be issued in the
Reorganization will convert to Class A shares
In 2003, SAM began voluntarily reimbursing after two years. Class A shares will have
the Fund to the extent that its total expenses higher expenses per share than Investor
exceeded the rate of 0.85% per annum of the Class shares due to the Rule 12b-1 Plan. In
Fund's average daily net assets for Class A addition, although Pioneer has agreed to limit
shares, 1.60% per annum for Class B and the expenses attributable to Investor Class
Class C shares, and 0.70% per annum for shares, Pioneer is not required to limit the
Investor Class shares. expenses attributable to Class A shares.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for Class
A shares, after giving effect to the contractual
expense limitation were 1.15%, and without
giving effect to the expense limitation, were
7.70%. After giving effect to the voluntary
expense reimbursement, the operating
expenses for Class A shares were 0.85%.
- ------------------------------------------------------------------------------------------------------------------------------------
58
- ------------------------------------------------------------------------------------------------------------------------------------
Safeco Intermediate-Term
Municipal Bond Fund Pioneer Tax Free Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Management and other fees For the fiscal year ended December 31, 2003,
(continued) the Fund's annual operating expenses for Class
B shares, after giving effect to the contractual
expense limitation were 1.90%, and without
giving effect to the expense limitation, were
16.43%. After giving effect to the voluntary
expense reimbursement, the operating
expenses for Class B shares were 1.60%.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for Class
C shares, after giving effect to the contractual
expense limitation were 1.90%, and without
giving effect to the expense limitation, were
20.82%. After giving effect to the voluntary
expense reimbursement, the operating
expenses for Class C shares were 1.60%.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for
Investor Class shares, after giving effect to the
contractual expense limitation were 0.90%, and
without giving effect to the expense limitation,
were 1.04%. After giving effect to the voluntary
expense reimbursement, the operating expenses
for Investor Class shares were 0.70%.
- ------------------------------------------------------------------------------------------------------------------------------------
Distribution and service Each class of shares of each Fund are not subject to a Rule 12b-1 fee. Pioneer Investor Class
(12b-1) fee shares will convert into Class A shares after two years. Class A shares of each Fund are subject
to a Rule 12b-1 fee equal to 0.25% annually of average daily net assets.
- ------------------------------------------------------------------------------------------------------------------------------------
Buying shares You may buy shares of Safeco Intermediate- You may buy shares from any investment firm
Term Municipal Bond Fund directly through that has a sales agreement with PFD, Pioneer
Safeco Securities, the Fund's principal Tax Free Income Fund's distributor. Existing
underwriter or through brokers, registered shareholders of Safeco Intermediate-Term
investment advisers, banks and other financial Municipal Bond Fund who own shares in
institutions that have entered into selling their own name as of the closing date of
agreements with the Fund's principal the Reorganization and who maintain their
underwriter, as described in the Fund's accounts may buy shares of any fund in
prospectus. the Pioneer family of funds through such
accounts in the future without paying
Certain account transactions may be done sales charges.
by telephone.
If the account is established in the
shareholder's own name, shareholders may
also purchase additional shares of Pioneer Tax
Free Income Fund by telephone or online.
- ------------------------------------------------------------------------------------------------------------------------------------
59
- ------------------------------------------------------------------------------------------------------------------------------------
Safeco Intermediate-Term
Municipal Bond Fund Pioneer Tax Free Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Exchange privilege There are no sales charges on shares you You may exchange shares of Pioneer Tax Free
acquire through dividend reinvestment or other Income Fund without incurring any fee on the
Fund distributions or for Class A shares that exchange with the more than 62 other Pioneer
you have exchanged for Class A shares of Funds. Your exchange would be for Class A
another fund. shares, which would be subject to Rule 12b-1
fees. An exchange generally is treated as a
Certain account transactions may be done sale and a new purchase of shares for federal
by telephone. income tax purposes.
If the account is established in the
shareholder's own name, shareholders may
also exchange shares of Pioneer Tax Free
Income Fund for shares of other Pioneer
Funds by telephone or online.
- ------------------------------------------------------------------------------------------------------------------------------------
Selling shares Each class of shares will be sold at net asset value per share next calculated after the Fund
receives your request in good order.
- ------------------------------------------------------------------------------------------------------------------------------------
You may sell your shares by contacting Safeco Normally, your investment firm will send
Intermediate-Term Municipal Bond Fund your request to sell shares to PIMSS. You
directly in writing or by contacting a financial can also sell your shares by contacting the
intermediary as described in the Fund's Fund directly if your account is registered in
prospectus. your name.
If the account is established in the shareholder's
own name, shareholders may also redeem
shares of Pioneer Tax Free Income Fund by
telephone or online.
- ------------------------------------------------------------------------------------------------------------------------------------
Comparison of Principal Risks of Investing in the Funds
Because each Fund has a similar investment objective, primary investment
policies and strategies, the Funds are subject to the same principal risks. The
market value of a fixed income security tends to be more volatile the longer
the maturity of such security. Since Pioneer Tax Free Income Fund can invest in
securities of longer maturity than your Safeco Fund, an investment in Pioneer
Tax Free Income Fund may have correspondingly greater risks. You could lose
money on your investment in either Fund or not make as much as if you invested
elsewhere if:
o Interest rates go up, causing the value of debt securities in the Fund's
portfolio to decline
o The issuer of a security owned by the Fund defaults on its obligation to
pay principal and/or interest or has its credit rating downgraded
o New federal or state legislation adversely affects the tax-exempt status
of securities held by the Fund or the financial ability of municipalities
to repay these obligations
o The issuer of a security owned by the Fund may not be able to make timely
payments because of a general economic downturn or increased governmental
costs
o To the extent the Fund concentrates its investments in a single state or
securities the payments on which are dependent upon a single industry, the
Fund will be more susceptible to risks associated with that state or
industry
o The Fund's investment adviser is incorrect in its expectation of changes
in interest rates or the credit quality of an issuer
Although distributions of interest income from the Funds' tax-exempt
securities are generally exempt from regular federal income tax, distributions
from other sources, including capital gain distributions and any gains on the
sale of your shares, are not. You should consult a tax adviser about whether an
alternative minimum tax applies to you and about state and local taxes on Fund
distributions.
60
The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses per
share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor
Class shares, Pioneer is not required to limit the expenses attributable to
Class A shares.
Past Performance
Set forth below is performance information for each Fund. The bar charts
show how each Fund's total return (not including any deduction for sales
charges) has varied from year to year for each full calendar year. The tables
show average annual total return (before and after taxes) for each Fund over
time for each class of shares (including deductions for sales charges) compared
with a broad-based securities market index. The bar charts give an indication
of the risks of investing in each Fund, including the fact that you could incur
a loss and experience volatility of returns year to year. Past performance
before and after taxes does not indicate future results.
Safeco Intermediate-Term Municipal Bond Fund -- Investor Class
Calendar year total returns*
[THE FOLLOWING DATA WAS REPRESENTED BY A BAR CHART IN THE PRINTED DOCUMENT.]
'94 -5.62
'95 15.22
'96 3.75
'97 7.50
'98 5.33
'99 -0.84
'00 7.44
'01 4.53
'02 8.89
'03 4.78
* During the period shown in the bar chart, your Safeco Fund's highest
quarterly return was 6.25% for the quarter ended March 31, 1995, and the
lowest quarterly return was -4.47% for the quarter ended March 31, 1994.
61
Pioneer Tax Free Income Fund -- Class A shares
Calendar Year Total Returns*
[THE FOLLOWING DATA WAS REPRESENTED BY A BAR CHART IN THE PRINTED DOCUMENT.]
'94 -6.38
'95 16.83
'96 3.57
'97 8.94
'98 6.20
'99 -4.29
'00 11.63
'01 4.13
'02 7.07
'03 5.80
* During the period shown in the bar chart, Pioneer Tax Free Income Fund's
highest quarterly return was 7.11% for the quarter ended March 31, 1995,
and the lowest quarterly return was -5.87% for the quarter ended March 31,
1994.
Safeco Intermediate-Term Municipal Bond Fund
Average Annual Total Returns as of December 31, 2003
- ---------------------------------------------------------------------------------------------------
1 Year 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------
Safeco Intermediate-Term Municipal Bond Fund, Class A shares
- ---------------------------------------------------------------------------------------------------
Return Before Taxes 0.94% 4.12% 4.57%
- ---------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(1) 0.85% 4.01% 4.51%
- ---------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and
Sale of Fund Shares(1) 1.95% 4.05% 4.49%
- ---------------------------------------------------------------------------------------------------
Safeco Intermediate-Term Municipal Bond Fund, Class B shares
- ---------------------------------------------------------------------------------------------------
Return Before Taxes -0.11% 4.56% 4.87%
- ---------------------------------------------------------------------------------------------------
Safeco Intermediate-Term Municipal Bond Fund, Class C shares
- ---------------------------------------------------------------------------------------------------
Return Before Taxes 2.89% 4.73% 4.87%
- ---------------------------------------------------------------------------------------------------
Safeco Intermediate-Term Municipal Bond Fund, Investor Class shares
- ---------------------------------------------------------------------------------------------------
Return Before Taxes 4.78% 4.91% 4.96%
- ---------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(1) 4.69% 4.79% 4.90%
- ---------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and
Sale of Fund Shares1 4.56% 4.75% 4.84%
- ---------------------------------------------------------------------------------------------------
Lehman Brothers 7-Year Municipal Bond Index(2)
(reflects no deduction for fees, expenses or taxes) 5.45% 5.92% 5.86%
- ---------------------------------------------------------------------------------------------------
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on your situation and may
differ from those shown.
(2) The Lehman Brothers 7-Year Municipal Bond Index, an unmanaged index of
bonds rated BAA3 or above, issued as part of a deal of at least $50
million, having an amount of at least $5 million and maturing in six or
more years, is for reference only and does not mirror the Fund's
investments.
62
Pioneer Tax Free Income Fund -- Class A shares
Average Annual Total Returns as of December 31, 2003
- ---------------------------------------------------------------------------------------------------
1 Year 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------
Pioneer Tax Free Income Fund, Class A shares
- ---------------------------------------------------------------------------------------------------
Return Before Taxes 1.01% 3.77% 4.66%
- ---------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(1) 1.02% 3.66% 4.43%
- ---------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and
Sale of Fund Shares(1) 2.30% 3.83% 4.55%
- ---------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index(2)
(reflects no deduction for fees, expenses or taxes) 5.31% 5.83% 6.03%
- ---------------------------------------------------------------------------------------------------
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on your situation and may
differ from those shown. Furthermore, the after-tax returns shown are not
relevant to those who hold their shares through tax-deferred arrangements
such as 401(k) plans or IRA accounts, or to investors that are tax-exempt.
(2) The Lehman Brothers Aggregate Bond Index, an unmanaged measure of
approximately 15,000 municipal bonds with a minimum credit rating of BBB,
and that were a part of at least a $50 million issuance made within the
past fives years and have a maturity of at least two years, is for
reference only and does not mirror the Fund's investments.
Pioneer Tax Free Income Fund's Investor Class shares will not be
outstanding prior to the closing of the Reorganization and consequently have no
performance history. However, the performance record of the Investor Class
would be modestly higher than the performance of Class A shares due to the
lower expenses applicable to the Investor Class shares.
The most recent portfolio manager's discussion of each Fund's performance
is attached as Exhibit D.
63
The Funds' Fees and Expenses
Shareholders of both Funds pay various fees and expenses, either directly
or indirectly. The tables below show the fees and expenses that you would pay
if you were to buy and hold shares of each Fund. The expenses in the tables
appearing below are based on (i) for your Safeco Fund, the expenses of your
Safeco Fund for the period ended December 31, 2003 and (ii) for Pioneer Tax
Free Income Fund, the expenses of Pioneer Tax Free Income Fund for the period
ended December 31, 2003. Future expenses for all share classes may be greater
or less.
Safeco Safeco Safeco Safeco Pro Forma
Intermediate- Intermediate- Intermediate- Intermediate- Pioneer Tax
Term Muni Term Muni Term Muni Term Muni Free Income
Bond Fund Bond Fund Bond Fund Bond Fund Fund Investor
Shareholder transaction fees Class A Class B Class C Investor Class Class(9)
(paid directly from your investment) -------------- ------------- -------------- -------------- -------------
Maximum sales charge (load) when you buy shares as a
percentage of offering price ............................ 3.50%(6) None None None None(1)
Maximum deferred sales charge (load) as a percentage of
purchase price or the amount you receive when you sell
shares, whichever is less ............................... None 4.00%(7) 1.00%(8) None None
Redemption fees for shares held less than 30 days ........ 2.00% None None 2.00% N/A
Wire redemption fee ...................................... $ 204 $ 204 $ 204 $ 204 $ 10
Annual low balance fee ................................... $ 125 $ 125 $ 125 $ 125 N/A
Annual fund operating expenses (deducted from fund assets)
(as a % of average net assets)
Management fee ........................................... 0.50% 0.50% 0.50% 0.50% 0.49%
Distribution and service (12b-1) fee ..................... 0.25% 1.00% 1.00% None None
Other expenses ........................................... 6.95% 14.93% 19.32% 0.54% 0.20%
Total fund operating expenses ............................ 7.70% 16.43% 20.82% 1.04% 0.69%
Expense reimbursement/reduction .......................... 6.55%(2) 14.53%(2) 18.92%(2) 0.14%(2) None(3)
Net fund operating expenses .............................. 1.15% 1.90% 1.90% 0.90% 0.69%
- ----------
(1) No sales load will apply to shares received in the Reorganization by
shareholders of your Safeco Fund who become shareholders of record of
Pioneer Tax Free Income Fund through the Reorganization. In addition,
shareholders of your Safeco Fund who own shares in their own name (i.e.,
not in the name of a broker or other intermediary) and maintain such
account as of the closing of the Reorganization may purchase Class A shares
of Pioneer Tax Free Income Fund or of any fund in the Pioneer family of
funds through such account in the future without paying this sales charge.
(2) As described above, SAM had contractually agreed to reimburse Safeco
Intermediate-Term Municipal Bond Fund for certain operating expenses (but
not all of the operating expenses of the Fund) that exceeded the rate of
0.40% per annum of the Fund's average daily net assets. This arrangement
included all Fund operating expenses except management fees, Rule 12b-1
fees, brokerage commissions, interest, and extraordinary expenses. In 2003,
SAM began voluntarily reimbursing the Fund to the extent that its total
expenses exceeded the rate of 0.85% per annum of the Fund's average daily
net assets for Class A shares, 1.60% per annum for Class B and Class C
shares, and 0.70% per annum for Investor Class shares. The above table
reflects "contractual" expense reimbursements from SAM, if any, but does
not reflect "voluntary" expense reimbursements by SAM.
(3) Pioneer has agreed that through the second anniversary of the closing of
the Reorganization, Pioneer will limit the expenses (excluding
extraordinary expenses) of the Investor Class shares of Pioneer Tax Free
Income Fund to 0.70% of average daily net assets.
(4) There is a higher charge for international wire redemptions, which may vary
by country or dollar amount.
(5) A low balance fee is charged once in year in December for accounts with
balances under $1,000 in your Safeco Fund.
(6) Purchases of $1,000,000 or more of Class A shares of your Safeco Fund are
not subject to a front-end sales charge, but a 1.00% deferred sales charge
will apply to redemptions made in the first twelve months except with
respect to participant-directed redemptions from qualified retirement
plans.
(7) The contingent deferred sales charge on Class B shares of your Safeco Fund
reduces to zero after five years from purchase, and the Class B shares
convert to Class A shares at that time.
(8) The contingent deferred sales charge on Class C shares applies only to
redemptions made in the first twelve months after purchase.
(9) The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses
per share than Investor Class shares due to the Rule 12b-1 Plan. In
addition, although Pioneer has agreed to limit
64
the expenses attributable to Investor Class shares, Pioneer is not required
to limit the expenses attributable to Class A shares. Class A shares do not
currently have an expense limitation and may be subject to higher total
operating expenses.
The hypothetical example below helps you compare the cost of investing in
each Fund. It assumes that: (a) you invest $10,000 in each Fund for the time
periods shown, (b) you reinvest all dividends and distributions, (c) your
investment has a 5% return each year, (d) each Fund's gross operating expenses
remain the same, (e) the expense limitations are in effect for five years for
Safeco Intermediate-Term Municipal Bond Fund and two years for Pioneer Tax Free
Income Fund and (f) and the Investor Class shares of Pioneer Tax Free Income
Fund convert to Class A shares after two years. The examples are for comparison
purposes only and are not a representation of either Fund's actual expenses or
returns, either past or future.
Example
Safeco Intermediate-Term Municipal Bond Fund
Class A shares
Year 1 .............. $ 463
Year 3 .............. $ 703
Year 5 .............. $ 961
Year 10 ............. $1,804
Class B shares With redemption Without redemption
Year 1 .............. $ 593 $ 193
Year 3 .............. $ 797 $ 597
Year 5 .............. $1,126 $1,026
Year 10 ............. $1,971 $1,971
Class C shares With redemption Without redemption
Year 1 .............. $ 293 $ 193
Year 3 .............. $ 597 $ 597
Year 5 .............. $1,026 $1,026
Year 10 ............. $2,477 $2,477
Investor Class shares
Year 1 .............. $ 92
Year 3 .............. $ 287
Year 5 .............. $ 498
Year 10 ............. $1,200
Pro Forma Pioneer Tax Free Income Fund
Investor Class shares
Year 1 .............. $ 71
Year 3 .............. $ 246
Year 5 .............. $ 460
Year 10 ............. $1,079
Reasons for the Proposed Reorganization
The Trustees believe that the proposed Reorganization is in the best
interests of Safeco Intermediate-Term Municipal Bond Fund. The Trustees
considered the following matters, among others, in approving the proposal.
First, SAM, the investment adviser to the Fund until August 2, 2004, was
acquired by Symetra. Symetra informed the Trustees that it did not intend to
continue to provide investment advisory services to the Safeco Funds.
Consequently, a change in your Safeco Fund's investment adviser was necessary.
Second, the historical investment performance of Pioneer Tax Free Income
Safeco Fund and your Safeco Fund are comparable. For the one, five and ten year
periods ended June 30, 2004, Class A shares of Pioneer Tax Free Income Fund had
an average annual return of 1.55%, 4.84% and 5.53%, respectively, compared to
an average annual return of the Class A shares and Investor Class shares of
- -3.82% and -0.27% (one year), 4.13% and 4.94% (five years) and 4.84% and 5.25%
(ten years), respectively, during the same period. In addition, the Trustees
considered the track record of Pioneer in managing equity and fixed income
mutual funds.
65
Third, the resources of Pioneer. At June 30, 2004, Pioneer managed over 62
investment companies and accounts with approximately $35 billion in assets.
Pioneer is part of the global asset management group of UniCredito Italiano
S.p.A., one of the largest banking groups in Italy, providing investment
management and financial services to mutual funds, institutional and other
clients. As of June 30, 2004, assets under management of UniCredito Italiano
S.p.A. were approximately $151 billion worldwide. Shareholders of your Safeco
Fund would become part of a significantly larger family of funds that offers a
more diverse array of investment options and enhanced shareholder account
options. The Pioneer family of mutual funds offers over 62 funds, including
domestic and international equity and fixed income funds and a money market
fund that will be available to your Safeco Fund's shareholders through
exchanges. In addition, Pioneer offers shareholders additional options for
their accounts, including the ability to transact and exchange shares over the
telephone or online and the ability to access account values and transaction
history in all of the shareholder's direct accounts in the Pioneer Funds over
the telephone or online.
Fourth, Pioneer Tax Free Income Fund's lower operating expenses and
Pioneer's commitment until the second anniversary of the Reorganization to
limit the expenses (excluding extraordinary expenses) of the Investor Class of
Pioneer Tax Free Income Fund to 0.70% of average daily net assets. The
estimated expenses of the Investor Class shares of Pioneer Tax Free Income Fund
are below both the gross expenses and expenses net of expense reimbursement of
each class of shares of your Safeco Fund. Although you will experience higher
expenses once the Investor Class shares convert to Class A shares after two
years, your expenses will remain the same until the second anniversary of the
Reorganization.
Fifth, the substantially larger size of Pioneer Tax Free Income Fund
offers greater opportunity for diversification of the investment portfolio,
which should help to reduce risks.
Sixth, shareholders who own shares in their name as of the closing of the
Reorganization (i.e., not in the name of a broker or other intermediary) and
maintain their account may purchase additional Class A shares of the
corresponding Pioneer Fund through such account in the future or may exchange
those shares for Class A shares of another Pioneer Fund or purchase Class A
share of another Pioneer Fund without paying any sales charge.
Seventh, the Trustees also considered the differences in the investment
policies of the two Funds, particularly Pioneer Tax Free Income Fund's ability
to invest in securities with longer maturities than your Safeco Fund. While
this may result in Pioneer Tax Free Income Fund having greater volatility of
net asset value than your Safeco Fund, the Trustees believe that the factors in
favor of the Reorganization mitigate this risk.
Pioneer and Symetra will pay all out of pocket expenses of the Safeco
Funds and the Pioneer Funds associated with the Reorganizations, including, but
not limited to: (1) the expenses associated with the preparation, printing and
mailing of any shareholder communications, including this joint Proxy
Statement/Prospectus, and any filings with the SEC and other governmental
authorities in connection with the Reorganizations; (2) the fees and expenses
of any proxy solicitation firm retained in connection with the Reorganizations;
(3) the legal fees and expenses incurred by the Safeco Funds in connection with
the Reorganizations; and (4) the Trustee fees and out of pocket expenses
incurred as a result of the Reorganizations.
The Trustees considered that Pioneer and Symetra will benefit from the
Reorganization. See "Certain Agreements between Pioneer and Symetra."
The Board of Trustees of Pioneer Tax Free Income Fund also considered that
the Reorganization presents an excellent opportunity for the Pioneer Tax Free
Income Fund to acquire investment assets without the obligation to pay
commissions or other transaction costs that a fund normally incurs when
purchasing securities. This opportunity provides an economic benefit to Pioneer
Tax Free Income Fund and its shareholders.
66
CAPITALIZATION
The following table sets forth the capitalization of each Fund, as of
September 30, 2004, and the pro forma capitalization of the combined Fund as of
September 30, 2004.
Safeco
Intermediate-Term Pro Forma
Municipal Pioneer Tax Free Pioneer Tax Free
Bond Fund Income Fund Income Fund
September 30, 2004 September 30, 2004 September 30, 2004
-------------------- -------------------- -------------------
Total Net Assets (in thousands) $11,586 $338,100 $349,686
Class A shares ................ $ 333 $305,872 $305,872
Class B shares ................ $ 155 $ 17,626 $ 17,626
Class C shares ................ $ 109 $ 12,109 $ 12,109
Investor Class shares ......... $10,988 N/A $ 11,586
Class Y shares ................ N/A $ 2,494 $ 2,494
Net Asset Value Per Share
Class A shares ................ $ 11.04 $ 11.56 $ 11.56
Class B shares ................ $ 11.03 $ 11.45 $ 11.45
Class C shares ................ $ 11.03 $ 11.38 $ 11.56
Investor Class shares ......... $ 11.04 N/A $ 11.56
Class Y shares ................ N/A $ 11.50 $ 11.50
Shares Outstanding
Class A shares ................ 30,165 26,462,402 26,462,402
Class B shares ................ 14,074 1,538,772 1,538,772
Class C shares ................ 9,874 1,063,730 1,063,730
Investor Class shares ......... 995,214 N/A 1,002,249
Class Y shares ................ N/A 216,854 216,854
It is impossible to predict how many shares of Pioneer Tax Free Income
Fund will actually be received and distributed by your Safeco Fund on the
Reorganization date. The table should not be relied upon to determine the
amount of Pioneer Tax Free Income Fund's shares that will actually be received
and distributed.
BOARD'S EVALUATION AND RECOMMENDATION
For the reasons described above, the Trustees, including the Independent
Trustees, approved the Reorganization. In particular, the Trustees determined
that the Reorganization is in the best interests of your Safeco Fund.
Similarly, the Board of Trustees of Pioneer Tax Free Income Fund, including its
Independent Trustees, approved the Reorganization. They also determined that
the Reorganization is in the best interests of Pioneer Tax Free Income Fund.
The Trustees recommend that the shareholders of your Safeco Fund vote FOR
the proposal to approve the Agreement and Plan of Reorganization.
67
Safeco Intermediate-Term U.S. Government Fund and
Pioneer America Income Trust
PROPOSAL 1(e)
Approval of Agreement and Plan of Reorganization
SUMMARY
The following is a summary of more complete information appearing later in
this Proxy Statement/Prospectus or incorporated herein. You should read
carefully the entire Proxy Statement/Prospectus, including the form of
Agreement and Plan of Reorganization attached as EXHIBIT A-1 because they
contain details that are not in the summary.
The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses per
share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor
Class shares, Pioneer is not required to limit the expenses attributable to
Class A shares.
In the table below, if a row extends across the entire table, the policy
disclosed applies to both your Safeco Fund and the Pioneer Fund.
Comparison of Safeco Intermediate-Term U.S. Government Fund to the Pioneer
America Income Trust
- ------------------------------------------------------------------------------------------------------------------------------------
Safeco Intermediate-Term
U.S. Government Fund Pioneer America Income Trust
- ------------------------------------------------------------------------------------------------------------------------------------
Business A series of Safeco Taxable Bond Trust, a A diversified open-end management
diversified open-end management investment investment company registered under the
company organized as a Delaware statutory Investment Company Act and organized as a
trust. Massachusetts business trust.
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets as of $67 million $204 million
June 30, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
Investment advisers and Investment adviser (until August 2, 2004): Investment adviser:
portfolio managers SAM Pioneer
Portfolio Managers (since 2003 and until Portfolio Manager:
August 2, 2004): Day-to-day management of the Fund's
Paul Stevenson portfolio is the responsibility of a team of
CFA, Vice President, SAM fixed income portfolio managers led by
Joined SAM in 1988 Kenneth J. Taubes.
Tim Hokari Mr. Taubes joined Pioneer as a senior vice
Assistant Vice President, SAM president in September 1998 and has been
Joined SAM in 2000 an investment professional since 1982.
Lesley Fox
Assistant Vice President, SAM
Joined SAM in 2000
Currently Pioneer is acting as investment
adviser to Safeco Intermediate-Term U.S.
Government Fund. The Portfolio Manager of
the Pioneer America Income Trust, as indicated
in the next column, currently manages your
Safeco Fund.
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68
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Safeco Intermediate-Term
U.S. Government Fund Pioneer America Income Trust
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Investment objective Safeco Intermediate-Term U.S. Government Pioneer America Income Trust seeks as high
Fund seeks as high a level of current income a level of current income as is consistent with
as is consistent with the preservation of capital the preservation of capital and prudent
by investing in securities issued or guaranteed investment risk.
by the U.S. government or its agencies or
instrumentalities.
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Each Fund provides written notice to shareholders at least 60 days prior to any change to its
investment objective as described above.
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Primary investments Under normal circumstances, Safeco Pioneer America Income Trust invests
Intermediate-Term U.S. Government Fund exclusively in securities that are backed by the
invests at least 80% of its net assets (plus any full faith and credit of the U.S. government,
borrowings for investment purposes) in and repurchase agreements and "when-
securities issued or guaranteed by the U.S. issued" commitments with respect to these
government or its agencies and securities. These securities include:
instrumentalities.
o U.S. Treasury obligations, which differ only
U.S. government securities in which Safeco in their interest rates, maturities and times
Intermediate-Term U.S. Government Fund of issuance, including U.S. Treasury bills
invests include, but are not limited to: (maturities of one year or less), U.S.
Treasury notes (maturities of one to 10
o Mortgage-related securities backed by pools years), and U.S. Treasury bonds (generally
of mortgages, including modified pass- maturities greater than 10 years)
through certificates and collateralized o Obligations issued by or guaranteed as to
mortgage obligations issued by the principal and interest by the U.S. Treasury
Government National Mortgage Association and certain agencies and instrumentalities
(GNMA), the Federal Home Loan Mortgage of the U.S. government, such as
Corporation (FHLMC), and the Federal Government National Mortgage Association
National Mortgage Association (FNMA) (GNMA) certificates and Federal Housing
o U.S. Treasury bills, notes, bonds, and Administration (FHA) debentures, for which
interest or principal components of Separate the U.S. Treasury unconditionally guarantees
Trading Registered Interest and Principal payment of principal and interest
Securities (STRIPS)
o Other U.S. government securities guaranteed Pioneer America Income Trust's investments
by the full faith of the U.S. government but may have all types of interest repayment and
not direct obligations of the U.S. Treasury. reset terms, including fixed rate, adjustable
o Government-sponsored agency securities rate, zero coupon, contingent, deferred,
o Securities issued by the Tennessee Valley payment-in-kind and auction rate features.
Authority
Pioneer America Income Trust may invest in
The average dollar weighted maturity of Safeco securities of any maturity. Although the
Intermediate-Term U.S. Government Fund will average dollar weighted maturity of the Fund's
generally range between three and ten years, portfolio may vary significantly, it generally
although the maturity of individual securities will not exceed 20 years.
may be out of that range.
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69
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Safeco Intermediate-Term
U.S. Government Fund Pioneer America Income Trust
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Investment strategies The decision to buy or sell securities in Safeco Pioneer considers both broad economic
Intermediate-Term U.S. Government Fund factors and issuer-specific factors in selecting
generally falls into one or more of the a portfolio designed to achieve the Fund's
following categories: investment objective.
o To move in or out of various sectors based In assessing the appropriate maturity and
upon their relative values rating weighting of Pioneer America Income
o To reduce the Fund's investments in sectors Trust's portfolio, Pioneer considers a variety
viewed as overhauled, which increasing the of factors that are expected to influence
Fund's investment in undervalued sectors economic activity and interest rates. These
o To realign the overall maturity of duration of factors include fundamental economic
the Fund's portfolio indicators such as the rates of economic
o To raise cash to meet shareholder growth and inflation, Federal Reserve
redemptions monetary policy and the relative value of the
U.S. dollar compared to other currencies.
With each buy/sell decision, SAM also Once Pioneer determines the preferable
considered the effect the transaction may have portfolio characteristics, Pioneer selects
on the performance of Safeco Intermediate- individual securities based upon the terms of
Term U.S. Government Fund's portfolio as the securities (such as yields compared to
a whole. U.S. Treasuries or comparable issues), and
sector diversification.
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Other investments Safeco Intermediate-Term U.S. Government Pioneer America Income Trust may invest
Fund may invest in mortgage-backed or asset- in mortgage-backed securities issued by
backed securities. agencies or instrumentalities of the U.S.
government. These securities represent direct
Safeco Intermediate-Term U.S. Government or indirect participation in, or are collateralized
Fund may purchase "when-issued" or "delayed- by and payable from, mortgage loans secured
delivery" securities, and may purchase or sell by real estate.
securities on a "forward commitment" basis.
Pioneer America Income Trust may purchase
Safeco Intermediate-Term U.S. Government and sell securities, including GNMA
Fund may invest up to 20% of assets in certificates, on a when-issued or delayed
foreign securities. delivery basis. The Fund may engage in these
transactions when it believes they would result
in a favorable price and yield for the security
being purchased or sold.
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Temporary defensive Safeco Intermediate-Term U.S. Government Pioneer America Income Trust may invest all
strategies Fund may hold cash or invest in high-quality, or part of its assets in securities with
short-term securities issued by an agency or remaining maturities of less than one year,
instrumentality of the U.S. government, high- cash equivalents or may hold cash.
quality commercial paper, certificates of
deposit, shares of no-load, open-end money
market funds, or repurchase agreements.
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Diversification Each Fund is diversified for the purpose of the Investment Company Act, and each Fund is
subject to diversification requirements under the Code.
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Industry concentration Safeco Intermediate-Term U.S. Government Pioneer America Income Trust does not have
Fund may not invest more than 25% of its a policy against industry concentration.
assets in any one industry.
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70
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Safeco Intermediate-Term
U.S. Government Fund Pioneer America Income Trust
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Restricted and illiquid If immediately after and as a result of such Pioneer America Income Trust will not invest
securities action the value of the following securities, in more than 15% of its net assets in illiquid
the aggregate, would exceed 15% of Safeco and other securities that are not readily
Intermediate-Term U.S. Government Fund's net marketable. Repurchase agreements maturing
assets, the Fund will not (i) purchase securities in more than seven days will be included for
for which there is no readily available market, purposes of the foregoing limit. Securities
(ii) purchase time deposits maturing in more subject to restrictions on resale under the
than seven days, (iii) purchase over-the- 1933 Act are considered illiquid unless they
counter (OTC) options or hold assets set aside are eligible for resale pursuant to Rule 144A
to cover OTC options written by the Fund, (iv) or another exemption from the registration
enter into repurchase agreements maturing in requirements of the 1933 Act and are
more than seven days, or (v) invest in interests determined to be liquid by Pioneer.
in real estate investment trusts which are not
readily marketable or interests in real estate
limited partnerships which are not listed or
traded on the NASDAQ Stock Market.
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Borrowing Safeco Intermediate-Term U.S. Government Pioneer America Income Trust may not
Fund may borrow money (i) from banks or (ii) borrow money, except from banks to meet
by engaging in reverse repurchase agreements. redemptions in amounts not exceeding 331/3%
(taken at the lower of cost or current value) of
its total assets (including the amount
borrowed). The Fund does not intend to
borrow money during the coming year, and
will do so only as a temporary measure for
extraordinary purposes or to facilitate
redemptions. The Fund will not purchase
securities while any borrowings are
outstanding.
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Lending Safeco Intermediate-Term U.S. Government Pioneer America Income Trust may not make
Fund may lend securities to qualified loans, except through the purchase of
institutional investors with a value of up to securities, including repurchase agreements,
33% of the Fund's total assets. in accordance with its investment objective,
policies and limitations.
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Derivative instruments Safeco Intermediate-Term U.S. Government Pioneer America Income Trust may not
Fund may not purchase securities on margin. purchase securities on margin.
However, the Fund may (i) obtain short-term
credits as necessary to clear its purchases and
sales of securities, and (ii) make margin
deposits in connection with its use of financial
options and futures, forward and spot currency
contracts, swap transactions and other
financial contracts or derivative instruments.
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Other investment policies As described above, the Funds have substantially similar principal investment strategies and
and restrictions policies. Certain of the non-principal investment policies and restrictions are different. For a
more complete discussion of each Fund's other investment policies and fundamental and non-
fundamental investment restrictions, see the SAI.
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71
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Safeco Intermediate-Term
U.S. Government Fund Pioneer America Income Trust
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Buying, Selling and Exchanging Shares
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Sales charges Purchases under $1,000,000 of Class A shares The Investor Class shares of Pioneer America
of the Fund are subject to a 3.50% front-end Income Trust you receive in the
sales charge. Reorganization will not be subject to any sales
charge. Moreover, if you own shares in your
Contingent deferred sales charge of up to 4% own name as of the closing of the
if you redeem Class B shares within five years Reorganization (i.e., not in the name of a
of purchase. broker or other intermediary) and maintain
your account, you may purchase Class A
Contingent deferred sales charge of 1% if you shares of Pioneer America Income Trust and
redeem Class C shares within one year of Class A shares of any fund in the Pioneer
purchase. family of funds through such account in the
future without paying any sales charge.
Purchases of Investor Class shares of the Fund
are not subject to a sales load. Except as described above, Class A shares of
Pioneer America Income Trust are subject to a
Safeco Intermediate-Term U.S. Government front-end sales charge of up to 4.50%.
Fund assesses a mandatory redemption fee of
2%, as a percentage of the amount redeemed
or exchanged, on Class A and Investor Class
shares held less than 30 days.
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72
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Safeco Intermediate-Term
U.S. Government Fund Pioneer America Income Trust
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Management and other fees Safeco Intermediate-Term U.S. Government Pioneer America Income Trust pays Pioneer a
Fund pays an advisory fee on a monthly basis management fee equal to 0.50% of the Fund's
at an annual rate as follows: average daily net assets.
$0-$250,000,000: 0.55 of 1%
$250,000,001-$750,000,000: 0.50 of 1% During its most recent fiscal year, Pioneer
$750,000,001-$1,250,000,000: 0.45 of 1% America Income Trust paid an advisory fee at
Over $1,250,000,000: 0.40 of 1% an average rate of 0.50% of average daily
net assets.
SAM serves as administrator and fund
accounting agent for Safeco Intermediate-Term In addition, the Fund reimburses Pioneer for
U.S. Government Fund. The Fund pays SAM an certain fund accounting and legal expenses
administrative services fee of 0.05% of the incurred on behalf of the Fund and pays a
Fund's average daily net assets up to the first separate shareholder servicing/transfer agency
$200,000,000 and 0.01% of its net assets fee to PIMSS, an affiliate of Pioneer.
thereafter, and an accounting fee of 0.04% of
the Fund's average daily net assets up to the For the fiscal year ended December 31, 2003,
first $200,000,000 and 0.01% of its net assets the Fund's total annual operating expenses for
thereafter. Class A shares were 1.12% of average daily
net assets. The Fund does not currently have
During its most recent fiscal year, Safeco an expense limitation for its Class A shares.
Intermediate-Term U.S. Government Fund paid
aggregate advisory and administration fees at Pioneer has agreed until the second
an average rate of 0.64%of average daily anniversary of the closing of the
net assets. Reorganization to limit the expenses
(excluding extraordinary expenses) of the
SAM had contractually agreed until April Investor Class to 0.74% of the average daily
30,2009, to pay certain Fund operating net assets attributable to the Investor Class.
expenses (but not all of the operating expenses
of the Fund) that exceeded the rate of 0.40% The Investor Class shares to be issued in the
per annum of the Fund's average daily net Reorganization will convert to Class A shares
assets. This arrangement included all Fund after two years. Class A shares will have
operating expenses except management fees, higher expenses per share than Investor
Rule 12b-1 fees, brokerage commissions, Class shares due to the Rule 12b-1 Plan. In
interest, and extraordinary expenses. addition, although Pioneer has agreed to limit
the expenses attributable to Investor Class
In 2003, SAM began voluntarily reimbursing shares, Pioneer is not required to limit the
the Fund to the extent that its total expenses expenses attributable to Class A shares.
exceeded the rate of 0.99% per annum of the
Fund's average daily net assets for Class A
shares, 1.74% per annum of Class B and Class
C shares, and 0.74% per annum for Investor
Class shares.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for Class
A shares, after giving effect to the contractual
expense limitation were 1.20%, and without
giving effect to the expense limitation, were
1.31%. After giving effect to the voluntary
expense reimbursement, the operating
expenses for Class A shares were 0.99%.
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73
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Safeco Intermediate-Term
U.S. Government Fund Pioneer America Income Trust
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Management and other fees For the fiscal year ended December 31, 2003,
(continued) the Fund's annual operating expenses for Class
B shares, after giving effect to the contractual
expense limitation were 1.95%, and without
giving effect to the expense limitation, were
2.10%. After giving effect to the voluntary
expense reimbursement, the operating
expenses for Class B shares were 1.74%.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for Class
C shares, after giving effect to the contractual
expense limitation were 1.95%, and without
giving effect to the expense limitation, were
43.56%. After giving effect to the voluntary
expense reimbursement, the operating
expenses for Class C shares were 1.74%.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for
Investor Class shares were 0.94% per share.
After giving effect to the voluntary expense
reimbursement, the operating expenses for
Investor Class shares were 0.74%.
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Distribution and service Investor Class shares of each Fund are not subject to a Rule 12b-1 fee. Pioneer Investor Class
(12b-1) fee shares will convert into Class A shares after two years. Class A shares of each Fund are subject
to a Rule 12b-1 fee equal to 0.25% annually of average daily net assets.
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Buying shares You may buy shares of Safeco Intermediate- You may buy shares from any investment firm
Term U.S. Government Fund directly through that has a sales agreement with PFD, Pioneer
Safeco Securities, the Fund's principal America Income Trust's distributor. Existing
underwriter or through brokers, registered shareholders of Safeco Intermediate-Term U.S.
investment advisers, banks and other financial Government Fund who own shares in their
institutions that have entered into selling own name as of the closing date of the
agreements with the Fund's principal Reorganization and who maintain their
underwriter, as described in the Fund's accounts may buy shares of any fund in the
prospectus. Pioneer family of funds through such
accounts in the future without paying sales
Certain account transactions may be done charges.
by telephone.
If the account is established in the
shareholder's own name, shareholders may
also purchase additional shares of Pioneer
America Income Trust by telephone or online.
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74
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Safeco Intermediate-Term
U.S. Government Fund Pioneer America Income Trust
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Exchange privilege There are no sales charges on shares you You may exchange shares of Pioneer America
acquire through dividend reinvestment or other Income Trust without incurring any fee on the
Fund distributions or for Class A shares that exchange with the more than 62 other Pioneer
you have exchanged for Class A shares of Funds. Your exchange would be for Class A
another fund. shares, which would be subject to a Rule
12b-1 fee. An exchange generally is treated
Certain account transactions may be done as a sale and a new purchase of shares for
by telephone. federal income tax purposes.
If the account is established in the
shareholder's own name, shareholders may
also exchange shares of Pioneer America
Income Trust for shares of other Pioneer
Funds by telephone or online.
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Selling shares Each class of shares will be sold at net asset value per share next calculated after the Fund
receives your request in good order.
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You may sell your shares by contacting Safeco Normally, your investment firm will send
Intermediate-Term U.S. Government Fund your request to sell shares to PIMSS. You
directly in writing or by contacting a financial can also sell your shares by contacting the
intermediary as described in the Fund's Fund directly if your account is registered in
prospectus. your name.
If the account is established in the shareholder's
own name, shareholders may also redeem
shares of Pioneer America Income Trust by
telephone or online.
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Comparison of Principal Risks of Investing in the Funds
While each Fund has a similar investment objective, primary investment
policies and strategies, there are differences which affect the risk of each
Fund. The market value of fixed income securities tends to be more volatile the
greater the maturity of the security. Pioneer America Income Trust can invest
in securities of greater average maturity than your Safeco Fund and
consequently may have greater risk. However, your Safeco Fund may invest in
U.S. government securities that are not backed by the full faith and credit of
the U.S. Treasury, and consequently have an element of credit risk that is not
present in Pioneer America Income Trust. Generally, however, the Funds are
subject to the same principal risks. You could lose money on your investment in
either Fund or not make as much as if you invested elsewhere if:
o Interest rates go up, causing the value of debt securities in the
Fund's portfolio to decline
o During periods of declining interest rates, the issuer of a security
may exercise its option to prepay principal earlier than scheduled,
forcing the Fund to reinvest in lower yielding securities. This is
known as call or prepayment risk
o During periods of rising interest rates, the average life of certain
types of securities may be extended because of slower than expected
principal payments. This may lock in a below market interest rate,
increase the security's duration (the estimated period until the
security is paid in full) and reduce the value of the security. This
is known as extension risk
o Pioneer's judgment about the attractiveness, relative value or
potential appreciation of a particular sector, security or investment
strategy proves to be incorrect
To the extent the Fund invests significantly in mortgage-backed
securities, its exposure to prepayment and extension risks may be greater than
other investments in fixed income securities.
Although mortgage pools issued by U.S. agencies are guaranteed with
respect to payments of principal and interest, such guarantee does not apply to
losses resulting from declines in the market value of such securities.
75
The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses per
share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor
Class shares, Pioneer is not required to limit the expenses attributable to
Class A shares.
Past Performance
Set forth below is performance information for each Fund. The bar charts
show how each Fund's total return (not including any deduction for sales
charges) has varied from year to year for each full calendar year. The tables
show average annual total return (before and after taxes) for each Fund over
time for each class of shares (including deductions for sales charges) compared
with a broad-based securities market index. The bar charts give an indication
of the risks of investing in each Fund, including the fact that you could incur
a loss and experience volatility of returns year to year. Past performance
before and after taxes does not indicate future results.
Safeco Intermediate-Term U.S. Government Fund -- Investor Class
Calendar Year Total Returns*
[THE FOLLOWING WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
'94 -4.27%
'95 15.48
'96 3.98
'97 8.97
'98 6.84
'99 0.16
'00 9.50
'01 7.29
'02 9.84
'03 1.40
* During the period shown in the bar chart, your Safeco Fund's highest
quarterly return was 4.79% for the quarter ended March 31, 1995, and the
lowest quarterly return was -3.58% for the quarter ended March 31, 1994.
76
Pioneer America Income Trust -- Class A shares
Calendar Year Total Returns*
[THE FOLLOWING WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
'94 -3.97%
'95 16.07
'96 2.29
'97 8.51
'98 7.78
'99 -2.52
'00 11.58
'01 5.92
'02 9.78
'03 1.47
* During the period shown in the bar chart, the Fund's highest quarterly return
was 4.72% for the quarter ended June 30, 1995, and the lowest quarterly
return was -3.14% for the quarter ended March 31, 1994.
Safeco Intermediate-Term U.S. Government Fund
Average Annual Total Returns as of December 31, 2003
- -----------------------------------------------------------------------------------------------------------
1 Year 5 Years 10 Years
- -----------------------------------------------------------------------------------------------------------
Safeco Intermediate-Term U.S. Government Fund, Class A shares
- -----------------------------------------------------------------------------------------------------------
Return Before Taxes -2.41% 4.60% 5.30%
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Return After Taxes on Distributions(1) -3.81% 2.47% 2.93%
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Return After Taxes on Distributions and Sale of Fund Shares(1) -1.57% 2.58% 2.99%
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Safeco Intermediate-Term U.S. Government Fund, Class B shares
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Return Before Taxes -3.50% 4.62% 5.39%
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Safeco Intermediate-Term U.S. Government Fund, Class C shares
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Return Before Taxes -0.49% 4.81% 5.40%
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Safeco Intermediate-Term U.S. Government Fund, Investor Class shares
- -----------------------------------------------------------------------------------------------------------
Return Before Taxes 1.40% 5.56% 5.78%
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Return After Taxes on Distributions1 -0.14% 3.34% 3.36%
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Return After Taxes on Distributions and Sale of Fund Shares(1) 0.91% 3.34% 3.39%
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Lehman Brothers Intermediate Government Index(2)
(reflects no deduction for fees, expenses or taxes) 2.30% 6.16% 6.33%
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Merrill Lynch U.S. Treasury/Agency Master Index(2)
(reflects no deduction for fees, expenses or taxes) 2.36% 6.22% 6.71%
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(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on your situation and may
differ from those shown. Furthermore, the after-tax returns shown are not
relevant to those who hold their shares through tax-deferred arrangements
such as 401(k) plans or IRA accounts, or to investors that are tax-exempt.
77
(2) The Lehman Brothers Intermediate Government Index, an unmanaged index
comprised of U.S. Treasury and U .S. agency issues from its more
comprehensive U.S. Aggregate Index, excluding maturities below one year and
above 9.9 years, and the Merrill Lynch U.S. Treasury/Agency Master Index,
an unmanaged index of U.S. Treasury and U.S. agency securities, are for
reference only and do not mirror the Fund's investments.
Pioneer America Income Trust -- Class A shares
Average Annual Total Returns as of December 31, 2003
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1 Year 5 Years 10 Years
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Pioneer America Income Trust, Class A shares
- -----------------------------------------------------------------------------------------------------------
Return Before Taxes -3.06% 4.14% 5.04%
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Return After Taxes on Distributions(1) -4.61% 2.05% 2.65%
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Return After Taxes on Distributions and Sale of Fund Shares(1) -2.00% 2.20% 2.75%
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Lehman Brothers Government Bond Index(2)
(reflects no deduction for fees, expenses or taxes) 2.36% 6.26% 6.72%
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Lehman Brothers Fixed Rate Mortgage-Backed Securities Index(2)
(reflects no deduction for fees, expenses or taxes) 3.05% 6.55% 6.89%
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(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on your situation and may
differ from those shown. Furthermore, the after-tax returns shown are not
relevant to those who hold their shares through tax-deferred arrangements
such as 401(k) plans or IRA accounts, or to investors that are tax-exempt.
(2) The Lehman Brothers Government Bond Index, an unmanaged measure of the
performance of U.S. Treasury debt, all publicly issued debt of U.S.
government agencies and quasi-federal corporations, and corporate debt
guaranteed by the U.S. government, and the Lehman Brothers Fixed Rate
Mortgage-Backed Securities Index, an unmanaged index including 15- and
30-year fixed rate securities backed by mortgage pools of the GNMA, FHLMC
and FNMA, are for reference only and do not mirror the Fund's investments.
Pioneer America Income Trust's Investor Class shares will not be
outstanding prior to the closing of the Reorganization and consequently have no
performance history. However, the performance record of the Investor Class
would be modestly higher than the performance of Class A shares due to the
lower expenses applicable to the Investor Class.
The most recent portfolio manager's discussion of each Fund's performance
is attached as Exhibit D.
78
The Funds' Fees and Expenses
Shareholders of both Funds pay various fees and expenses, either directly
or indirectly. The tables below show the fees and expenses that you would pay
if you were to buy and hold shares of each Fund. The expenses in the tables
appearing below are based on (i) for your Safeco Fund, the expenses of your
Safeco Fund for the period ended December 31, 2003 and (ii) for Pioneer America
Income Trust, the expenses of Pioneer America Income Trust for the period ended
December 31, 2003. Future expenses for all share classes may be greater or
less.
Safeco
Safeco Safeco Safeco Intermediate- Pro Forma
Intermediate- Intermediate- Intermediate- Term U.S. Pioneer
Term U.S. Term U.S. Term U.S. Government America
Government Government Government Fund Income Trust
Fund Fund Fund Investor Investor
Shareholder transaction fees Class A Class B Class C Class Class(9)
(paid directly from your investment) --------------- -------------- ------------ ------------ -----------
Maximum sales charge (load) when you
buy shares as a percentage of
offering price ............................. 3.50%(6) None None None None(1)
Maximum deferred sales charge (load)
as a percentage of purchase price or
the amount you receive when you sell
shares, whichever is less .......................... None 4.00%(7) 1.00%(8) None None
Redemption fees for shares held less than 30 days ... 2.00% None None 2.00% N/A
Wire redemption fee ................................. $204 $20(4) $20(4) $20(4) $10
Annual low balance fee .............................. $125 $12(5) $12(5) $12(5) N/A
Annual fund operating expenses
(deducted from fund assets)
(as a % of average net assets)
Management fee ...................................... 0.55% 0.55% 0.55% 0.55% 0.50%
Distribution and service (12b-1) fee ................ 0.25% 1.00% 1.00% None None
Other expenses ...................................... 0.51% 0.55% 42.01% 0.39% 0.35%
Total fund operating expenses ....................... 1.31% 2.10% 43.56% 0.94% 0.85%
Expense reimbursement/reduction ..................... 0.11%(2) 0.15%(2) 41.61%(2) N/A 0.11%(3)
Net fund operating expenses ......................... 1.20% 1.95% 1.95% 0.94% 0.74%
- ----------
(1) No sales load will apply to shares received in the Reorganization by
shareholders of your Safeco Fund who become shareholders of record of
Pioneer America Income Trust through the Reorganization. In addition,
shareholders of your Safeco Fund who own shares in their own name (i.e.,
not in the name of a broker or other intermediary) and maintain such
account as of the closing of the Reorganization may purchase Class A shares
of Pioneer America Income Trust or of any fund in the Pioneer family of
funds through such account in the future without paying this sales charge.
(2) As described above, SAM had contractually agreed to reimburse Safeco
Intermediate-Term U.S. Government Bond Fund for certain Fund operating
expenses (but not all of the operating expenses of the Fund) that exceeded
the rate of 0.40% per annum of the Fund's average daily net assets. This
arrangement included all Fund operating expenses except management fees,
Rule 12b-1 fees, brokerage commissions, interest, and extraordinary
expenses. In 2003, SAM began voluntarily reimbursing the Fund to the extent
that its total expenses exceeded the rate of 0.99% per annum of the Fund's
average daily net assets for Class A shares, 1.74% per annum for Class B
and Class C shares, and 0.74% per annum for Investor Class shares. The
above table reflects "contractual" expense reimbursements from SAM, if any,
but does not reflect "voluntary" expense reimbursements by SAM.
(3) Pioneer has agreed that through the second anniversary of the closing of
the Reorganization, Pioneer will limit the expenses (excluding
extraordinary expenses) of the Investor Class shares of Pioneer America
Income Trust to 0.74% of average daily net assets.
(4) There is a higher charge for international wire redemptions, which may vary
by country or dollar amount.
(5) A low balance fee is charged once in year in December for accounts with
balances under $1,000 in your Safeco Fund.
(6) Purchases of $1,000,000 or more of Class A shares of your Safeco Fund are
not subject to a front-end sales charge, but a 1.00% deferred sales charge
will apply to redemptions made in the first twelve months except with
respect to participant-directed redemptions from qualified retirement
plans.
(7) The contingent deferred sales charge on Class B shares of your Safeco Fund
reduces to zero after five years from purchase, and the Class B shares
convert to Class A shares at that time.
(8) The contingent deferred sales charge on Class C shares applies only to
redemptions made in the first twelve months after purchase.
79
(9) The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses
per share than Investor Class shares due to the Rule 12b-1 Plan. In
addition, although Pioneer has agreed to limit the expenses attributable to
Investor Class shares, Pioneer is not required to limit the expenses
attributable to Class A shares.
The hypothetical example below helps you compare the cost of investing in
each Fund. It assumes that: (a) you invest $10,000 in each Fund for the time
periods shown, (b) you reinvest all dividends and distributions, (c) your
investment has a 5% return each year, (d) each Fund's gross operating expenses
remain the same, (e) the expense limitations are in effect for five years for
Safeco Intermediate-Term U.S. Government Fund and two years for Pioneer America
Income Trust and (f) and the Investor Class shares of Pioneer America Income
Trust convert to Class A shares after two years. The examples are for
comparison purposes only and are not a representation of either Fund's actual
expenses or returns, either past or future.
Example
Safeco Intermediate-Term U.S. Government Fund
Class A shares
Year 1 .............. $468
Year 3 .............. $718
Year 5 .............. $987
Year 10 ............. $1,822
Class B shares With redemption Without redemption
Year 1 .............. $ 598 $ 198
Year 3 .............. $ 812 $ 612
Year 5 .............. $1,152 $1,052
Year 10 ............. $1,974 $1,974
Class C shares With redemption Without redemption
Year 1 .............. $ 298 $ 198
Year 3 .............. $ 612 $ 612
Year 5 .............. $1,052 $1,052
Year 10 ............. $2,399 $2,399
Investor Class shares
Year 1 .............. $96
Year 3 .............. $300
Year 5 .............. $520
Year 10 ............. $1,155
Pro Forma Pioneer America Income Trust
Investor Class shares
Year 1 .............. $76
Year 3 .............. $284
Year 5 .............. $558
Year 10 ............. $1,341
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COMPARISON OF DELAWARE STATUTORY TRUST AND MASSACHUSETTS BUSINESS TRUST
Characteristics of Safeco Intermediate-Term U.S. Government Trust (a series of
a Delaware statutory trust)
o GOVERNANCE AND MANAGEMENT. Safeco Intermediate-Term U.S. Government Fund
is a series of the Safeco Taxable Bond Trust, a Delaware statutory trust.
The governing instrument of Safeco Taxable Bond Trust is its Trust
Instrument (the "Trust Instrument"). The Trustees of the Safeco Taxable
Bond Trust are responsible for the management and supervision of Safeco
Intermediate-Term U.S. Government Fund.
o SHARE CAPITAL AND CLASSES. The Trust Instrument of Safeco Taxable Bond
Trust permits the Trustees to issue an unlimited number of full and
fractional shares of beneficial interest of Safeco Intermediate-Term U.S.
Government Fund without par value. As of the date of this Proxy
Statement/Prospectus, the Trustees have authorized shares of Safeco
Intermediate-Term U.S. Government Fund and have authorized the issuance of
four classes of shares of Safeco Intermediate-Term U.S. Government Fund,
designated as Class A, Class B, Class C and Investor Class shares. The
shares of each class of Safeco Intermediate-Term U.S. Government Fund
represent an equal proportionate interest in the aggregate net assets
attributable to that class of the Fund. Holders of each class of shares
have certain exclusive voting rights on matters relating to their
respective distribution plans. The different classes of Safeco
Intermediate-Term U.S. Government Fund may bear different expenses
relating to the cost of holding shareholder meetings necessitated by the
exclusive voting rights of any class of shares. In the event of
liquidation, shareholders of each class are entitled to share pro rata in
the net assets of their Fund available for distribution to these
shareholders. Shares of each class entitle their holders to one vote per
share, are freely transferable and have no preemptive, subscription or
conversion rights.
o MEETINGS. Under Delaware law, Safeco Taxable Bond Trust is not required to
hold annual shareholder meetings for any Fund. Unless otherwise required
by the Investment Company Act, the Fund has no intention of holding annual
meetings of shareholders. Pursuant to the Trust Instrument, shareholders
have power to vote only on certain matters, including (a) the election and
removal of Trustees; (b) approval of any investment management agreement;
(c) termination of the Safeco Taxable Bond Trust; (d) certain amendments
to the Trust Instrument; and (e) such additional matters relating to the
Trust as may be required by law or as the Trustees may consider desirable.
o LIABILITY OF SHAREHOLDERS. Delaware law affords shareholders of a Delaware
statutory trust with the same protections afforded stockholders of a
Delaware corporation, which means shareholders are not generally subject
to liability for the debts or obligations of the statutory trust unless
the entity's trust instrument provides otherwise. The Trust Instrument of
the Safeco Taxable Bond Trust contains an express disclaimer of
shareholder liability for acts, obligations or affairs of Safeco
Intermediate-Term U.S. Government Fund and provides for indemnification
out of the Fund's assets for all losses and expenses of any shareholder
held personally liable for reason of being or having been a shareholder.
Characteristics of Pioneer America Income Trust (a Massachusetts business
trust)
o GOVERNANCE AND MANAGEMENT. Pioneer America Income Trust is a Massachusetts
business trust. The governing instrument of Pioneer America Income Trust
is its Agreement and Declaration of Trust ("Declaration of Trust"). The
business of Pioneer America Income Trust is managed under the direction of
its Board of Trustees. The Trustees, in addition to viewing the actions of
the Pioneer America Income Trust's investment adviser, decide upon matters
of general policy at their regular meetings. The officers of Pioneer
America Income Trust supervise its business operations.
o SHARES AND CLASSES. Pioneer America Income Trust is authorized to issue
shares of beneficial interest and to increase or decrease the aggregate
number of shares of beneficial interest or the number of shares of any
class that the Fund has authority to issue. Each share is entitled to one
vote on all questions relating to the Fund, and each share is entitled to
participate equally in dividends and capital gains distributions and in
the residual assets of the respective class in the event of liquidation.
o MEETINGS. Under Massachusetts law, Pioneer America Income Trust, as a
registered open-end investment company, is not required to hold annual
shareholder meetings. Unless otherwise required by the Investment Company
Act, the Pioneer America Income Trust has no intention of holding annual
meetings of shareholders. Pursuant to the Declaration of Trust, special
meetings of shareholders may be called at any time by the Chairman,
President or by the Board of Trustees or by the secretary upon the written
request of shareholders entitled to cast at least 25% of the votes
entitled to be cast at such meeting, provided that such request shall
state the purposes of such meeting and the matters proposed to be acted
on.
o LIABILITY OF SHAREHOLDERS. Shareholders of a Massachusetts business trust
may, under certain circumstances, be held personally liable for the
obligations of the trust. However, the Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the
Pioneer America Income Trust or any series of the Pioneer America Income
Trust and provides
81
that notice of such disclaimer may be given in each agreement, obligation
or instrument entered into or executed by the Pioneer America Income Trust
or its Trustees. Moreover, the Declaration of Trust provides for the
indemnification out of Pioneer America Income Trust property of any
shareholders held personally liable for any obligations of the Pioneer
America Income Trust or any series of the Pioneer America Income Trust.
The Declaration of Trust also provides that the Pioneer America Income
Trust shall, upon request, assume the defense of any claim made against
any shareholder for any act or obligation of the Pioneer America Income
Trust and satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss beyond his or her investment because of
shareholder liability would be limited to circumstances in which the fund
itself will be unable to meet its obligations. In light of the nature of
the Pioneer America Income Trust's business and the nature and amount of
its assets, the possibility of the Pioneer America Income Trust's
liabilities exceeding its assets, and therefore a shareholder's risk of
personal liability, is remote.
Reasons for the Proposed Reorganization
The Trustees believe that the proposed Reorganization is in the best
interests of Safeco Intermediate-Term U.S. Government Fund. The Trustees
considered the following matters, among others, in approving the proposal.
First, SAM, the investment adviser to the Safeco Fund until August 2,
2004, was acquired by Symetra. Symetra informed the Trustees that it did not
intend to continue to provide investment advisory services to the Safeco Funds.
Consequently, a change in your Safeco Fund's investment adviser was necessary.
Second, the performance of Pioneer America Income Trust is generally
consistent with the historical investment performance of your Safeco Fund. For
the one, five and ten year periods ended June 30, 2004, Class A shares of
Pioneer America Income Trust had an average annual return of -0.37%, 5.64%, and
5.97%, respectively, compared to an average annual return of the Class A shares
and Investor Class shares of -4.56% and -0.73% (one year), 4.73% and 5.73% (five
years) and 5.79% and 6.29% (ten years), respectively, during the same period.
In addition, the Trustees considered the track record of Pioneer in managing
equity and fixed income mutual funds.
Third, the resources of Pioneer. At June 30, 2004, Pioneer managed over 62
investment companies and accounts with approximately $35 billion in assets.
Pioneer is part of the global asset management group of UniCredito Italiano
S.p.A., one of the largest banking groups in Italy, providing investment
management and financial services to mutual funds, institutional and other
clients. As of June 30, 2004, assets under management of UniCredito Italiano
S.p.A. were approximately $151 billion worldwide. Shareholders of your Safeco
Fund would become part of a significantly larger family of funds that offers a
more diverse array of investment options and enhanced shareholder account
options. The Pioneer family of mutual funds offers over 62 funds, including
domestic and international equity and fixed income funds and a money market
fund that will be available to your Safeco Fund's shareholders through
exchanges. In addition, Pioneer offers shareholders additional options for
their accounts, including the ability to transact and exchange shares over the
telephone or online and the ability to access account values and transaction
history in all of the shareholder's direct accounts in the Pioneer Funds over
the telephone or online.
Fourth, Pioneer America Income Trust's lower operating expenses and
Pioneer's commitment until the second anniversary of the Reorganization to
limit the expenses (excluding extraordinary expenses) of the Investor Class of
Pioneer America Income Trust to 0.74% of average daily net assets. The
estimated expenses of the Investor Class of Pioneer America Income Trust are
below both the gross expenses and expenses net of contractual expense
reimbursement of the end class of shares of your Safeco Fund. Although you will
experience higher expenses once the Investor Class shares convert to Class A
shares after two years, based upon the Class A expense ratio of Pioneer America
Income Trust for the most recent fiscal year, Pioneer America Income Trust's
expenses were lower than the gross and net expense ratio of each class of
shares of your Safeco Fund. While there are some differences between the
policies of the two Funds, the Trustees believe that the two Funds represent
substantially equivalent investments.
Fifth, the substantially larger size of Pioneer America Income Trust
offers greater opportunity for diversification of the investment portfolio,
which should help to reduce risks.
Sixth, shareholders who own shares in their name as of the closing of the
Reorganization (i.e., not in the name of a broker or other intermediary) and
maintain their account may purchase additional Class A shares of the
corresponding Pioneer Fund through such account in the future or may exchange
those shares for Class A shares of another Pioneer Fund or purchase Class A
share of another Pioneer Fund without paying any sales charge.
Seventh, the Investor Class shares of Pioneer America Income Trust
received in the Reorganization will provide Safeco Intermediate-Term U.S.
Government Fund shareholders with exposure to substantially the same investment
product as they currently have.
Pioneer and Symetra will pay all out of pocket expenses of the Safeco
Funds and the Pioneer Funds associated with the Reorganizations, including, but
not limited to: (1) the expenses associated with the preparation, printing and
mailing of any shareholder communications, including this joint Proxy
Statement/Prospectus, and any filings with the SEC and other governmental
authorities in connection with the
82
Reorganizations; (2) the fees and expenses of any proxy solicitation firm
retained in connection with the Reorganizations; (3) the legal fees and
expenses incurred by the Safeco Funds in connection with the Reorganizations;
and (4) the Trustee fees and out of pocket expenses incurred as a result of the
Reorganizations.
The Trustees considered that Pioneer and Symetra will benefit from the
Reorganization. See "Certain Agreements between Pioneer and Symetra."
The Board of Trustees of Pioneer America Income Trust also considered that
the Reorganization presents an excellent opportunity for the Pioneer America
Income Trust to acquire investment assets without the obligation to pay
commissions or other transaction costs that a fund normally incurs when
purchasing securities. This opportunity provides an economic benefit to Pioneer
America Income Trust and its shareholders.
CAPITALIZATION
The following table sets forth the capitalization of each Fund, and the pro
forma combined Fund as of June 30, 2004.
Safeco
Intermediate- Pro Forma
Term U.S. Pioneer America Pioneer America
Government Fund Income Trust Income Trust
June 30, 2004 June 30, 2004 June 30, 2004
----------------- ----------------- ----------------
Total Net Assets (in thousands) $ 66,742 $ 204,736 $ 271,478
Class A shares ............... $ 5,109 $ 129,465 $ 129,465
Class B shares ............... $ 2,338 $ 44,300 $ 44,300
Class C shares ............... $ 97 $ 30,487 $ 30,487
Investor Class shares ........ $ 59,198 N/A $ 66,742
Class R shares ............... N/A $ 484 $ 484
Net Asset Value Per Share
Class A shares ............... $ 9.41 $ 9.72 $ 9.72
Class B shares ............... $ 9.42 $ 9.66 $ 9.66
Class C shares ............... $ 9.42 $ 9.69 $ 9.69
Investor Class shares ........ $ 9.41 N/A $ 9.72
Class R shares ............... N/A $ 9.82 $ 9.82
Shares Outstanding
Class A shares ............... 542,858 13,322,479 13,322,479
Class B shares ............... 248,086 4,585,782 4,585,782
Class C shares ............... 10,304 3,147,571 3,147,571
Investor Class shares ........ 6,290,727 N/A 6,866,461
Class R shares ............... N/A 49,339 49,339
It is impossible to predict how many shares of Pioneer America Income
Trust will actually be received and distributed by your Safeco Fund on the
Reorganization date. The table should not be relied upon to determine the
amount of Pioneer America Income Trust's shares that will actually be received
and distributed.
BOARD'S EVALUATION AND RECOMMENDATION
For the reasons described above, the Trustees, including the Independent
Trustees, approved the Reorganization. In particular, the Trustees determined
that the Reorganization is in the best interests of your Safeco Fund.
Similarly, the Board of Trustees of Pioneer America Income Trust, including its
Independent Trustees, approved the Reorganization. They also determined that
the Reorganization is in the best interests of Pioneer America Income Trust.
The Trustees recommend that the shareholders of your Safeco Fund vote FOR
the proposal to approve the Agreement and Plan of Reorganization.
83
Safeco Money Market Fund and
Pioneer Cash Reserves Fund
PROPOSAL 1(f)
Approval of Agreement and Plan of Reorganization
SUMMARY
The following is a summary of more complete information appearing later in
this Proxy Statement/Prospectus or incorporated herein. You should read
carefully the entire Proxy Statement/Prospectus, including the form of
Agreement and Plan of Reorganization attached as EXHIBIT A-1 because they
contain details that are not in the summary.
The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses per
share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor
Class shares, Pioneer is not required to limit the expenses attributable to
Class A shares.
In the table below, if a row extends across the entire table, the policy
disclosed applies to both your Safeco Fund and the Pioneer Fund.
Comparison of Safeco Money Market Fund to the Pioneer Cash Reserves Fund
- ----------------------------------------------------------------------------------------------------------------------------
Safeco Money Market Fund Pioneer Cash Reserves Fund
- ----------------------------------------------------------------------------------------------------------------------------
Business A series of Safeco Money Market Trust, a A series of Pioneer Money Market Trust, a
diversified open-end management investment diversified open-end management investment
company organized as a Delaware statutory company registered under the Investment
trust. Company Act and organized as a Delaware
statutory trust.
- ----------------------------------------------------------------------------------------------------------------------------
Net assets as of $286 million $510 million
June 30, 2004
- ----------------------------------------------------------------------------------------------------------------------------
Investment advisers and Investment adviser (until August 2, 2004): Investment adviser:
portfolio managers SAM Pioneer
Portfolio Managers Portfolio Manager:
Lesley Fox (since 2000 and until August 2, Day-to-day management of the Fund's
2004) Assistant Vice President, SAM portfolio is the responsibility of a team of
Joined SAM in 2000 fixed income portfolio managers led by
Kenneth J. Taubes.
Cathleen Beauchamp (since 2003 until
July 31, 2004) Mr. Taubes, a senior vice president, joined
CFA Pioneer in 1998 and has been an investment
professional since 1982.
Currently Pioneer is acting as investment
adviser to the Safeco Money Market Fund. The
Portfolio Manager of the Pioneer Cash
Reserves Fund, as indicated in the next
column, currently manages your Safeco Fund.
- ----------------------------------------------------------------------------------------------------------------------------
84
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Safeco Money Market Fund Pioneer Cash Reserves Fund
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Investment objective Safeco Money Market Fund seeks as high a Safeco Money Market Fund seeks high current
level of current income as is consistent with income, preservation of capital and liquidity
the preservation of capital and liquidity through through investments in high-quality short-term
investment in high-quality money market securities.
instruments maturing in 13 months or less.
The investment objective of the Fund may not
Safeco Money Market Fund provides written be changed without the affirmative vote of the
notice to shareholders at least 60 days prior to holders of a "majority of the outstanding
any change to its investment objective as voting securities" (as defined in the
described above. Investment Company Act) of the Fund.
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Primary investments To achieve its investment objective, Safeco Safeco Money Market Fund seeks to maintain
Money Market Fund will purchase only high- a constant net asset value of $1.00 per share
quality securities with remaining maturities of by investing in high-quality, U.S. dollar
397 days or less. The Fund will maintain a denominated money market securities,
dollar-weighted average portfolio maturity of including those issued by:
no more than 90 days.
o U.S. and foreign banks
o U.S. and foreign corporate issuers
o The U.S. government and its agencies and
instrumentalities
o Foreign governments
o Multinational organizations such as the
World Bank
Safeco Money Market Fund invests exclusively
in securities with a maximum remaining
maturity of 397 days and maintains a dollar-
weighted average portfolio maturity of 90 days
or less.
Safeco Money Market Fund's investments may
have fixed, floating or variable interest rates.
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Investment strategies When evaluating a security to buy, SAM In selecting Safeco Money Market Fund's
historically considered, among other things: portfolio, Pioneer complies with the rating,
maturity and diversification requirements
o Yield applicable to money market funds. Within
o Maturity those factors, Pioneer's assessment of broad
o Issuer credit quality economic factors that are expected to affect
o Relative value compared with other economic activity and interest rates influence
alternatives its securities selection.
Safeco Money Market Fund may sell a
security if:
o The adviser becomes concerned about the
issuer's creditworthiness
o A more attractive alternative is available
o Cash is needed to meet shareholder
redemptions
After evaluating a bond, SAM compared the
bond to other available bonds, which may have
different features, and would buy the bond if it
appeared to offer the best relative value.
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85
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Safeco Money Market Fund Pioneer Cash Reserves Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Other investments Safeco Money Market Fund will limit its Safeco Money Market Fund may invest
investment in municipal obligations the interest more than 25% of its total assets in U.S.
on which is payable from the revenues of government securities and obligations of U.S.
similar types of projects to less than 25% of banks. The Fund may invest in any money
the Fund's total assets. As a matter of market instrument that is a permissible
operating policy, "similar types of projects" investment for a money market fun under the
may include sports, convention or trade show rules of the SEC, including commercial paper,
facilities; airports or mass transportation; certificates of deposit, time deposits, bankers'
sewage or solid waste disposal facilities; or air acceptances, mortgage-backed and asset-
and water pollution control projects. backed securities, repurchase agreements,
municipal obligations and other short-term
Safeco Money Market Fund will limit its debt securities.
investment in securities whose issuers are
located in the same state to less than 25% of Safeco Money Market Fund invests in U.S.
the Fund's total assets. government obligations and money market
securities rated in one of the two highest
Safeco Money Market Fund may invest up to rating categories for short-term debt by a
25% of its total assets in the "first tier nationally recognized statistical rating
securities" of a single issuer for up to three organization or, if unrated, determined to be
business days after purchase. First tier of equivalent credit quality by Pioneer.
securities are securities (1) rated in the highest
short-term category by two nationally
recognized statistical rating organizations
(NRSROs); (2) rated in the highest short-term
rating category by a single NRSRO if only that
NRSRO has assigned the securities a short-
term rating; or (3) unrated, but determined by
SAM to be of comparable quality.
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Temporary defensive Safeco Money Market Fund may hold cash or Safeco Money Market Fund may invest all or
strategies invest in high-quality, short-term securities part of its assets in securities with remaining
issued by an agency or instrumentality of the maturities of less than one year, cash
U.S. government, high-quality commercial equivalents or may hold cash.
paper, certificates of deposit, shares of no-
load, open-end money market funds, or
repurchase agreements as a temporary
defensive measure when market conditions
so warrant.
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Diversification Each Fund is diversified for the purpose of the Investment Company Act, and each Fund is
subject to diversification requirements under the Code.
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86
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Safeco Money Market Fund Pioneer Cash Reserves Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Industry concentration Safeco Money Market Fund will not make Safeco Money Market Fund will not
investments that will result in the concentration concentrate its assets in the securities of
(as defined in the Investment Company Act, issuers in any one industry except with
any rule or order there under, or SEC staff respect to investments in obligations of (a)
interpretation thereof) of its investments in the the U.S. government, its agencies, authorities
securities of issuers primarily engaged in the or instrumentalities and (b) domestic banks,
same industry, provided that this restriction purchase any security if, as a result (i) more
does not limit the Fund from investing in than 5% of the assets of the Fund would be in
obligations issued or guaranteed by the U.S. the securities of any one issuer, or (ii) more
government, its agencies or instrumentalities, than 25% of its assets would be in a
or certain bank instruments issued by particular industry.
domestic banks.
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Restricted and illiquid If immediately after and as a result of such Safeco Money Market Fund will not invest
securities action the value of the following securities, in more than 10% of its net assets in illiquid
the aggregate, would exceed 10% of the Fund's and other securities that are not readily
net assets, the Fund will not (i) purchase marketable. Repurchase agreements maturing
securities for which there is no readily in more than seven days will be included for
available market, (ii) purchase time deposits purposes of the foregoing limit. Securities
maturing in more than seven days, (iii) subject to restrictions on resale under the
purchase over-the-counter (OTC) options or 1933 Act are considered illiquid unless they
hold assets set aside to cover OTC options are eligible for resale pursuant to Rule 144A
written by the Fund, (iv) enter into repurchase or another exemption from the registration
agreements maturing in more than seven days, requirements of the 1933 Act and are
or (v) invest in interests in real estate determined to be liquid by Pioneer.
investment trusts which are not readily
marketable or interests in real estate limited
partnerships which are not listed or traded on
the NASDAQ Stock Market.
- -----------------------------------------------------------------------------------------------------------------------------------
Borrowing Safeco Money Market Fund may borrow money Safeco Money Market Fund may not borrow
(i) from banks or (ii) by engaging in reverse money, except from banks for extraordinary
repurchase agreements. purposes or to meet redemptions in amounts
not exceeding 331/3% of its total assets
(including the amount borrowed). The Fund
does not intend to borrow money during the
coming year.
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Lending Safeco Money Market Fund may lend securities Safeco Money Market Fund may not make
to qualified institutional investors with a value loans to any person, except by (a) the
of up to 33% of the Fund's total assets. purchase of a debt obligation in which the
Fund is permitted to invest and (b) engaging
in repurchase agreements.
- -----------------------------------------------------------------------------------------------------------------------------------
Derivative instruments Safeco Money Market Fund may not purchase Safeco Money Market Fund may not purchase
securities on margin. However, the Fund may securities on margin.
(i) obtain short-term credits as necessary to
clear its purchases and sales of securities, and
(ii) make margin deposits in connection with
its use of financial options and futures,
forward and spot currency contracts, swap
transactions and other financial contracts or
derivative instruments.
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87
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Safeco Money Market Fund Pioneer Cash Reserves Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Other investment policies and As described above, the Funds have substantially similar principal investment strategies and
restrictions policies. Certain of the non-principal investment policies and restrictions are different. For a
more complete discussion of each Fund's other investment policies and fundamental and non-
fundamental investment restrictions, see the SAI.
- -----------------------------------------------------------------------------------------------------------------------------------
Buying, Selling and Exchanging Shares
- -----------------------------------------------------------------------------------------------------------------------------------
Sales charges Purchases of Class A shares of Safeco Money The Investor Class shares of Pioneer Cash
Market Fund are not subject to a sales load. Reserves Fund you receive in the
Reorganization will not be subject to any sales
A contingent deferred sales charge may apply charge. Moreover, if you own shares in your
if you redeem Class B shares that were own name as of the closing of the
purchased by exchange from another fund. Reorganization (i.e., not in the name of a
broker or other intermediary) and maintain
A contingent deferred sales charge of 1% if your account, you may purchase Class A
you redeem Class C shares within one year of shares of Pioneer Cash Reserves Fund and
purchase, and the shares were purchased by Class A shares of any fund in the Pioneer
exchange from another fund. family of funds through such account in the
future without paying any sales charge.
Purchases of Investor Class shares of the Fund
are not subject to a sales load. Except as described above, Class A shares of
Pioneer Cash Reserves Fund are not subject
to a front-end sales charge.
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88
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Safeco Money Market Fund Pioneer Cash Reserves Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Management and other fees Safeco Money Market Fund pays an advisory Pioneer Cash Reserves Fund pays Pioneer a
fee on a monthly basis at an annual rate as management fee equal to 0.40% of the Fund's
follows: average daily net assets.
$0-$250,000,000: 0.50 of 1% During its most recent fiscal year, Pioneer
$250,000,001-$750,000,000: 0.45 of 1% Cash Reserves Fund paid an advisory fee at
$750,000,001-$1,250,000,000: 0.40 of 1% an average rate of 0.40% of average daily
Over $1,250,000,000: 0.35 of 1% net assets.
SAM serves as administrator and fund In addition, the Fund reimburses Pioneer for
accounting agent for Safeco Money Market certain fund accounting and legal expenses
Fund. The Fund pays SAM an administrative incurred on behalf of the Fund and pays a
services fee of 0.05% of the Fund's average separate shareholder servicing/transfer agency
daily net assets up to the first $200,000,000 fee to PIMSS, an affiliate of Pioneer.
and 0.01% of its net assets thereafter, and an
accounting fee of 0.04% of the Fund's average For the fiscal year ended December 31, 2003,
daily net assets up to the first $200,000,000 the Fund's total annual operating expenses for
and 0.01% of its net assets thereafter. Class A shares were 1.06% of average daily
net assets. The Fund does not currently have
During its most recent fiscal year, Safeco an expense limitation for its Class A shares.
Money Market Fund paid aggregate advisory
and administration fees at an average rate of Pioneer has agreed until the second
0.53% of average daily net assets. anniversary of the closing of the
Reorganization to limit the expenses
SAM had contractually agreed until April 30, (excluding extraordinary expenses) of the
2009, to pay certain Fund operating expenses Investor Class to 0.71% of the average daily
(but not all of the operating expenses of the net assets attributable to the Investor Class.
Fund) that exceeded the rate of 0.30% per
annum of the Fund's average daily net assets. The Investor Class shares to be issued in the
This arrangement included all Fund operating Reorganization will convert to Class A shares
expenses except management fees, Rule 12b-1 after two years. Class A shares will have
fees, brokerage commissions, interest, and higher expenses per share than Investor Class
extraordinary expenses. shares due to the Rule 12b-1 Plan. In
addition, although Pioneer has agreed to limit
For the fiscal year ended December 31, 2003, the expenses attributable to Investor Class
the Fund's annual operating expenses for Class shares, Pioneer is not required to limit the
A shares, after giving effect to the expense expenses attributable to Class A shares.
limitation were 0.78%, and without giving
effect to the expense limitation, were 0.98%.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for Class
B shares, after giving effect to the expense
limitation were 0.78%, and without giving
effect to the expense limitation, were 1.17%.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for Class
C shares, after giving effect to the expense
limitation were 0.78%, and without giving
effect to the expense limitation, were 1.01%.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for
Investor Class shares were 0.67%.
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89
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Safeco Money Market Fund Pioneer Cash Reserves Fund
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Distribution and service Class A shares of Safeco Money Market Fund Class A shares of Pioneer Cash Reserves Fund
(12b-1) fee are not currently subject to a Rule 12b-1 fee. are subject to a Rule 12b-1 fee equal to
0.15% annually of average daily net assets.
--------------------------------------------------------------------------------------------------------
Investor Class shares of the Pioneer Fund are not subject to a Rule 12b-1 fee. Pioneer Investor
Class shares will convert into Class A shares after two years.
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Buying shares You may buy shares of the Fund directly You may buy shares from any investment firm
through Safeco Securities or through brokers, that has a sales agreement with PFD, Pioneer
registered investment advisers, banks and Cash Reserves Fund's distributor. Existing
other financial institutions that have entered shareholders of Safeco Money Market Fund
into selling agreements with the Fund's who own shares in their own name as of the
principal underwriter, as described in the closing date of the Reorganization and who
Fund's prospectus. maintain their accounts may buy shares of
any fund in the Pioneer family of funds
Certain account transactions may be done by through such accounts in the future without
telephone. paying sales charges.
If the account is established in the
shareholder's own name, shareholders may
also purchase additional shares of Pioneer
Cash Reserves Fund by telephone or online.
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Exchange privilege There are no sales charges on shares you You may exchange shares of Pioneer Cash
acquire through dividend reinvestment or other Reserves Fund without incurring any fee on
Fund distributions or for Class A shares that the exchange with the more than 62 other
you have exchanged for Class A shares of Pioneer Funds. Your exchange would be for
another fund. Class A shares, which is subject to Rule
12b-1 fees. An exchange generally is treated
Certain account transactions may be done by as a sale and a new purchase of shares for
telephone. federal income tax purposes.
If the account is established in the
shareholder's own name, shareholders may
also exchange shares of Pioneer Cash
Reserves Fund for shares of other Pioneer
Funds by telephone or online.
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Selling shares Each class of shares will be sold at net asset value per share next calculated after the Fund
receives your request in good order.
--------------------------------------------------------------------------------------------------------
You may sell your shares by contacting Safeco Normally, your investment firm will send your
Money Market Fund directly in writing or by request to sell shares to PIMSS. You can
contacting a financial intermediary as described also sell your shares by contacting the Fund
in the Fund's prospectus. directly if your account is registered in
your name.
If the account is established in the
shareholder's own name, shareholders may
also redeem shares of Pioneer Cash Reserves
Fund by telephone or online. After the
Reorganization, Investor Class shares will not
be entitled to check writing privileges, and you
should no longer write checks issued by your
Safeco Fund.
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90
Comparison of Principal Risks of Investing in the Funds
Because each Fund has a similar investment objective, primary investment
policies and strategies, the Funds are subject to the same principal risks.
Even though the Funds seek to maintain a $1 share price, you could lose money
on your investment or the Fund could fail to generate high current income if:
o Interest rates go up, causing the value of the Fund's investments to
decline
o The issuer of a security owned by the Fund defaults on its obligation
to pay principal and/or interest or has its credit rating downgraded
o The investment adviser's judgment about the credit quality,
attractiveness or relative value of a particular security proves to be
incorrect
Investing in non-U.S. issuers may involve unique risks compared to
investing in securities of U.S. issuers. These risks may include:
o Inadequate financial information
o Smaller, less liquid and more volatile markets
o Political and economic upheavals
The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses per
share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor
Class shares, Pioneer is not required to limit the expenses attributable to
Class A shares.
Past Performance
Set forth below is performance information for each Fund. The bar charts
show how each Fund's total return (not including any deduction for sales
charges) has varied from year to year for each full calendar year. The tables
show average annual total return for each Fund over time for each class of
shares (including deductions for sales charges) compared with a broad-based
securities market index. The bar charts give an indication of the risks of
investing in each Fund, including the fact that you could incur a loss and
experience volatility of returns year to year. Past performance before and
after taxes does not indicate future results.
Safeco Money Market Fund -- Investor Class
Calendar Year Total Returns*
[THE FOLLOWING WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
'94 3.53%
'95 5.28
'96 4.75
'97 4.93
'98 5.08
'99 4.65
'00 5.90
'01 3.75
'02 1.32
'03 0.65
* During the period shown in the bar chart, your Safeco Fund's highest
quarterly return was 1.52% for the quarter ended December 31, 2000, and the
lowest quarterly return was 0.13% for the quarter ended September 30, 2003.
91
Pioneer Cash Reserves Fund -- Class A shares
Calendar Year Total Returns*
[THE FOLLOWING WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
'94 3.57%
'95 5.17
'96 4.65
'97 4.78
'98 4.84
'99 4.23
'00 5.53
'01 3.29
'02 1.15
'03 0.26
* During the period shown in the bar chart, Pioneer Cash Reserves Fund's
highest quarterly return was 1.45% for the quarter ended December 31, 2000,
and the lowest quarterly return was 0.01% for the quarter ended December
31, 2003.
Safeco Money Market Fund
Average Annual Total Returns as of December 31, 2003
- ----------------------------------------------------------------------------------------
1 Year 5 Years 10 Years
- ----------------------------------------------------------------------------------------
Safeco Money Market Fund, Class A shares 0.55% 3.20% 3.95%
- ----------------------------------------------------------------------------------------
Safeco Money Market Fund, Class B shares 0.55% 3.21% 3.93%
- ----------------------------------------------------------------------------------------
Safeco Money Market Fund, Class C shares 0.55% 3.20% 3.93%
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Safeco Money Market Fund, Investor Class shares 0.65% 3.24% 3.97%
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Pioneer Cash Reserves Fund -- Class A shares
Average Annual Total Returns as of December 31, 2003
- ----------------------------------------------------------------------------------------
1 Year 5 Years 10 Years
- ----------------------------------------------------------------------------------------
Pioneer Cash Reserves Fund, Class A shares 0.26% 2.88% 3.74%
- ----------------------------------------------------------------------------------------
90-day U.S. Treasury Bill
(reflects no deduction for taxes) 1.03% 3.34% 4.18%
- ----------------------------------------------------------------------------------------
Pioneer Cash Reserves Fund's Investor Class shares will not be outstanding
prior to the closing of the Reorganization and consequently have no performance
history. However, the performance record of the Investor Class would be
modestly higher than the performance of Class A, B and C shares due to the
lower expenses applicable to the Investor Class.
The most recent portfolio manager's discussion of each Fund's performance
is attached as Exhibit D.
92
The Funds' Fees and Expenses
Shareholders of both Funds pay various fees and expenses, either directly
or indirectly. The tables below show the fees and expenses that you would pay
if you were to buy and hold shares of each Fund. The expenses in the tables
appearing below are based on (i) for your Safeco Fund, the expenses of your
Safeco Fund for the period ended December 31, 2003 and (ii) for Pioneer Cash
Reserves Fund, the expenses of Pioneer Cash Reserves Fund for the period ended
December 31, 2003. Future expenses for all share classes may be greater or
less.
Pro Forma
Safeco Money Safeco Money Safeco Money Safeco Money Pioneer Cash
Market Fund Market Fund Market Fund Market Fund Reserves Fund
Shareowner transaction fees Class A Class B Class C Investor Class Investor Class(8)
(paid directly from your investment) ------------ ------------ ------------ -------------- ---------------
Maximum sales charge (load) when you buy shares as a
percentage of offering price ......................... None None None None None(1)
Maximum deferred sales charge (load) as a percentage of
purchase price or the amount you receive when you sell
shares, whichever is less ............................ None None(6) None(7) None None
Redemption fees for shares held less than 30 days ..... None None None None N/A
Wire redemption fee ................................... $ 20(4) $ 20(4) $ 20(4) $ 20(4) $ 10
Annual low balance fee ................................ $ 12(5) $ 12(5) $ 12(5) $ 125 N/A
Annual fund operating expenses (deducted from fund
assets) (as a % of average net assets)
Management fee ........................................ 0.48% 0.48% 0.48% 0.48% 0.40%
Distribution and service (12b-1) fee .................. None None None None None
Other expenses ........................................ 0.50% 0.69% 0.53% 0.19% 0.41%
Total fund operating expenses ......................... 0.98% 1.17% 1.01% 0.67% 0.81%
Expense reimbursement/reduction ....................... 0.20%(2) 0.39%(2) 0.23%(2) N/A 0.10%(3)
Net fund operating expenses ........................... 0.78% 0.78% 0.78% 0.67% 0.71%
- ----------
(1) No sales load will apply to shares received in the Reorganization by
shareholders of your Safeco Fund who become shareholders of record of
Pioneer Cash Reserves Fund through the Reorganization. In addition,
shareholders of your Safeco Fund who own shares in their own name (i.e.,
not in the name of a broker or other intermediary) and maintain such
account as of the closing of the Reorganization may purchase Class A shares
of Pioneer Cash Reserves Fund or of any fund in the Pioneer family of funds
through such account in the future without paying this sales charge.
(2) As described above, SAM had contractually agreed to reimburse Safeco Money
Market Fund for certain Fund operating expenses (but not all of the
operating expenses of the Fund) that exceeded the rate of 0.30% per annum
of the Fund's average daily net assets. This arrangement included all Fund
operating expenses except management fees, Rule 12b-1 fees, brokerage
commissions, interest, and extraordinary expenses.
(3) Pioneer has agreed that through the second anniversary of the closing of
the Reorganization, Pioneer will limit the expenses (excluding
extraordinary expenses) of the Investor Class shares of Pioneer Cash
Reserves Fund to 0.71% of average daily net assets.
(4) There is a higher charge for international wire redemptions, which may vary
by country or dollar amount.
(5) A low balance fee is charged once in year in December for accounts with
balances under $1,000 in your Safeco Fund.
(6) A contingent deferred sales charge may apply if you redeem Class B shares
of your Safeco Fund that were purchased by exchange from another fund.
(7) A 1.00% contingent deferred sales charge may apply if, within the first
twelve months of the initial purchase, you redeem Class C shares that were
purchased by exchange from another fund
(8) The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses
per share than Investor Class shares due to the Rule 12b-1 Plan. In
addition, although Pioneer has agreed to limit the expenses attributable to
Investor Class shares, Pioneer is not required to limit the expenses
attributable to Class A shares. Class A shares do not currently have an
expense limitation and may be subject to higher total operating expenses.
93
The hypothetical example below helps you compare the cost of investing in
each Fund. It assumes that: (a) you invest $10,000 in each Fund for the time
periods shown, (b) you reinvest all dividends and distributions, (c) your
investment has a 5% return each year, (d) each Fund's gross operating expenses
remain the same, (e) the expense limitations are in effect for five years for
Safeco Money Market Fund and two years for Pioneer Cash Reserves Fund and (f)
and the Investor Class shares of Pioneer Cash Reserves Fund convert to Class A
shares after two years. The examples are for comparison purposes only and are
not a representation of either Fund's actual expenses or returns, either past
or future.
Example
Safeco Money Market Fund
Class A shares
Year 1 ...................... $ 80
Year 3 ...................... $ 249
Year 5 ...................... $ 433
Year 10 ..................... $1,099
Class B shares
Year 1 ...................... $ 80
Year 3 ...................... $ 249
Year 5 ...................... $ 433
Year 10 ..................... $1,122
Class C shares
Year 1 ...................... $ 80
Year 3 ...................... $ 249
Year 5 ...................... $ 433
Year 10 ..................... $1,119
Investor Class shares
Year 1 ...................... $ 68
Year 3 ...................... $ 214
Year 5 ...................... $ 373
Year 10 ..................... $ 835
Pro Forma Pioneer Cash Reserves Fund
Investor Class shares
Year 1 ...................... $ 73
Year 3 ...................... $ 257
Year 5 ...................... $ 488
Year 10 ..................... $1,151
Reasons for the Proposed Reorganization
The Trustees believe that the proposed Reorganization is in the best
interests of Safeco Money Market Fund. The Trustees considered the following
matters, among others, in approving the proposal.
First, SAM, the investment adviser to the Safeco Fund until August 2,
2004, was acquired by Symetra. Symetra informed the Trustees that it did not
intend to continue to provide investment advisory services to the Safeco Funds.
Consequently, a change in your Safeco Fund's investment adviser was necessary.
Second, the investment performance of Pioneer Cash Reserves Fund is
comparable to the historical investment performance of your Safeco Fund. For
the one, five and ten year periods ended June 30, 2004, Class A shares of
Pioneer Cash Reserves Fund had an average annual return of 0.12%, 2.50%, and
3.60%, respectively, compared to an average annual return of the Class A shares
and Investor Class shares of 0.42% and 0.51% (one year), 2.82% and 2.86% (five
years), and 3.82% and 3.85% (ten years) respectively, during the same period.
In addition, the Trustees considered the track record of Pioneer in managing
equity and fixed income mutual funds.
Third, the resources of Pioneer. At June 30, 2004, Pioneer managed over 62
investment companies and accounts with approximately $35 billion in assets.
Pioneer is part of the global asset management group of UniCredito Italiano
S.p.A., one of the largest banking groups in Italy, providing investment
management and financial services to mutual funds, institutional and other
clients. As of June 30, 2004,
94
assets under management of UniCredito Italiano S.p.A. were approximately $151
billion worldwide. Shareholders of your Safeco Fund would become part of a
significantly larger family of funds that offers a more diverse array of
investment options and enhanced shareholders account options. The Pioneer
family of mutual funds offers over 62 funds, including domestic and
international equity and fixed income funds and a money market fund that will
be available to your Safeco Fund's shareholders through exchanges. In addition,
Pioneer offers shareholders additional options for their accounts, including
the ability to transact and exchange shares over the telephone or online and
the ability to access account values and transaction history in all of the
shareholder's direct accounts in the Pioneer Funds over the telephone or
online.
Fourth, Pioneer's commitment until the second anniversary of the
Reorganization to limit the expenses (excluding extraordinary expenses) of the
Investor Class of Pioneer Cash Reserves Fund to 0.71% of average daily net
assets. Although you will experience higher expenses once the Investor Class
shares convert to Class A shares after two years, your expenses will remain the
same until the second anniversary of the Reorganization.
Fifth, shareholders who own shares in their name as of the closing of the
Reorganization (i.e., not in the name of a broker or other intermediary) and
maintain their account may purchase additional Class A shares of the
corresponding Pioneer Fund through such account in the future or may exchange
those shares for Class A shares of another Pioneer Fund or purchase Class A
share of another Pioneer Fund without paying any sales charge.
Sixth, the Investor Class shares of Pioneer Cash Reserves Fund received in
the Reorganization will provide Safeco Money Market Fund shareholders with
exposure to substantially the same investment product as they currently have.
Pioneer and Symetra will pay all out of pocket expenses of the Safeco
Funds and the Pioneer Funds associated with the Reorganizations, including, but
not limited to: (1) the expenses associated with the preparation, printing and
mailing of any shareholder communications, including this joint Proxy
Statement/Prospectus, and any filings with the SEC and other governmental
authorities in connection with the Reorganizations; (2) the fees and expenses
of any proxy solicitation firm retained in connection with the Reorganizations;
(3) the legal fees and expenses incurred by the Safeco Funds in connection with
the Reorganizations; and (4) the Trustee fees and out of pocket expenses
incurred as a result of the Reorganizations.
The Trustees considered that Pioneer and Symetra will benefit from the
Reorganization. See "Certain Agreements between Pioneer and Symetra."
The Board of Trustees of Pioneer Cash Reserves Fund also considered that
the Reorganization presents an excellent opportunity for the Pioneer Cash
Reserves Fund to acquire investment assets without the obligation to pay
commissions or other transaction costs that a fund normally incurs when
purchasing securities. This opportunity provides an economic benefit to Pioneer
Cash Reserves Fund and its shareholders.
95
CAPITALIZATION
The following table sets forth the capitalization of each Fund, as of June
30, 2004, and the pro forma combined Fund as of June 30, 2004.
Pro Forma
Safeco Money Pioneer Cash Pioneer Cash
Market Fund Reserves Fund Reserves Fund
June 30, 2004 June 30, 2004 June 30, 2004
--------------- --------------- --------------
Total Net Assets (in thousands) ......... 286,380 509,605 795,985
Class A shares ......................... 5,488 301,140 301,140
Class B shares ......................... 1,194 89,406 89,406
Class C shares ......................... 124 118,820 118,820
Investor Class shares .................. 279,574 N/A 286,380
Class R shares ......................... N/A 239 239
Net Asset Value Per Share
Class A shares ......................... $1.00 $1.00 $1.00
Class B shares ......................... $1.00 $1.00 $1.00
Class C shares ......................... $1.00 $1.00 $1.00
Investor Class shares .................. $1.00 N/A $1.00
Class R shares ......................... N/A $1.00 $1.00
Shares Outstanding
Class A shares ......................... 588,000 301,284,833 301,284,833
Class B shares ......................... 1,194,000 89,371,274 89,371,274
Class C shares ......................... 124,000 118,809,103 118,809,103
Investor Class shares .................. 279,574,000 N/A 286,380,000
Class R shares ......................... N/A 239,463 239,463
It is impossible to predict how many shares of Pioneer Cash Reserves Fund
will actually be received and distributed by your Safeco Fund on the
Reorganization date. The table should not be relied upon to determine the
amount of Pioneer Cash Reserves Fund's shares that will actually be received
and distributed.
BOARD'S EVALUATION AND RECOMMENDATION
For the reasons described above, the Trustees, including the Independent
Trustees, approved the Reorganization. In particular, the Trustees determined
that the Reorganization is in the best interests of your Safeco Fund.
Similarly, the Board of Trustees of Pioneer Cash Reserves Fund, including its
Independent Trustees, approved the Reorganization. They also determined that
the Reorganization is in the best interests of Pioneer Cash Reserves Fund.
The Trustees recommend that the shareholders of your Safeco Fund vote FOR
the proposal to approve the Agreement and Plan of Reorganization.
96
Safeco Municipal Bond Fund and
Pioneer Municipal Bond Fund
PROPOSAL 1(g)
Approval of Agreement and Plan of Reorganization
SUMMARY
The following is a summary of more complete information appearing later in
this Proxy Statement/Prospectus or incorporated herein. You should read
carefully the entire Proxy Statement/Prospectus, including the form of
Agreement and Plan of Reorganization attached as EXHIBIT A-2 because they
contain details that are not in the summary.
The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses per
share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor
Class shares, Pioneer is not required to limit the expenses attributable to
Class A shares.
In the table below, if a row extends across the entire table, the policy
disclosed applies to both your Safeco Fund and the Pioneer Fund.
Comparison of Safeco Municipal Bond Fund to the Pioneer Municipal Bond Fund
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Safeco Municipal Bond Fund Pioneer Municipal Bond Fund
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Business A series of Safeco Tax-Exempt Bond Trust, a A newly organized diversified open-end
diversified open-end management investment management investment company registered
company organized as a Delaware statutory under the Investment Company Act and
trust. organized as a Delaware statutory trust.
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets as of $550 million None. Pioneer Municipal Bond Fund is newly
June 30, 2004 organized and does not expect to commence
investment operations until the Reorganization
occurs.
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Investment advisers and Investment adviser (until August 2, 2004): Investment adviser:
portfolio managers SAM Pioneer
Portfolio Managers: Portfolio Managers:
Stephen C. Bauer (since 1981 and until Day-to-day management of Pioneer Municipal
August 2, 2004) Bond Fund's portfolio is the responsibility of a
President and Director, SAM team of fixed income portfolio managers led
by Kenneth J. Taubes.
Mary Metastasio (since 2003 and until
July 31, 2004) Mr. Taubes joined Pioneer as a senior vice
president in September 1998 and has been an
Currently Pioneer is acting as investment investment professional since 1982.
adviser to Safeco Municipal Bond Fund. The
Portfolio Manager of the Pioneer Municipal
Bond Fund, as indicated in the next column,
currently manages your Safeco Fund.
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Investment objective Each Fund seeks to provide as high a level of current interest income exempt from federal
income tax as is consistent with the relative stability of capital.
The investment objective of each Fund is fundamental and cannot be changed without
shareholder approval.
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97
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Safeco Municipal Bond Fund Pioneer Municipal Bond Fund
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Primary investments During normal market conditions, Safeco Normally, Pioneer Municipal Bond Fund
Municipal Bond Fund will not invest less than invests at least 80% of its net assets in
80% of its net assets in obligations the interest investment grade municipal bonds with a
on which is exempt from federal income tax. maturity of more than one year, that
provide income that is exempt from federal
To achieve its investment objective, Safeco income tax.
Municipal Bond Fund invests primarily in
municipal bonds rated investment grade or Pioneer Municipal Bond Fund's investments
better with average maturities of 15 years include bonds, notes and other debt
or longer. instruments issued by or on behalf of
states, counties, municipalities, territories
Under normal circumstances, Safeco Municipal and possessions of the United States and
Bond Fund invests: the District of Columbia and their
authorities, political subdivisions, agencies
o at least 80% of its assets in investment- or instrumentalities.
grade municipal bonds with a maturity of
more than one year and the interest on Pioneer Municipal Bond Fund's investments
which is exempt from federal income tax; may have fixed or variable principal
and payments and all types of interest rate
payment and reset terms, including fixed
o up to 20% of its assets in unrated municipal and floating rates, inverse floating rate, zero
bonds, as long as the adviser determines coupon, contingent, deferred and payment
they are of comparable quality to in kind and auction rate features.
investment-grade securities.
Pioneer Municipal Bond Fund may invest in
municipal securities of any maturity,
although under normal circumstances it is
anticipated that the Fund will generally
invest in longer-term investments. Municipal
securities with longer maturities are
generally more volatile than other fixed
income securities with shorter maturities.
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Each Fund will not invest in securities the interest on which is a tax preference item for
purposes of the federal alternative minimum tax.
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98
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Safeco Municipal Bond Fund Pioneer Municipal Bond Fund
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Investment strategies When evaluating a bond to buy, SAM Pioneer considers both broad economic
historically considered among other things: factors and issuer specific factors in selecting
a portfolio designed to achieve Pioneer
o Yield Municipal Bond Fund's investment objective.
o Maturity In assessing the appropriate maturity and
o Structural features such as an issuer's right rating weighting of the Fund's portfolio,
to buy the bond back at a stated price (a Pioneer considers a variety of factors that are
"call") or the Fund's right to require the expected to influence economic activity and
issuer to buy the bond back at a stated price interest rates. These factors include
(a "put") fundamental economic indicators, such as the
o Credit quality (including the underlying rating rates of economic growth and inflation,
of insured bonds) Federal Reserve monetary policy and the
o The project the issuer is financing relative value of the U.S. dollar compared to
o The original offering price other currencies.
o Any state or local tax exemption
o The amount of discount off or premium on Once Pioneer determines the preferable
the stated principal amount of the bond portfolio characteristics, Pioneer selects
represented by the price offered individual securities based upon the terms of
the securities (such as yields compared to
SAM may have used the rating services U.S. Treasuries or comparable issues),
provided by Moody's, S&P, or Fitch. Bond liquidity and rating and issuer diversification.
ratings indicate an issuer's financial strength
and ability to meet its debt obligations. Pioneer also employs due diligence and
fundamental research, an evaluation of the
Safeco Municipal Bond Fund may sell bonds issuer based on its financial statements and
when: operations, to assess an issuer's credit
quality, taking into account financial condition,
o They become fully valued future capital needs and potential for change
o More attractively valued bonds become in rating.
available
o Cash is needed to meet shareholder In making these portfolio decisions, Pioneer
redemptions relies on the knowledge, experience and
judgment of its staff who have access to a
Because it often takes years for attractive wide variety of research.
relative valuations to be recognized by the
municipal securities market, turnover of the
Fund's portfolio can be low.
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99
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Safeco Municipal Bond Fund Pioneer Municipal Bond Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Other investments Safeco Municipal Bond Fund will limit its At times, more than 25% of Pioneer Municipal
investment in municipal obligations the interest Bond Fund's assets may be invested in the
on which is payable from the revenues of same market segment, such as financials. To
similar types of projects less than 25% of each the extent the Fund emphasizes investments in
Funds' total assets. As a matter of operating a market segment, the Fund will be subject to
policy, "similar types of projects" may include a greater degree to the risks particular to the
sports, convention or trade show facilities; industries in that segment, and may
airports or mass transportation; sewage or experience greater market fluctuation, than a
solid waste disposal facilities; or air and water fund without the same focus. For example,
pollution control projects. industries in the financial segment, such as
banks, insurance companies, broker-dealers
Safeco Municipal Bond Fund may invest in any and REITs, may be sensitive to changes
of the following short-term, tax-exempt in interest rates and general economic
obligations: municipal notes of issuers rated, at activity and are subject to extensive
the time of the purchase, within one of the government regulation.
three highest grades assigned by a nationally
recognized statistical rating organization Pioneer Municipal Bond Fund may invest up
("NRSRO"); unrated municipal notes offered by to 10% of its net assets in debt securities
issuers having outstanding municipal bonds rated below investment grade or, if unrated, of
rated within one of the three highest grades equivalent quality as determined by Pioneer.
assigned by an NRSRO; notes issued by or on Debt securities rated below investment grade
behalf of municipal issuers that are guaranteed are commonly referred to as "junk bonds" and
by the U.S. government; tax-exempt are considered speculative. Below investment
commercial paper assigned one of the two grade debt securities involve greater risk of
highest grades by an NRSRO; certificates of loss, are subject to greater price volatility and
deposit issued by banks with assets of are less liquid, especially during periods of
$1,000,000,000 or more; and municipal economic uncertainty or change, than higher
obligations that have a maturity of one year or quality debt securities.
less from the date of purchase.
Pioneer Municipal Bond Fund may invest up
to 10% of its net assets in inverse floating
rate obligations (a type of derivative
instrument). Inverse floating rate obligations
represent interests in tax-exempt bonds. The
interest rate on inverse floating rate
obligations will generally decrease as short-
term interest rates increase, and increase as
short-term rates decrease. Due to their
leveraged structure, the sensitivity of the
market value of an inverse floating rate
obligation to changes in interest rates is
generally greater than a comparable long-term
bond issued by the same municipality and
with similar credit quality, redemption and
maturity provisions. Inverse floating rate
obligations may be volatile and involve
leverage risk.
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100
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Safeco Municipal Bond Fund Pioneer Municipal Bond Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Each Fund may invest in obligations of the U.S. government, its agencies or instrumentalities
or in qualified repurchase agreements, the net interest on which is taxable for federal income
tax purposes.
Each Fund will limit its investment in securities whose issuers are located in the same state to
less than 25% of each Fund's total assets.
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Temporary defensive Safeco Municipal Bond Fund may hold cash or Pioneer Municipal Bond Fund may invest all or
strategies as a temporary defensive measure when part of its assets in securities with remaining
market conditions so warrant. maturities of less than one year, cash
equivalents or may hold cash.
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Diversification Each Fund is diversified for the purpose of the Investment Company Act, and each Fund is
subject to diversification requirements under the Code.
- -----------------------------------------------------------------------------------------------------------------------------------
Industry concentration Each Fund will not make investments that will result in the concentration (as that term may be
defined in the Investment Company Act, any rule or order thereunder, or SEC staff interpretation
thereof) of its investments in the securities of issuers primarily engaged in the same industry,
provided that this restriction does not limit each Fund from investing in obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities.
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Restricted and illiquid If immediately after and as a result of such Pioneer Municipal Bond Fund will not invest
securities action the value of the following securities, in more than 10% of its net assets in illiquid
the aggregate, would exceed 10% of Safeco and other securities that are not readily
Municipal Bond Fund's net assets, the Fund marketable. Repurchase agreements maturing
will not (i) purchase securities for which there in more than seven days will be included for
is no readily available market, (ii) purchase purposes of the foregoing limit. Securities
time deposits maturing in more than seven subject to restrictions on resale under the
days, (iii) purchase over-the-counter (OTC) 1933 Act, are considered illiquid unless they
options or hold assets set aside to cover OTC are eligible for resale pursuant to Rule 144A
options written by the Fund, (iv) enter into or another exemption from the registration
repurchase agreements maturing in more than requirements of the 1933 Act and are
seven days, or (v) invest in interests in real determined to be liquid by Pioneer.
estate investment trusts which are not readily
marketable or interests in real estate limited
partnerships which are not listed or traded on
the NASDAQ Stock Market.
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101
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Safeco Municipal Bond Fund Pioneer Municipal Bond Fund
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Borrowing Safeco Municipal Bond Fund may borrow Pioneer Municipal Bond Fund may not borrow
money (i) from banks or (ii) by engaging in money, except on a temporary basis and to
reverse repurchase agreements. the extent permitted by applicable law, as
amended and interpreted or modified from
time to time by any regulatory authority
having jurisdiction.
Under current regulatory requirements,
Pioneer Municipal Bond Fund may: (a) borrow
from banks or through reverse repurchase
agreements in an amount up to 33 1/3% of the
fund's total assets (including the amount
borrowed); (b) borrow up to an additional 5%
of the fund's assets for temporary purposes;
(c) obtain such short-term credits as are
necessary for the clearance of portfolio
transactions; (d) purchase securities on
margin to the extent permitted by applicable
law; and (e) engage in transactions in
mortgage dollar rolls that are accounted for
as financings.
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Lending Safeco Municipal Bond Fund may lend Pioneer Municipal Bond Fund may not make
securities to qualified institutional investors loans, except that the Fund may (i) lend
with a value of up to 33% of the Fund's total portfolio securities in accordance with the
assets. Fund's investment policies, (ii) enter into
repurchase agreements, (iii) purchase all or a
portion of an issue of publicly distributed debt
securities, bank loan participation interests,
bank certificates of deposit, bankers'
acceptances, debentures or other securities,
whether or not the purchase is made upon the
original issuance of the securities, (iv)
participate in a credit facility whereby the Fund
may directly lend to and borrow money from
other affiliated funds to the extent permitted
under the Investment Company Act or an
exemption therefrom, and (v) make loans in
any other manner consistent with applicable
law, as amended and interpreted or modified
from time to time by any regulatory authority
having jurisdiction.
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102
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Safeco Municipal Bond Fund Pioneer Municipal Bond Fund
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Derivative instruments Safeco Municipal Bond Fund may not purchase Pioneer Municipal Bond Fund may use futures
securities on margin. However, the Fund may and options on securities, indices and
(i) obtain short-term credits as necessary to currencies, forward currency exchange
clear its purchases and sales of securities, and contracts and other derivatives. The Fund
(ii) make margin deposits in connection with does not use derivatives as a primary
its use of financial options and futures, investment technique and generally limits their
forward and spot currency contracts, swap use to hedging. However, the Fund may use
transactions and other financial contracts or derivatives for a variety of non-principal
derivative instruments. purposes, including:
o As a hedge against adverse changes in
stock market prices, interest rates or
currency exchange rates
o As a substitute for purchasing or selling
securities
o To increase the Fund's return as a non-
hedging strategy that may be considered
speculative
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Other investment policies and As described above, the Funds have substantially similar principal investment strategies and
restrictions policies. Certain of the non-principal investment policies and restrictions are different. For a
more complete discussion of each Fund's other investment policies and fundamental and non-
fundamental investment restrictions, see the SAI.
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Buying, Selling and Exchanging Shares
- -----------------------------------------------------------------------------------------------------------------------------------
Sales charges Purchases under $1,000,000 of Class A shares The Investor Class shares of Pioneer
of Safeco Municipal Bond Fund are subject to Municipal Bond Fund you receive in the
a 4.50% front-end sales charge. Reorganization will not be subject to any sales
charge. Moreover, if you own shares in your
A contingent deferred sales charge of up to own name as of the closing of the
5.00% if you redeem Class B shares within six Reorganization (i.e., not in the name of a
years of purchase. broker or other intermediary) and maintain
your account, you may purchase Class A
A contingent deferred sales charge of up to shares of Pioneer Municipal Bond Fund and
1.00% if you redeem Class C shares within Class A shares of any fund in the Pioneer
one year of purchase. family of funds through such account in the
future without paying any sales charge.
Purchases of Investor Class shares of the Fund
are not subject to a sales load. Except as described above, Class A shares of
Pioneer Municipal Bond Fund are subject to a
The Fund assesses a mandatory redemption front-end sales charge of up to 4.50%.
fee of 2%, as a percentage of the amount
redeemed or exchanged, on Class A and
Investor Class shares held less than 30 days.
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103
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Safeco Municipal Bond Fund
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Management and other fees Safeco Municipal Bond Fund pays an advisory Pioneer Municipal Bond Fund pays Pioneer a
fee on a monthly basis at an annual rate as management monthly fee at an annual rate
follows: equal to the Fund's average daily net assets as
follows:
$0-$250,000,000: 0.50 of 1%
$250,000,001-$750,000,000: 0.45 of 1% $0-$250,000,000: 0.50%
Over $750,000,000: 0.40 of 1% $ 250,000,001-$750,000,000: 0.45%
Over $750,000,000: 0.40%
SAM serves as administrator and fund
accounting agent for the Fund. The Fund pays In addition, the Fund reimburses Pioneer for
SAM an administrative services fee of 0.05% certain fund accounting and legal expenses
of the Fund's average daily net assets up to the incurred on behalf of the Fund and pays a
first $200,000,000 and 0.01% of its net assets separate shareholder servicing/transfer agency
thereafter, and an accounting fee of 0.04% of fee to PIMSS, an affiliate of Pioneer.
the Fund's average daily net assets up to the
first $200,000,000 and 0.01% of its net assets Pioneer has agreed until the second
thereafter. anniversary of the closing of the
Reorganization to limit the expenses
During its most recent fiscal year, Safeco (excluding extraordinary expenses) of the
Municipal Bond Fund paid aggregate advisory Investor Class to 0.62% of the average daily
and administration fees at an average rate of net assets attributable to the Investor Class.
0.51% of average daily net assets.
The Investor Class shares to be issued in the
SAM had contractually agreed until April 30, Reorganization will convert to Class A shares
2009, to pay certain fund operating expenses after two years. Class A shares will have
(but not all of the operating expenses of the higher expenses per share than Investor Class
Fund) that exceeded the rate of 0.40% per shares due to the Rule 12b-1 Plan.
annum of the Fund's average daily net assets.
This arrangement included all fund operating
expenses except management fees, Rule 12b-1
fees, brokerage commissions, interest, and
extraordinary expenses.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for Class
A shares were 0.87%.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for Class
B shares were 1.66%.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for Class
C shares, after giving effect to the expense
limitation were 1.87%, and without given effect
to the expense limitation, were 43.13%.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for
Investor Class shares were 0.61%.
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Distribution and service Investor Class shares of each Fund are not subject to a Rule 12b-1 fee. Pioneer Investor Class
(12b-1) fee shares will convert into Class A shares after two years. Class A shares of each Fund are subject
to a Rule 12b-1 fee equal to 0.25% annually of average daily net assets.
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104
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Safeco Municipal Bond Fund Pioneer Municipal Bond Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Buying shares You may buy shares of Safeco Municipal Bond You may buy shares from any investment firm
Fund directly through Safeco Securities or that has a sales agreement with PFD, Pioneer
through brokers, registered investment Municipal Bond Fund's distributor. Existing
advisers, banks and other financial institutions shareholders of Safeco Municipal Bond Fund
that have entered into selling agreements with who own shares in their own name as of the
the Fund's principal underwriter, as described closing date of the Reorganization and who
in the Fund's prospectus. maintain their accounts may buy shares of
any fund in the Pioneer family of funds
Certain account transactions may be done by through such accounts in the future without
telephone. paying sales charges.
If the account is established in the
shareholder's own name, shareholders may
also purchase additional shares of Pioneer
Municipal Bond Fund by telephone or online.
- -----------------------------------------------------------------------------------------------------------------------------------
Exchange privilege There are no sales charges on shares you You may exchange shares of Pioneer
acquire through dividend reinvestment or other Municipal Bond Fund without incurring any fee
fund distributions. on the exchange with the more than 62 other
Pioneer Funds. Your exchange would be for
Certain account transactions may be done by Class A shares, which is subject to Rule
telephone.
12b-1 fees. An exchange generally is treated
as a sale and a new purchase of shares for
federal income tax purposes.
If the account is established in the
shareholder's own name, shareholders may
also exchange shares of Pioneer Municipal
Bond Fund for shares of other Pioneer Funds
by telephone or online.
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Selling shares Investor Class shares will be sold at net asset value per share next calculated after the Fund
receives your request in good order.
-------------------------------------------------------------------------------------------------------------
You may sell your shares by contacting Safeco Normally, your investment firm will send your
Municipal Bond Fund directly in writing or by request to sell shares to PIMSS. You can
contacting a financial intermediary as described also sell your shares by contacting the Fund
in the Fund's prospectus. directly if your account is registered in
your name.
If the account is established in the
shareholder's own name, shareholders may
also redeem shares of Pioneer Municipal Bond
Fund by telephone or online.
- -----------------------------------------------------------------------------------------------------------------------------------
Comparison of Principal Risks of Investing in the Funds
Because each Fund has a similar investment objective, primary investment
policies and strategies, the Funds are subject to the same principal risks.
Even though each Fund seeks to maintain a $1 share price, you could lose money
on your investment or the Fund could fail to generate high current income if:
o Interest rates go up, causing the value of the Fund's investments to
decline
o The issuer of a security owned by the Fund defaults on its obligation
to pay principal and/or interest or has its credit rating downgraded
105
o The investment adviser's judgment about the credit quality,
attractiveness or relative value of a particular security proves to be
incorrect
o New federal or state legislation adversely affects the tax-exempt
status of securities held by the fund or the financial ability of
municipalities to repay these obligations
Investing in mutual fund shares is not the same as making a bank deposit.
Your investment is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. You could lose money by investing
in either Fund.
The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses per
share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor
Class shares, Pioneer is not required to limit the expenses attributable to
Class A shares.
Past Performance
Set forth below is performance information for Safeco Municipal Bond Fund.
The bar chart shows how Safeco Municipal Bond Fund's total return (not
including any deduction for sales charges) has varied from year to year for
each full calendar year. The tables show average annual total return (before
and after taxes) for Safeco Municipal Bond Fund over time for each class of
shares (including deductions for sales charges) compared with a broad-based
securities market index. Past performance before and after taxes does not
indicate future results. The bar chart gives an indication of the risks of
investing in the Safeco Municipal Bond Fund, including the fact that you could
incur a loss and experience volatility of returns year to year. Pioneer
Municipal Bond Fund has not commenced investment operations.
Safeco Municipal Bond Fund -- Investor Class
Calendar Year Total Returns*
[THE FOLLOWING WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
'94 -8.25%
'95 21.48
'96 3.18
'97 10.68
'98 6.35
'99 -6.18
'00 14.17
'01 5.30
'02 10.33
'03 5.96
* During the period shown in the bar chart, your Safeco Fund's highest
quarterly return was 8.82% for the quarter ended March 31, 1995, and the
lowest quarterly return was -6.77% for the quarter ended March 31, 1994.
106
Safeco Municipal Bond Fund
Average Annual Total Returns as of December 31, 2003
- ----------------------------------------------------------------------------------------------
1 Year 5 Years 10 Years
- ----------------------------------------------------------------------------------------------
Safeco Municipal Bond Fund, Class A shares
- ----------------------------------------------------------------------------------------------
Return Before Taxes 0.91% 4.38% 5.20%
- ----------------------------------------------------------------------------------------------
Return After Taxes on Distributions(1) 0.65% 4.24% 5.07%
- ----------------------------------------------------------------------------------------------
Return After Taxes on Distributions and
Sale of Fund Shares(1) 2.24% 4.34% 5.09%
- ----------------------------------------------------------------------------------------------
Safeco Municipal Bond Fund, Class B shares
- ----------------------------------------------------------------------------------------------
Return Before Taxes -0.07% 4.21% 5.23%
- ----------------------------------------------------------------------------------------------
Safeco Municipal Bond Fund, Class C shares
- ----------------------------------------------------------------------------------------------
Return Before Taxes 3.89% 4.54% 5.13%
- ----------------------------------------------------------------------------------------------
Safeco Municipal Bond Fund, Investor Class shares
- ----------------------------------------------------------------------------------------------
Return Before Taxes 5.96% 5.69% 5.97%
- ----------------------------------------------------------------------------------------------
Return After Taxes on Distributions(1) 5.68% 5.55% 5.83%
- ----------------------------------------------------------------------------------------------
Return After Taxes on Distributions and
Sale of Fund Shares(1) 5.70% 5.53% 5.81%
- ----------------------------------------------------------------------------------------------
Lehman Brothers Long Municipal Bond Index(2)
(reflects no deduction for fees, expenses or taxes) 6.13% 5.95% 6.40%
- ----------------------------------------------------------------------------------------------
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on your situation and may
differ from those shown. Furthermore, the after-tax returns shown are not
relevant to those who hold their shares through tax-deferred arrangements
such as 401(k) plans or IRA accounts, or to investors that are tax-exempt.
(2) The Lehman Brothers Long Municipal Bond Index, an unmanaged index of bonds
with a minimum credit rating of BAA3 issued as part of a deal of at least
$50 million, having an amount of at least $5 million and maturing in 22 or
more years, is for reference only and does not mirror the Fund's
investments.
The most recent portfolio manager's discussion of Safeco Fund's
performance is attached as Exhibit D.
107
The Funds' Fees and Expenses
Shareholders of both Funds pay various fees and expenses, either directly
or indirectly. The tables below show the fees and expenses that you would pay
if you were to buy and hold shares of each Fund. The expenses in the tables
appearing below are based on (i) for your Safeco Fund, the expenses of your
Safeco Fund for the period ended December 31, 2003 and (ii) for Pioneer
Municipal Bond Fund, the expenses of Pioneer Municipal Bond Fund for the period
ended December 31, 2003. Future estimated expenses for all share classes may be
greater or less.
Pro Forma
Safeco Safeco Safeco Safeco Pioneer
Municipal Municipal Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund
Shareholder transaction fees Class A Class B Class C Investor Class Investor Class(9)
(paid directly from your investment) ---------- --------- --------- -------------- -----------------
Maximum sales charge (load) when you buy shares as a
percentage of offering price ............................. 4.50%(6) None None None None(1)
Maximum deferred sales charge (load) as a percentage of
purchase price or the amount you receive when you sell
shares, whichever is less ................................ None 5.00%(7) 1.00%(8) None None
Redemption fees for shares held less than 30 days ......... 2.00% None None 2.00% N/A
Wire redemption fee ....................................... $20(4) $20(4) $20(4) $20(4) $10
Annual low balance fee .................................... $12(5) $12(5) $12(5) $12(5) N/A
Annual fund operating expenses (deducted from
fund assets) (as a % of average net assets)
Management fee ............................................ 0.47% 0.47% 0.47% 0.47% 0.50%
Distribution and service (12b-1) fee ...................... 0.25% 1.00% 1.00% None None
Other expenses ............................................ 0.15% 0.19% 41.66% 0.14% 0.19%
Total fund operating expenses ............................. 0.87% 1.66% 43.13% 0.61% 0.69%
Expense reimbursement/reduction ........................... None(2) None(2) 41.26%(2) None(2) 0.07%(3)
Net fund operating expenses ............................... 0.87% 1.66% 1.87% 0.61% 0.62%
- ----------
(1) No sales load will apply to shares received in the Reorganization by
shareholders of your Safeco Fund who become shareholders of record of
Pioneer Municipal Bond Fund through the Reorganization. In addition,
shareholders of your Safeco Fund who own shares in their own name (i.e.,
not in the name of a broker or other intermediary) and maintain such
account as of the closing of the Reorganization may purchase Class A shares
of Pioneer Municipal Bond Fund or of any fund in the Pioneer family of
funds through such account in the future without paying this sales charge.
(2) As described above, SAM had contractually agreed to reimburse Safeco
Municipal Bond Fund for certain Fund operating expenses (but not all of the
operating expenses of the Fund) that exceeded the rate of 0.40% per annum
of the Fund's average daily net assets. This arrangement included all fund
operating expenses except management fees, Rule 12b-1 fees, brokerage
commissions, interest, and extraordinary expenses.
(3) Pioneer has agreed that through the second anniversary of the closing of
the Reorganization, Pioneer will limit the expenses (excluding
extraordinary expenses) of the Investor Class shares of Pioneer Municipal
Bond Fund to 0.62% of average daily net assets.
(4) There is a higher charge for international wire redemptions, which may vary
by country or dollar amount.
(5) A low balance fee is charged once each year in December for accounts with
balances under $1,000 in your Safeco Fund.
(6) Purchases of $1,000,000 or more of Class A shares of your Safeco Fund are
not subject to a front-end sales charge, but a 1.00% deferred sales charge
will apply to redemptions made in the first twelve months except with
respect to participant-directed redemptions from qualified retirement
plans.
(7) The contingent deferred sales charge on Class B shares of your Safeco Fund
reduces to zero after six years from purchase, and the Class B shares
convert to Class A shares at that time.
(8) The contingent deferred sales charge on Class C shares applies only to
redemptions made in the first twelve months after purchase.
(9) The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses
per share than Investor Class shares due to the Rule 12b-1 Plan. In
addition, although Pioneer has agreed to limit the expenses attributable to
Investor Class shares, Pioneer is not required to limit the expenses
attributable to Class A shares.
108
The hypothetical example below helps you compare the cost of investing in
each Fund. It assumes that: (a) you invest $10,000 in each Fund for the time
periods shown, (b) you reinvest all dividends and distributions, (c) your
investment has a 5% return each year, (d) each Fund's gross operating expenses
remain the same, (e) the expense limitations are in effect for five years for
Safeco Municipal Bond Fund and two years for Pioneer Municipal Bond Fund and
(f) and the Investor Class shares of Pioneer Municipal Bond Fund convert to
Class A shares after two years. The examples are for comparison purposes only
and are not a representation of either Fund's actual expenses or returns,
either past or future.
Example
Safeco Municipal Bond Fund
Class A shares
Year 1 ...................... $535
Year 3 ...................... $715
Year 5 ...................... $911
Year 10 ..................... $1,474
Class B shares With redemption Without redemption
Year 1 ...................... $ 669 $ 169
Year 3 ...................... $ 823 $ 523
Year 5 ...................... $1,102 $ 902
Year 10 ..................... $1,561 $1,561
Class C shares With redemption Without redemption
Year 1 ...................... $ 290 $ 190
Year 3 ...................... $ 588 $ 588
Year 5 ...................... $1,011 $1,011
Year 10 ..................... $2,190 $2,190
Investor Class shares
Year 1 ...................... $62
Year 3 ...................... $226
Year 5 ...................... $32
Year 10 ..................... $1,025
Pro Forma Pioneer Municipal Bond Fund
Investor Class shares
Year 1 ...................... $63
Year 3 ...................... $255
Year 5 ...................... $521
Year 10 ..................... $1,281
Reasons for the Proposed Reorganization
The Trustees believe that the proposed Reorganization is in the best
interests of Safeco Municipal Bond Fund. The Trustees considered the following
matters, among others, in approving the proposal.
First, SAM, the investment adviser to the Fund until August 2, 2004, was
acquired by Symetra. Symetra informed the Trustees that it did not intend to
continue to provide investment advisory services to the Safeco Funds.
Consequently, a change in your Safeco Fund's investment adviser was necessary.
Second, the significant experience and resources of Pioneer in managing
portfolios of tax exempt securities. At September 30, 2004, Pioneer Managed
Portfolio of tax exempt securities with total assets of approximately $ 1.5
billion.
Third, the resources of Pioneer. At June 30, 2004, Pioneer managed over 62
investment companies and accounts with approximately $35 billion in assets.
Pioneer is part of the global asset management group of UniCredito Italiano
S.p.A., one of the largest banking groups
109
in Italy, providing investment management and financial services to mutual
funds, institutional and other clients. As of June 30, 2004, assets under
management of UniCredito Italiano S.p.A. were approximately $151 billion
worldwide. Shareholders of your Safeco Fund would become part of a
significantly larger family of funds that offers a more diverse array of
investment options and enhanced shareholder account options. The Pioneer family
of mutual funds offers over 62 funds, including domestic and international
equity and fixed income funds and a money market fund that will be available to
your Safeco Fund's shareholders through exchanges. In addition, Pioneer offers
shareholders additional options for their accounts, including the ability to
transact and exchange shares over the telephone or online and the ability to
access account values and transaction history in all of the shareholder's
direct accounts in the Pioneer Funds over the telephone or online.
Fourth, Pioneer's commitment until the second anniversary of the
Reorganization to limit the expenses (excluding extraordinary expenses) of the
Investor Class of Pioneer Municipal Bond Fund to 0.62% of average daily net
assets. This expense ratio is lower than both the gross expenses and expenses
net of expense reimbursement of the Class A shares. Although you will experience
higher expenses once the Investor Class shares convert to Class A shares after
two years, your expenses will remain the same until the second anniversary of
the Reorganization.
Fifth, shareholders who own shares in their name as of the closing of the
Reorganization (i.e., not in the name of a broker or other intermediary) and
maintain their account may purchase additional Class A shares of the
corresponding Pioneer Fund through such account in the future or may exchange
those shares for Class A shares of another Pioneer Fund or purchase Class A
share of another Pioneer Fund without paying any sales charge.
Sixth, the Investor Class shares of Pioneer Municipal Bond Fund received
in the Reorganization will provide Safeco Municipal Bond Fund shareholders with
exposure to substantially the same investment product as they currently have.
Pioneer and Symetra will pay all out of pocket expenses of the Safeco
Funds and the Pioneer Funds associated with the Reorganizations, including, but
not limited to: (1) the expenses associated with the preparation, printing and
mailing of any shareholder communications, including this joint Proxy
Statement/Prospectus, and any filings with the SEC and other governmental
authorities in connection with the Reorganizations; (2) the fees and expenses
of any proxy solicitation firm retained in connection with the Reorganizations;
(3) the legal fees and expenses incurred by the Safeco Funds in connection with
the Reorganizations; and (4) the Trustee fees and out of pocket expenses
incurred as a result of the Reorganizations.
The Trustees considered that Pioneer and Symetra will benefit from the
Reorganization. See "Certain Agreements between Pioneer and Symetra."
The Board of Trustees of Pioneer Municipal Bond Fund also considered that
the Reorganization presents an excellent opportunity for the Pioneer Municipal
Bond Fund to acquire investment assets without the obligation to pay
commissions or other transaction costs that a fund normally incurs when
purchasing securities. This opportunity provides an economic benefit to Pioneer
Municipal Bond Fund and its shareholders.
110
CAPITALIZATION
The following table sets forth the capitalization of each Fund, as of
September 30, 2004, and the pro forma combined Fund as of September 30, 2004.
Safeco Pro Forma
Municipal Pioneer Municipal Pioneer Municipal
Bond Fund Bond Fund Bond Fund
September 30, 2004 September 30, 2004 September 30, 2004
------------------- ------------------ ------------------
Total Net Assets (in thousands) ......... $538,962 N/A $538,962
Class A shares ......................... $ 8,028 N/A N/A
Class B shares ......................... $ 2,639 N/A N/A
Class C shares ......................... $ 160 N/A N/A
Investor Class shares .................. $528,134 N/A $538,962
Net Asset Value Per Share
Class A shares ......................... $ 14.40 N/A N/A
Class B shares ......................... $ 14.36 N/A N/A
Class C shares ......................... $ 14.36 N/A N/A
Investor Class shares .................. $ 14.38 N/A $ 14.38
Shares Outstanding
Class A shares ......................... 557,381 N/A N/A
Class B shares ......................... 183,755 N/A N/A
Class C shares ......................... 11,125 N/A N/A
Investor Class shares .................. 36,719,082 N/A 37,479,972
It is impossible to predict how many shares of Pioneer Municipal Bond Fund
will actually be received and distributed by your Safeco Fund on the
Reorganization date. The table should not be relied upon to determine the
amount of Pioneer Municipal Bond Fund's shares that will actually be received
and distributed.
BOARD'S EVALUATION AND RECOMMENDATION
For the reasons described above, the Trustees, including the Independent
Trustees, approved the Reorganization. In particular, the Trustees determined
that the Reorganization is in the best interests of your Safeco Fund.
Similarly, the Board of Trustees of Pioneer Municipal Bond Fund, including its
Independent Trustees, approved the Reorganization. They also determined that
the Reorganization is in the best interests of Pioneer Municipal Bond Fund.
The Trustees recommend that the shareholders of your Safeco Fund vote FOR
the proposal to approve the Agreement and Plan of Reorganization.
111
Safeco Tax-Free Money Market Fund and
Pioneer Tax Free Money Market Fund
PROPOSAL 1(h)
Approval of Agreement and Plan of Reorganization
SUMMARY
The following is a summary of more complete information appearing later in
this Proxy Statement/Prospectus or incorporated herein. You should read
carefully the entire Proxy Statement/Prospectus, including the form of
Agreement and Plan of Reorganization attached as EXHIBIT A-2 because they
contain details that are not in the summary.
The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses per
share than Investor Class shares due to the Rule 12b-1 Plan. In addition,
although Pioneer has agreed to limit the expenses attributable to Investor
Class shares, Pioneer is not required to limit the expenses attributable to
Class A shares.
In the table below, if a row extends across the entire table, the policy
disclosed applies to both your Safeco Fund and the Pioneer Fund.
112
Comparison of Safeco Tax-Free Money Market Fund to the Pioneer Tax Free Money
Market Fund
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Safeco Tax-Free Money Market Fund Pioneer Tax Free Money Market Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Business A series of Safeco Money Market Trust, a A newly organized diversified open-end
diversified open-end management investment management investment company registered
company organized as a Delaware statutory under the Investment Company Act and
trust. organized as a Delaware statutory trust.
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets as of $61 million None. The Pioneer Tax Free Money Market
June 30, 2004 Fund is newly organized and does not expect
to commence investment operations until the
Reorganization occurs.
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Investment advisers and Investment adviser (until August 2, 2004): Investment adviser:
portfolio managers SAM Pioneer
Portfolio Managers: Portfolio Manager:
Mary Metastasio (since 1987 and until Day-to-day management of the Fund's
August 2, 2004) portfolio is the responsibility of a team of
fixed income portfolio managers led by
Stephen C. Bauer, CFA (since 2003 and until Kenneth J. Taubes.
August 2, 2004)
Mr. Taubes joined Pioneer as a senior vice
Currently Pioneer is acting as investment president in 1998 and has been an investment
adviser to Safeco Tax-Free Money Market Fund. professional since 1982.
The Portfolio Managers of the Pioneer Tax Free
Money Market Fund, as indicated in the next
column, currently manages your Safeco Fund.
- ------------------------------------------------------------------------------------------------------------------------------------
Investment objective Each Fund seeks to provide as high a level of current income exempt from federal income tax
as is consistent with a portfolio of high-quality, short-term municipal obligations selected on the
basis of liquidity and preservation of capital.
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Safeco Tax-Free Money Market Fund provides Pioneer Tax Free Money Market Fund's
written notice to shareholders at least 60 days investment policy of investing at least 80% of
prior to any change to its investment objective its net assets in high quality, money market
as described above. securities that pay interest that is exempt from
federal income tax is fundamental and may
not be changed without shareholder approval.
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Safeco Tax-Free Money Market Fund Pioneer Tax Free Money Market Fund
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Primary investments To achieve its investment objective, Safeco Pioneer Tax Free Money Market Fund seeks
Tax-Free Money Market Fund will purchase to maintain a constant net asset value of
only high-quality securities having minimal $1.00 per share by investing, under normal
credit risk with remaining maturities of 397 circumstances, at least 80% of its net assets
days or less. in high-quality, money market securities that
pay interest that is exempt from federal
income tax. These investments include bonds,
notes and other debt instruments issued by or
on behalf of states, counties, municipalities,
territories and possessions of the United
States and the District of Columbia and their
authorities, political subdivisions, agencies or
instrumentalities.
Pioneer Tax Free Money Market Fund invests
exclusively in securities with a maximum
remaining maturity of 397 days and maintains
a dollar-weighted average portfolio maturity of
90 days or less. The Fund's investments may
have fixed, floating or variable interest rates.
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Investment strategies Safeco Tax-Free Money Market Fund may Pioneer Tax Free Money Market Fund may
purchase only high-quality securities that the invest in any money market instrument that is
investment adviser believes present minimal a permissible investment for a money market
credit risks. To be considered high quality, a fund under the rules of the SEC. The Fund
security must be rated, or the issuer must invests in money market securities rated in
have received a rating for a comparable short- one of the two highest rating categories for
term security, in accordance with applicable short-term debt by a NRSRO or, if unrated,
rules, in one of the two highest categories for determined to be of equivalent credit quality
short-term securities by at least two nationally by Pioneer.
recognized statistical rating organizations
("NRSRO") (or by one, if one rating service In selecting Pioneer Tax Free Money Market
has rated the security); or, if unrated, the Fund's portfolio, Pioneer complies with the
security must be judged by the investment rating, maturity and diversification
adviser to be of equivalent quality. requirements applicable to money market
funds. Within those limits, Pioneer's
Safeco Tax-Free Money Market Fund may assessment of broad economic factors that
invest in: are expected to affect economic activity and
interest rates influence its securities selection.
o Variable and floating rate instruments that Pioneer also employs due diligence and
change interest rates periodically to keep fundamental research, an evaluation of the
their market value near par. Municipal notes issuer based on its financial statements and
that have a maturity of one year or less from operations, to assess an issuer's credit quality.
the date of purchase
o Put bonds, which allow the holder to redeem
the issue on specified dates before maturity
and receive full face value
o Tax-exempt commercial paper
o Restricted securities that are exempt from
registration requirements and eligible for
resale to qualified institutional investors,
such as mutual funds under Rule 144A of
Section 4(2)
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Safeco Tax-Free Money Market Fund Pioneer Tax Free Money Market Fund
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Other investments Safeco Tax-Free Money Market Fund will limit Pioneer Tax Free Money Market Fund may
its investment in municipal obligations the invest up to 20% of its net assets in U.S.
interest on which is payable from the revenues dollar denominated securities issued by
of similar types of projects to less than 25% of non-U.S. entities, such as non-U.S. banks and
the Fund's total assets. As a matter of corporate issuers.
operating policy, "similar types of projects"
may include sports, convention or trade show Pioneer Tax Free Money Market Fund will not
facilities; airports or mass transportation; invest in securities whose interest is subject
sewage or solid waste disposal facilities; to the alternative minimum tax.
or airand water pollution control projects.
Safeco Tax-Free Money Market Fund may
invest in any of the following types of short-
term, tax-exempt obligations: municipal notes
of issuers rated, at the time of purchase, within
one of the three highest grades assigned by a
NRSRO; unrated municipal notes offered by
issuers having outstanding municipal bonds
rated within one of the three highest grades
assigned by an NRSRO; notes issued by or on
behalf of municipal issuers that are guaranteed
by the U.S. government; tax-exempt
commercial paper assigned one of the two
highest grades by an NRSRO; certificates of
deposit issued by banks with assets of
$1,000,000,000 or more; and municipal
obligations that have a maturity of one year or
less from the date of purchase.
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Each Fund may invest up to 25% of its total assets in the "first tier securities" of a single issuer
for up to three business days after purchase. First tier securities are securities (1) rated in the
highest short-term category by two NRSROs; (2) rated in the highest short-term rating category
by a single NRSRO if only that NRSRO has assigned the securities a short-term rating; or (3)
unrated, but determined by the adviser to be of comparable quality.
Each Fund may not invest more than 5% of its total assets in second tier securities. In addition,
the each Fund may not invest more than 1% of its total assets or $1 million (whichever is
greater) in the second tier securities of a single issuer.
Each Fund will limit its investment in securities whose issuers are located in the same state to
less than 25% of the Fund's total assets.
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Temporary defensive Safeco Tax-Free Money Market Fund may hold Pioneer Tax Free Money Market Fund may
strategies cash or invest in high-quality, short-term invest all or part of its assets in securities
securities issued by an agency or with remaining maturities of less than one
instrumentality of the U.S. government, high- year, cash equivalents or may hold cash.
quality commercial paper, certificates of
deposit, shares of no-load, open-end money
market funds, or repurchase agreements as a
temporary defensive measure when market
conditions so warrant.
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Diversification Each Fund is diversified for the purpose of the Investment Company Act, and each Fund is
subject to diversification requirements under the Code.
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Safeco Tax-Free Money Market Fund Pioneer Tax Free Money Market Fund
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Industry concentration Each Fund will not make investments that will result in the concentration (as that term may be
defined in the Investment Company Act, any rule or order thereunder, or SEC staff interpretation
thereof) of its investments in the securities of issuers primarily engaged in the same industry,
provided that this restriction does not limit the Fund from investing in obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities, or governmental issuers of
special or general tax-exempt securities, or certain bank instruments issued by domestic banks.
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Restricted and illiquid If immediately after and as a result of such Pioneer Tax Free Money Market Fund will not
securities action the value of the following securities, in invest more than 10% of its net assets in
the aggregate, would exceed 10% of Safeco illiquid and other securities that are not readily
Tax-Free Money Market Fund's net assets, the marketable. Repurchase agreements maturing
Fund will not (i) purchase securities for which in more than seven days will be included for
there is no readily available market, (ii) purposes of the foregoing limit. Securities
purchase time deposits maturing in more than subject to restrictions on resale under the
seven days, (iii) purchase over-the-counter 1933 Act, are considered illiquid unless they
(OTC) options or hold assets set aside to cover are eligible for resale pursuant to Rule 144A
OTC options written by the Fund, (iv) enter into or another exemption from the registration
repurchase agreements maturing in more than requirements of the 1933 Act and are
seven days, or (v) invest in interests in real determined to be liquid by Pioneer.
estate investment trusts which are not readily
marketable or interests in real estate limited
partnerships which are not listed or traded on
the NASDAQ Stock Market.
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Borrowing Safeco Tax-Free Money Market Fund may Pioneer Tax Free Money Market Fund may not
borrow money (i) from banks or (ii) by borrow money, except on a temporary basis
engaging in reverse repurchase agreements. and to the extent permitted by applicable law,
as amended and interpreted or modified from
time to time by any regulatory authority
having jurisdiction. Under current regulatory
requirements, the Fund may: (a) borrow from
banks or through reverse repurchase
agreements in an amount up to 33 1/3% of the
Fund's total assets (including the amount
borrowed); (b) borrow up to an additional 5%
of the Fund's assets for temporary purposes;
(c) obtain such short-term credits as are
necessary for the clearance of portfolio
transactions; (d) purchase securities on
margin to the extent permitted by applicable
law; and (e) engage in transactions in
mortgage dollar rolls that are accounted for
as financings.
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Safeco Tax-Free Money Market Fund Pioneer Tax Free Money Market Fund
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Lending Safeco Tax-Free Money Market Fund may lend Pioneer Tax Free Money Market Fund may not
securities to qualified institutional investors make loans, except that the Fund may (i) lend
with a value of up to 33% of the Fund's portfolio securities in accordance with the
total assets. Fund's investment policies, (ii) enter into
repurchase agreements, (iii) purchase all or a
portion of an issue of publicly distributed debt
securities, bank loan participation interests,
bank certificates of deposit, bankers'
acceptances, debentures or other securities,
whether or not the purchase is made upon the
original issuance of the securities, (iv)
participate in a credit facility whereby the Fund
may directly lend to and borrow money from
other affiliated funds to the extent permitted
under the Investment Company Act or an
exemption therefrom, and (v) make loans in
any other manner consistent with applicable
law, as amended and interpreted or modified
from time to time by any regulatory authority
having jurisdiction.
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Derivative instruments Safeco Tax-Free Money Market Fund may not Pioneer Tax Free Money Market Fund may use
purchase securities on margin. However, the futures and options on securities, indices and
Fund may (i) obtain short-term credits as currencies, forward currency exchange
necessary to clear its purchases and sales of contracts and other derivatives. The Fund
securities, and (ii) make margin deposits in does not use derivatives as a primary
connection with its use of financial options and investment technique and generally limits their
futures, forward and spot currency contracts, use to hedging. However, the Fund may use
swap transactions and other financial contracts derivatives for a variety of non-principal
or derivative instruments. purposes, including:
o As a hedge against adverse changes in
stock market prices, interest rates or
currency exchange rates
o As a substitute for purchasing or selling
securities
o To increase the Fund's return as a non-
hedging strategy that may be considered
speculative
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Safeco Tax-Free Money Market Fund Pioneer Tax Free Money Market Fund
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Other investment policies and As described above, the Funds have substantially similar principal investment strategies and
restrictions policies. Certain of the non-principal investment policies and restrictions are different. For a
more complete discussion of each Fund's other investment policies and fundamental and non-
fundamental investment restrictions, see the SAI.
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Buying, Selling and Exchanging Shares
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Sales charges Purchases of Investor Class shares of Safeco The Investor Class shares of Pioneer Tax Free
Tax-Free Money Market Fund are not subject to Money Market Fund you receive in the
a sales load. Reorganization will not be subject to any sales
charge. Moreover, if you own shares in your
own name as of the closing of the
Reorganization (i.e., not in the name of a
broker or other intermediary) and maintain
your account, you may purchase Class A
shares of Pioneer Tax Free Money Market
Fund and Class A shares of any fund in the
Pioneer family of funds through such account
in the future without paying any sales charge.
In general, Class A shares of Pioneer Tax Free
Money Market Fund are not subject to a
front-end sales charge.
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118
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Safeco Tax-Free Money Market Fund Pioneer Tax Free Money Market Fund
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Management and other fees Safeco Tax-Free Money Market Fund pays Pioneer Tax Free Money Market Fund pays
advisory fee on a monthly basis at an annual Pioneer a management fee equal to 0.40% of
rate as follows: the Fund's average daily net assets.
$0-$250,000,000: 0.50 of 1%
$250,000,001-$750,000,000: 0.45 of 1% In addition, Pioneer Tax Free Money Market
$750,000,001-$1,250,000,000: 0.40 of 1% Fund reimburses Pioneer for certain
Over $1,250,000,000: 0.35 of 1% fund accounting and legal expenses incurred
on behalf of the Fund and pays a separate
SAM serves as administrator and fund shareholder servicing/transfer agency fee to
accounting agent for Safeco Tax-Free Money PIMSS, an affiliate of Pioneer.
Market Fund. The Fund pays SAM an
administrative services fee of 0.05% of the Pioneer has agreed until the second
Fund's average daily net assets up to the first anniversary of the closing of the
$200,000,000 and 0.01% of its net assets Reorganization to limit the ordinary expenses
thereafter, and an accounting fee of 0.04% of (excluding extraordinary expenses) of the
the Fund's average daily net assets up to the Investor Class to 0.65% of the average daily
first $200,000,000 and 0.01% of its net assets net assets attributable to the Investor Class.
thereafter.
The Investor Class shares to be issued in the
During its most recent fiscal year, Safeco Reorganization will convert to Class A shares
Tax-Free Money Market Fund paid aggregate after two years. Class A shares will have
advisory and administration fees at an average higher expenses per share than Investor Class
rate of 0.59% of average daily net assets. shares due to the Rule 12b-1 Plan. In
addition, although Pioneer has agreed to limit
SAM had contractually agreed until April 30, the expenses attributable to Investor Class
2009, to pay certain Fund operating expenses shares, Pioneer is not required to limit the
(but not all of the operating expenses of the expenses attributable to Class A shares.
Fund) that exceeded the rate of 0.30% per
annum of the Fund's average daily net assets.
This arrangement included all fund operating
expenses except management fees, Rule 12b-1
fees, brokerage commissions, interest, and
extraordinary expenses.
Beginning in 2003, SAM began voluntarily
reimbursing the fund for all expenses that
exceeded 0.65% of average daily net assets.
For the fiscal year ended December 31, 2003,
the Fund's annual operating expenses for
Investor Class shares, after giving effect to the
voluntary reimbursement were 0.65%, and
without giving effect to the expense limitation,
were 0.74%.
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Distribution and service Investor Class shares of each Fund are not subject to a Rule 12b-1 fee. Pioneer Investor Class
(12b-1) fee shares will convert into Class A shares after two years. Class A shares of each Fund are subject
to a Rule 12b-1 fee equal to 0.25% annually of average daily net assets.
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119
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Safeco Tax-Free Money Market Fund Pioneer Tax Free Money Market Fund
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Buying shares You may buy shares of Safeco Tax-Free Money You may buy shares from any investment firm
Market Fund directly through Safeco Securities, that has a sales agreement with PFD. Existing
or through brokers, registered investment shareholders of Safeco Tax-Free Money
advisers, banks and other financial institutions Market Fund who own shares in their own
that have entered into selling agreements with name as of the closing date of the
the Fund's principal underwriter, as described Reorganization and who maintain their
in the Fund's prospectus. accounts may buy shares of any fund in
the Pioneer family of funds through such
Certain account transactions may be done by accounts in the future without paying
telephone sales charges.
If the account is established in the
shareholder's own name, shareholders may
also purchase additional shares of Pioneer
Tax Free Money Market Fund by telephone
or online.
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Exchange privilege There are no sales charges on shares you You may exchange shares of Pioneer Tax Free
acquire through dividend reinvestment or other Money Market Fund without incurring any fee
fund distributions. on the exchange with the more than 62 other
Pioneer Funds. Your exchange would be for
Certain account transactions may be done Class A shares, which would be subject to a
by telephone. Rule 12b-1 fee. An exchange generally is
treated as a sale and a new purchase of
shares for federal income tax purposes.
If the account is established in the
shareholder's own name, shareholders may
also exchange shares of Pioneer Tax Free
Money Market Fund for shares of other
Pioneer Funds by telephone or online.
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Selling shares Investor Class shares will be sold at net asset value per share next calculated after the Fund
receives your request in good order.
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You may sell your shares by contacting Safeco Normally, your investment firm will send your
Tax-Free Money Market Fund directly in writing request to sell shares to PIMSS. You can also
or by contacting a financial intermediary as sell your shares by contacting the Fund
described in the Fund's prospectus. directly if your account is registered in
your name.
If the account is established in the
shareholder's own name, shareholders may
also redeem shares of Pioneer Tax Free
Money Market Fund by telephone or online.
After the closing of the Reorganization,
Investor Class shares will not be entitled to
check writing privileges and you may not write
checks issued by your Safeco Fund.
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Comparison of Principal Risks of Investing in the Funds
Because each Fund has a similar investment objective, primary investment
policies and strategies, the Funds are subject to the same principal risks.
Even though each Fund seeks to maintain a $1 share price, you could lose money
on your investment or either Fund could fail to generate high current income
if:
120
o Interest rates go up, causing the value of the Fund's investments to
decline
o The issuer of a security owned by the Fund defaults on its obligation
to pay principal and/or interest or has its credit rating downgraded
o The investment adviser's judgment about the credit quality,
attractiveness or relative value of a particular security proves to be
incorrect
Past Performance
Set forth below is performance information for Safeco Tax-Free Money
Market Fund. The bar chart shows how Safeco Tax-Free Money Market Fund's total
return has varied from year to year for each full calendar year. The table
shows average annual total return for Safeco Tax-Free Money Market Fund over
time for Investor Class shares. The bar chart gives an indication of the risks
of investing in Safeco Tax-Free Money Market Fund, including the fact that you
could incur a loss and experience volatility of returns year to year. Past
performance does not indicate future results. Pioneer Tax Free Money Market
Fund has not commenced investment operations.
Safeco Tax-Free Money Market Fund -- Investor Class
Calendar Year Total Returns*
[THE FOLLOWING WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
'94 2.45%
'95 3.54
'96 3.07
'97 3.12
'98 3.07
'99 2.77
'00 3.52
'01 2.34
'02 0.97
'03 0.51
* During the period shown in the bar chart, your Safeco Fund's highest
quarterly return was 0.94% for the quarter ended June 30, 2000, and the
lowest quarterly return was 0.10% for the quarter ended September 30, 2003.
Safeco Tax-Free Money Market Fund
Average Annual Total Returns as of December 31, 2003
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1 Year 5 Years 10 Years
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Safeco Tax-Free Money Market Fund, Investor Class shares 0.51% 2.02% 2.53%
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The most recent portfolio manager's discussion of the Safeco Fund's
performance is attached as Exhibit D.
121
The Funds' Fees and Expenses
Shareholders of both Funds pay various fees and expenses, either directly
or indirectly. The table below shows the fees and expenses that you would pay
if you were to buy and hold shares of each Fund. The expenses in the table
appearing below are based on (i) for your Safeco Fund, the expenses of your
Safeco Fund for its fiscal year ended December 31, 2003 and (ii) for the
Pioneer Tax Free Money Market Fund, the estimated annual expenses of the
Pioneer Tax Free Money Market Fund. The Pioneer Tax Free Money Market Fund's
actual expenses may be greater or less.
Pro Forma
Safeco Tax- Pioneer Tax
Free Money Free Money
Market Fund Market Fund
Investor Class Investor Class(6)
Shareowner transaction fees (paid directly from your investment) ---------------- ------------------
Maximum sales charge (load) when you buy shares as a percentage of offering price ........ None None(1)
Maximum deferred sales charge (load) as a percentage of purchase price or the amount you
receive when you sell shares, whichever is less ......................................... None None
Redemption fees for shares held less than 30 days ........................................ None None
Wire redemption fee ...................................................................... $ 20(4) $ 10
Annual low balance fee ................................................................... $ 12(5) N/A
Annual fund operating expenses (deducted from fund assets)
(as a % of average net assets)
Management fee ........................................................................... 0.50% 0.40%
Distribution and service (12b-1) fee ..................................................... None None
Other expenses ........................................................................... 0.24% 0.41%
Total fund operating expenses ............................................................ 0.74% 0.81%
Expense reimbursement/reduction .......................................................... N/A(2) 0.16%(3)
Net fund operating expenses .............................................................. 0.74% 0.65%
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(1) No sales load will apply to shares received in the Reorganization by
shareholders of your Safeco Fund who become shareholders of record of
Pioneer Tax Free Money Market Fund through the Reorganization. In addition,
shareholders of your Safeco Fund who own shares in their own name (i.e.,
not in the name of a broker or other intermediary) and maintain such
account as of the closing of the Reorganization may purchase Class A shares
of Pioneer Tax Free Money Market Fund or of any fund in the Pioneer family
of funds through such account in the future without paying this sales
charge.
(2) As described above, SAM had contractually agreed to reimburse Safeco
Tax-Free Money Market Fund for certain Fund operating expenses (but not all
of the operating expenses of the Fund) that exceeded the rate of 0.30% per
annum of the Fund's average daily net assets. This arrangement included all
Fund operating expenses except management fees, Rule 12b-1 fees, brokerage
commissions, interest, and extraordinary expenses. In 2003, SAM began
voluntarily reimbursing the Fund to the extent that its total expenses
exceeded the rate of 0.65% per annum of the Fund's average daily net assets
for the Investor Class shares. The above table reflects "contractual"
expense reimbursements from SAM, if any, but does not reflect "voluntary"
expense reimbursements by SAM.
(3) Pioneer has agreed that through the second anniversary of the closing of
the Reorganization, Pioneer will limit the expenses (excluding
extraordinary expenses) of the Investor Class shares of Pioneer Tax Free
Money Market Fund to 0.65% of average daily net assets.
(4) There is a higher charge for international wire redemptions, which may vary
by country or dollar amount.
(5) A low balance fee is charged once in year in December for accounts with
balances under $1,000 in your Safeco Fund.
(6) The Investor Class shares to be issued in the Reorganization will convert
to Class A shares after two years. Class A shares will have higher expenses
per share than Investor Class shares due to the Rule 12b-1 Plan. In
addition, although Pioneer has agreed to limit the expenses attributable to
Investor Class shares, Pioneer is not required to limit the expenses
attributable to Class A shares.
122
The hypothetical example below helps you compare the cost of investing in
each Fund. It assumes that: (a) you invest $10,000 in each Fund for the time
periods shown, (b) you reinvest all dividends and distributions, (c) your
investment has a 5% return each year, (d) each Fund's gross operating expenses
remain the same, (e) the expense limitations are in effect for five years for
Safeco Tax-Free Money Market Fund and two years for Pioneer Tax Free Money
Market Fund and (f) and the Investor Class shares of Pioneer Tax Free Money
Market Fund convert to Class A shares after two years. The examples are for
comparison purposes only and are not a representation of either Fund's actual
expenses or returns, either past or future.
Example
Safeco Tax-Free Money Market Fund
Investor Class shares
Year 1 ............................. $ 76
Year 3 ............................. $ 237
Year 5 ............................. $ 411
Year 10 ............................ $ 918
Pro Forma Pioneer Tax Free Money Market Fund
Investor Class shares
Year 1 ............................. $ 66
Year 3 ............................. $ 262
Year 5 ............................. $ 530
Year 10 ............................ $1,296
Reasons for the Proposed Reorganization
The Trustees believe that the proposed Reorganization is in the best
interests of Safeco Tax-Free Money Market Fund. The Trustees considered the
following matters, among others, in approving the proposal.
First, SAM, the investment adviser to the Safeco Fund until August 2,
2004, was acquired by Symetra. Symetra informed the Trustees that it did not
intend to continue to provide investment advisory services to the Safeco Funds.
Consequently, a change in your Safeco Fund's investment adviser was necessary.
Second, the resources of Pioneer. At June 30, 2004, Pioneer managed over
62 investment companies and accounts with approximately $35 billion in assets.
Pioneer is part of the global asset management group of UniCredito Italiano
S.p.A., one of the largest banking groups in Italy, providing investment
management and financial services to mutual funds, institutional and other
clients. As of June 30, 2004, assets under management of UniCredito Italiano
S.p.A. were approximately $151 billion worldwide. Shareholders of your Safeco
Fund would become part of a significantly larger family of funds that offers a
more diverse array of investment options and enhanced shareholder account
options. The Pioneer family of mutual funds offers over 62 funds, including
domestic and international equity and fixed income funds and a money market
fund that will be available to your Safeco Fund's shareholders through
exchanges. In addition, Pioneer offers shareholders additional options for
their accounts, including the ability to transact and exchange shares over the
telephone or online and the ability to access account values and transaction
history in all of the shareholder's direct accounts in the Pioneer Funds over
the telephone or online.
Third, Pioneer has experience in managing many other money market and tax
free portfolios. At September 30, 2004, Pioneer managed portfolios investing in
tax exempt securities with aggregate assets of $1.5 billion and money market
portfolios with assets of $531 million.
Fourth, Pioneer and its affiliates have greater potential for increasing
the size of your Safeco Fund due to Pioneer's experience in distributing mutual
funds through a broader range of distribution channels than currently available
to your Safeco Fund. Over the long-term, if this potential for a larger asset
base is realized, it is expected to increase the portfolio management options
available to the Fund.
Fifth, Pioneer's commitment until the second anniversary of the
Reorganization to limit the expenses (excluding extraordinary expenses) of the
Investor Class of Pioneer Tax Free Money Market Fund to 0.65% of average daily
net assets. This expense ratio is no higher than both the gross expenses and
expenses net of expense reimbursement of the Investor Class shares of your
Safeco Fund. Although you will experience higher expenses once the Investor
Class shares convert to Class A shares after two years, your expenses will
remain the same until the second anniversary of the Reorganization.
Sixth, shareholders who own shares in their name as of the closing of the
Reorganization (i.e., not in the name of a broker or other intermediary) and
maintain their account may purchase additional Class A shares of the
corresponding Pioneer Fund through such account
123
in the future or may exchange those shares for Class A shares of another
Pioneer Fund or purchase Class A share of another Pioneer Fund without paying
any sales charge.
Seventh, the Investor Class shares of Pioneer Tax Free Money Market Fund
received in the Reorganization will provide Safeco Tax-Free Money Market Fund
shareholders with exposure to substantially the same investment product as they
currently have.
Pioneer and Symetra will pay all out of pocket expenses of the Safeco
Funds and the Pioneer Funds associated with the Reorganizations, including, but
not limited to: (1) the expenses associated with the preparation, printing and
mailing of any shareholder communications, including this joint Proxy
Statement/Prospectus, and any filings with the SEC and other governmental
authorities in connection with the Reorganizations; (2) the fees and expenses
of any proxy solicitation firm retained in connection with the Reorganizations;
(3) the legal fees and expenses incurred by the Safeco Funds in connection with
the Reorganizations; and (4) the Trustee fees and out of pocket expenses
incurred as a result of the Reorganizations.
The Trustees considered that Pioneer and Symetra will benefit from the
Reorganization. See "Certain Agreements between Pioneer and Symetra."
The Board of Trustees of Pioneer Tax Free Money Market Fund also
considered that the Reorganization presents an excellent opportunity for the
Pioneer Tax Free Money Market Fund to acquire investment assets without the
obligation to pay commissions or other transaction costs that a fund normally
incurs when purchasing securities.
This opportunity provides an economic benefit to Pioneer Tax Free Money
Market Fund and its shareholders.
CAPITALIZATION
The following table sets forth the capitalization of each Fund, as of
September 30, 2004, and pro forma combined Fund as of September 30, 2004.
Pioneer Tax Pro Forma
Safeco Tax-Free Free Money Pioneer Tax Free
Money Market Fund Market Fund Money Market Fund
September 30, 2004 September 30, 2004 September 30, 2004
-------------------- -------------------- -------------------
Total Net Assets (in thousands)
Investor Class shares ......... $53,351 N/A $53,351
Net Asset Value Per Share
Investor Class shares ......... $ 1.00 N/A $ 1.00
Shares Outstanding
Investor Class shares ......... 53,351,000 N/A 53,351,000
It is impossible to predict how many shares of Pioneer Tax Free Money
Market Fund will actually be received and distributed by your Safeco Fund on
the Reorganization date. The table should not be relied upon to determine the
amount of Pioneer Tax Free Money Market Fund's shares that will actually be
received and distributed.
BOARD'S EVALUATION AND RECOMMENDATION
For the reasons described above, the Trustees, including the Independent
Trustees, approved the Reorganization. In particular, the Trustees determined
that the Reorganization is in the best interests of your Safeco Fund.
Similarly, the Board of Trustees of Pioneer Tax Free Money Market Fund,
including its Independent Trustees, approved the Reorganization. They also
determined that the Reorganization is in the best interests of Pioneer Tax Free
Money Market Fund.
The Trustees recommend that the shareholders of your Safeco Fund vote FOR
the proposal to approve the Agreement and Plan of Reorganization.
124
TERMS OF EACH AGREEMENT AND PLAN OF REORGANIZATION
The Reorganizations
o Each Reorganization is scheduled to occur at 4:00 p.m., Eastern time,
on December 10, 2004, unless your Safeco Fund and the corresponding
Pioneer Fund agree in writing to a later date. Your Safeco Fund will
transfer all of its assets to the corresponding Pioneer Fund. The
corresponding Pioneer Fund will assume your Safeco Fund's liabilities
that are included in the calculation of your Safeco Fund's net asset
value on the Closing Date. The net asset value of both Funds will be
computed as of 4:00 p.m., Eastern time, on the Closing Date.
o Each corresponding Pioneer Fund will issue to the corresponding Safeco
Fund Investor Class shares with an aggregate net asset value equal to
the net assets attributable to the corresponding Safeco Fund's shares.
These shares will immediately be distributed to your Safeco Fund's
shareholders in proportion to the relative net asset value of their
holdings of your Safeco Fund's shares on the Closing Date. As a
result, each Safeco Fund's shareholders will end up as Investor Class
shareholders of the corresponding Pioneer Fund.
o After the distribution of shares, your Safeco Fund will be liquidated
and dissolved.
o Each Reorganization is intended to result in no income, gain or loss
being recognized for federal income tax purposes and will not take
place unless both Funds receive a satisfactory opinion concerning the
tax consequences of the Reorganization from Wilmer Cutler Pickering
Hale and Dorr LLP, counsel to the Pioneer Funds.
Agreement and Plan of Reorganization
The shareholders of each Safeco Fund are being asked to approve an
Agreement and Plan of Reorganization, substantially in the form attached as
EXHIBIT A-1 or A-2 (each, a "Plan"). The description of the Plan contained
herein is qualified in its entirety by the attached copies, as appropriate.
Conditions to Closing each Reorganization. The obligation of each Pioneer
Fund to consummate each Reorganization is subject to the satisfaction of
certain conditions, including your Safeco Fund's performance of all of its
obligations under the Plan, the receipt of certain documents and financial
statements from your Safeco Fund and the receipt of all consents, orders and
permits necessary to consummate the Reorganization (see Sections 7 and 8 of the
Plan).
The obligations of both Funds are subject to the approval of the Plan by
the necessary vote of the outstanding shares of your Safeco Fund, in accordance
with the provisions of your Trust's trust instrument and by-laws. The Funds'
obligations are also subject to the receipt of a favorable opinion of Wilmer
Cutler Pickering Hale and Dorr LLP as to the federal income tax consequences of
each Reorganization. (See Section 8.5 of the Plan).
Termination of Agreement. The Board of either a Safeco Trust or the
corresponding Pioneer Fund may terminate the Plan (even if the shareholders of
your Safeco Fund have already approved it) at any time before the
Reorganization Date, if that Board believes in good faith that proceeding with
the Reorganization would no longer be in the best interests of shareholders.
TAX STATUS OF EACH REORGANIZATION
Each Reorganization is intended to result in no income, gain or loss being
recognized for United States federal income tax purposes and will not take
place unless both Funds involved in the Reorganization receive a satisfactory
opinion from Wilmer Cutler Pickering Hale and Dorr LLP, counsel to the Pioneer
Funds, substantially to the effect that each Reorganization will be a
"reorganization" within the meaning of Section 368(a) of the Code.
As a result, for federal income tax purposes:
o No gain or loss will be recognized by your Safeco Fund upon (1) the
transfer of all of its assets to the Pioneer Fund as described in this
Proxy Statement /Prospectus or (2) the distribution by your Safeco
Fund of Pioneer Fund shares to your Safeco Fund's shareholders;
o No gain or loss will be recognized by the Pioneer Fund upon the
receipt of your Safeco Fund's assets solely in exchange for the
issuance of Pioneer Fund shares to your Safeco Fund and the assumption
of your Safeco Fund's liabilities by the corresponding Pioneer Fund;
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o The basis of the assets of your Safeco Fund acquired by the
corresponding Pioneer Fund will be the same as the basis of those
assets in the hands of your Safeco Fund immediately before the
transfer;
o The tax holding period of the assets of your Safeco Fund in the hands
of the corresponding Pioneer Fund will include your Safeco Fund's tax
holding period for those assets;
o You will not recognize gain or loss upon the exchange of your shares
of your Safeco Fund solely for the Pioneer Fund shares as part of the
Reorganization;
o The basis of the Pioneer Fund shares received by you in the
Reorganization will be the same as the basis of your shares of your
Safeco Fund surrendered in exchange; and
o The tax holding period of the Pioneer Fund shares you receive will
include the tax holding period of the shares of your Safeco Fund
surrendered in the exchange, provided that you held the shares of your
Safeco Fund as capital assets on the date of the exchange.
In rendering such opinions, counsel shall rely upon, among other things,
reasonable assumptions as well as representations of your Safeco Fund and the
Pioneer Fund (see the annexes to the Plan).
No tax ruling has been or will be received from the Internal Revenue
Service ("IRS") in connection with the Reorganizations. An opinion of counsel
is not binding on the IRS or a court, and no assurance can be given that the
IRS would not assert, or a court would not sustain, a contrary position.
You should consult your tax adviser for the particular tax consequences to
you of the Reorganization, including the applicability of any state, local or
foreign tax laws.
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PROPOSALS 2(a)-(h)
APPROVAL OF INTERIM INVESTMENT ADVISORY AGREEMENT WITH PIONEER
Background
Having determined to recommend the Reorganizations, the Trustees appointed
Pioneer as investment adviser to each Safeco Fund commencing August 2, 2004,
until the closing of the Reorganizations given that Symetra had indicated that
it did not wish to continue to offer investment advisory services to the Safeco
Funds.
Interim Investment Advisory Agreement
Under the Investment Company Act, shareholders must approve any new
investment advisory agreement for the Funds. However, Rule 15a-4 under the
Investment Company Act permits your Trustees to appoint an adviser on an
interim basis without prior shareholder approval if the new adviser agrees to
provide such services on the same terms as the previous adviser and approves
the investment advisory agreement with that adviser. An adviser may manage on
such an interim basis for a period 150 days. Because Pioneer will be making the
payment to Symetra discussed under "Background to the Reorganizations," any
fees that Pioneer would be entitled to under the interim investment advisory
agreement will be held in escrow by the Fund until shareholder approval of the
agreement is obtained. If shareholders of a Safeco Fund do not approve the
interim investment advisory agreement, Pioneer will not receive the fee under
the current investment advisory agreement with SAM but instead will be paid a
fee based upon Pioneer's cost in managing the Fund. During this period prior to
the meeting, the Funds will be managed as separate Fund and will not be
combined with a Pioneer Fund. During this period, you also will not be able to
exchange your shares in a Fund for shares of a Pioneer Fund. If the appointment
of Pioneer as interim investment adviser is not approved by December 30, 2004,
Pioneer will no longer provide advisory services to the Funds, unless an
extension of the 150 day period is permitted by a rule or independent position
of the staff of the SEC.
Reasons for Approving the Interim Investment Advisory Agreement and
Board's Recommendation
The Trustees recommend that the shareholders of the Safeco Funds approve
the interim investment advisory agreements. In determining to appoint Pioneer
as investment adviser on an interim basis, the Trustees considered many of the
same factors on which the recommendation to approve the Reorganizations are
based. These factors include:
o SAM, the investment adviser to the Safeco Funds until August 2, 2004,
was acquired by Symetra. Symetra informed the Trustees that it was not
interested in continuing to provide investment advisory services to
the Safeco Funds. Consequently, a change in your Safeco Fund's
investment adviser was necessary.
o The resources of Pioneer. At June 30, 2004, Pioneer managed over 62
investment companies and accounts with approximately $35 billion in
assets. Pioneer is part of the global asset management group of
UniCredito Italiano S.p.A., one of the largest banking groups in
Italy, providing investment management and financial services to
mutual funds, institutions, and other clients. As of June 30, 2004,
assets under management of UniCredito Italiano S.p.A. were
approximately $151 billion worldwide.
o The track record of Pioneer in managing other investment companies
with similar strategies.
o Pioneer's willingness to proceed with the Reorganization and to limit
expenses of the Portfolios as discussed above.
o Pioneer's investment process, style and philosophy with respect to
equity and fixed income investing.
o Pioneer's willingness to act as investment adviser to each of the
Funds.
o Pioneer's investment process, style and philosophy with respect to
equity and fixed income investing.
o The expertise and experience of Kenneth Taubes as portfolio manager of
several of Pioneer's bond funds and the head of fixed income
investments at Pioneer.
o Pioneer's willingness to act as investment adviser to each of the
Funds.
Safeco Advisory Agreement
The following is a summary of the material terms of the Safeco Advisory
Agreement. The Safeco Fund's Advisory Agreement with SAM terminated on August
2, 2004.
Services. Under the terms of the Safeco Advisory Agreement, SAM managed
the Funds' investments, subject to the supervision of the Board. At its
expense, SAM provided office space and all necessary office facilities,
equipment and personnel for managing the investments of the Funds.
127
Compensation. As compensation under the Safeco Advisory Agreement, each
Safeco Fund paid SAM a monthly advisory fee at an annual rate as listed in the
below table of the Fund's average daily net assets calculated each business day
and paid monthly, as listed in the table below. In addition, SAM had
contractually agreed to reimburse each Fund to the extent a Fund's total annual
expenses during any of the Fund's fiscal years, exceed 0.40% (0.30% for Safeco
Money Market Fund and Safeco Tax-Free Money Market Fund) of its average daily
net asset value in such year. This arrangement included all Fund operating
expenses except management fees, Rule 12b-1 fees, brokerage commissions,
interest, and extraordinary expenses.
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Fund Net Assets Annual Fee
- -----------------------------------------------------------------------------------------
SAFECO CALIFORNIA TAX-FREE INCOME FUND, $0-$250,000,000 0.50 of 1%
SAFECO INTERMEDIATE-TERM $250,000,001-$750,000,000 0.45 of 1%
MUNICIPAL BOND FUND, Over $750,000,000 0.40 of 1%
SAFECOMUNICIPAL BOND FUND
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SAFECO HIGH-YIELD BOND FUND $0-$250,000,000 0.65 of 1%
$250,000,00-$750,000,000 0.55 of 1%
Over $750,000,000 0.50 of 1%
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SAFECO INTERMEDIATE-TERM BOND FUND $0-$750,000,000 0.50 of 1%
$750,000,001-$1,250,000,000 0.45 of 1%
Over $1,250,000,000 0.40 of 1%
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SAFECO INTERMEDIATE-TERM $0-$250,000,000 0.55 of 1%
U.S. GOVERNMENT FUND $250,000,001-$750,000,000 0.50 of 1%
$750,000,001-$1,250,000,000 0.45 of 1%
Over $1,250,000,000 0.40 of 1%
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SAFECO MONEY MARKET FUND, $0-$250,000,000 0.50 of 1%
SAFECO TAX-FREE MONEY MARKET FUND $250,000,001-$750,000,000 0.45 of 1%
$750,000,001-$1,250,000,000 0.40 of 1%
Over $1,250,000,000 0.35 of 1%
- -----------------------------------------------------------------------------------------
In addition to the management fee, your Safeco Fund paid SAM, in its
capacity as administrator and fund accounting agent an administrative services
fee of 0.05% of your Safeco Fund's average daily net assets up to the first
$200,000,000 and 0.01%, of its net assets thereafter, and an accounting fee of
0.04% of the Fund's average daily net assets up to the first $200,000,000 and
0.01% of its net assets thereafter.
128
The table below shows gross advisory fees paid by each Fund and any
expense reimbursements by SAM during the fiscal year ended December 31, 2003:
(In Thousands)
SAFECO CALIFORNIA TAX-FREE INCOME FUND
Advisory Fee ................................ $ 458
Reimbursement ............................... $ 109
SAFECO HIGH-YIELD BOND FUND
Advisory Fee ................................ $ 266
Reimbursement ............................... $ 152
SAFECO INTERMEDIATE-TERM BOND FUND
Advisory Fee ................................ $ 52
Reimbursement ............................... $ 99
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
Advisory Fee ................................ $ 84
Reimbursement ............................... $ 103
SAFECO INTERMEDIATE-TERM U.S. GOVERNMENT FUND
Advisory Fee ................................ $ 332
Reimbursement ............................... $ 135
SAFECO MONEY MARKET FUND
Advisory Fee ................................ $1,960
Reimbursement ............................... $ 32
SAFECO MUNICIPAL BOND FUND
Advisory Fee ................................ $2,720
Reimbursement ............................... $ 10
SAFECO TAX-FREE MONEY MARKET FUND
Advisory Fee ................................ $ 364
Reimbursement ............................... $ 70
Limitation of Liability. The Safeco Advisory Agreement provided that SAM
shall not be subject to liability to the Funds or to any shareholder of the
Funds for any loss suffered by a Fund or its shareholders from or as a
consequence of any act or omission of SAM, or of any of the partners, employees
or agents of SAM in connection with or pursuant to the Agreement, except by
reason of willful misfeasance, bad faith or gross negligence on the part of SAM
in the performance of its duties or by reason of reckless disregard by SAM of
its obligations and duties under the Agreement.
129
VOTING RIGHTS AND REQUIRED VOTE
Each share of your Safeco Fund is entitled to one vote and each fractional
share shall be entitled to a proportionate fractional vote. A quorum is
required to conduct business at the Meeting. With respect to each Safeco Fund,
the presence in person or by proxy of one-third of the outstanding shares of a
Safeco Fund entitled to cast votes at the Meeting will constitute a quorum with
respect to that Safeco Fund. A favorable vote of a "majority of the outstanding
voting securities" of the applicable Fund is required to approve each Proposal.
Under the Investment Company Act, the vote of a majority of the outstanding
voting securities means the affirmative vote of the lesser of (i) 67% or more
of the shares of the applicable Safeco Fund represented at the meeting, if at
least 50% of all outstanding shares of the Safeco Fund are represented at the
meeting, or (ii) 50% or more of the outstanding shares of the Safeco Fund
entitled to vote at the meeting.
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Shares Quorum Voting
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In General All shares "present" in person or by proxy are Shares "present" in person will be voted in
counted towards a quorum. person at the Meeting. Shares present by
proxy will be voted in accordance with
instructions.
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Broker Non-Vote (where the Considered "present" at Meeting for purposes Broker non-votes do not count as a vote "for"
underlying holder has not of quorum. and effectively result in a vote "against"
voted and the broker does not Proposals 1(a)-(h), and Proposal 2(a)-(h) if
have discretionary authority to less than 50% of the outstanding shares are
vote the shares) present at the Meeting
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Proxy with No Voting Considered "present" at Meeting for purposes Voted "for" the proposal.
Instruction (other than Broker of quorum.
Non-Vote)
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Vote to Abstain Considered "present" at Meeting for purposes Abstentions do not constitute a vote "for" and
of quorum. effectively result in a vote "against" Proposals
1(a)-(h), and Proposal 2(a)-(h) if less than
50% of the outstanding shares are present at
the Meeting.
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ADDITIONAL INFORMATION ABOUT THE PIONEER FUNDS
Investment Adviser
Pioneer serves as the investment adviser to each Pioneer Fund. Pioneer is
an indirect, wholly owned subsidiary of UniCredito Italiano S.p.A., one of the
largest banking groups in Italy. Pioneer is part of the global asset management
group providing investment management and financial services to mutual funds,
institutional and other clients. As of June 30, 2004, assets under management
were approximately $150 billion worldwide, including over $35 billion in assets
under management by Pioneer. Pioneer's main office is at 60 State Street,
Boston, Massachusetts 02109. Pioneer's U.S. mutual fund investment history
includes creating one of the first mutual funds in 1928.
The Board of Trustees of the Pioneer Funds is responsible for overseeing
the performance of each of Pioneer Fund's investment adviser and subadviser, if
any, and determining whether to approve and renew the fund's investment
advisory agreement and the subadvisory agreements.
Pioneer has received an order (the "Exemptive Order") from the SEC that
permits Pioneer, subject to the approval of the Pioneer Funds' Board of
Trustees, to hire and terminate a subadviser or to materially modify an
existing subadvisory agreement for a Pioneer Fund without shareholder approval.
Pioneer retains the ultimate responsibility to oversee and recommend the
hiring, termination and replacement of any subadviser. To the extent that the
SEC adopts a rule that would supersede the Exemptive Order, Pioneer and the
Pioneer Funds intend to rely on such rule to permit Pioneer, subject to the
approval of the Pioneer Funds' Board of Trustees and any other applicable
conditions of the rule, to hire and terminate a subadviser or to materially
modify an existing subadvisory agreement for a Pioneer Fund without shareholder
approval.
130
Buying, Exchanging and Selling Shares of the Pioneer Funds
Net asset value. Each Pioneer 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 Pioneer 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 Pioneer Fund generally values its portfolio securities using closing
market prices or readily available market quotations. When closing market
prices or market quotations are not available or are considered by Pioneer to
be unreliable, a Pioneer Fund may use a security's fair value. Fair value is
the valuation of a security determined on the basis of factors other than
market value in accordance with procedures approved by the Pioneer Funds'
Trustees. Each Pioneer Fund also may use the fair value of a security,
including a non-U.S. security, when Pioneer determines that the closing market
price on the primary exchange where the security is traded no longer accurately
reflects the value of the security due to factors affecting one or more
relevant securities markets or the specific issuer. The use of fair value
pricing by a Pioneer Fund may cause the net asset value of its shares to differ
from the net asset value that would be calculated using closing market prices.
International securities markets may be open on days when the U.S. markets are
closed. For this reason, the value of any international securities owned by a
Pioneer Fund could change on a day you cannot buy or sell shares of the fund.
Each Pioneer Fund may use a pricing service or a pricing matrix to value some
of its assets. Debt securities with remaining maturities of 60 days or less are
valued at amortized cost, which is a method of determining a security's fair
value.
To the extent a Pioneer Fund invests in securities of non-U.S. issuers, the
markets for these securities generally close prior to the time the fund
determines its net asset value. However, the value of these securities continues
to be influenced by changes in the global markets. Consequently, the fund's
Trustees have determined to use the fair value of these securities as of the
time the fund determines its net asset value, based upon data from a pricing
service. On a daily basis, the pricing service recommends changes, based upon a
proprietary model, to the closing market prices of each non-U.S. security held
by the fund to reflect the security's fair value at the time the fund determines
its net asset value. The fund applies these recommendations in accordance with
procedures approved by the Trustees. A security's fair value determined in this
manner may differ from the security's closing market price on the date the fund
determines its net asset value or the opening price of the security on the next
business day. The fund's use of this method may significantly affect its net
asset value compared to the net asset value that would have been determined
using closing market prices. The fund also may take other factors influencing
specific markets or issuers into consideration in determining the fair value of
a non-U.S. security.
You buy or sell shares at the share price. When you buy Class A shares,
you pay an initial sales charge unless you qualify for a waiver or reduced
sales charge. The Class A shares of the Pioneer Funds you receive in the
Reorganizations will not be subject to any sales charge. Moreover, if you own
shares in your own name as of the closing of the Reorganizations (i.e., not in
the name of a broker or other intermediary) and maintain your account, you may
purchase additional Class A shares of the corresponding Pioneer Fund through
such account in the future or may exchange those shares for Class A shares of
another Pioneer Fund without paying any sales charge.
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
described herein or in the Pioneer Fund's prospectus. Ask your investment
professional for more information.
If you invest in a Pioneer Fund through investment professionals or other
financial intermediaries, including wrap programs and fund supermarkets,
additional conditions may apply to your investment in a Pioneer Fund, and the
investment professional or intermediary may charge you a transaction-based or
other fee for its services. These conditions and fees are in addition to those
imposed by the Pioneer Fund and its affiliates. You should ask your investment
professional or financial intermediary about its services and any applicable
fees.
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 Pioneer Funds' transfer agent for account
applications, account options forms and other account information:
PIONEER INVESTMENT MANAGEMENT SHAREHOLDER SERVICES, INC.
P.O. Box 55014
Boston, Massachusetts 02205-5014
Telephone 1-800-225-6292
Telephone Transaction Privileges. If your account is registered in your
name, you can buy, exchange or sell shares of the Pioneer Funds 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. Each Pioneer
131
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.
Online Transaction Privileges. If your account is registered in your name,
you may be able to buy, exchange or sell fund shares online. Your investment
firm may also be able to buy, exchange or sell your Pioneer Fund shares online.
To establish online transaction privileges complete an account options
form, write to the transfer agent or complete the online authorization screen
on: www.pioneerfunds.com.
To use online transactions, you must read and agree to the terms of an
online transaction agreement available on the Pioneer website. When you or your
investment firm requests an online transaction the transfer agent
electronically records the transaction, requires an authorizing password and
sends a written confirmation. The Pioneer Funds may implement other 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. You may not be able to use the online
transaction privilege for certain types of accounts, including most retirement
accounts.
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
PFD prior to PFD'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 Pioneer Fund Shares. You may buy shares of each Pioneer Fund from
any investment firm that has a sales agreement with PFD. 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 shares of the Pioneer Funds 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. 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. The minimum investment amount
does not apply for purposes of the Reorganization.
Exchanging Pioneer Fund Shares. You may exchange your shares in a Pioneer
Fund 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. Each Pioneer 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 policy as described in each fund's prospectus.
Selling Pioneer Fund Shares. Your shares will be sold at net asset value
per share next calculated after the Pioneer Fund, or authorized agent, and as a
broker-dealer, 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. Each Pioneer 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 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 Pioneer Fund share certificates, you submit them and
they are signed by each record owner exactly as the shares are
registered
132
o Your request includes a signature guarantee if you:
o Are selling over $100,000 or exchanging over $500,000 worth of shares
o Changed your account registration or address within the last 30 days
o Instruct the transfer agent to mail the check to an address different
from the one on your account
o Want the check paid to someone other than the account owner(s)
o Are transferring the sale proceeds to a Pioneer mutual fund account
with a different registration
Buying, Exchanging and Selling Pioneer Fund Shares
- --------------------------------------------------------------------------------------------------
Buying Shares
- --------------------------------------------------------------------------------------------------
Through Normally, your investment firm will send your purchase request
your investment to the Pioneer Funds' transfer agent. Consult your investment
firm professional for more information. Your investment firm may
receive a 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 or online You can use the telephone or online purchase privilege if you
have an existing non-retirement account or certain IRAs. You can
purchase additional fund shares by phone if:
o You established your bank account of record at least
30 days ago
o Your bank information has not changed for at least 30 days
o You are not purchasing more than $25,000 worth of shares per
account per day
o You can provide the proper account identification information
When you request a telephone or online purchase, the transfer
agent will electronically debit the amount of the purchase from
your bank account of record. The transfer agent will purchase
Pioneer Fund shares for the amount of the debit at the offering
price determined after the transfer agent receives your
telephone or online 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 Pioneer Fund shares for an existing fund
by mail or by fax account by mailing a check to the transfer agent. Make your
check payable to the Pioneer Fund. Neither initial nor subsequent
investments should be made by third party check. Your check
must be in U.S. dollars and drawn on a U.S. bank. Include in your
purchase request the fund's name, the account number and the
name or names in the account registration.
- --------------------------------------------------------------------------------------------------
Exchanging Shares
- --------------------------------------------------------------------------------------------------
Through Normally, your investment firm will send your exchange request to
your investment the Pioneer Fund's transfer agent. Consult your investment
firm professional for more information about exchanging your
shares.
By phone or online After you establish your Pioneer Fund account, you can exchange
Fund shares by phone or online if:
o You are exchanging into an existing account or using the
exchange to establish a new account, provided the new account
has a registration identical to the original account
o The fund into which you are exchanging offers the same class
of shares
o You are not exchanging more than $500,000 worth of shares
per account per day
o You can provide the proper account identification information
In writing, You can exchange fund shares by mailing or faxing a letter of
by mail or by fax instruction to the transfer agent. You can exchange Pioneer Fund
shares directly through the Pioneer Fund only if your account is
registered in your name. However, you may not fax an exchange
request for more than $500,000. Include in your letter:
o The name, social security number and signature of all registered
owners
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 your are exchanging
133
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Selling Shares
- --------------------------------------------------------------------------------
Normally, your investment firm will send your request to sell
shares to the Pioneer Funds' transfer agent. Consult your
investment professional for more information. Each Pioneer Fund
has authorized PFD to act as its agent in the repurchase of
Pioneer Fund shares from qualified investment firms. Each Pioneer
Fund reserves the right to terminate this procedure at any time.
You may sell up to $100,000 per account per day by phone or
online. You may sell Pioneer Fund shares held in a retirement
plan account by phone only if your account is an eligible IRA (tax
penalties may apply). You may not sell your shares by phone or
online if you have changed your address (for checks) or your
bank information (for wires and transfers) in the last 30 days.
You may receive your sale proceeds:
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 being sent to your bank address of record
You can sell some or all of your Pioneer Fund shares by writing
directly to the Pioneer Fund only if your account is registered in
your name. Include in your request your name, your social
security number, the fund's name and any other applicable
requirements as described below. The transfer agent will send the
sale proceeds to your address of record unless you provide other
instructions. Your request must be signed by all registered owners
and be in good order. You may not sell more than $100,000 per
account per day by fax.
- --------------------------------------------------------------------------------
How to contact Pioneer
- --------------------------------------------------------------------------------
By phone
For information or to request a telephone transaction between
8:00 a.m. and 7:00 p.m. (Eastern time) by speaking with a
shareholder services representative call 1-800-225-6292
To request a transaction using FactFone(SM) call 1-800-225-4321
Telecommunications Device for the Deaf (TDD) 1-800-225-1997
By mail
Send your written instructions to:
Pioneer Investment Management Shareholder Services, Inc.
P.O. Box 55014
Boston, Massachusetts 02205-5014
By fax
Fax your exchange and sale requests to:
1-800-225-4240
Exchange Privilege
You may make up to four exchange redemptions of $25,000 or
more per account per calendar year.
Excessive Trading
The fund discourages excessive and/or trading practices, such as
market timing, that may disrupt portfolio management strategies
and harm fund request until it is received in performance. These
practices consist of:
o Selling shares purchased within the preceding 90 days;
o Two or more purchases and redemptions in any 90-day period;
or
o Any other series of transactions indicative of a timing pattern
If we identify an account that engages in such activity, the fund
and the distributor reserve the right to refuse or restrict any
purchase order (including exchanges) for that account and other
accounts under common ownership or control.
- --------------------------------------------------------------------------------
Pioneer Fund 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 Pioneer 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. All
Pioneer Funds will accept only medallion signature guarantees. A medallion
signature guarantee may be obtained from a domestic bank or trust company,
broker, dealer, clearing agency, savings association, or other financial
institution that is participating in a medallion program recognized by the
Securities Transfer Association. Signature guarantees from financial
institutions that are not participating in one of these programs are not
accepted. Fiduciaries and corporations are required to submit additional
documents to sell Pioneer Fund shares.
Exchange Limitation. ou may only make up to four exchange redemptions of
$25,000 or more per account per calendar year out of a fund. Each fund's
exchange limitation is intended to discourage short-term trading in fund
shares. Short-term trading can increase the expenses incurred by the fund and
make portfolio management less efficient. In determining whether the exchange
redemption limit has been reached, Pioneer may aggregate a series of exchanges
(each valued at less than $25,000) and/or fund accounts that appear to be under
common ownership or control. Pioneer may view accounts for which one person
gives instructions or accounts that act on advice provided by a single source
to be under common control.
The exchange limitation does not apply to automatic exchange transactions
or to exchanges made by participants in employer-sponsored retirement plans
qualified under Section 401(a) of the IRC. While financial intermediaries that
maintain omnibus accounts that
134
invest in the fund are requested to apply the exchange limitation policy to
shareholders who hold shares through such accounts, we do not impose the
exchange limitation policy at the level of the omnibus account and are not able
to monitor compliance by the financial intermediary with this policy.
Excessive Trading. The fund discourages excessive and short-term trading
practices, such as market timing, that may disrupt portfolio management
strategies and harm fund performance. Although there is no generally applied
standard in the marketplace as to what level of trading activity is excessive,
we may consider trading in the fund's shares to be excessive if:
o You sell shares within a short period of time after the shares were
purchased;
o You make two or more purchases and redemptions within a short period of
time;
o You enter into a series of transactions that is indicative of a timing
pattern or strategy; or
o We reasonably believe that you have engaged in such practices in
connection with other mutual funds.
We monitor selected trades on a daily basis in an effort to detect
excessive short-term trading. If we determine that an investor or a client of a
broker has engaged in excessive short-term trading that we believe may be
harmful to the fund, we will ask the investor or broker to cease such activity
and we will refuse to process purchase orders (including purchases by exchange)
of such investor, broker or accounts that we believe are under their control.
In determining whether to take such actions, we seek to act in a manner that is
consistent with the best interests of the fund's shareholders. We also limit
the number of exchanges of $25,000 or more in any calendar year.
While we use our reasonable efforts to detect excessive trading activity,
there can be no assurance that our efforts will be successful or that market
timers will not employ tactics designed to evade detection. Frequently, fund
shares are held through omnibus accounts maintained by financial intermediaries
such as brokers and retirement plan administrators where the holdings of
multiple shareholders, such as all the clients of a particular broker, are
aggregated. Our ability to monitor trading practices by investors purchasing
shares through omnibus accounts is limited and dependent upon the cooperation
of the financial intermediary in observing the fund's policies.
Minimum Account Size. Each Pioneer 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 Pioneer
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 Pioneer Fund by
telephone during times of market volatility or disruption in telephone service.
If you are unable to reach the Pioneer 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. If you are legally required
to obtain a certificate, you may request one for your Class A shares only. A
fee may be charged for this service. Any share certificates of the Safeco Funds
outstanding at the Closing of the Reorganization will be deemed to be cancelled
and will no longer represent shares of the Funds.
Other Policies. Each Pioneer Fund may suspend transactions in shares when
trading on the New York Stock Exchange is closed or restricted, when an
emergency exists that makes it impracticable, as determined by the SEC, for the
fund to sell or value its portfolio securities or with the permission of the
SEC.
Each Pioneer Fund or PFD may revise, suspend or terminate the account
options and services available to shareholders at any time.
Each Pioneer Fund reserves the right to redeem in kind by delivering
portfolio securities to a redeeming shareholder, provided that the Pioneer Fund
must pay redemptions in cash if a shareholder's aggregate redemptions in a 90
day period are less than $250,000 or 1% of the fund's net assets.
Dividends and Capital Gains
Each Pioneer Fund generally pays any distributions of net short- and
long-term capital gains and dividends from any net investment income at least
annually.
Each Pioneer Fund may also pay dividends and capital gain distributions at
other times if necessary for the fund to avoid U.S. federal income or excise
tax. If you invest in a Pioneer Fund close to the time that the fund makes a
distribution, generally you will pay a higher price per share and you will pay
taxes on the amount of the distribution whether you reinvest the distribution
or receive it as cash.
135
Taxes
For U.S. federal income tax purposes, distributions from each Pioneer
Fund's net long-term capital gains (if any) are considered long-term capital
gains and may be taxable to you at different maximum rates depending upon their
source and other factors. Distributions from each Pioneer Fund's net short-term
capital gains and dividends from net investment income (other than
exempt-interest dividends, as described below) are taxable as ordinary income.
Since each Pioneer Fund's income is derived primarily from sources that do not
pay "qualified dividend income," taxable dividends from each such fund
generally will not qualify for taxation at the maximum 15% U.S. federal income
tax rate available to individuals on qualified dividend income. For the Pioneer
Tax Free Income Fund, Pioneer Municipal Bond Fund, Pioneer Tax Free Money
Market Fund, and Pioneer California Tax Free Income Fund, dividends from each
such fund's tax-exempt interest, called "exempt-interest dividends," are exempt
from regular federal income tax.
When you sell or exchange Pioneer Fund shares you will generally recognize
a capital gain or capital loss in an amount equal to the difference between the
net amount of sale proceeds (or, in the case of an exchange, the fair market
value of the shares) that you receive and your tax basis for the shares that
you sell or exchange. In January of each year each Pioneer Fund will mail to
you information about your dividends, distributions and any 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 Pioneer Fund will withhold 28% "backup
withholding" tax from your dividends (other than exempt-interest dividends) and
distributions, sale proceeds and any other payments to you.
You should ask your tax adviser about any federal, state and foreign tax
considerations, including possible additional withholding taxes for non-U.S.
shareholders. You may also consult the "Tax Status" section of each Pioneer
Fund's statement of additional information for a more detailed discussion of
U.S. federal income tax considerations, including qualified dividend income
considerations that may affect the Pioneer Fund and its shareholders.
Pioneer Funds' Class A Rule 12b-1 Plans
As described above, each Pioneer Fund has adopted a Rule 12b-1 plan for
its Class A shares (the "Class A Plans" or the "Plans"). Because the 12b-1 fees
payable under each Plan are an ongoing expense, over time they may increase the
cost of your investment and your shares may cost more than shares that are not
subject to a distribution or service fee or sales charge.
COMPENSATION AND SERVICES. Each Class A Plan is a reimbursement plan, and
distribution expenses of PFD are expected to substantially exceed the
distribution fees paid by the fund in a given year. Pursuant to each Class A
Plan the fund reimburses PFD for its actual expenditures to finance any
activity primarily intended to result in the sale of Class A shares or to
provide services to holders of Class A shares, provided the categories of
expenses for which reimbursement is made are approved by the Board of Trustees.
The expenses of the fund pursuant to the Class A Plan are accrued daily at a
rate which may not exceed the annual rate of 0.25% of the fund's average daily
net assets attributable to Class A shares.
TRUSTEE APPROVAL AND OVERSIGHT. Each Plan was last approved by the Board
of Trustees of each Pioneer Fund, including a majority of the independent
Trustees, by votes cast in person at meetings called for the purpose of voting
on the Plan on December 6, 2003. Pursuant to the Plan, at least quarterly, PFD
will provide each fund with a written report of the amounts expended under the
Plan and the purpose for which these expenditures were made. The Trustees
review these reports on a quarterly basis to determine their continued
appropriateness.
TERM, TERMINATION AND AMENDMENT. Each Plan's adoption, terms, continuance
and termination are governed by Rule 12b-1 under the Investment Company Act.
The Board of Trustees believes that there is a reasonable likelihood that the
Plans will benefit each fund and its current and future shareholders. The Plans
may not be amended to increase materially the annual percentage limitation of
average net assets which may be spent for the services described therein
without approval of the shareholders of the fund affected thereby, and material
amendments of the Plans must also be approved by the Trustees as provided in
Rule 12b-1.
136
FINANCIAL HIGHLIGHTS
The following tables show the financial performance of each Pioneer Fund
for the past five fiscal years and, if applicable, for any recent semiannual
period (or the period during which each Pioneer Fund has been in operation, if
less than five years). Certain information reflects financial results for a
single Pioneer Fund share. "Total return" shows how much an investment in a
Pioneer Fund would have increased or decreased during each period, assuming you
had reinvested all dividends and other distributions. In the case of each
Pioneer Fund, each fiscal year ended on or after the fiscal year ended June 30,
2002 has been audited by Ernst & Young LLP, each Pioneer Fund's independent
registered public accounting firm, as stated in their reports incorporated by
reference in this registration statement. For fiscal years prior to the fiscal
year ended June 30,2002, the financial statements of each Pioneer Fund were
audited by Arthur Anderson LLP. The information for any semi-annual period has
not been audited.
PIONEER HIGH YIELD FUND
FINANCIAL HIGHLIGHTS
Six Months
Ended Year Year Year Year Year
4/30/04 Ended Ended Ended Ended Ended
CLASS A (Unaudited) 10/31/03 10/31/02 10/31/01 10/31/00 10/31/99
- -------- ------------ ---------- ---------- ---------- ---------- ----------
Net asset value, beginning of period ............ $ 11.59 $ 9.14 $ 10.41 $ 11.35 $ 9.65 $ 8.50
---------- ---------- ---------- -------- ------- --------
Increase (decrease) from investment operations:
Net investment income .......................... $ 0.35 $ 0.80 $ 0.96 $ 1.08 $ 0.96 $ 0.70
Net realized and unrealized gain (loss)
on investments .............................. 0.17 2.45 (1.24) (0.62) 1.94 1.14
---------- ---------- ---------- -------- ------- --------
Net increase (decrease) from investment
Operations .................................. $ 0.52 $ 3.25 $ (0.28) $ 0.46 $ 2.90 $ 1.84
Distributions to shareholders:
Net investment income .......................... (0.37) (0.79) (0.99) (1.06) (1.05) (0.69)
Net realized gain .............................. (0.01) (0.01) -- (0.34) (0.15) --
---------- ---------- ---------- -------- ------- --------
Net increase (decrease) in net asset value ..... $ 0.14 $ 2.45 $ (1.27) $ (0.94) $ 1.70 $ 1.15
---------- ---------- ---------- -------- ------- --------
Net asset value, end of period .................. $ 11.73 $ 11.59 $ 9.14 $ 10.41 $ 11.35 $ 9.65
---------- ---------- ---------- -------- ------- --------
Total return* ................................... 4.43% 36.83% (3.43)% 4.32% 31.12% 22.20%
========== ========== ========== ======== ======= ========
Ratio of net expenses to average net assets ..... 1.02%**+ 1.06% 1.03%+ 0.96%+ 0.95%+ 1.90%
Ratio of net investment income to average
net assets ................................... 5.87%**+ 7.30%+ 9.20%+ 9.54%+ 8.96%+ 7.13%
Portfolio turnover rate ........................ 54%** 38% 29% 24% 57% 64%
Net assets, end of period (in thousands) ....... $3,660,416 $3,268,359 $1,260,074 $345,825 $57,592 $ 7,591
Ratios with no waiver of management fees by
PIM and no reduction for fees paid indirectly:
Net expenses ................................... 1.02%** 1.06%+ 1.10% 1.24% 1.94% 3.67%
Net investment income .......................... 5.87%** 7.30% 9.13% 9.26% 7.97% 5.36%
Ratios with waiver of management fees by PIM
and reduction for fees paid indirectly:
Net expenses ................................... 1.02%** 1.06% 1.03% 0.93% 0.88% 1.90%
Net investment income .......................... 5.87%** 7.30% 9.20% 9.57% 9.03% 7.13%
- ----------
* 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.
+ Ratios with no reduction for fees paid indirectly.
137
PIONEER BOND FUND
FINANCIAL HIGHLIGHTS
Year
Ended Year Year Year Year
6/30/04 Ended Ended Ended Ended
CLASS A (Unaudited) 6/30/03 6/30/02(a) 6/30/01 6/30/00
- ------- ----------- -------- ---------- -------- ----------
Net asset value, beginning of period ...................... $ 9.41 $ 8.89 $ 8.78 $ 8.47 $ 8.94
--------- -------- -------- ------- --------
Increase from investment operations:
Net investment income .................................... $ 0.41 $ 0.45 $ 0.52 $ 0.57 $ 0.58
Net realized and unrealized gain (loss) on investments ... (0.14) 0.53 0.13 0.31 (0.47)
--------- -------- -------- ------- ---------
Net increase from investment operations .................. $ 0.27 $ 0.98 $ 0.65 $ 0.88 $ 0.11
Distributions to shareholders:
Net investment income .................................... (0.50) (0.46) (0.54) (0.57) (0.58)
--------- -------- --------- ------- ---------
Net increase (decrease) in net asset value ............... $ (0.23) $ 0.52 $ 0.11 $ 0.31 (0.47)
--------- -------- --------- -------- ---------
Net asset value, end of period ........................... $ 9.18 $ 9.41 $ 8.89 $ 8.78 $ 8.47
========= ======== ========= ======== =========
Total return* ............................................. 2.98% 11.38 7.58% 10.70% 1.30%
Ratio of net expenses to average net assets+ .............. 1.14%(b) 1.20 1.16% 1.21% 1.18%
Ratio of net investment income to average net assets+ ..... 4.42%(b) 5.02 5.79% 6.53% 6.68%
Portfolio turnover rate ................................... 63% 48 59% 43% 60%
Net assets, end of period (in thousands) .................. $ 160,421 $183,338 $143,713 $98,004 $102,349
Ratios with reductions for fees paid indirectly:
Net expenses ............................................. 1.14%(b) 1.20 1.16% 1.18% 1.15%
Net investment income .................................... 4.42%(b) 5.02 5.79% 6.56% 6.71%
- ----------
* 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.
+ Ratio with no reduction for fees paid indirectly.
(a) As a result of a change in accounting principle, the effect due to
mandatory accretion of discounts and amortization of premiums on debt
securities resulted in a reduction of net investment income of $0.02 per
share, an increase in net realized and unrealized gain (loss) on
investments of $0.02 per share, and the ratio of net investment income to
average net assets decreased by 0.18%.
(b) Ratios include the revision of estimate for printing expenses.
138
PIONEER TAX FREE INCOME FUND
FINANCIAL HIGHLIGHTS
Six Months
Ended Year Year Year Year Year
6/30/04 Ended Ended Ended Ended Ended
CLASS A (Unaudited) 12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
- ------- ------------ ----------- ---------- ----------- ---------- ---------
Net asset value, beginning of period .................. $ 11.70 $ 11.61 $ 11.47 $ 11.70 $ 10.98 $ 12.02
-------- -------- -------- -------- -------- --------
Increase (decrease) from investment operations:
Net investment income ................................ $ 0.28 $ 0.56 $ 0.56 $ 0.53 $ 0.52 $ 0.51
Net realized and unrealized gain (loss) on investments (0.47) 0.09 0.23 (0.05) 0.72 (1.02)
-------- -------- -------- -------- -------- --------
Net increase (decrease) from investment operations ... $ (0.19) $ 0.65 $ 0.79 $ 0.48 $ 1.24 $ (0.51)
Distributions to shareholders:
Net investment income ................................ (0.27) (0.56) (0.57) (0.53) (0.52) (0.51)
In excess of net investment income ................... -- -- -- -- 0.00(a) --
Net realized gain .................................... -- -- (0.08) (0.18) -- (0.02)
-------- -------- -------- -------- -------- --------
Net increase (decrease) in net asset value ............ $ (0.46) $ 0.09 $ 0.14 $ (0.23) $ 0.72 $ (1.04)
Net asset value, end of period ........................ $ 11.24 $ 11.70 $ 11.61 $ 11.47 $ 11.70 $ 10.98
======== ======== ======== ======== ======== ========
Total return* ......................................... (1.65)% 5.80% 7.07% 4.13% 11.63% (4.29%)
Ratio of net expenses to average net assets+ .......... 0.91%** 0.93% 0.93% 0.92% 0.95% 0.93%
Ratio of net investment income to average net assets+ . 4.95% 4.88% 4.83% 4.49% 4.62% 4.43%
Portfolio turnover rate ............................... 49%** 80% 161% 92% 14% 24%
Net assets, end of period (in thousands) .............. $301,732 $326,173 $343,872 $333,867 $341,179 $368,559
Ratios with reductions for fees paid indirectly:
Net expenses ......................................... 0.91%** 0.93% 0.92% 0.91% 0.91% 0.92%
Net investment income ................................ 4.95%** 4.88% 4.84% 4.50% 4.66% 4.44%
- ----------
(a) Amount rounds to less than one cent per share
* 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.
+ Ratios with no reduction for fees paid indirectly.
** Annualized.
139
PIONEER AMERICA INCOME TRUST
FINANCIAL HIGHLIGHTS
Six Months
Ended Year Year Year Year Year
6/30/04 Ended Ended Ended Ended Ended
CLASS A (Unaudited) 12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
- ------- ------------- ----------- ---------- ----------- --------- ----------
Net asset value, beginning of period ...................... $ 9.95 $ 10.27 $ 9.79 $ 9.76 $ 9.30 $ 10.10
-------- -------- -------- -------- ------- --------
Increase from investment operations:
Net investment income .................................... $ 0.19 $ 0.28 $ 0.40 $ 0.52 $ 0.58 $ 0.55
Net realized and unrealized gain (loss) on investments ... (0.20) (0.13) 0.54 0.05 0.46 (0.80)
-------- -------- -------- -------- ------- --------
Net increase (decrease) from investment operations ....... $ (0.01) $ 0.15 $ 0.94 $ 0.57 $ 1.04 $ (0.25)
Distributions to shareholders:
Net investment income .................................... (0.22) (0.47) (0.46) (0.51) (0.58) (0.55)
Net realized gain ........................................ -- -- -- (0.03) -- --
-------- -------- -------- -------- ------- --------
Net increase (decrease) in net asset value ............... $ (0.23) $ (0.32) $ 0.48 $ 0.03 $ 0.46 $ (0.80)
-------- -------- -------- -------- ------- --------
Net asset value, end of period ........................... $ 9.72 $ 9.95 $ 10.27 $ 9.79 $ 9.76 $ 9.30
======== ======== ======== ======== ======= ========
Total return* ............................................. (0.14)% 1.47% 9.78% 5.92% 11.58% (2.52)%
Ratio of net expenses to average net assets+ .............. 1.17%** 1.10% 1.00% 1.01% 1.04% 1.01%
Ratio of net investment income to average net assets+ ..... 4.05%** 2.85% 4.17% 5.14% 6.09% 5.63%
Portfolio turnover rate ................................... 32%** 66% 76% 72% 56% 72%
Net assets, end of period (in thousands) .................. $129,465 $153,939 $164,393 $115,998 $96,068 $111,262
Ratios with no waiver of management fees by PIM and no
reductions for fees paid indirectly:
Net expenses ............................................. 1.17%** 1.12% 1.08% 1.12% 1.16% 1.14%
Net investment income ..................................... 4.05%** 2.83% 4.09% 5.03% 5.97% 5.50%
Ratios with waiver of management fees by PIM and reductions
for fees paid indirectly:
Net expenses ............................................. 1.17%** 1.10% 1.00% 1.00% 1.00% 1.00%
Net investment income .................................... 4.05%** 2.85% 4.18% 5.15% 6.13% 5.64%
- ----------
* 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.
+ Ratios with no reduction for fees paid indirectly.
(a) On January 1, 2001, the Trust began accreting discounts and amortizing
premiums on debt securities. The effect of this change for the year ended
December 31, 2001, was to decrease net investment income by $0.02 per
share, increase net realized and unrealized gain (loss) by $0.02 per share
and decrease the ratio of net investment income to average net assets
assuming waiver of management fees by PIM and reduction for fees paid
indirectly from 5.35% to 5.15%. Per share ratios and supplemental data for
periods prior to January 1, 2001, have not been restated to reflect this
change in presentation.
** Annualized.
140
PIONEER CASH RESERVES FUND
FINANCIAL HIGHLIGHTS
Six Months
Ended Year Year Year Year Year
6/30/04 Ended Ended Ended Ended Ended
CLASS A (Unaudited) 12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
- -------- ----------- ---------- ----------- ----------- ----------- ---------
Net asset value, beginning of period ....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Increase (decrease) from investment operations:
Net investment income ..................................... $ 0.001 $ 0.003 $ 0.01 $ 0.03 $ 0.05 $ 0.04
Distributions to shareholders:
Net investment income ..................................... (0.03) (0.003) (0.01) (0.03) (0.05) (0.04)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ............................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Total return* .............................................. 0.09% 0.26% 1.15% 3.29% 5.53% 4.23%
Ratio of net expenses to average net assets ................ 0.98%** 1.00% 0.76% 0.93% 1.02% 1.01%
Ratio of net investment income to average net assets ....... 0.19%** 0.26% 1.18% 2.89% 5.36% 4.11%
-------- -------- -------- -------- -------- --------
Net assets, end of period (in thousands) ................... $301,139 $227,052 $268,861 $493,871 $242,861 $287,126
======== ======== ======== ======== ======== ========
Ratios with no waiver of management fees and assumption of
expenses by PIM and no reductions for fees paid indirectly:
Net expenses .............................................. 0.98%** 1.06% 0.93% 0.94% 1.02% 1.01%
Net investment income ..................................... 0.19%** 0.20% 1.01% 2.88% 5.36% 4.11%
Ratios with waiver of management fees and assumption of
expenses by PIM and reductions for fees paid indirectly:
Net expenses .............................................. 0.98%** 0.99% 0.75% 0.89% 0.94% 0.95%
Net investment income ..................................... 0.19%** 0.27% 1.19% 2.93% 5.44% 4.17%
- ----------
* 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.
** Annualized.
141
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 and officers of
your Safeco Fund or by its affiliates, including personnel of your Safeco
Fund's transfer agent, Pioneer Funds' investment adviser, Pioneer, Pioneer
Funds' transfer agent, PIMSS, or by broker-dealer firms. Georgeson Shareholder
Communications Corporation, 17 State Street, New York, NY 10004 has been
retained to provide proxy solicitation services to the Funds at a cost of
approximately $30,000. Pioneer and Symetra will bear the cost of such
solicitation.
Revoking Proxies
A Safeco 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 your Safeco Fund's
transfer agent, Safeco Services Corporation, at 4854 154th Place,
N.E., Redmond, WA 98052, 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
Safeco 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
Only shareholders of record on October 8, 2004 (the "record date") are
entitled to notice of and to vote at the Meetings. As of the record date, the
following number of shares of each Safeco Fund were outstanding.
Shares Outstanding
Safeco Fund (as of October 8, 2004)
- ------------ ------------------------
Safeco California Tax-Free Income Fund ................ 7,787,094.598
Safeco High-Yield Bond Fund ........................... 6,824,746.096
Safeco Intermediate-Term Bond Fund .................... 1,108,689.158
Safeco Intermediate-Term Municipal Bond Fund .......... 1,047,405.901
Safeco Intermediate-Term U.S. Government Fund ......... 5,981,137.025
Safeco Money Market Fund .............................. 185,097,462.781
Safeco Municipal Bond Fund ............................ 37,390,239.812
Safeco Tax-Free Money Market Fund ..................... 52,150,057.170
Other Business
Your Safeco Fund's Board of Trustees knows of no business to be presented
for consideration at the Meetings other than Proposals 1(a)-(h) and 2(a)-(h).
If other business is properly brought before a Meeting, proxies will be voted
according to the best judgment of the persons named as proxies.
Adjournments
If, by the time scheduled for a Meeting, a quorum of shareholders of a
Fund is not present or if a quorum is present but sufficient votes "for" the
proposals have not been received, the persons named as proxies may propose the
Meeting with respect to one or more of the Funds to another date and time, and
the Meeting may be held as adjourned within a reasonable time after the date
set for the original Meeting for that Fund without further notice. Any such
adjournment will require the affirmative vote of a majority of the votes cast
on the question in person or by proxy at the session of the Meeting to be
adjourned. The persons named as proxies will vote all proxies in favor of the
adjournment that voted in favor of the proposal or that abstained. They will
vote against such adjournment those proxies required to be voted against the
proposal. Broker non-votes will be disregarded in the vote for adjournment. If
the adjournment requires setting a new record date or the adjournment is for
more than 120 days of the original Meeting (in which case the Board of Trustees
of your Safeco Fund will set a new record date), your Safeco Fund will give
notice of the adjourned meeting to its shareholders.
142
Telephone Voting
In addition to soliciting proxies by mail, by fax or in person, your
Safeco Fund may also arrange to have votes recorded by telephone by officers
and employees of your Safeco Fund or by personnel of the adviser or transfer
agent or a third party solicitation firm. 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 Safeco 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.
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.
Internet Voting
You will also have the opportunity to submit your voting instructions via
the Internet by utilizing a program provided through a vendor. Voting via the
Internet will not affect your right to vote in person if you decide to attend
the Meeting. Do not mail the proxy card if you are voting via the Internet. To
vote via the Internet, you will need the "control number" that appears on your
proxy card. These Internet voting procedures are designed to authenticate
shareholder identities, to allow shareholders give their voting instructions,
and to confirm that shareholders instructions have been recorded properly. If
you are voting via the Internet you should understand that there may be costs
associated with electronic access, such as usage charges from Internet access
providers and telephone companies, that must be borne by you.
o Read the Proxy Statement/Prospectus and have your proxy card at hand.
o Go to the Web site listed on your proxy card.
o Enter control number found on your proxy card.
o Follow the simple instructions on the Web site. Please call
[ ] us at [1-800 ] if you have any problems.
o To insure that your instructions have been recorded correctly you will
receive a confirmation of your voting instructions immediately after
your submission and also by e-mail if chosen.
Shareholders' Proposals
Your Safeco Fund is not required, and does not intend, to hold meetings of
shareholders each year. Instead, meetings will be held only when and if
required. Any shareholders desiring to present a proposal for consideration at
the next meeting for shareholders must submit the proposal in writing, so that
it is received by the your Safeco Fund to Safeco Mutual Funds, Attention Legal
Department, 4854 154th Place, N.E., Redmond, WA 98052 within a reasonable time
before any meeting. If the reorganization is completed, your Safeco Fund will
not hold another shareholder meeting.
Appraisal Rights
If the Reorganization of your Safeco Fund is approved at the Meeting,
shareholders of your Safeco Fund will not have the right to dissent and obtain
payment of the fair value of their shares because the exercise of appraisal
rights is subject to the forward pricing requirements of Rule 22c-1 under the
Investment Company Act, which supersede state law. Shareholders of your Safeco
Funds, however, have the right to redeem their Fund shares until the closing
date of the Reorganizations. After the Reorganization, shareholders of your
Safeco Funds will hold shares of the Pioneer Funds which may also be redeemed
at net asset value without being subject to deferred sales charges.
143
OWNERSHIP OF SHARES OF THE SAFECO FUNDS
To the knowledge of your Safeco Fund, as of September 30, 2004, the
following persons owned of record or beneficially 5% or more of the outstanding
shares of each of the Safeco Funds.
- ----------------------------------------------------------------------------------------------------------------
Safeco Fund Shareholder Name and Address Percentage Owned
- ----------------------------------------------------------------------------------------------------------------
Safeco Intermediate-Term U.S. Charles Schwab & Co. Inc. 5.64%
Government Fund Exclusive Benefit of Its Customers
Attn: Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
- ----------------------------------------------------------------------------------------------------------------
Safeco Municipal Bond Fund Charles Schwab & Co. Inc. 7.39%
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
- ----------------------------------------------------------------------------------------------------------------
Safeco Money Market Fund The Williams Companies, Inc. 9.29%
ATTN: Lenore Dubaldo
One Williams Center
Tulsa, OK 74172-0140
- ----------------------------------------------------------------------------------------------------------------
Pacificare Health Systems, Inc. 7.56%
5995 Plaza Drive
Cypress, CA 90630
- ----------------------------------------------------------------------------------------------------------------
Service Corporation International 6.33%
1929 Allen Parkway
Houston, TX 77019
- ----------------------------------------------------------------------------------------------------------------
Safeco California Tax-Free Income Fund Charles Schwab & Co. Inc. 17.11%
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
- ----------------------------------------------------------------------------------------------------------------
FTC & Co. 16.41%
Attn: Datalynx-House Acct
PO Box 173736
Denver, CO 80217-3736
- ----------------------------------------------------------------------------------------------------------------
Safeco High-Yield Bond Fund Charles Schwab & Co. Inc. 13.17%
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
- ----------------------------------------------------------------------------------------------------------------
Safeco High-Yield Bond Fund Wells Fargo & Company 9.06%
420 Montgomery Street
San Francisco, California 94163
- ----------------------------------------------------------------------------------------------------------------
Safeco High-Yield Bond Fund National Financial Services Corp. 8.06%
for the Exclusive Benefit of Our Customers
Attn.: Mutual Funds Dept. 5th Fl.
200 Liberty St., 1 World Financial Center
New York, NY 10281-1003
- ----------------------------------------------------------------------------------------------------------------
144
- ----------------------------------------------------------------------------------------------------------------
Safeco Intermediate-Term Bond Fund Symetra Asset Management Co.
4854 154th Place NE
Redmond, WA 98052 41.17%
- ----------------------------------------------------------------------------------------------------------------
Safeco Intermediate-Term Municipal William A. Helsell 13.64%
Bond Fund 10653 Culpepper Ct. N.W.
Seattle, WA 98177-5319
- ----------------------------------------------------------------------------------------------------------------
Charles Schwab & Co. Inc. 12.44%
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
- ----------------------------------------------------------------------------------------------------------------
Howard C. Lincoln 7.79%
6 Holly Hill Drive
Mercer Island, WA 98040-5326
- ----------------------------------------------------------------------------------------------------------------
As of December 31, 2003, the Trustees and officers of your Safeco Fund, as
a group, owned in the aggregate less than 1% of the outstanding shares of your
Safeco Fund.
145
OWNERSHIP OF SHARES OF THE PIONEER FUNDS
To the knowledge of your Pioneer Fund, as of September 30, 2004, the
following persons owned of record or beneficially 5% or more of the outstanding
shares of each of the Pioneer Funds.
- -------------------------------------------------------------------------------------------------------
Actual Percentage
Fund/Class Shareholder Name and Address Owned
- -------------------------------------------------------------------------------------------------------
Pioneer High Yield Fund
- -------------------------------------------------------------------------------------------------------
Class A shares MLPFS For The Sole Benefit of its Customers 10.68%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- -------------------------------------------------------------------------------------------------------
Charles Schwab & Co. Inc. 13.65%
Special Custody Account for the benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
- -------------------------------------------------------------------------------------------------------
Class B shares MLPFS For The Sole Benefit of its Customers 21.59%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- -------------------------------------------------------------------------------------------------------
Citigroup Global Markets Inc. 11.01%
333 West 34th St., 7th Fl.
New York, NY 10001-2402
- -------------------------------------------------------------------------------------------------------
Class C shares Citigroup Global Markets Inc. 13.50%
333 West 34th St., 7th Fl.
New York, NY 10001-2402
- -------------------------------------------------------------------------------------------------------
MLPFS For The Sole Benefit of its Customers 28.64%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- -------------------------------------------------------------------------------------------------------
Class R Shares ING National Trust, Trustee 28.45%
Agreement and Aetna 403(b)(7)
Custodial Acct 3/26/97 Trustee for Thomas J. Botticelli
DTD 4/22/96
151 Farmington Avenue -- TN41
Hartford, CT 06156-0001
- -------------------------------------------------------------------------------------------------------
MLPFS For The Sole Benefit of its Customers 14.50%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- -------------------------------------------------------------------------------------------------------
Aetna Life Insurance & Annuity Co. 37.73%
151 Farmington Avenue -- TN41
Hartford, CT 06156-0001
- -------------------------------------------------------------------------------------------------------
Class Y Shares National investor Services 5.06%
FBO 097-50000-19
55 Water Street, 32nd Floor
New York, NY 10041-3299
- -------------------------------------------------------------------------------------------------------
146
- -------------------------------------------------------------------------------------------------------
Actual Percentage
Fund/Class Shareholder Name and Address Owned
- -------------------------------------------------------------------------------------------------------
Pioneer Bond Fund
- -------------------------------------------------------------------------------------------------------
Class B shares MLPFS For The Sole Benefit of its Customers 11.05%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- -------------------------------------------------------------------------------------------------------
Class C shares MLPFS For The Sole Benefit of its Customers 14.54%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- -------------------------------------------------------------------------------------------------------
Citigroup Global Markets Inc. 5.96%
333 West 34th St., 7th Fl.
New York, NY 10001-2402
- -------------------------------------------------------------------------------------------------------
Class R Shares MLPFS For The Sole Benefit of its Customers 69.32%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- -------------------------------------------------------------------------------------------------------
MCB Trust Services Cust. FBO Bach Petroleum Retirement 6.01%
700 17th St., Ste 300
Denver, CO 80202-3531
- -------------------------------------------------------------------------------------------------------
MCB Trust Services Cust. FBO 21.66%
United Construction Trades & Industrial Employee
International Union 401(k)
700 17th St., Ste 300
Denver, CO 80202-3531
- -------------------------------------------------------------------------------------------------------
Class Y Shares First Command Bank 68.15%
Attn: Trust Dept.
P.O. Box 90101-2075
- -------------------------------------------------------------------------------------------------------
MLPFS For The Sole Benefit of its Customers 17.10%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- -------------------------------------------------------------------------------------------------------
Pioneer Tax Free Income Fund
- -------------------------------------------------------------------------------------------------------
Class B shares Citigroup Global Markets Inc. 10.77%
333 West 34th St., 7th Fl.
New York, NY 10001-2402
- -------------------------------------------------------------------------------------------------------
MLPFS For The Sole Benefit of its Customers 18.84%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- -------------------------------------------------------------------------------------------------------
Class C shares MLPFS For The Sole Benefit of its Customers 21.24%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- -------------------------------------------------------------------------------------------------------
Citigroup Global Markets Inc. 12.42%
333 West 34th St., 7th Fl.
New York, NY 10001-2402
- -------------------------------------------------------------------------------------------------------
147
- -------------------------------------------------------------------------------------------------------
Actual Percentage
Fund/Class Shareholder Name and Address Owned
- -------------------------------------------------------------------------------------------------------
Class Y Shares John F. Cogan Jr. 5.42%
C/O Hale and Dorr
60 State street
Boston, MA 02109-1800
- -------------------------------------------------------------------------------------------------------
First Command Bank 94.57%
Attn: Trust Dept.
P.O. Box 90101-2075
- -------------------------------------------------------------------------------------------------------
Pioneer America Income Trust
- -------------------------------------------------------------------------------------------------------
Class B shares MLPFS For The Sole Benefit of its Customers 13.28%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- -------------------------------------------------------------------------------------------------------
Class C shares MLPFS For The Sole Benefit of its Customers 25.75%
Mutual Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
- -------------------------------------------------------------------------------------------------------
Citigroup Global Markets Inc. 8.40%
333 West 34th St., 7th Fl.
New York, NY 10001-2402
- -------------------------------------------------------------------------------------------------------
Class R Shares MCB Trust Services Cust. FBO 17.84%
Skyland Automotive Inc.
700 17th St., Ste 300
Denver, CO 80202-3531
- -------------------------------------------------------------------------------------------------------
MCB Trust Services Cust. FBO Big Boy 401(k) Plan & Trust 33.73%
700 17th St., Ste 300
Denver, CO 80202-3531
- -------------------------------------------------------------------------------------------------------
MCB Trust Services Cust. FBO 9.85%
United Construction Trades & Industrial Employee
International Union 401(k)
700 17th St., Ste 300
Denver, CO 80202-3531
- -------------------------------------------------------------------------------------------------------
MCB Trust Services Cust. FBO 7.04%
Telecommunications Asset Management
700 17th St., Ste 300
Denver, CO 80202-3531
- -------------------------------------------------------------------------------------------------------
MCB Trust Services Cust. FBO 9.58%
Citizens Bank of Hartville Retirement Savings Plan
700 17th St., Ste 300
Denver, CO 80202-3531
- -------------------------------------------------------------------------------------------------------
MCB Trust Services Cust. FBO 8.92%
Foxcor, Inc.
401(k) Profit Sharing Plan
700 17th St., Ste 300
Denver, CO 80202-3531
- -------------------------------------------------------------------------------------------------------
148
- -------------------------------------------------------------------------------------------------------
Actual Percentage
Fund/Class Shareholder Name and Address Owned
- -------------------------------------------------------------------------------------------------------
Pioneer Cash Reserves Fund
- -------------------------------------------------------------------------------------------------------
Class C shares Citigroup Global Markets Inc. 6.21%
333 West 34th St., 7th Fl.
New York, NY 10001-2402
- -------------------------------------------------------------------------------------------------------
Class R Shares Linda Bryant, Garry M. Floeter & Thomas Polite TTEES 38.69%
o/The CHC Mechanical Contractors Inc. P/S/P DTD/4/1/82
347 E Stevens St.
Cookeville, TN 38501-3541
- -------------------------------------------------------------------------------------------------------
MCB Trust Services Cust. FBO Big Boy 401(K) Plan & Trust 47.05%
700 17th St., Ste 300
Denver, CO 80202-3531
- -------------------------------------------------------------------------------------------------------
Carn & Co USI FBO 8.23%
Global Power System LLC/Fleet Supply Warehouse LLC PSP
Attn: Mutual Funds -- Star
PO Box 96211
Washington D.C. 20090-6211
- -------------------------------------------------------------------------------------------------------
Class Y Shares Pioneer Funds Distributor, Inc. 100%
60 State Street
Boston, MA 02109-1800
- -------------------------------------------------------------------------------------------------------
MCB Trust Services Cust. FBO 21.88%
AM-Liner Savings & Retirement
700 17th St., Ste 300
Denver, CO 80202-3531
- -------------------------------------------------------------------------------------------------------
As of December 31, 2003, the Trustees and officers of each Pioneer Fund
owned less than 1% of the outstanding shares of each Pioneer Fund.
EXPERTS
Safeco Funds
The financial statements and financial highlights of each Safeco Fund
incorporated by reference in the respective Safeco Trust's Annual Report for
the most recent fiscal year, have been audited by Ernst & Young LLP,
independent registered public accounting firm, as set forth in their reports
thereon incorporated by reference into this registration statement. Such
financial statements and financial highlights are incorporated herein by
reference in reliance on such reports given on the authority of such firm as
experts in accounting and auditing.
Pioneer Funds
The financial statements and financial highlights of each Pioneer Fund
incorporated by reference in the respective Pioneer Fund's Annual Report for
the most recent fiscal year, have been audited by Ernst & Young LLP,
independent registered public accounting firm, as set forth in their reports
thereon incorporated by reference into this registration statement. Such
financial statements and financial highlights are incorporated herein by
reference in reliance on such reports given the authority of such firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Safeco Funds and the Pioneer Funds are subject to the informational
requirements of the Securities Exchange Act of 1934 and the Investment Company
Act and file reports, proxy statements and other information with the SEC.
These reports, proxy statements and other information filed by the Funds can be
inspected and copied (for a duplication fee) at the public reference facilities
of the SEC at 450 Fifth Street, N.W., Washington, D.C. Copies of these
materials 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.
149
Exhibit A-1 -- Form of Agreement and Plan of Reorganization (C/D Reorganization)
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made this
day of , 2004, by and between [Pioneer Trust], a [Delaware statutory]
[Massachusetts business] trust (the "Acquiring Trust"), on behalf of its series
[name of Pioneer Fund] (the "Acquiring Fund"), with its principal place of
business at 60 State Street, Boston, Massachusetts 02109, and [Safeco Trust], a
Delaware statutory trust (the "Safeco Trust"), on behalf of its series [name of
Safeco Fund] (the "Acquired Fund"), with its principal place of business at
5069 154th Place N.E., Redmond, Washington 98052. The Acquiring Fund and the
Acquired Fund are sometimes referred to collectively herein as the "Funds" and
individually as a "Fund."
This Agreement is intended to be and is adopted as a plan of a
"reorganization" as defined in Section 368(a)(1)(C/D) of the United States
Internal Revenue Code of 1986, as amended (the "Code") and the Treasury
Regulations thereunder. The reorganization (the "Reorganization") will consist
of (1) the transfer of all of the assets of the Acquired Fund to the Acquiring
Fund in exchange solely for (A) the issuance of Investor Class shares of
beneficial interest of the Acquiring Fund (collectively, the "Acquiring Fund
Shares" and each, an "Acquiring Fund Share") to the Acquired Fund, and (B) the
assumption by the Acquiring Fund of the liabilities of the Acquired Fund that
are included in the calculation of net asset value ("NAV") on the closing date
of the Reorganization (the "Closing Date") (collectively, the "Assumed
Liabilities"), and (2) the distribution by the Acquired Fund, on or promptly
after the Closing Date as provided herein, of the Acquiring Fund Shares to the
shareholders of the Acquired Fund in liquidation and dissolution of the
Acquired Fund, all upon the terms and conditions hereinafter set forth in this
Agreement.
WHEREAS, the Acquiring Trust and the Safeco Trust are each registered
investment companies classified as management companies of the open-end type.
WHEREAS, the Acquiring Fund is authorized to issue shares of beneficial
interest.
WHEREAS, the Board of Trustees of the Safeco Trust and the Board of
Trustees of the Acquiring Trust have determined that the Reorganization is in
the best interests of the Acquired Fund shareholders and the Acquiring Fund
shareholders, respectively, and is not dilutive of the interests of those
shareholders.
NOW, THEREFORE, 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 THE ACQUIRING
FUND SHARES AND ASSUMPTION OF THE ASSUMED LIABILITIES; LIQUIDATION AND
TERMINATION OF THE ACQUIRED FUND.
1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, the Acquired Fund will
transfer all of its assets as set forth in Paragraph 1.2 (the "Acquired
Assets") to the Acquiring Fund free and clear of all liens and encumbrances
(other than those arising under the Securities Act of 1933, as amended (the
"Securities Act"), liens for taxes not yet due and contractual restrictions on
the transfer of the Acquired Assets) and the Acquiring Fund agrees in exchange
therefor: (i) to issue to the Acquired Fund the number of Acquiring Fund
Shares, including fractional Acquiring Fund Shares, with an aggregate NAV equal
to the NAV of the Acquired Fund, as determined in the manner set forth in
Paragraphs 2.1 and 2.2; and (ii) to assume the Assumed Liabilities. Such
transactions shall take place at the Closing (as defined in Paragraph 3.1
below).
1.2(a) The Acquired Assets shall consist of all of the Acquired Fund's
property, including, without limitation, all portfolio securities and
instruments, dividends and interest receivables, cash, goodwill, contractual
rights of the Acquired Fund or the Safeco Trust in respect of the Acquired
Fund, all other intangible property owned by the Acquired Fund, originals or
copies of all books and records of the Acquired Fund, and all other assets of
the Acquired Fund on the Closing Date. The Acquiring Fund shall also be
entitled to receive (or, to the extent agreed upon between the Safeco Trust and
the Acquiring Trust, be provided access to) copies of all records that the
Safeco Trust is required to maintain under the Investment Company Act of 1940,
as amended (the "Investment Company Act"), and the rules of the Securities and
Exchange Commission (the "Commission") thereunder to the extent such records
pertain to the Acquired Fund.
(b) The Acquired Fund has provided the Acquiring Fund with a list of all
of the Acquired Fund's securities and other assets as of the date of execution
of this Agreement, and the Acquiring Fund has provided the Acquired Fund with a
copy of the current fundamental investment policies and restrictions and fair
value procedures applicable to the Acquiring Fund. The Acquired Fund reserves
the right to sell any of such securities or other assets before the Closing
Date (except to the extent sales may be limited by representations of the
Acquired Fund contained herein and made in connection with the issuance of the
tax opinion provided for in Paragraph 8.5 hereof).
A-1
1.3 The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations that are or will become due prior to the Closing.
1.4 On or as soon after the Closing Date as is conveniently practicable
(the "Liquidation Date"), the Safeco Trust shall liquidate the Acquired Fund
and distribute pro rata to its shareholders of record, determined as of the
close of regular trading on the New York Stock Exchange on the Closing Date
(the "Acquired Fund Shareholders"), the Acquiring Fund Shares received by the
Acquired Fund pursuant to Paragraph 1.1 hereof. Each Acquired Fund Shareholder
shall receive such number of Acquiring Fund Shares that have an aggregate NAV
equal to the aggregate NAV of the shares of beneficial interest of the Acquired
Fund (the "Acquired Fund Shares") held of record by such Acquired Fund
Shareholder on the Closing Date. Such liquidation and distribution will be
accomplished by the Safeco Trust instructing the Acquiring Trust to transfer
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 established and maintained by the Acquiring Fund's transfer
agent in the names of the Acquired Fund Shareholders and representing the
respective pro rata number of the Acquiring Fund Shares due the Acquired Fund
Shareholders. The Safeco Trust shall promptly provide the Acquiring Trust with
evidence of such liquidation and distribution. All issued and outstanding
Acquired Fund Shares will simultaneously be cancelled on the books of the
Acquired Fund, and the Acquired Fund will be dissolved. The Acquiring Fund
shall not issue certificates representing the Acquiring Fund Shares in
connection with such exchange.
1.5 Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent for its Investor Class shares. Any certificates
representing ownership of Acquired Fund Shares that remain outstanding on the
Closing Date shall be deemed to be cancelled and shall no longer evidence
ownership of Acquired Fund Shares.
1.6 Any transfer taxes payable upon issuance of Acquiring Fund Shares in a
name other than the registered holder of the Acquired 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 Any reporting responsibility of the Safeco Trust with respect to the
Acquired Fund for taxable periods ending on or before the Closing Date,
including, but not limited to, the responsibility for filing of regulatory
reports, Tax Returns (as defined in Paragraph 4.1), or other documents with the
Commission, any state securities commissions, and any federal, state or local
tax authorities or any other relevant regulatory authority, is and shall remain
the responsibility of the Safeco Trust.
2. VALUATION
2.1 The NAV of the Acquiring Fund Shares and the NAV of the Acquired Fund
shall, in each case, be determined as of the close of business (4:00 p.m.,
Boston time) on the Closing Date (the "Valuation Time"). The NAV of each
Acquiring Fund Share shall be computed by Pioneer Investment Management, Inc.
(the "Acquiring Fund Adviser") in the manner set forth in the Acquiring Fund's
Declaration of Trust (the "Declaration"), or By-Laws, and the Acquiring Fund's
then-current prospectus and statement of additional information. The NAV of the
Acquired Fund shall be computed by Safeco Asset Management, Inc. (the "Acquired
Fund Administrator") by calculating the value of the Acquired Assets and by
subtracting therefrom the amount of the liabilities of the Acquired Fund on the
Closing Date included on the Statement of Assets and Liabilities of the
Acquired Fund delivered pursuant to Paragraph 5.7 (the "Statement of Assets and
Liabilities"), said assets and liabilities to be valued in the manner set forth
in the Acquired Fund's then current prospectus and statement of additional
information. The Acquiring Fund Adviser shall confirm to the Acquiring Fund the
NAV of the Acquired Fund.
2.2 The number of Acquiring Fund Shares to be issued (including fractional
shares, if any) in exchange for the Acquired Assets and the assumption of the
Assumed Liabilities shall be determined by the Acquiring Fund Adviser by
dividing the NAV of the Acquired Fund, as determined in accordance with
Paragraph 2.1, by the NAV of each Acquiring Fund Share, as determined in
accordance with Paragraph 2.1.
2.3 The Acquiring Fund and the Acquired Fund shall cause the Acquiring
Fund Adviser and the Acquired Fund Administrator, respectively, to deliver a
copy of its valuation report to the other party at Closing. All computations of
value shall be made by the Acquiring Fund Adviser and the Acquired Fund
Administrator in accordance with its regular practice as pricing agent for the
Acquiring Fund and the Acquired Fund, respectively.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be December 8, 2004, or such later date as the
parties may agree to in writing. All acts necessary to consummation the
Reorganization (the "Closing") shall be deemed to take place simultaneously as
of 5:00 p.m. (Eastern time) on the Closing Date unless otherwise provided. The
Closing shall be held at the offices of Wilmer Cutler Pickering Hale and Dorr
LLP, 60 State Street, Boston, Massachusetts, or at such other place as the
parties may agree.
A-2
3.2 Portfolio securities that are held other than in book-entry form in
the name of State Street Bank and Trust Company (the "Acquired Fund Custodian")
as record holder for the Acquired Fund shall be presented by the Acquired Fund
to Brown Brothers Harriman & Co. (the "Acquiring Fund Custodian") for
examination no later than three business days preceding the Closing Date. Such
portfolio securities shall be delivered by the Acquired Fund to the Acquiring
Fund 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 Acquired Fund Custodian in book-entry form on behalf of the Acquired
Fund shall be delivered by the Acquired Fund Custodian through the Depository
Trust Company to the Acquiring Fund Custodian and by the Acquiring Fund
Custodian recording the beneficial ownership thereof by the Acquiring Fund on
the Acquiring Fund Custodian's records. Any cash shall be delivered by the
Acquired Fund Custodian transmitting immediately available funds by wire
transfer to the Acquiring Fund Custodian the cash balances maintained by the
Acquired Fund Custodian and the Acquiring Fund Custodian crediting such amount
to the account of the Acquiring Fund.
3.3 The Acquiring Fund Custodian shall deliver within one business day
after the Closing a certificate of an authorized officer stating that: (a) the
Acquired Assets have been delivered in proper form to the Acquiring Fund on the
Closing Date, and (b) all necessary transfer taxes including all applicable
federal and state stock transfer stamps, if any, have been paid, or provision
for payment has been made in conjunction with the delivery of portfolio
securities as part of the Acquired Assets.
3.4 If on the Closing Date (a) the New York Stock Exchange is closed to
trading or trading thereon shall be restricted or (b) trading or the reporting
of trading on such exchange or elsewhere is disrupted so that accurate
appraisal of the NAV of the Acquiring Fund Shares or the Acquired Fund pursuant
to Paragraph 2.1 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.
3.5 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 and certificates of the Acquired Fund
Shareholders and the number and percentage ownership of outstanding Acquired
Fund Shares owned by each Acquired Fund Shareholder as of the Valuation Time,
certified by the President or a Secretary of the Safeco Trust and its
Treasurer, Secretary or other authorized officer (the "Shareholder List") as
being an accurate record of the information (a) provided by the Acquired Fund
Shareholders, (b) provided by the Acquired Fund Custodian, or (c) derived from
the Safeco Trust's records by such officers or one of the Safeco Trust's
service providers. The Acquiring Fund shall issue and deliver to the Acquired
Fund a confirmation evidencing the Acquiring Fund Shares to be credited on the
Closing 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, stock certificates, receipts or
other documents as such other party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1 Except as set forth on Schedule 4.1 hereto, the Safeco Trust, on
behalf of the Acquired Fund, represents, warrants and covenants to the
Acquiring Fund, which representations, warranties and covenants will be true
and correct on the date hereof and on the Closing Date as though made on and as
of the Closing Date, as follows:
(a) The Acquired Fund is a series of the Safeco Trust. The Safeco
Trust is a statutory trust 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, subject to approval by the Acquired Fund's
shareholders, 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 subject it to any
material liability or disability. Each of the Safeco Trust and 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 Safeco Trust is a registered investment company classified as
a management company of the open-end type, and its registration with the
Commission as an investment company under the Investment Company Act is in
full force and effect;
(c) The Safeco Trust is not in violation of, and the execution and
delivery of this Agreement and the performance of its obligations under
this Agreement in respect of the Acquired Fund will not result in a
violation of, any provision of the Safeco Trust's Trust Instrument or
By-Laws or any material agreement, indenture, instrument, contract, lease
or other undertaking with respect to the Acquired Fund to which the Safeco
Trust is a party or by which the Acquired Fund or any of its assets are
bound;
(d) No litigation or administrative proceeding or investigation of or
before any court or governmental body is currently pending or to its
knowledge threatened against the Acquired Fund or any of the Acquired
Fund's properties or assets. The Acquired Fund knows of no facts which
might form the basis for the institution of such proceedings. Neither the
Safeco Trust nor the Acquired Fund is
A-3
a party to or subject to the provisions of any order, decree or judgment of
any court or governmental body which materially adversely affects the
Acquired Fund's business or its ability to consummate the transactions
contemplated herein or would be binding upon the Acquiring Fund as the
successor to the Acquired Fund;
(e) The Acquired Fund has no material contracts or other commitments
(other than this Agreement or agreements for the purchase and sale of
securities entered into in the ordinary course of business and consistent
with its obligations under this Agreement) which will not be terminated at
or prior to the Closing Date and no such termination will result in
liability to the Acquired Fund (or the Acquiring Fund);
(f) The statement of assets and liabilities of the Acquired Fund, and
the related statements of income and changes in NAV, as of and for the
fiscal year ended December 31, 2003, have been audited by Ernst & Young
LLP, independent registered public accounting firm, and are in accordance
with generally accepted accounting principles ("GAAP") consistently applied
and fairly reflect, in all material respects, the financial condition of
the Acquired Fund as of such date and the results of its operations for the
period then ended, and all known liabilities, whether actual or contingent,
of the Acquired Fund as of the date thereof are disclosed therein. The
Statement of Assets and Liabilities will be in accordance with GAAP
consistently applied and will fairly reflect, in all material respects, the
financial condition of the Acquired Fund as of such date and the results of
its operations for the period then ended. Except for the Assumed
Liabilities, the Acquired Fund will not have any known or contingent
liabilities on the Closing Date. No significant deficiency, material
weakness, fraud, significant change or other factor that could
significantly affect the internal controls of the Acquired Fund has been
disclosed or is required to be disclosed in the Acquired Fund's reports on
Form N-CSR to enable the chief executive officer and chief financial
officer or other officers of the Acquired Fund to make the certifications
required by the Sarbanes-Oxley Act, and no deficiency, weakness, fraud,
change, event or other factor exists that will be required to be disclosed
in the Acquiring Fund's Form N-CSR after the Closing Date;
(g) Since December 31, 2003, except as specifically disclosed in the
Acquired Fund's prospectus, its statement of additional information as in
effect on the date of this Agreement, or its semi-annual report for the
period ended June 30, 2004, there has not been any material adverse change
in the Acquired Fund's financial condition, assets, liabilities, business
or prospects, or any incurrence by the Acquired Fund of indebtedness,
except for normal contractual obligations incurred in the ordinary course
of business or in connection with the settlement of purchases and sales of
portfolio securities. For the purposes of this subparagraph (g) (but not
for any other purpose of this Agreement), a decline in NAV per Acquired
Fund Share arising out of its normal investment operations or a decline in
market values of securities in the Acquired Fund's portfolio or a decline
in net assets of the Acquired Fund as a result of redemptions shall not
constitute a material adverse change;
(h) (A) For each taxable year of its operation since its inception,
the Acquired Fund has met, and for the current taxable year it will meet,
the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company. The Acquired Fund will qualify
as such as of the Closing Date and will satisfy the diversification
requirements of Section 851(b)(3) of the Code without regard to the last
sentence of Section 851(d) of the Code. The Acquired Fund has not taken any
action, caused any action to be taken or caused any action to fail to be
taken which action or failure could cause the Acquired Fund to fail to
qualify as a regulated investment company under the Code;
(B) Within the times and in the manner prescribed by law, the
Acquired Fund has properly filed on a timely basis all Tax Returns (as
defined below) that it was required to file, and all such Tax Returns
were complete and accurate in all respects. The Acquired Fund has not
been informed by any jurisdiction that the jurisdiction believes that
the Acquired Fund was required to file any Tax Return that was not
filed; and the Acquired Fund does not know of any basis upon which a
jurisdiction could assert such a position;
(C) The Acquired Fund has timely paid, in the manner prescribed
by law, all Taxes (as defined below), which were due and payable or
which were claimed to be due;
(D) All Tax Returns filed by the Acquired Fund constitute
complete and accurate reports of the respective Tax liabilities and
all attributes of the Acquired Fund or, in the case of information
returns and payee statements, the amounts required to be reported, and
accurately set forth all items required to be included or reflected in
such returns;
(E) The Acquired Fund has not waived or extended any applicable
statute of limitations relating to the assessment or collection of
Taxes;
(F) The Acquired Fund has not been notified that any examinations
of the Tax Returns of the Acquired Fund are currently in progress or
threatened, and no deficiencies have been asserted or assessed against
the Acquired Fund as a result of any audit
A-4
by the Internal Revenue Service or any state, local or foreign taxing
authority, and, to its knowledge, no such deficiency has been proposed
or threatened;
(G) The Acquired Fund has no actual or potential liability for
any Tax obligation of any taxpayer other than itself. The Acquired
Fund is not and has never been a member of a group of corporations
with which it has filed (or been required to file) consolidated,
combined or unitary Tax Returns. The Acquired Fund is not a party to
any Tax allocation, sharing, or indemnification agreement;
(H) The unpaid Taxes of the Acquired Fund for tax periods through
the Closing Date do not exceed the accruals and reserves for Taxes
(excluding accruals and reserves for deferred Taxes established to
reflect timing differences between book and Tax income) set forth on
the Statement of Assets and Liabilities, rather than in any notes
thereto (the "Tax Reserves"). All Taxes that the Acquired Fund is or
was required by law to withhold or collect have been duly withheld or
collected and, to the extent required, have been timely paid to the
proper governmental agency;
(I) The Acquired Fund has delivered to the Acquiring Fund or made
available to the Acquiring Fund complete and accurate copies of all
Tax Returns of the Acquired Fund, together with all related
examination reports and statements of deficiency for all periods not
closed under the applicable statutes of limitations and complete and
correct copies of all private letter rulings, revenue agent reports,
information document requests, notices of proposed deficiencies,
deficiency notices, protests, petitions, closing agreements,
settlement agreements, pending ruling requests and any similar
documents submitted by, received by or agreed to by or on behalf of
the Acquired Fund. The Acquired Fund has disclosed on its federal
income Tax Returns all positions taken therein that could give rise to
a substantial understatement of federal income Tax within the meaning
of Section 6662 of the Code;
(J) The Acquired Fund has not undergone, has not agreed to
undergo, and is not required to undergo (nor will it be required as a
result of the transactions contemplated in this Agreement to undergo)
a change in its method of accounting resulting in an adjustment to its
taxable income pursuant to Section 481 of the Code. The Acquired Fund
will not be required to include any item of income in, or exclude any
item of deduction from, taxable income for any taxable period (or
portion thereof) ending after the Closing Date as a result of any (i)
change in method of accounting for a taxable period ending on or prior
to the Closing Date under Section 481(c) of the Code (or any
corresponding or similar provision of state, local or foreign income
Tax law); (ii) "closing agreement" as described in Section 7121 of the
Code (or any corresponding or similar provision of state, local or
foreign income Tax law) executed on or prior to the Closing Date;
(iii) installment sale or open transaction disposition made on or
prior to the Closing Date; or (iv) prepaid amount received on or prior
to the Closing Date;
(K) The Acquired Fund has not taken or agreed to take any action,
and is not aware of any agreement, plan or other circumstance, that is
inconsistent with the representations set forth in Annex B;
(L) There are (and as of immediately following the Closing there
will be) no liens on the assets of the Acquired Fund relating to or
attributable to Taxes, except for Taxes not yet due and payable;
(M) The Tax bases of the assets of the Acquired Fund are
accurately reflected on the Acquired Fund's Tax books and records;
(N) The Acquired Fund has not incurred (or been allocated) an
"overall foreign loss" as defined in Section 904(f)(2) of the Code
which has not been previously recaptured in full as provided in
Sections 904(f)(2) and/or 904(f)(3) of the Code;
(O) The Acquired Fund is not a party to a gain recognition
agreement under Section 367 of the Code;
(P) The Acquired Fund does not own any interest in an entity that
is characterized as a partnership for income tax purposes;
(Q) The Acquired Fund's Tax attributes are not limited under the
Code (including but not limited to any capital loss carry forward
limitations under Sections 382 or 383 of the Code and the Treasury
Regulations thereunder) or comparable provisions of state law, except
as set forth on Schedule 4.1; and
(R) For purposes of this Agreement, "Taxes" or "Tax" shall mean
all taxes, charges, fees, levies or other similar assessments or
liabilities, including without limitation income, gross receipts, ad
valorem, premium, value-added, excise, real property, personal
property, sales, use, transfer, withholding, employment, unemployment,
insurance, social security, business license, business organization,
environmental, workers compensation, payroll, profits, license, lease,
service, service use, severance, stamp, occupation, windfall profits,
customs, duties, franchise and other taxes imposed by the United
States of America or any state, local or foreign government, or any
agency thereof, or other political subdivision of the United States or
any such government,
A-5
and any interest, fines, penalties, assessments or additions to tax
resulting from, attributable to or incurred in connection with any tax
or any contest or dispute thereof; and "Tax Returns" shall mean all
reports, returns, declarations, statements or other information
required to be supplied to a governmental or regulatory authority or
agency, or to any other person, in connection with Taxes and any
associated schedules or work papers produced in connection with such
items;
(i) All issued and outstanding Acquired Fund Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid
and nonassessable by the Acquired Fund. All of the issued and outstanding
Acquired Fund Shares will, at the time of Closing, be held of record by the
persons and in the amounts set forth in the Shareholder List submitted to
the Acquiring Fund pursuant to Paragraph 3.5 hereof. The Acquired Fund does
not have outstanding any options, warrants or other rights to subscribe for
or purchase any Acquired Fund Shares, nor is there outstanding any security
convertible into any Acquired Fund Shares;
(j) At the Closing Date, the Acquired Fund will have good and
marketable title to the Acquired Assets, and full right, power and
authority to sell, assign, transfer and deliver the Acquired Assets to the
Acquiring Fund, and, upon delivery and payment for the Acquired Assets, the
Acquiring Fund will acquire good and marketable title thereto, subject to
no restrictions on the full transfer thereof, except such restrictions as
might arise under the Securities Act;
(k) The Safeco Trust has the trust power and authority to enter into
and perform its obligations under this Agreement. The execution, delivery
and performance of this Agreement have been duly authorized by all
necessary action on the part of the Safeco Trust's Board of Trustees, and,
subject to the approval of the Acquired Fund's shareholders, assuming due
authorization, execution and delivery by the Acquiring Fund, this Agreement
will constitute a valid and binding obligation of the Acquired Fund,
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating
to or affecting creditors' rights and to general equity principles;
(l)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 and any information necessary to
compute the total return of the Acquired Fund shall be accurate and
complete and shall comply in all material respects with federal securities
and other laws and regulations applicable thereto;
(m) The information included in the proxy statement (the "Proxy
Statement") forming part of the Acquiring Fund's Registration Statement on
Form N-14 filed in connection with this Agreement (the "Registration
Statement") that has been furnished in writing by the Acquired Fund to the
Acquiring Fund for inclusion in the Registration Statement, on the
effective date of that Registration Statement and on the Closing Date, will
conform in all material respects to the applicable requirements of the
Securities Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the Investment Company Act and the rules and
regulations of the Commission thereunder and will 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 not
misleading;
(n) Upon the effectiveness of the Registration Statement, no consent,
approval, authorization or order of any court or governmental authority is
required for the consummation by the Safeco Trust or the Acquired Fund of
the transactions contemplated by this Agreement;
(o) All of the issued and outstanding Acquired Fund Shares 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;
(p) The prospectus and statement of additional information of the
Acquired Fund and any amendments or supplements thereto, furnished to the
Acquiring Fund, did not as of their dates or the dates of their
distribution to the public 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 in which such
statements were made, not misleading;
(q) The Acquired Fund currently complies in all material respects
with, and since its organization has complied in all material respects
with, the requirements of, and the rules and regulations under, the
Investment Company Act, the Securities Act, the Exchange Act, state "Blue
Sky" laws and all other applicable federal and state laws or regulations.
The Acquired Fund currently complies in all material respects with, and
since its organization has complied in all material respects with, all
investment objectives, policies, guidelines and restrictions and any
compliance procedures established by the Safeco Trust with respect to the
Acquired Fund. All advertising and sales material used by the Acquired Fund
complies in all material respects with and has complied in all material
respects with the applicable requirements of the Securities Act, the
Investment Company Act, the rules and regulations of the Commission, and,
to the extent applicable, the Conduct Rules of the National Association of
Securities Dealers, Inc. (the "NASD") and any applicable state regulatory
authority. All registration statements, prospectuses, reports, proxy
materials or other filings required to be made or filed with the
Commission, the NASD or any state securities authorities by the Acquired
Fund have been duly filed and have been
A-6
approved or declared effective, if such approval or declaration of
effectiveness is required by law. Such registration statements,
prospectuses, reports, proxy materials and other filings under the
Securities Act, the Exchange Act and the Investment Company Act (i) are or
were in compliance in all material respects with the requirements of all
applicable statutes and the rules and regulations thereunder and (ii) do
not or did 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 in which they were
made, not false or misleading;
(r) Neither the Acquired Fund nor, to the knowledge of the Acquired
Fund, any "affiliated person" of the Acquired Fund has been convicted of
any felony or misdemeanor, described in Section 9(a)(1) of the Investment
Company Act, nor, to the knowledge of the Acquired Fund, has any affiliated
person of the Acquired Fund been the subject, or presently is the subject,
of any proceeding or investigation with respect to any disqualification
that would be a basis for denial, suspension or revocation of registration
as an investment adviser under Section 203(e) of the Investment Advisers
Act of 1940, as amended (the "Investment Advisers Act"), or Rule
206(4)-4(b) thereunder or of a broker-dealer under Section 15 of the
Exchange Act, or for disqualification as an investment adviser, employee,
officer or director of an investment company under Section 9 of the
Investment Company Act; and
(s) The tax representation certificate to be delivered by Safeco Trust
on behalf of the Acquired Fund to the Acquiring Trust and Wilmer Cutler
Pickering Hale and Dorr LLP at the Closing pursuant to Paragraph 7.4 (the
"Acquired Fund Tax Representation Certificate") will not on the Closing
Date contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein not misleading.
4.2 Except as set forth on Schedule 4.2 hereto, the Acquiring Trust, on
behalf of the Acquiring Fund, represents, warrants and covenants to the
Acquired Fund, which representations, warranties and covenants will be true and
correct on the date hereof and on the Closing Date as though made on and as of
the Closing Date, as follows:
(a) The Acquiring Fund is a series of the Acquiring Trust. The
Acquiring Trust is a [statutory][business] trust duly organized, validly
existing and in good standing under the laws of the [State of
Delaware][Commonwealth of Massachusetts]. The Acquiring Trust has the power
to own all of its properties and assets and to perform the 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 subject it to any material liability or
disability. Each of the Acquiring Trust and 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 Trust is a registered investment company classified
as a management company of the open-end type, and its registration with the
Commission as an investment company under the Investment Company Act is in
full force and effect;
(c) The Acquiring Fund's registration statement on Form N-1A that will
be in effect on the Closing Date, and the prospectus and statement of
additional information of the Acquiring Fund included therein, will conform
in all material respects with the applicable requirements of the Securities
Act and the Investment Company Act and the rules and regulations of the
Commission thereunder, and did not as of the effective date thereof and
will not as of the Closing Date contain 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 in
which they were made, not misleading;
(d) The Registration Statement, the Proxy Statement and statement of
additional information with respect to the Acquiring Fund, and any
amendments or supplements thereto in effect on or prior to the Closing Date
included in the Registration Statement (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) will conform in all
material respects to the applicable requirements of the Securities Act and
the Investment Company Act and the rules and regulations of the Commission
thereunder. Neither the Registration Statement nor the Proxy Statement
(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) includes or will include any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading;
(e) The Acquiring Trust is not in violation of, and the execution and
delivery of this Agreement and performance of its obligations under this
Agreement will not result in a violation of, any provisions of the
Declaration of Trust or by-laws of the Acquiring Trust or any material
agreement, indenture, instrument, contract, lease or other undertaking with
respect to the Acquiring Fund to which the Acquiring Trust is a party or by
which the Acquiring Fund or any of its assets is bound;
(f) No 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. The Acquiring Fund knows of no facts which might form the basis for
the institution of such proceedings. Neither the Acquiring Trust nor the
Acquiring Fund is a party to
A-7
or subject to the provisions of any order, decree or judgment of any court
or governmental body which materially adversely affects the Acquiring
Fund's business or its ability to consummate the transactions contemplated
herein;
(g) The statement of assets and liabilities of the Acquiring Fund, and
the related statements of income and changes in NAV, as of and for the
fiscal year ended [most recent fiscal year end] have been audited by Ernst
& Young LLP, independent registered public accounting firm, and are in
accordance with GAAP consistently applied and fairly reflect, in all
material respects, the financial condition of the Acquiring Fund as of such
date and the results of its operations for the period then ended, and all
known liabilities, whether actual or contingent, of the Acquiring Fund as
of the date thereof are disclosed therein;
(h) Since [most recent fiscal year end], except as specifically
disclosed in the Acquiring Fund's prospectus, its statement of additional
information as in effect on the date of this Agreement, or its semi-annual
report for the period ended [ ], there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities,
business or prospects, or any incurrence by the Acquiring Fund of
indebtedness, except for normal contractual obligations incurred in the
ordinary course of business or in connection with the settlement of
purchases and sales of portfolio securities. For the purposes of this
subparagraph (h) (but not for any other purpose of this Agreement), a
decline in NAV per Acquiring Fund Share arising out of its normal
investment operations or a decline in market values of securities in the
Acquiring Fund's portfolio or a decline in net assets of the Acquiring Fund
as a result of redemptions shall not constitute a material adverse change;
(i) (A) For each taxable year of its operation since its inception,
the Acquiring Fund has met, and for the current taxable year it will meet,
the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and will qualify as such as of
the Closing Date and will satisfy the diversification requirements of
Section 851(b)(3) of the Code without regard to the last sentence of
Section 851(d) of the Code. The Acquiring Fund has not taken any action,
caused any action to be taken or caused any action to fail to be taken
which action or failure could cause the Acquiring Fund to fail to qualify
as a regulated investment company under the Code;
(B) Within the times and in the manner prescribed by law, the
Acquiring Fund has properly filed on a timely basis all Tax Returns
that it was required to file, and all such Tax Returns were complete
and accurate in all respects. The Acquiring Fund has not been informed
by any jurisdiction that the jurisdiction believes that the Acquiring
Fund was required to file any Tax Return that was not filed; and the
Acquiring Fund does not know of any basis upon which a jurisdiction
could assert such a position;
(C) The Acquiring Fund has timely paid, in the manner prescribed
by law, all Taxes that were due and payable or that were claimed to be
due;
(D) All Tax Returns filed by the Acquiring Fund constitute
complete and accurate reports of the respective liabilities for Taxes
and all attributes of the Acquiring Fund or, in the case of
information returns and payee statements, the amounts required to be
reported, and accurately set forth all items required to be included
or reflected in such returns;
(E) The Acquiring Fund has not waived or extended any applicable
statute of limitations relating to the assessment or collection of
Taxes;
(F) The Acquiring Fund has not been notified that any
examinations of the Tax Returns of the Acquiring Fund are currently in
progress or threatened, and no deficiencies have been asserted or
assessed against the Acquiring Fund as a result of any audit by the
Internal Revenue Service or any state, local or foreign taxing
authority, and, to its knowledge, no such deficiency has been proposed
or threatened;
(G) The Acquiring Fund has no actual or potential liability for
any Tax obligation of any taxpayer other than itself. The Acquiring
Fund is not and has never been a member of a group of corporations
with which it has filed (or been required to file) consolidated,
combined or unitary Tax Returns. The Acquiring Fund is not a party to
any Tax allocation, sharing, or indemnification agreement;
(H) The Acquiring Trust has delivered to Safeco Trust or made
available to Safeco Trust complete and accurate copies of all Tax
Returns of the Acquiring Fund, together with all related examination
reports and statements of deficiency for all periods not closed under
the applicable statutes of limitations and complete and correct copies
of all private letter rulings, revenue agent reports, information
document requests, notices of proposed deficiencies, deficiency
notices, protests, petitions, closing agreements, settlement
agreements, pending ruling requests and any similar documents
submitted by, received by or agreed to by or on behalf of the
Acquiring Fund. The Acquiring Fund has disclosed on its federal income
Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of
Section 6662 of the Code;
(I) The Acquiring Fund has not undergone, has not agreed to
undergo, and is not required to undergo (nor will it be required as a
result of the transactions contemplated in this Agreement to undergo)
a change in its method of accounting resulting in
A-8
an adjustment to its taxable income pursuant to Section 481 of the
Code. The Acquiring Fund will not be required to include any item of
income in, or exclude any item of deduction from, taxable income for
any taxable period (or portion thereof) ending after the Closing Date
as a result of any (i) change in method of accounting for a taxable
period ending on or prior to the Closing Date under Section 481(c) of
the Code (or any corresponding or similar provision of state, local or
foreign income Tax law); (ii) "closing agreement" as described in
Section 7121 of the Code (or any corresponding or similar provision of
state, local or foreign income Tax law) executed on or prior to the
Closing Date; (iii) installment sale or open transaction disposition
made on or prior to the Closing Date; or (iv) prepaid amount received
on or prior to the Closing Date;
(J) The Acquiring Fund has not taken or agreed to take any
action, and is not aware of any agreement, plan or other circumstance,
that is inconsistent with the representations set forth in Annex A;
(K) The Acquiring Fund has not incurred (or been allocated) an
"overall foreign loss" as defined in Section 904(f)(2) of the Code
which has not been previously recaptured in full as provided in
Sections 904(f)(2) and/or 904(f)(3) of the Code;
(L) The Acquiring Fund is not a party to a gain recognition
agreement under Section 367 of the Code;
(M) The Acquiring Fund's Tax attributes are not limited under the
Code (including but not limited to any capital loss carry forward
limitations under Sections 382 or 383 of the Code and the Treasury
Regulations thereunder) or comparable provisions of state law, except
as set forth on Schedule 4.2;
(j) The Acquiring Fund currently complies, and at all times since its
organization has complied, in all material respects with the requirements
of, and the rules and regulations under, the Investment Company Act, the
Securities Act, the Exchange Act, state "Blue Sky" laws and all other
applicable federal and state laws or regulations. The Acquiring Fund
currently complies in all material respects with, and since its
organization has complied in all material respects with, all investment
objectives, policies, guidelines and restrictions and any compliance
procedures established by the Acquiring Trust with respect to the Acquiring
Fund. All advertising and sales material used by the Acquiring Fund
complies in all material respects with and has complied in all material
respects with the applicable requirements of the Securities Act, the
Investment Company Act, the rules and regulations of the Commission, and,
to the extent applicable, the Conduct Rules of the NASD and any applicable
state regulatory authority. All registration statements, prospectuses,
reports, proxy materials or other filings required to be made or filed with
the Commission, the NASD or any state securities authorities by the
Acquiring Fund have been duly filed and have been approved or declared
effective, if such approval or declaration of effectiveness is required by
law. Such registration statements, prospectuses, reports, proxy materials
and other filings under the Securities Act, the Exchange Act and the
Investment Company Act (i) are or were in compliance in all material
respects with the requirements of all applicable statutes and the rules and
regulations thereunder and (ii) do not or did 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 in which they were made, not false or misleading;
(k) The authorized capital of the Acquiring Fund consists of an
unlimited number of shares of beneficial interest, no par value per share.
As of the Closing Date, the Acquiring Fund will be authorized to issue an
unlimited number of shares of beneficial interest, no par value per share.
The Acquiring Fund Shares to be issued and delivered to the Acquired Fund
for the account of the Acquired Fund Shareholders pursuant to the terms of
this Agreement will have been duly authorized on the Closing Date and, when
so issued and delivered, will be duly and validly issued, fully paid and
non-assessable. 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;
(l) The Acquiring Trust has the trust power and authority to enter
into and perform its obligations under this Agreement. The execution,
delivery and performance of this Agreement have been duly authorized by all
necessary action on the part of the Acquiring Trust's Board of Trustees,
and, assuming due authorization, execution and delivery by the Acquired
Fund, this Agreement will constitute a valid and binding obligation of the
Acquiring Fund, enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors' rights and to general equity
principles;
(m) The information to be furnished in writing by the Acquiring Fund
or the Acquiring Fund Adviser 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 in all material respects and shall comply in all
material respects with federal securities and other laws and regulations
applicable thereto or the requirements of any form for which its use is
intended, and shall not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the information provided
not misleading;
(n) No consent, approval, authorization or order of or filing with any
court or governmental authority is required for the execution of this
Agreement or the consummation of the transactions contemplated by the
Agreement by the Acquiring Fund, except for the registration of the
Acquiring Fund Shares under the Securities Act and the Investment Company
Act;
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(o) All of the issued and outstanding Acquiring Fund Shares 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 Acquired Fund;
(p) The prospectus and statement of additional information of the
Acquiring Fund and any amendments or supplements thereto, furnished to the
Acquired Fund, did not as of their dates or the dates of their distribution
to the public 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 in which such
statements were made, not misleading;
(q) Neither the Acquiring Fund nor, to the knowledge of the Acquiring
Fund, any "affiliated person" of the Acquiring Fund has been convicted of
any felony or misdemeanor, described in Section 9(a)(1) of the Investment
Company Act, nor, to the knowledge of the Acquiring Fund, has any
affiliated person of the Acquiring Fund been the subject, or presently is
the subject, of any proceeding or investigation with respect to any
disqualification that would be a basis for denial, suspension or revocation
of registration as an investment adviser under Section 203(e) of the
Investment Advisers Act or Rule 206(4)-4(b) thereunder or of a
broker-dealer under Section 15 of the Exchange Act, or for disqualification
as an investment adviser, employee, officer or director of an investment
company under Section 9 of the Investment Company Act; and
(r) The tax representation certificate to be delivered by the
Acquiring Trust on behalf of the Acquiring Fund to the Safeco Trust and
Wilmer Cutler Pickering Hale and Dorr LLP at Closing pursuant to Section
6.3 (the "Acquiring Fund Tax Representation Certificate") will not on the
Closing Date contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein not
misleading.
5. COVENANTS OF THE FUNDS
5.1 The Acquired Fund will operate the Acquired Fund's business in the
ordinary course of business between the date hereof and the Closing Date. It is
understood that such ordinary course of business will include the declaration
and payment of customary dividends and other distributions and any other
dividends and other distributions necessary or advisable (except to the extent
dividends or other distributions that are not customary may be limited by
representations made in connection with the issuance of the tax opinion
described in Paragraph 8.5 hereof), in each case payable either in cash or in
additional shares.
5.2 The Safeco Trust will call a special meeting of the Acquired Fund's
shareholders to consider approval of this Agreement and act upon the matters
set forth in the Proxy Statement.
5.3 The Acquiring Fund will prepare the notice of meeting, form of proxy
and Proxy Statement (collectively, "Proxy Materials") to be used in connection
with such meeting, and will promptly prepare and file with the Commission the
Registration Statement. The Safeco Trust will provide the Acquiring Fund with
information reasonably requested for the preparation of the Registration
Statement in compliance with the Securities Act, the Exchange Act, and the
Investment Company Act.
5.4 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.
5.5 The Acquired Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requires concerning the beneficial
ownership of the Acquired Fund Shares.
5.6 Subject to the provisions of this Agreement, each Fund will take, or
cause to be taken, all actions, and do or cause to be done, all things
reasonably necessary, proper or advisable to consummate the transactions
contemplated by this Agreement.
5.7 The Acquired Fund shall furnish to the Acquiring Fund on the Closing
Date a Statement of Assets and Liabilities of the Acquired Fund as of the
Closing Date setting forth the NAV (as computed pursuant to Paragraph 2.1) of
the Acquired Fund as of the Valuation Time, which statement shall be prepared
in accordance with GAAP consistently applied and certified by the Safeco
Trust's Treasurer or Assistant Treasurer. As promptly as practicable, but in
any case within 30 days after the Closing Date, the Safeco Trust shall furnish
to the Acquiring Trust, in such form as is reasonably satisfactory to the
Acquiring Trust, 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 under the Code, and which
statement will be certified by the Treasurer of the Safeco Trust.
5.8 Neither Fund shall take any action that is inconsistent with the
representations set forth in, with respect to the Acquired Fund, the Acquired
Fund Tax Representation Certificate and, with respect to the Acquiring Fund,
the Acquiring Fund Tax Representation Certificate.
5.9 From and after the date of this Agreement and until the Closing Date,
each of the Funds and the Safeco Trust and the Acquiring Trust shall use its
commercially reasonable efforts to cause the Reorganization to qualify, and
will not knowingly take any action, cause any action to be taken, fail to take
any action or cause any action to fail to be taken, which action or failure to
act could prevent the
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Reorganization from qualifying, as a reorganization under the provisions of
Section 368(a) of the Code. The parties hereby adopt this Agreement as a "plan
of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of
the income tax regulations promulgated under the Code. Unless otherwise
required pursuant to a "determination" within the meaning of Section 1313(a) of
the Code, the parties hereto shall treat and report the transactions
contemplated hereby as a reorganization within the meaning of Section
368(a)(1)[insert (C) or (D), as applicable] of the Code and shall not take any
position inconsistent with such treatment.
5.10 From and after the date of this Agreement and through the time of the
Closing, each Fund shall use its commercially reasonable efforts to cause it to
qualify, and will not knowingly take any action, cause any action to be taken,
fail to take any action or cause any action to fail to be taken, which action
or failure to act could prevent it from qualifying as a regulated investment
company under the provisions of Subchapter M of the Code.
5.11 Each Fund shall prepare, or cause to be prepared, all of its Tax
Returns for taxable periods that end on or before the Closing Date and shall
timely file, or cause to be timely filed, all such Tax Returns. Each Fund shall
make any payments of Taxes required to be made by it with respect to any such
Tax Returns.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to complete 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, unless waived by the Acquired Fund in writing:
6.1 All representations and warranties by the Acquiring Trust on behalf of
the Acquiring Fund contained in this Agreement shall be true and correct 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;
6.2 The Acquiring Trust shall have delivered to the Safeco Trust on the
Closing Date a certificate of the Acquiring Trust on behalf of the Acquiring
Fund executed in its name by its President or Vice President and its Treasurer
or Assistant Treasurer, in form and substance satisfactory to the Safeco Trust
and dated as of the Closing Date, to the effect that the representations and
warranties of the Acquiring Trust 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, that each of the conditions to
Closing in this Article 6 have been met, and as to such other matters as the
Safeco Trust shall reasonably request;
6.3 The Acquiring Trust on behalf of the Acquiring Fund shall have
delivered to the Safeco Trust and Wilmer Cutler Pickering Hale and Dorr LLP an
Acquiring Fund Tax Representation Certificate, satisfactory to the Safeco Trust
and Wilmer Cutler Pickering Hale and Dorr LLP, substantially in the form
attached to this Agreement as Annex A, concerning certain tax-related matters
with respect to the Acquiring Fund;
6.4 With respect to the Acquiring Fund, the Board of Trustees of the
Acquiring Trust shall have determined that the Reorganization is in the best
interests of the Acquiring Fund and, based upon such determination, shall have
approved this Agreement and the transactions contemplated hereby; and
6.5 The Safeco Trust shall have received at the Closing a favorable
opinion as to the due authorization of this Agreement by the Acquiring Trust
and related matters of Wilmer Cutler Pickering Hale and Dorr LLP, dated as of
the Closing Date, in a form reasonably satisfactory to the Safeco Trust.
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 further
conditions, unless waived by the Acquiring Fund in writing:
7.1 All representations and warranties of the Safeco Trust on behalf of
the Acquired Fund contained in this Agreement shall be true and correct 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 Safeco Trust shall have delivered to the Acquiring Fund the
Statement of Assets and Liabilities of the Acquired Fund pursuant to Paragraph
5.7, 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 Safeco Trust's Treasurer or Assistant Treasurer;
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7.3 The Safeco Trust shall have delivered to the Acquiring Trust on the
Closing Date a certificate of the Safeco Trust on behalf of the Acquired Fund
executed in its name by its President or Vice President and a Treasurer or
Assistant Treasurer, in form and substance reasonably satisfactory to the
Acquiring Trust and dated as of the Closing Date, to the effect that the
representations and warranties of the Safeco Trust contained 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, that each of the
conditions to Closing in this Article 7 have been met, and as to such other
matters as the Acquiring Trust shall reasonably request;
7.4 The Safeco Trust on behalf of the Acquired Fund shall have delivered
to the Acquiring Trust and Wilmer Cutler Pickering Hale and Dorr LLP an
Acquired Fund Tax Representation Certificate, satisfactory to the Acquiring
Trust and Wilmer Cutler Pickering Hale and Dorr LLP, substantially in the form
attached to this Agreement as Annex B, concerning certain tax-related matters
with respect to the Acquired Fund;
7.5 The Acquiring Trust shall have received at the Closing a favorable
opinion as to the due authorization of this Agreement by the Safeco Trust and
related matters of Kirkpatrick & Lockhart LLP, dated as of the Closing Date, in
a form reasonably satisfactory to Acquiring Trust; and
7.6 With respect to the Acquired Fund, the Board of Trustees of the Safeco
Trust shall have determined that the Reorganization is in the best interests of
the Acquired Fund and, based upon such determination, shall have approved this
Agreement and the transactions contemplated hereby.
8. FURTHER CONDITIONS PRECEDENT
If any of the conditions set forth below does not exist on or before the
Closing Date with respect to either party hereto, the other party to this
Agreement shall, at its option, not be required to consummate the transactions
contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the Acquired Fund's shareholders in
accordance with the provisions of the Safeco Trust's Trust Instrument 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. Notwithstanding anything herein to the contrary, neither
party hereto may waive the conditions set forth in this Paragraph 8.1;
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 either party hereto 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
either party hereto, provided that either party may waive any such conditions
for itself;
8.4 The Acquiring Trust's Registration Statement on Form N-14 shall have
become effective under the Securities Act and no stop orders suspending the
effectiveness of such Registration Statement 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 Securities Act;
8.5 The parties shall have received an opinion of Wilmer Cutler Pickering
Hale and Dorr LLP, satisfactory to the Safeco Trust and the Acquiring Trust and
subject to customary assumptions and qualifications, substantially to the
effect that for federal income tax purposes the acquisition by the Acquiring
Fund of the Acquired Assets solely in exchange for the issuance of Acquiring
Fund Shares to the Acquired Fund and the assumption of the Assumed 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 Acquired Fund
Shareholders in exchange for their Acquired Fund Shares and the termination of
the Acquired Fund, will constitute a "reorganization" within the meaning of
Section 368(a) of the Code;
8.6 The Acquired Fund shall have distributed to its shareholders, in a
distribution or distributions qualifying for the deduction for dividends paid
under Section 561 of the Code, all of its investment company taxable income (as
defined in Section 852(b)(2) of the Code determined without regard to Section
852(b)(2)(D) of the Code) for its taxable year ending on the Closing Date, all
of the excess of (i) its interest income excludable from gross income under
Section 103(a) of the Code over (ii) its deductions disallowed under Sections
265 and 171(a)(2) of the Code for its taxable year ending on the Closing Date,
and all of its net capital gain (as such term is used in Sections 852(b)(3)(A)
and (C) of the Code), after reduction by any available capital loss
carryforward, for its taxable year ending on the Closing Date; and
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8.7 The Acquiring Trust shall have made a distribution of capital gains to
its shareholders in November 2004 in accordance with its normal practices and,
unless the Acquiring Fund distributes income monthly, the dividend distribution
that the Acquiring Fund normally would make in December of 2004 shall have been
made to shareholders of record prior to the Closing.
9. BROKERAGE FEES AND EXPENSES
9.1 Each party hereto represents and warrants to the other party hereto
that there are no brokers or finders entitled to receive any payments in
connection with the transactions provided for herein.
9.2 The parties have been informed by Symetra Financial Corporation and
the Acquiring Fund Adviser -- and the parties have entered into this Agreement
in reliance on such information -- that such non-parties will pay all expenses
of the Funds associated with the Reorganization, including, the expenses
associated with the preparation, printing and mailing of any and all
shareholder notices, communications, proxy statements, and necessary filings
with the SEC or any other governmental authority in connection with the
transactions contemplated by this Agreement and the legal and Trustees' fees
and expenses incurred in connection with the Reorganization. Except for the
foregoing, the Acquiring Fund and the Acquired Fund shall each bear its own
expenses in connection with the transactions contemplated by this Agreement.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Trust and the Safeco Trust each agrees that neither
party has made any representation, warranty or covenant not set forth herein or
referred to in Paragraphs 4.1 or 4.2 hereof and that this Agreement constitutes
the entire agreement between the parties.
10.2 The representations and warranties contained in this Agreement or in
any document delivered pursuant hereto or in connection herewith shall not
survive the consummation of the transactions contemplated hereunder.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Trust and Safeco Trust. In addition, either party may at its option
terminate this Agreement at or prior to the Closing Date:
(a) because of a material breach by the other of any representation,
warranty, covenant or agreement contained herein to be performed at or
prior to the Closing Date;
(b) because of 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;
(c) by resolution of the Acquiring Trust's Board of Trustees if
circumstances should develop that, in the good faith opinion of such Board,
make proceeding with the Agreement not in the best interests of the
Acquiring Fund's shareholders;
(d) by resolution of the Safeco Trust's Board of Trustees if
circumstances should develop that, in the good faith opinion of such Board,
make proceeding with the Agreement not in the best interests of the
Acquired Fund's shareholders; or
(e) if the transactions contemplated by this Agreement shall not have
occurred on or prior to December 31, 2004 or such other date as the parties
may mutually agree upon in writing.
11.2 In the event of any such termination, there shall be no liability for
damages on the part of the Acquiring Fund, the Acquiring Trust, the Safeco
Trust or the Acquired Fund, or the trustees or officers of the Safeco Trust, or
the Acquiring Trust, but, subject to Paragraph 9.2, each party 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 Safeco
Trust and the Acquiring Trust; provided, however, that following the meeting of
the Acquired Fund's shareholders called by the Safeco Trust pursuant to
Paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions regarding the method for determining the number of
Acquiring Fund Shares to be received by the Acquired Fund Shareholders under
this Agreement to their detriment without their further approval; provided that
nothing contained in this Section 12 shall be construed to prohibit the parties
from amending this Agreement to change the Closing 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 Acquired Fund, c/o
Symetra Financial Corporation, 5069 154th Place,
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N.E., Seattle, Washington 98052, Attention: Roger F. Harbin, with copies to R.
Darrell Mounts, Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W.,
Second Floor, Washington, DC 20036-1221, and to the Acquiring Fund, c/o Pioneer
Investment Management, Inc., 60 State Street, Boston, Massachusetts 02109,
Attention: Dorothy E. Bourassa, Esq., with copies to Wilmer Cutler Pickering
Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109, Attention:
David C. Phelan.
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 internal laws of the State of Delaware, without giving effect to conflict
of laws principles (other than Delaware Code Title 6 [sec] 2708); provided
that, in the case of any conflict between those laws and the federal securities
laws, the latter shall govern.
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
either party without the prior written consent of the other party hereto.
Nothing herein expressed or implied is intended or shall be construed to confer
upon or give any person, firm or corporation, or other entity, other than the
parties hereto and their respective successors and assigns, any rights or
remedies under or by reason of this Agreement.
14.5 It is expressly agreed that the obligations of the Acquiring Trust
and the Safeco Trust shall not be binding upon any of their respective
trustees, shareholders, nominees, officers, agents or employees personally, but
bind only to the property of the Acquiring Fund or the Acquired Fund, as the
case may be, as provided in the trust instruments of the Acquiring Trust and
the Instrument of Trust of the Safeco Trust, respectively. The execution and
delivery of this Agreement have been authorized by the trustees of the
Acquiring Trust and of the Safeco Trust and this Agreement has been executed by
authorized officers of the Acquiring Trust and the Safeco Trust, acting as
such, and neither such authorization by such trustees nor such execution and
delivery by such officers shall be deemed to have been made by any of them
individually or to imposed any liability on any of them personally, but shall
bind only the property of the Acquiring Fund and the Acquired Fund, as the case
may be, as provided in the trust instruments of the Acquiring Trust and the
Instrument of Trust of the Safeco Trust, respectively.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed as of the date first set forth above by its President or Vice
President and attested by its Secretary or Assistant Secretary.
Attest: [SAFECO TRUST] on behalf of
[SAFECO FUND]
By: _________________________________ By: _________________________________
Name: Name:
Title: Secretary Title: President
Attest: [PIONEER TRUST] on behalf of
[PIONEER FUND]
By: _________________________________ By: _________________________________
Name: Name:
Title: Secretary Title:
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Annex A
TAX REPRESENTATION CERTIFICATE OF
[PIONEER TRUST] ON BEHALF OF [PIONEER FUND]
This certificate is being delivered in connection with the transactions to
be effected pursuant to the Agreement and Plan of Reorganization made as of
_____________________, 2004 between [Pioneer Trust], a [Delaware statutory]
[Massachusetts business] trust ("Acquiring Trust"), on behalf of its series
[Pioneer Fund] ("Acquiring Fund"), and [Safeco Trust], a Delaware statutory
trust, on behalf of its series [Safeco Fund] ("Acquired Fund") (the
"Agreement"). Pursuant to the Agreement, Acquiring Fund will acquire all of the
assets of Acquired Fund in exchange solely for (i) the assumption by Acquiring
Fund of the Assumed Liabilities of Acquired Fund and (ii) the issuance of
Investor Class shares of beneficial interest of Acquiring Fund (the "Acquiring
Fund Shares") to Acquired Fund, followed by the distribution by Acquired Fund,
in liquidation of Acquired Fund, of the Acquiring Fund Shares to the
shareholders of Acquired Fund and the termination of Acquired Fund (the
foregoing together constituting the "transaction").
The undersigned officer of Acquiring Trust, after consulting with its
counsel, auditors and tax advisers regarding the meaning of and factual support
for the following representations on behalf of Acquiring Fund, hereby certifies
and represents that the following statements are true, complete and correct and
will be true, complete and correct on the date of the transaction and
thereafter as relevant. Unless otherwise indicated, all capitalized terms used
but not defined herein shall have the meanings ascribed to them in the
Agreement.
1. Acquiring Fund is a series of Acquiring Trust, [a statutory] [business]
trust organized under the laws of the [State of Delaware] [Commonwealth of
Massachusetts], and Acquiring Fund is, and has been at all times, treated as a
separate corporation for federal tax purposes.
2. Neither Acquiring Fund nor any person "related" to Acquiring Fund (as
defined in Treasury Regulation Section 1.368-1(e)(3)), nor any partnership of
which Acquiring Fund or any such related person is a partner, has any plan or
intention to redeem or otherwise acquire any of the Acquiring Fund Shares
received by shareholders of Acquired Fund in the transaction except in the
ordinary course of Acquiring Fund's business in connection with its legal
obligation under Section 22(e) of the Investment Company Act of 1940, as
amended (the "1940 Act"), as a series of a registered open-end investment
company to redeem its own shares.
3. After the transaction, Acquiring Fund will continue the historic
business (as defined in Treasury Regulation Section 1.368-1(d)(2)) of Acquired
Fund or will use a significant portion of the historic business assets (as
defined in Treasury Regulation Section 1.368-1(d)(3)) acquired from Acquired
Fund in a business.
4. Acquiring Fund has no plan or intention to sell or otherwise dispose of
any assets of Acquired Fund acquired in the transaction, except for
dispositions made in the ordinary course of its business or to maintain its
qualification as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code").
5. Any expenses of Acquired Fund incurred in connection with the
transaction which are paid or assumed by Acquiring Fund will be expenses of
Acquired Fund solely and directly related to the transaction in accordance with
Rev. Rul. 73-54, 1973-1 C.B. 187. Acquiring Fund will not pay or assume the
expenses, if any, incurred by any Acquired Fund Shareholders in connection with
the transaction.
6. There is no, and never has been any, indebtedness between Acquiring Fund
and Acquired Fund.
7. Acquiring Fund has properly elected to be a regulated investment
company under Subchapter M of the Code, has qualified for the special tax
treatment afforded regulated investment companies under the Code for each
taxable year since inception and qualifies for such treatment as of the time of
the Closing.
8. Acquiring Fund meets the requirements of an "investment company" in
Section 368(a)(2)(F) of the Code.
9. Acquiring Fund is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
10. Acquiring Fund does not now own and has never owned, directly or
indirectly, any shares of Acquired Fund.
11. As of the date of the transaction, the fair market value of the
Acquiring Fund Shares issued to Acquired Fund will be approximately equal to
the fair market value of the Acquired Assets minus the Assumed Liabilities.
Acquiring Fund will not furnish any consideration in connection with the
acquisition of the Acquired Assets other than the assumption of the Assumed
Liabilities and the issuance of such Acquiring Fund Shares.
A-15
12. Acquired Fund Shareholders [will/will not] be in control (within the
meaning of Sections 368(a)(2)(H)(i) and 304(c)(1) of the Code) of Acquiring
Fund after the transaction.
13. The transaction is being undertaken for valid and substantial business
purposes, including facilitating Acquired Fund's becoming a member of the
Pioneer family of mutual funds, which, in the long term, is intended to result
in lower expenses and increased assets.
14. No Acquired Fund shareholder is acting as agent for Acquiring Fund in
connection with the transaction or approval thereof. Acquiring Fund will not
reimburse any Acquired Fund shareholder for Acquired Fund Shares such
shareholder may have purchased or for other obligations such shareholder may
have incurred.
15. Acquiring Fund has no outstanding warrants, options, convertible
securities or any other type of right pursuant to which any person could
acquire stock in Acquiring Fund.
* * * * *
A-16
The undersigned officer of Acquiring Trust is authorized to make all of
the representations set forth herein, and the undersigned is authorized to
execute this certificate on behalf of Acquiring Fund. The undersigned
recognizes that Wilmer Cutler Pickering Hale and Dorr LLP will rely upon the
foregoing representations in evaluating the United States federal income tax
consequences of the transaction and rendering its opinion pursuant to Section
8.5 of the Agreement. If, prior to the date of the transaction, any of the
representations set forth herein ceases to be accurate, the undersigned agrees
to deliver immediately to Wilmer Cutler Pickering Hale and Dorr LLP a written
notice to that effect.
[PIONEER TRUST] on behalf of [Pioneer Fund]
By: ___________________________________
Name: _______________________________
Title: ______________________________
Dated: ______________, 2004
A-17
Annex B
TAX REPRESENTATION CERTIFICATE OF
[SAFECO TRUST]
ON BEHALF OF [SAFECO FUND]
This certificate is being delivered in connection with the transactions to
be effected pursuant to the Agreement and Plan of Reorganization made as of ,
2004 between [Pioneer Trust], a [Delaware statutory] [Massachusetts business]
trust, on behalf of its series [Pioneer Fund] ("Acquiring Fund"), and [Safeco
Trust], a Delaware statutory trust ("Safeco Trust"), on behalf of its series
[Safeco Fund] ("Acquired Fund") (the "Agreement"). Pursuant to the Agreement,
Acquiring Fund will acquire all of the assets of Acquired Fund in exchange
solely for (i) the assumption by Acquiring Fund of the Assumed Liabilities of
Acquired Fund and (ii) the issuance of Investor Class shares of beneficial
interest of Acquiring Fund (the "Acquiring Fund Shares") to Acquired Fund,
followed by the distribution by Acquired Fund, in liquidation of Acquired Fund,
of the Acquiring Fund Shares to the shareholders of Acquired Fund and the
termination of Acquired Fund (the foregoing together constituting the
"transaction").
The undersigned officer of Safeco Trust, after consulting with its
counsel, auditors and tax advisers regarding the meaning of and factual support
for the following representations, on behalf of Acquired Fund, hereby certifies
and represents that the following statements are true, complete and correct and
will be true, complete and correct on the date of the transaction and
thereafter as relevant. Unless otherwise indicated, all capitalized terms used
but not defined herein shall have the meanings ascribed to them in the
Agreement.
1. Acquired Fund is a series of Safeco Trust, a statutory trust organized
under the laws of the State of Delaware, and Acquired Fund is, and has been at
all times, treated as a separate corporation for federal tax purposes.
2. As of the date of the transaction, the fair market value of the
Acquiring Fund Shares received by each shareholder that holds shares of
Acquired Fund (the "Acquired Fund Shares") will be approximately equal to the
fair market value of the Acquired Fund Shares with respect to which such
Acquiring Fund Shares are received, and the aggregate consideration received by
Acquired Fund shareholders in exchange for their Acquired Fund Shares will be
approximately equal to the fair market value of all of the outstanding Acquired
Fund Shares immediately prior to the transaction. No property other than
Acquiring Fund Shares will be distributed to shareholders of Acquired Fund in
exchange for their Acquired Fund Shares, nor will any such shareholder receive
cash or other property as part of the transaction.
3. Neither Acquired Fund nor any person "related" to Acquired Fund (as
defined in Treasury Regulation Section 1.368-1(e)(3)), nor any partnership in
which Acquired Fund or any such related person is a partner, has redeemed,
acquired or otherwise made any distributions with respect to any shares of
Acquired Fund as part of the transaction, or otherwise pursuant to a plan of
which the transaction is a part, other than redemptions and distributions made
in the ordinary course of Acquired Fund's business as a series of an open-end
investment company. To the best knowledge of management of Acquired Fund, there
is no plan or intention on the part of the shareholders of Acquired Fund to
engage in any transaction with Acquired Fund, Acquiring Fund, or any person
treated as related to Acquired Fund or Acquiring Fund under Treasury Regulation
Section 1.368-1(e)(3) or any partnership in which Acquired Fund, Acquiring
Fund, or any person treated as related to Acquired Fund or Acquiring Fund under
Treasury Regulation Section 1.368-1(e)(3) is a partner involving the sale,
redemption or exchange of any of the Acquired Fund Shares or any of the
Acquiring Fund Shares to be received in the transaction, as the case may be,
other than in the ordinary course of Acquired Fund's business as a series of an
open-end investment company.
4. Pursuant to the transaction, Acquired Fund will transfer to Acquiring
Fund, and Acquiring Fund will acquire, at least 90% of the fair market value of
the net assets, and at least 70% of the fair market value of the gross assets,
Acquired Fund held immediately before the transaction. For the purposes of the
foregoing, any amounts Acquired Fund uses to pay its transaction expenses and
to make redemptions and distributions immediately before the transaction
(except (a) redemptions in the ordinary course of its business required by
section 22(e) of the Investment Company Act and (b) regular, normal dividend
distributions made to conform to its policy of distributing all or
substantially all of its income and gains to avoid the obligation to pay
federal income tax and/or the excise tax under Section 4982 of the Code) will
be included as assets it held immediately before the transaction.
5. As of the date of the transaction, the fair market value of the
Acquiring Fund Shares issued to Acquired Fund will be approximately equal to
the fair market value of the Acquired Assets minus the Assumed Liabilities.
Acquired Fund will not receive any consideration from Acquiring Fund in
connection with the acquisition of the Acquired Assets other than the
assumption of the Assumed Liabilities and the issuance of such Acquiring Fund
Shares.
6. The Assumed Liabilities assumed by Acquiring Fund plus the Assumed
Liabilities, if any, to which the transferred assets are subject were incurred
by Acquired Fund in the ordinary course of its business. Acquired Fund is not
aware of any liabilities of any kind other than the Assumed Liabilities.
A-18
7. As of the Closing Date, the adjusted basis and fair market value of the
Acquired Assets will equal or exceed the Assumed Liabilities for purposes of
Section 357(d) of the Code.
8. Acquired Fund currently conducts its historic business within the
meaning of Treasury Regulation Section 1.368-1(d)(2), which provides that, in
general, a corporation's historic business is the business it has conducted
most recently, but does not include a business that the corporation enters into
as part of a plan of reorganization. All of the assets held by Acquired Fund as
of the opening of business on August 2, 2004 (the date the Acquiring Fund
Adviser became investment adviser to Acquired Fund) were Acquired Fund's
historic business assets within the meaning of Treasury Regulation Section
1.368-1(d)(3) (which provides that a corporation's historic business assets are
the assets used in its historic business).
9. Acquired Fund will distribute to its shareholders the Acquiring Fund
Shares it receives pursuant to the transaction, and its other properties, if
any, and will be liquidated promptly thereafter.
10. The expenses of Acquired Fund incurred by it in connection with the
transaction will be only such expenses that are solely and directly related to
the transaction in accordance with Rev. Rul. 73-54, 1973-1 C.B. 187. Acquired
Fund will not pay any expenses incurred by its shareholders in connection with
the transaction.
11. There is no, and never has been any, indebtedness between Acquiring
Fund and Acquired Fund.
12. Acquired Fund has properly elected to be a regulated investment
company under Subchapter M of the Code, has qualified for the special tax
treatment afforded regulated investment companies under Subchapter M of the
Code for each taxable year since inception, and qualifies for such treatment as
of the time of the Closing.
13. Acquired Fund meets the requirements of an "investment company" in
Section 368(a)(2)(F) of the Code.
14. Acquired Fund is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
15. Acquired Fund does not pay compensation to any shareholder-employee.
16. Acquired Fund shareholders will not have dissenters' or appraisal
rights in the transaction.
17. The transaction is being undertaken for valid and substantial business
purposes, including facilitating Acquired Fund's becoming a member of the
Pioneer family of material funds, which, in the long term, is intended to
result in lower expenses and increased assets.
18. Acquired Fund has no outstanding warrants, options, convertible
securities or any other type of right pursuant to which any person could
acquire stock in Acquired Fund.
* * * * *
A-19
The undersigned officer of Safeco Trust is authorized to make all of the
representations set forth herein, and the undersigned is authorized to execute
this certificate on behalf of Acquired Fund. The undersigned recognizes that
Wilmer Cutler Pickering Hale and Dorr LLP will rely upon the foregoing
representations in evaluating the United States federal income tax consequences
of the transaction and rendering its opinion pursuant to Section 8.5 of the
Agreement. If, prior to the date of the transaction, any of the representations
set forth herein ceases to be accurate, the undersigned agrees to deliver
immediately to Wilmer Cutler Pickering Hale and Dorr LLP a written notice to
that effect.
SAFECO TRUST, on behalf of SAFECO FUND
By: ___________________________________
Name: _______________________________
Title: ______________________________
A-20
Exhibit A-2 -- Form of Agreement and Plan of Reorganization (F Reorganization)
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made this
day of , 2004, by and between [Pioneer Trust], a [Delaware
statutory][Massachusetts business] trust (the "Acquiring Trust"), on behalf of
its series [name of Pioneer Fund] (the "Acquiring Fund"), with its principal
place of business at 60 State Street, Boston, Massachusetts 02109, and [Safeco
Trust], a Delaware statutory trust (the "Safeco Trust"), on behalf of its
series [name of Safeco Fund] (the "Acquired Fund"), with its principal place of
business at 5069 154th Place N.E., Redmond, Washington 98052. The Acquiring
Fund and the Acquired Fund are sometimes referred to collectively herein as the
"Funds" and individually as a "Fund."
This Agreement is intended to be and is adopted as a plan of a
"reorganization" as defined in Section 368(a)(1)(F) of the United States
Internal Revenue Code of 1986, as amended (the "Code") and the Treasury
Regulations thereunder. The reorganization (the "Reorganization") will consist
of (1) the transfer of all of the assets of the Acquired Fund to the Acquiring
Fund in exchange solely for (A) the issuance of Investor Class shares of
beneficial interest of the Acquiring Fund (collectively, the "Acquiring Fund
Shares" and each, an "Acquiring Fund Share") to the Acquired Fund, and (B) the
assumption by the Acquiring Fund of the liabilities of the Acquired Fund
(collectively, the "Assumed Liabilities"), and (2) the distribution by the
Acquired Fund, on or promptly after the closing date of the Reorganization (the
"Closing Date") as provided herein, of the Acquiring Fund Shares to the
shareholders of the Acquired Fund in liquidation and dissolution of the
Acquired Fund, all upon the terms and conditions hereinafter set forth in this
Agreement.
WHEREAS, the Acquiring Trust and the Safeco Trust are each registered
investment companies classified as management companies of the open-end type.
WHEREAS, the Acquiring Fund is authorized to issue shares of beneficial
interest.
WHEREAS, the Board of Trustees of the Safeco Trust has determined that the
Reorganization is in the best interests of the Acquired Fund shareholders and
is not dilutive of the interests of those shareholders.
NOW, THEREFORE, 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 THE ACQUIRING
FUND SHARES AND ASSUMPTION OF THE ASSUMED LIABILITIES; LIQUIDATION AND
TERMINATION OF THE ACQUIRED FUND.
1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, the Acquired Fund will
transfer all of its assets as set forth in Paragraph 1.2 (the "Acquired
Assets") to the Acquiring Fund free and clear of all liens and encumbrances
(other than those arising under the Securities Act of 1933, as amended (the
"Securities Act"), liens for taxes not yet due and contractual restrictions on
the transfer of the Acquired Assets) and the Acquiring Fund agrees in exchange
therefor: (i) to issue to the Acquired Fund the number of Acquiring Fund
Shares, including fractional Acquiring Fund Shares, with an aggregate net asset
value ("NAV") equal to the NAV of the Acquired Fund, as determined in the
manner set forth in Paragraphs 2.1 and 2.2; and (ii) to assume the Assumed
Liabilities. Such transactions shall take place at the Closing (as defined in
Paragraph 3.1 below).
1.2 (a) The Acquired Assets shall consist of all of the Acquired Fund's
property, including, without limitation, all portfolio securities and
instruments, dividends and interest receivables, cash, goodwill, contractual
rights of the Acquired Fund or the Safeco Trust in respect of the Acquired
Fund, all other intangible property owned by the Acquired Fund, originals or
copies of all books and records of the Acquired Fund, and all other assets of
the Acquired Fund on the Closing Date. The Acquiring Fund shall also be
entitled to receive (or, to the extent agreed upon between the Safeco Trust and
the Acquiring Trust, be provided access to) copies of all records that the
Safeco Trust is required to maintain under the Investment Company Act of 1940,
as amended (the "Investment Company Act"), and the rules of the Securities and
Exchange Commission (the "Commission") thereunder to the extent such records
pertain to the Acquired Fund.
(b) The Acquired Fund has provided the Acquiring Fund with a list of
all of the Acquired Fund's securities and other assets as of the date of
execution of this Agreement, and the Acquiring Fund has provided the Acquired
Fund with a copy of the current fundamental investment policies and restrictions
and fair value procedures applicable to the Acquiring Fund. The Acquired Fund
reserves the right to sell any of such securities or other assets before the
Closing Date (except to the extent sales may be limited by representations of
the Acquired Fund contained herein and made in connection with the issuance of
the tax opinion provided for in Paragraph 8.5 hereof).
1.3 The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations that are or will become due prior to the Closing.
A-21
1.4 On or as soon after the Closing Date as is conveniently practicable
(the "Liquidation Date"), the Safeco Trust shall liquidate the Acquired Fund
and distribute pro rata to its shareholders of record, determined as of the
close of regular trading on the New York Stock Exchange on the Closing Date
(the "Acquired Fund Shareholders"), the Acquiring Fund Shares received by the
Acquired Fund pursuant to Paragraph 1.1 hereof. Each Acquired Fund Shareholder
shall receive the number of Acquiring Fund Shares that have an aggregate NAV
equal to the aggregate NAV of the shares of beneficial interest of the Acquired
Fund ("Acquired Fund Shares") held of record by such Acquired Fund Shareholder
on the Closing Date. Such liquidation and distribution will be accomplished by
the Safeco Trust instructing the Acquiring Trust to transfer 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
established and maintained by the Acquiring Fund's transfer agent in the names
of the Acquired Fund Shareholders and representing the respective pro rata
number of the Acquiring Fund Shares due the Acquired Fund Shareholders. The
Safeco Trust shall promptly provide the Acquiring Trust with evidence of such
liquidation and distribution. All issued and outstanding Acquired Fund Shares
will simultaneously be cancelled on the books of the Acquired Fund, and the
Acquired Fund will be dissolved. The Acquiring Fund shall not issue
certificates representing the Acquiring Fund Shares in connection with such
exchange.
1.5 Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent for its Investor Class shares. Any certificates
representing ownership of Acquired Fund Shares that remain outstanding on the
Closing Date shall be deemed to be cancelled and shall no longer evidence
ownership of Acquired Fund Shares.
1.6 Any transfer taxes payable upon issuance of Acquiring Fund Shares in a
name other than the registered holder of the Acquired 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 Any reporting responsibility of the Safeco Trust with respect to the
Acquired Fund for taxable periods ending on or before the Closing Date,
including, but not limited to, the responsibility for filing of regulatory
reports, Tax Returns (as defined in Paragraph 4.1), or other documents with the
Commission, any state securities commissions, and any federal, state or local
tax authorities or any other relevant regulatory authority, is and shall remain
the responsibility of the Safeco Trust.
2. VALUATION
2.1 The NAV of the Acquiring Fund Shares and the NAV of the Acquired Fund
shall, in each case, be determined as of the close of business (4:00 p.m.,
Boston time) on the Closing Date (the "Valuation Time"). The NAV of each
Acquiring Fund Share shall be computed by Pioneer Investment Management, Inc.
(the "Acquiring Fund Adviser") in the manner set forth in the Acquiring Fund's
Declaration of Trust (the "Declaration"), or By-Laws, and the Acquiring Fund's
then-current prospectus and statement of additional information. The NAV of the
Acquired Fund and of each Institutional Class shares thereof shall be computed
by Safeco Asset Management, Inc. (the "Acquired Fund Administrator") by
calculating the value of the Acquired Assets and by subtracting therefrom the
amount of the liabilities of the Acquired Fund on the Closing Date included on
the Statement of Assets and Liabilities of the Acquired Fund delivered pursuant
to Paragraph 5.7 (the "Statement of Assets and Liabilities"), said assets and
liabilities to be valued in the manner set forth in the Acquired Fund's then
current prospectus and statement of additional information. Pioneer Investment
Management, Inc. (the "Acquiring Fund Adviser") shall confirm to the Acquiring
Fund the NAV of the Acquired Fund.
2.2 The number of Acquiring Fund Shares to be issued (including fractional
shares, if any) in exchange for the Acquired Assets and the assumption of the
Assumed Liabilities shall be determined by Pioneer Investment Management, Inc.
(the "Acquiring Fund Adviser") by dividing the NAV of the Acquired Fund, as
determined in accordance with Paragraph 2.1, by the NAV of each Acquiring Fund
Share, as determined in accordance with Paragraph 2.1.
2.3 The Acquired Fund shall cause the Acquired Fund Administrator to
deliver a copy of its valuation report to the Acquiring Fund at Closing. All
computations of value shall be made by the Acquired Fund Administrator in
accordance with its regular practice as pricing agent for the Acquired Fund.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be December 8, 2004, or such later date as the
parties may agree to in writing. All acts necessary to consummation the
Reorganization (the "Closing") shall be deemed to take place simultaneously as
of 5:00 p.m. (Eastern time) on the Closing Date unless otherwise provided. The
Closing shall be held at the offices of Wilmer Cutler Pickering Hale and Dorr
LLP, 60 State Street, Boston, Massachusetts, or at such other place as the
parties may agree.
3.2 Portfolio securities that are held other than in book-entry form in
the name of State Street Bank and Trust Company (the "Acquired Fund Custodian")
as record holder for the Acquired Fund shall be presented by the Acquired Fund
to Brown Brothers Harriman & Co.
A-22
(the "Acquiring Fund Custodian") for examination no later than three business
days preceding the Closing Date. Such portfolio securities shall be delivered
by the Acquired Fund to the Acquiring Fund 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 Acquired Fund Custodian in
book-entry form on behalf of the Acquired Fund shall be delivered by the
Acquired Fund Custodian through the Depository Trust Company to the Acquiring
Fund Custodian and by the Acquiring Fund Custodian recording the beneficial
ownership thereof by the Acquiring Fund on the Acquiring Fund Custodian's
records. Any cash shall be delivered by the Acquired Fund Custodian
transmitting immediately available funds by wire transfer to the Acquiring Fund
Custodian the cash balances maintained by the Acquired Fund Custodian and the
Acquiring Fund Custodian crediting such amount to the account of the Acquiring
Fund.
3.3 The Acquiring Fund Custodian shall deliver within one business day
after the Closing a certificate of an authorized officer stating that: (a) the
Acquired Assets have been delivered in proper form to the Acquiring Fund on the
Closing Date, and (b) all necessary transfer taxes including all applicable
federal and state stock transfer stamps, if any, have been paid, or provision
for payment has been made in conjunction with the delivery of portfolio
securities as part of the Acquired Assets.
3.4 If on the Closing Date (a) the New York Stock Exchange is closed to
trading or trading thereon shall be restricted or (b) trading or the reporting
of trading on such exchange or elsewhere is disrupted so that accurate
appraisal of the NAV of the Acquired Fund pursuant to Paragraph 2.1 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.
3.5 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 and certificates of the Acquired Fund
Shareholders and the number and percentage ownership of outstanding Acquired
Fund Shares owned by each Acquired Fund Shareholder as of the Valuation Time,
certified by the President or a Secretary of the Safeco Trust and its
Treasurer, Secretary or other authorized officer (the "Shareholder List") as
being an accurate record of the information (a) provided by the Acquired Fund
Shareholders, (b) provided by the Acquired Fund Custodian, or (c) derived from
the Safeco Trust's records by such officers or one of the Safeco Trust's
service providers. The Acquiring Fund shall issue and deliver to the Acquired
Fund a confirmation evidencing the Acquiring Fund Shares to be credited on the
Closing 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, stock certificates, receipts or
other documents as such other party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1 Except as set forth on Schedule 4.1 hereto, the Safeco Trust, on
behalf of the Acquired Fund, represents, warrants and covenants to the
Acquiring Fund, which representations, warranties and covenants will be true
and correct on the date hereof and on the Closing Date as though made on and as
of the Closing Date, as follows:
(a) The Acquired Fund is a series of the Safeco Trust. The Safeco
Trust is a statutory trust 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, subject to approval by the Acquired Fund's
shareholders, 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 subject it to any
material liability or disability. Each of the Safeco Trust and 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 Safeco Trust is a registered investment company classified as
a management company of the open-end type, and its registration with the
Commission as an investment company under the Investment Company Act is in
full force and effect;
(c) The Safeco Trust is not in violation of, and the execution and
delivery of this Agreement and the performance of its obligations under
this Agreement in respect of the Acquired Fund will not result in a
violation of, any provision of the Safeco Trust's Trust Instrument or
By-Laws or any material agreement, indenture, instrument, contract, lease
or other undertaking with respect to the Acquired Fund to which the Safeco
Trust is a party or by which the Acquired Fund or any of its assets are
bound;
(d) No litigation or administrative proceeding or investigation of or
before any court or governmental body is currently pending or to its
knowledge threatened against the Acquired Fund or any of the Acquired
Fund's properties or assets. The Acquired Fund knows of no facts which
might form the basis for the institution of such proceedings. Neither the
Safeco Trust nor the Acquired Fund is a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body which materially adversely affects the Acquired Fund's business or its
ability to consummate the transactions contemplated herein or would be
binding upon the Acquiring Fund as the successor to the Acquired Fund;
A-23
(e) The Acquired Fund has no material contracts or other commitments
(other than this Agreement or agreements for the purchase and sale of
securities entered into in the ordinary course of business and consistent
with its obligations under this Agreement) which will not be terminated at
or prior to the Closing Date and no such termination will result in
liability to the Acquired Fund (or the Acquiring Fund);
(f) The statement of assets and liabilities of the Acquired Fund, and
the related statements of income and changes in NAV, as of and for the
fiscal year ended December 31, 2003 have been audited by Ernst & Young LLP,
independent registered public accounting firm, and are in accordance with
generally accepted accounting principles ("GAAP") consistently applied and
fairly reflect, in all material respects, the financial condition of the
Acquired Fund as of such date and the results of its operations for the
period then ended, and all known liabilities, whether actual or contingent,
of the Acquired Fund as of the date thereof are disclosed therein. The
Statement of Assets and Liabilities will be in accordance with GAAP
consistently applied and will fairly reflect, in all material respects, the
financial condition of the Acquired Fund as of such date and the results of
its operations for the period then ended. Except for the Assumed
Liabilities, the Acquired Fund will not have any known or contingent
liabilities on the Closing Date. No significant deficiency, material
weakness, fraud, significant change or other factor that could
significantly affect the internal controls of the Acquired Fund has been
disclosed or is required to be disclosed in the Acquired Fund's reports on
Form N-CSR to enable the chief executive officer and chief financial
officer or other officers of the Acquired Fund to make the certifications
required by the Sarbanes-Oxley Act, and no deficiency, weakness, fraud,
change, event or other factor exists that will be required to be disclosed
in the Acquiring Fund's Form N-CSR after the Closing Date;
(g) Since December 31, 2003, except as specifically disclosed in the
Acquired Fund's prospectus, its statement of additional information as in
effect on the date of this Agreement, or its semi-annual report for the
period ended June 30, 2004, there has not been any material adverse change
in the Acquired Fund's financial condition, assets, liabilities, business
or prospects, or any incurrence by the Acquired Fund of indebtedness,
except for normal contractual obligations incurred in the ordinary course
of business or in connection with the settlement of purchases and sales of
portfolio securities. For the purposes of this subparagraph (g) (but not
for any other purpose of this Agreement), a decline in NAV per Acquired
Fund Share arising out of its normal investment operations or a decline in
market values of securities in the Acquired Fund's portfolio or a decline
in net assets of the Acquired Fund as a result of redemptions shall not
constitute a material adverse change;
(h) (A) For each taxable year of its operation since its inception,
the Acquired Fund has met, and for the current taxable year it will meet,
the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and will qualify as such as of
the Closing Date and will satisfy the diversification requirements of
Section 851(b)(3) of the Code without regard to the last sentence of
Section 851(d) of the Code. The Acquired Fund has not taken any action,
caused any action to be taken or caused any action to fail to be taken
which action or failure could cause the Acquired Fund to fail to qualify as
a regulated investment company under the Code;
(B) Within the times and in the manner prescribed by law, the
Acquired Fund has properly filed on a timely basis all Tax Returns (as
defined below) that it was required to file, and all such Tax Returns
were complete and accurate in all respects. The Acquired Fund has not
been informed by any jurisdiction that the jurisdiction believes that
the Acquired Fund was required to file any Tax Return that was not
filed; and the Acquired Fund does not know of any basis upon which a
jurisdiction could assert such a position;
(C) The Acquired Fund has timely paid, in the manner prescribed
by law, all Taxes (as defined below), which were due and payable or
which were claimed to be due;
(D) All Tax Returns filed by the Acquired Fund constitute
complete and accurate reports of the respective Tax liabilities and
all attributes of the Acquired Fund or, in the case of information
returns and payee statements, the amounts required to be reported, and
accurately set forth all items required to be included or reflected in
such returns;
(E) The Acquired Fund has not waived or extended any applicable
statute of limitations relating to the assessment or collection of
Taxes;
(F) The Acquired Fund has not been notified that any examinations
of the Tax Returns of the Acquired Fund are currently in progress or
threatened, and no deficiencies have been asserted or assessed against
the Acquired Fund as a result of any audit by the Internal Revenue
Service or any state, local or foreign taxing authority, and, to its
knowledge, no such deficiency has been proposed or threatened;
(G) The Acquired Fund has no actual or potential liability for
any Tax obligation of any taxpayer other than itself. The Acquired
Fund is not and has never been a member of a group of corporations
with which it has filed (or been required to file) consolidated,
combined or unitary Tax Returns. The Acquired Fund is not a party to
any Tax allocation, sharing, or indemnification agreement;
A-24
(H) The unpaid Taxes of the Acquired Fund for tax periods through
the Closing Date do not exceed the accruals and reserves for Taxes
(excluding accruals and reserves for deferred Taxes established to
reflect timing differences between book and Tax income) set forth on
the Statement of Assets and Liabilities, rather than in any notes
thereto (the "Tax Reserves"). All Taxes that the Acquired Fund is or
was required by law to withhold or collect have been duly withheld or
collected and, to the extent required, have been timely paid to the
proper governmental agency;
(I) The Acquired Fund has delivered to the Acquiring Fund or made
available to the Acquiring Fund complete and accurate copies of all
Tax Returns of the Acquired Fund, together with all related
examination reports and statements of deficiency for all periods not
closed under the applicable statutes of limitations and complete and
correct copies of all private letter rulings, revenue agent reports,
information document requests, notices of proposed deficiencies,
deficiency notices, protests, petitions, closing agreements,
settlement agreements, pending ruling requests and any similar
documents submitted by, received by or agreed to by or on behalf of
the Acquired Fund. The Acquired Fund has disclosed on its federal
income Tax Returns all positions taken therein that could give rise to
a substantial understatement of federal income Tax within the meaning
of Section 6662 of the Code;
(J) The Acquired Fund has not undergone, has not agreed to
undergo, and is not required to undergo (nor will it be required as a
result of the transactions contemplated in this Agreement to undergo)
a change in its method of accounting resulting in an adjustment to its
taxable income pursuant to Section 481 of the Code. The Acquired Fund
will not be required to include any item of income in, or exclude any
item of deduction from, taxable income for any taxable period (or
portion thereof) ending after the Closing Date as a result of any (i)
change in method of accounting for a taxable period ending on or prior
to the Closing Date under Section 481(c) of the Code (or any
corresponding or similar provision of state, local or foreign income
Tax law); (ii) "closing agreement" as described in Section 7121 of the
Code (or any corresponding or similar provision of state, local or
foreign income Tax law) executed on or prior to the Closing Date;
(iii) installment sale or open transaction disposition made on or
prior to the Closing Date; or (iv) prepaid amount received on or prior
to the Closing Date;
(K) The Acquired Fund has not taken or agreed to take any action,
and is not aware of any agreement, plan or other circumstance, that is
inconsistent with the representations set forth in Annex B;
(L) There are (and as of immediately following the Closing there
will be) no liens on the assets of the Acquired Fund relating to or
attributable to Taxes, except for Taxes not yet due and payable;
(M) The Tax bases of the assets of the Acquired Fund are
accurately reflected on the Acquired Fund's Tax books and records;
(N) The Acquired Fund has not incurred (or been allocated) an
"overall foreign loss" as defined in Section 904(f)(2) of the Code
which has not been previously recaptured in full as provided in
Sections 904(f)(2) and/or 904(f)(3) of the Code;
(O) The Acquired Fund is not a party to a gain recognition
agreement under Section 367 of the Code;
(P) The Acquired Fund does not own any interest in an entity that
is characterized as a partnership for income tax purposes;
(Q) The Acquired Fund's Tax attributes are not limited under the
Code (including but not limited to any capital loss carry forward
limitations under Sections 382 or 383 of the Code and the Treasury
Regulations thereunder) or comparable provisions of state law, except
as set forth on Schedule 4.1; and
(R) For purposes of this Agreement, "Taxes" or "Tax" shall mean
all taxes, charges, fees, levies or other similar assessments or
liabilities, including without limitation income, gross receipts, ad
valorem, premium, value-added, excise, real property, personal
property, sales, use, transfer, withholding, employment, unemployment,
insurance, social security, business license, business organization,
environmental, workers compensation, payroll, profits, license, lease,
service, service use, severance, stamp, occupation, windfall profits,
customs, duties, franchise and other taxes imposed by the United
States of America or any state, local or foreign government, or any
agency thereof, or other political subdivision of the United States or
any such government, and any interest, fines, penalties, assessments
or additions to tax resulting from, attributable to or incurred in
connection with any tax or any contest or dispute thereof; and "Tax
Returns" shall mean all reports, returns, declarations, statements or
other information required to be supplied to a governmental or
regulatory authority or agency, or to any other person, in connection
with Taxes and any associated schedules or work papers produced in
connection with such items;
(i) All issued and outstanding Acquired Fund Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid
and nonassessable by the Acquired Fund. All of the issued and outstanding
Acquired Fund Shares will, at the time of Closing, be held of record by the
persons and in the amounts set forth in the Shareholder List submitted to
the Acquiring Fund pursuant to
A-25
Paragraph 3.5 hereof. The Acquired Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase any Acquired
Fund Shares, nor is there outstanding any security convertible into any
Acquired Fund Shares;
(j) At the Closing Date, the Acquired Fund will have good and
marketable title to the Acquired Assets, and full right, power and
authority to sell, assign, transfer and deliver the Acquired Assets to the
Acquiring Fund, and, upon delivery and payment for the Acquired Assets, the
Acquiring Fund will acquire good and marketable title thereto, subject to
no restrictions on the full transfer thereof, except such restrictions as
might arise under the Securities Act;
(k) The Safeco Trust has the trust power and authority to enter into
and perform its obligations under this Agreement. The execution, delivery
and performance of this Agreement have been duly authorized by all
necessary action on the part of the Safeco Trust's Board of Trustees, and,
subject to the approval of the Acquired Fund's shareholders, assuming due
authorization, execution and delivery by the Acquiring Fund, this Agreement
will constitute a valid and binding obligation of the Acquired Fund,
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating
to or affecting creditors' rights and to general equity principles;
(l) 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 and any information necessary to
compute the total return of the Acquired Fund shall be accurate and
complete and shall comply in all material respects with federal securities
and other laws and regulations applicable thereto;
(m) The information included in the proxy statement (the "Proxy
Statement") forming part of the Acquiring Fund's Registration Statement on
Form N-14 filed in connection with this Agreement (the "Registration
Statement") that has been furnished in writing by the Acquired Fund to the
Acquiring Fund for inclusion in the Registration Statement, on the
effective date of that Registration Statement and on the Closing Date, will
conform in all material respects to the applicable requirements of the
Securities Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the Investment Company Act and the rules and
regulations of the Commission thereunder and will 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 not
misleading;
(n) Upon the effectiveness of the Registration Statement, no consent,
approval, authorization or order of any court or governmental authority is
required for the consummation by the Safeco Trust or the Acquired Fund of
the transactions contemplated by this Agreement;
(o) All of the issued and outstanding Acquired Fund Shares 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;
(p) The prospectus and statement of additional information of the
Acquired Fund, and any amendments or supplements thereto, furnished to the
Acquiring Fund, did not as of their dates or the dates of their
distribution to the public 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 in which such
statements were made, not misleading;
(q) The Acquired Fund currently complies in all material respects
with, and since its organization has complied in all material respects
with, the requirements of, and the rules and regulations under, the
Investment Company Act, the Securities Act, the Exchange Act, state "Blue
Sky" laws and all other applicable federal and state laws or regulations.
The Acquired Fund currently complies in all material respects with, and
since its organization has complied in all material respects with, all
investment objectives, policies, guidelines and restrictions and any
compliance procedures established by the Safeco Trust with respect to the
Acquired Fund. All advertising and sales material used by the Acquired Fund
complies in all material respects with and has complied in all material
respects with the applicable requirements of the Securities Act, the
Investment Company Act, the rules and regulations of the Commission, and,
to the extent applicable, the Conduct Rules of the National Association of
Securities Dealers, Inc. (the "NASD") and any applicable state regulatory
authority. All registration statements, prospectuses, reports, proxy
materials or other filings required to be made or filed with the
Commission, the NASD or any state securities authorities by the Acquired
Fund have been duly filed and have been approved or declared effective, if
such approval or declaration of effectiveness is required by law. Such
registration statements, prospectuses, reports, proxy materials and other
filings under the Securities Act, the Exchange Act and the Investment
Company Act (i) are or were in compliance in all material respects with the
requirements of all applicable statutes and the rules and regulations
thereunder and (ii) do not or did 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 in which they were made, not false or misleading;
(r) The Acquired Fund has previously provided to the Acquiring Fund
(and at the Closing will provide an update through the Closing Date of such
information) data which supports a calculation of the Acquired Fund's total
return for all periods since the
A-26
organization of the Acquired Fund. Such data has been prepared in
accordance in all material respects with the requirements of the Investment
Company Act and the regulations thereunder and the rules of the NASD;
(s) Neither the Acquired Fund nor, to the knowledge of the Acquired
Fund, any "affiliated person" of the Acquired Fund has been convicted of
any felony or misdemeanor, described in Section 9(a)(1) of the Investment
Company Act, nor, to the knowledge of the Acquired Fund, has any affiliated
person of the Acquired Fund been the subject, or presently is the subject,
of any proceeding or investigation with respect to any disqualification
that would be a basis for denial, suspension or revocation of registration
as an investment adviser under Section 203(e) of the Investment Advisers
Act of 1940, as amended (the "Investment Advisers Act"), or Rule
206(4)-4(b) thereunder or of a broker-dealer under Section 15 of the
Exchange Act, or for disqualification as an investment adviser, employee,
officer or director of an investment company under Section 9 of the
Investment Company Act; and
(t) The tax representation certificate to be delivered by Safeco Trust
on behalf of the Acquired Fund to the Acquiring Trust and Wilmer Cutler
Pickering Hale and Dorr LLP at the Closing pursuant to Paragraph 7.4 (the
"Acquired Fund Tax Representation Certificate") will not on the Closing
Date contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein not misleading.
4.2 Except as set forth on Schedule 4.2 hereto, the Acquiring Trust, on
behalf of the Acquiring Fund, represents, warrants and covenants to the
Acquired Fund, which representations, warranties and covenants will be true and
correct on the date hereof and on the Closing Date as though made on and as of
the Closing Date, as follows:
(a) The Acquiring Fund is a series of the Acquiring Trust. The
Acquiring Fund has not commenced operations and will not do so until the
Closing. The Acquiring Trust is a [statutory][business] trust duly
organized, validly existing and in good standing under the laws of the
[State of Delaware][Commonwealth of Massachusetts]. The Acquiring Trust has
the power to own all of its properties and assets and to perform the
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 subject it to any material liability or
disability. Each of the Acquiring Trust and 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 Trust is a registered investment company classified
as a management company of the open-end type, and its registration with the
Commission as an investment company under the Investment Company Act is in
full force and effect;
(c) The Acquiring Fund's registration statement on Form N-1A that will
be in effect on the Closing Date, and the prospectus and statement of
additional information of the Acquiring Fund included therein, will conform
in all material respects with the applicable requirements of the Securities
Act and the Investment Company Act and the rules and regulations of the
Commission thereunder, and did not as of the effective date thereof and
will not as of the Closing Date contain 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 in
which they were made, not misleading;
(d) The Registration Statement, the Proxy Statement and statement of
additional information with respect to the Acquiring Fund, each dated [ ],
2004, and any amendments or supplements thereto in effect on or prior to
the Closing Date included in the Registration Statement (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) will
conform in all material respects to the applicable requirements of the
Securities Act and the Investment Company Act and the rules and regulations
of the Commission thereunder. Neither the Registration Statement nor the
Proxy Statement (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) includes or will include any untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(e) The Acquiring Trust is not in violation of, and the execution and
delivery of this Agreement and performance of its obligations under this
Agreement will not result in a violation of, any provisions of the
Declaration of Trust or by-laws of the Acquiring Trust or any material
agreement, indenture, instrument, contract, lease or other undertaking with
respect to the Acquiring Fund to which the Acquiring Trust is a party or by
which the Acquiring Fund or any of its assets is bound;
(f) No 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. The Acquiring Fund knows of no facts which might form the basis for
the institution of such proceedings. Neither the Acquiring Trust nor the
Acquiring Fund is a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body which materially
adversely affects the Acquiring Fund's business or its ability to
consummate the transactions contemplated herein;
A-27
(g) The Acquiring Fund has no actual or potential liability for any
Tax obligation of any taxpayer other than itself. Acquiring Fund is not and
has never been a member of a group of corporations with which it has filed
(or been required to file) consolidated, combined or unitary Tax Returns.
The Acquiring Fund is not a party to any Tax allocation, sharing, or
indemnification agreement;
(h) The Acquiring Fund has not taken or agreed to take any action, and
is not aware of any agreement, plan or other circumstance, that is
inconsistent with the representations set forth in Annex A;
(i) The Acquiring Fund currently complies, and at all times since its
organization has complied, in all material respects with the requirements
of, and the rules and regulations under, the Investment Company Act, the
Securities Act, the Exchange Act, state "Blue Sky" laws and all other
applicable federal and state laws or regulations. The Acquiring Fund
currently complies in all material respects with, and since its
organization has complied in all material respects with, all investment
objectives, policies, guidelines and restrictions and any compliance
procedures established by the Acquiring Trust with respect to the Acquiring
Fund. All advertising and sales material used by the Acquiring Fund
complies in all material respects with and has complied in all material
respects with the applicable requirements of the Securities Act, the
Investment Company Act, the rules and regulations of the Commission, and,
to the extent applicable, the Conduct Rules of the NASD and any applicable
state regulatory authority. All registration statements, prospectuses,
reports, proxy materials or other filings required to be made or filed with
the Commission, the NASD or any state securities authorities by the
Acquiring Fund have been duly filed and have been approved or declared
effective, if such approval or declaration of effectiveness is required by
law. Such registration statements, prospectuses, reports, proxy materials
and other filings under the Securities Act, the Exchange Act and the
Investment Company Act (i) are or were in compliance in all material
respects with the requirements of all applicable statutes and the rules and
regulations thereunder and (ii) do not or did 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 in which they were made, not false or misleading;
(j) The authorized capital of the Acquiring Fund consists of an
unlimited number of shares of beneficial interest, no par value per share.
As of the Closing Date, the Acquiring Fund will be authorized to issue an
unlimited number of shares of beneficial interest, no par value per share.
The Acquiring Fund Shares to be issued and delivered to the Acquired Fund
for the account of the Acquired Fund Shareholders pursuant to the terms of
this Agreement will have been duly authorized on the Closing Date and, when
so issued and delivered, will be duly and validly issued, fully paid and
non-assessable. 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, nor will the Acquiring Fund have any issued or
outstanding shares on or before the Closing Date other than those issued to
Acquiring Fund Adviser or one of its affiliates, which shares shall be
redeemed, for an amount equal to the price paid therefor, at or before the
Closing;
(k) The Acquiring Trust has the trust power and authority to enter
into and perform its obligations under this Agreement. The execution,
delivery and performance of this Agreement have been duly authorized by all
necessary action on the part of the Acquiring Trust's Board of Trustees,
and, assuming due authorization, execution and delivery by the Acquired
Fund, this Agreement will constitute a valid and binding obligation of the
Acquiring Fund, enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors' rights and to general equity
principles;
(l) The information to be furnished in writing by the Acquiring Fund
or the Acquiring Fund Adviser 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 in all material respects and shall comply in all
material respects with federal securities and other laws and regulations
applicable thereto or the requirements of any form for which its use is
intended, and shall not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the information provided
not misleading;
(m) No consent, approval, authorization or order of or filing with any
court or governmental authority is required for the execution of this
Agreement or the consummation of the transactions contemplated by the
Agreement by the Acquiring Fund, except for the registration of the
Acquiring Fund Shares under the Securities Act and the Investment Company
Act;
(n) The prospectus and statement of additional information of the
Acquiring Fund, and any amendments or supplements thereto, furnished to the
Acquired Fund, did not as of their dates or the dates of their distribution
to the public 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 in which such
statements were made, not misleading;
(o) Neither the Acquiring Fund nor, to the knowledge of the Acquiring
Fund, any "affiliated person" of the Acquiring Fund has been convicted of
any felony or misdemeanor, described in Section 9(a)(1) of the Investment
Company Act, nor, to the knowledge
A-28
of the Acquiring Fund, has any affiliated person of the Acquiring Fund been
the subject, or presently is the subject, of any proceeding or
investigation with respect to any disqualification that would be a basis
for denial, suspension or revocation of registration as an investment
adviser under Section 203(e) of the Investment Advisers Act or Rule
206(4)-4(b) thereunder or of a broker-dealer under Section 15 of the
Exchange Act, or for disqualification as an investment adviser, employee,
officer or director of an investment company under Section 9 of the
Investment Company Act; and
(p) The tax representation certificate to be delivered by the
Acquiring Trust on behalf of the Acquiring Fund to the Safeco Trust and
Wilmer Cutler Pickering Hale and Dorr LLP at Closing pursuant to Section
6.3 (the "Acquiring Fund Tax Representation Certificate") will not on the
Closing Date contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein not
misleading.
5. COVENANTS OF THE FUNDS
5.1 The Acquired Fund will operate the Acquired Fund's business in the
ordinary course of business between the date hereof and the Closing Date. It is
understood that such ordinary course of business will include the declaration
and payment of customary dividends and other distributions and any other
dividends and other distributions necessary or advisable (except to the extent
dividends or other distributions that are not customary may be limited by
representations made in connection with the issuance of the tax opinion
described in Paragraph 8.5 hereof), in each case payable either in cash or in
additional shares.
5.2 The Safeco Trust will call a special meeting of the Acquired Fund's
shareholders to consider approval of this Agreement and act upon the matters
set forth in the Proxy Statement.
5.3 The Acquiring Fund will prepare the notice of meeting, form of proxy
and Proxy Statement (collectively, "Proxy Materials") to be used in connection
with such meeting, and will promptly prepare and file with the Commission the
Registration Statement. The Safeco Trust will provide the Acquiring Fund with
information reasonably requested for the preparation of the Registration
Statement in compliance with the Securities Act, the Exchange Act, and the
Investment Company Act.
5.4 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.
5.5 The Acquired Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requires concerning the beneficial
ownership of the Acquired Fund Shares.
5.6 Subject to the provisions of this Agreement, each Fund will take, or
cause to be taken, all actions, and do or cause to be done, all things
reasonably necessary, proper or advisable to consummate the transactions
contemplated by this Agreement.
5.7 The Acquired Fund shall furnish to the Acquiring Fund on the Closing
Date a Statement of Assets and Liabilities of the Acquired Fund as of the
Closing Date setting forth the NAV of the Acquired Fund as of the Valuation
Time, which statement shall be prepared in accordance with GAAP consistently
applied and certified by the Safeco Trust's Treasurer or Assistant Treasurer.
As promptly as practicable, but in any case within 30 days after the Closing
Date, the Safeco Trust shall furnish to the Acquiring Trust, in such form as is
reasonably satisfactory to the Acquiring Trust, 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 under the Code, and which statement will be certified by the
Treasurer of the Safeco Trust.
5.8 Neither Fund shall take any action that is inconsistent with the
representations set forth in, with respect to the Acquired Fund, the Acquired
Fund Tax Representation Certificate and, with respect to the Acquiring Fund,
the Acquiring Fund Tax Representation Certificate.
5.9 From and after the date of this Agreement and until the Closing Date,
each of the Funds and the Safeco Trust and the Acquiring Trust shall use its
commercially reasonable efforts to cause the Reorganization to qualify, and
will not knowingly take any action, cause any action to be taken, fail to take
any action or cause any action to fail to be taken, which action or failure to
act could prevent the Reorganization from qualifying, as a reorganization under
the provisions of Section 368(a) of the Code. The parties hereby adopt this
Agreement as a "plan of reorganization" within the meaning of Sections
1.368-2(g) and 1.368-3(a) of the income tax regulations promulgated under the
Code. Unless otherwise required pursuant to a "determination" within the
meaning of Section 1313(a) of the Code, the parties hereto shall treat and
report the transactions contemplated hereby as a reorganization within the
meaning of Section 368(a)(1)(F) of the Code and shall not take any position
inconsistent with such treatment.
5.10 From and after the date of this Agreement and through the time of the
Closing, each Fund shall use its commercially reasonable efforts to cause it to
qualify, and will not knowingly take any action, cause any action to be taken,
fail to take any action or cause any action
A-29
to fail to be taken, which action or failure to act could prevent it from
qualifying, as a regulated investment company under the provisions of
Subchapter M of the Code.
5.11 The Acquired Fund shall prepare, or cause to be prepared, all Tax
Returns of the Acquired Fund for taxable periods that end on or before the
Closing Date and shall timely file, or cause to be timely filed, all such Tax
Returns. The Acquired Fund shall make any payments of Taxes required to be made
by such Fund with respect to any such Tax Returns.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to complete 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, unless waived by the Acquired Fund in writing:
6.1 All representations and warranties by the Acquiring Trust on behalf of
the Acquiring Fund contained in this Agreement shall be true and correct 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;
6.2 The Acquiring Trust shall have delivered to the Safeco Trust on the
Closing Date a certificate of the Acquiring Trust on behalf of the Acquiring
Fund executed in its name by its President or Vice President and its Treasurer
or Assistant Treasurer, in form and substance satisfactory to the Safeco Trust
and dated as of the Closing Date, to the effect that the representations and
warranties of the Acquiring Trust 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, that each of the conditions to
Closing in this Article 6 have been met, and as to such other matters as the
Safeco Trust shall reasonably request;
6.3 The Acquiring Trust on behalf of the Acquiring Fund shall have
delivered to the Safeco Trust and Wilmer Cutler Pickering Hale and Dorr LLP an
Acquiring Fund Tax Representation Certificate, satisfactory to the Safeco Trust
and Wilmer Cutler Pickering Hale and Dorr LLP, substantially in the form
attached to this Agreement as Annex A, concerning certain tax-related matters
with respect to the Acquiring Fund;
6.4 With respect to the Acquiring Fund, the Board of Trustees of the
Acquiring Trust shall have determined that the Reorganization is in the best
interests of the Acquiring Fund and, based upon such determination, shall have
approved this Agreement and the transactions contemplated hereby; and
6.5 The Safeco Trust shall have received at the Closing a favorable
opinion as to the due authorization of this Agreement by the Acquiring Trust
and related matters of Wilmer Cutler Pickering Hale and Dorr LLP, dated as of
the Closing Date, in a form reasonably satisfactory to the Safeco Trust.
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 further
conditions, unless waived by the Acquiring Fund in writing:
7.1 All representations and warranties of the Safeco Trust on behalf of
the Acquired Fund contained in this Agreement shall be true and correct 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 Safeco Trust shall have delivered to the Acquiring Fund the
Statement of Assets and Liabilities of the Acquired Fund pursuant to Paragraph
5.7, 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 Safeco Trust's Treasurer or Assistant Treasurer;
7.3 The Safeco Trust shall have delivered to the Acquiring Trust on the
Closing Date a certificate of the Safeco Trust on behalf of the Acquired Fund
executed in its name by its President or Vice President and a Treasurer or
Assistant Treasurer, in form and substance reasonably satisfactory to the
Acquiring Trust and dated as of the Closing Date, to the effect that the
representations and warranties of the Safeco Trust contained 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, that each of the
conditions to closing in this Article 7 have been met, and as to such other
matters as the Acquiring Trust shall reasonably request;
7.4 The Safeco Trust on behalf of the Acquired Fund shall have delivered
to the Acquiring Trust and Wilmer Cutler Pickering Hale and Dorr LLP an
Acquired Fund Tax Representation Certificate, satisfactory to the Acquiring
Trust and Wilmer Cutler Pickering Hale and
A-30
Dorr LLP, substantially in the form attached to this Agreement as Annex B,
concerning certain tax-related matters with respect to the Acquired Fund;
7.5 The Acquiring Trust shall have received at the Closing a favorable
opinion as to the due authorization of this Agreement by the Safeco Trust and
related matters of Kirkpatrick & Lockhart LLP, dated as of the Closing Date, in
a form reasonably satisfactory to the Acquiring Trust; and
7.6 With respect to the Acquired Fund, the Board of Trustees of the Safeco
Trust shall have determined that the Reorganization is in the best interests of
the Acquired Fund and, based upon such determination, shall have approved this
Agreement and the transactions contemplated hereby.
8. FURTHER CONDITIONS PRECEDENT
If any of the conditions set forth below does not exist on or before the
Closing Date with respect to either party hereto, the other party to this
Agreement shall, at its option, not be required to consummate the transactions
contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the Acquired Fund's shareholders in
accordance with the provisions of the Safeco Trust's Trust Instrument 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. Notwithstanding anything herein to the contrary, neither
party hereto may waive the conditions set forth in this Paragraph 8.1;
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 either party hereto 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
either party hereto, provided that either party may waive any such conditions
for itself;
8.4 The Acquiring Trust's Registration Statement on Form N-14 shall have
become effective under the Securities Act and no stop orders suspending the
effectiveness of such Registration Statement 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 Securities Act; and
8.5 The parties shall have received an opinion of Wilmer Cutler Pickering
Hale and Dorr LLP, satisfactory to the Safeco Trust and the Acquiring Trust and
subject to customary assumptions and qualifications, substantially to the
effect that for federal income tax purposes the acquisition by the Acquiring
Fund of the Acquired Assets solely in exchange for the issuance of Acquiring
Fund Shares to the Acquired Fund and the assumption of the Assumed 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 Acquired Fund
Shareholders in exchange for their Acquired Fund Shares and the termination of
the Acquired Fund, will constitute a "reorganization" within the meaning of
Section 368(a) of the Code
9. BROKERAGE FEES AND EXPENSES
9.1 Each party hereto represents and warrants to the other party hereto
that there are no brokers or finders entitled to receive any payments in
connection with the transactions provided for herein.
9.2 The parties have been informed by Symetra Financial Corporation and
the Acquiring Fund Adviser -- and the parties have entered into this Agreement
in reliance on such information -- that such non-parties will pay all expenses
of the Funds associated with the Reorganization, including the expenses
associated with the preparation, printing and mailing of any and all
shareholder notices, communications, proxy statements, and necessary filings
with the SEC or any other governmental authority in connection with the
transactions contemplated by this Agreement and the legal and Trustees' fees
and expenses incurred in connection with the Reorganization. Except for the
foregoing, the Acquiring Fund and the Acquired Fund shall each bear its own
expenses in connection with the transactions contemplated by this Agreement.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Trust and the Safeco Trust each agree that neither
party has made any representation, warranty or covenant not set forth herein or
referred to in Paragraphs 4.1 or 4.2 hereof and that this Agreement constitutes
the entire agreement between the parties.
A-31
10.2 The representations and warranties contained in this Agreement or in
any document delivered pursuant hereto or in connection herewith shall not
survive the consummation of the transactions contemplated hereunder.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Trust and the Safeco Trust. In addition, either party may at its
option terminate this Agreement at or prior to the Closing Date:
(a) because of a material breach by the other of any representation,
warranty, covenant or agreement contained herein to be performed
at or prior to the Closing Date;
(b) because of 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;
(c) by resolution of the Acquiring Trust's Board of Trustees if
circumstances should develop that, in the good faith opinion of
such Board, make proceeding with the Agreement not in the best
interests of the Acquiring Fund's shareholders;
(d) by resolution of the Safeco Trust's Board of Trustees if
circumstances should develop that, in the good faith opinion of
such Board, make proceeding with the Agreement not in the best
interests of the Acquired Fund's shareholders; or
(e) if the transactions contemplated by this Agreement shall not have
occurred on or prior to December 31, 2004 or such other date as
the parties may mutually agree upon in writing.
11.2 In the event of any such termination, there shall be no liability for
damages on the part of the Acquiring Fund, the Acquiring Trust, the Safeco
Trust or the Acquired Fund, or the trustees or officers of the Safeco Trust, or
the Acquiring Trust, but, subject to Paragraph 9.2, each party 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 Safeco
Trust and the Acquiring Trust; provided, however, that following the meeting of
the Acquired Fund's shareholders called by the Safeco Trust pursuant to
Paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions regarding the method for determining the number of
Acquiring Fund Shares to be received by the Acquired Fund Shareholders under
this Agreement to their detriment without their further approval; provided that
nothing contained in this Section 12 shall be construed to prohibit the parties
from amending this Agreement to change the Closing 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 Acquired Fund, c/o
Symetra Financial Corporation, 5069 154th Place, N.E., Seattle, Washington
98052, Attention: Roger F. Harbin, with copies to R. Darrell Mounts,
Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W., Second Floor,
Washington, DC 20036-1221, and to the Acquiring Fund, c/o Pioneer Investment
Management, Inc., 60 State Street, Boston, Massachusetts 02109, Attention:
Dorothy E. Bourassa, Esq., with copies to Wilmer Cutler Pickering Hale and Dorr
LLP, 60 State Street, Boston, Massachusetts 02109, Attention: David C. Phelan.
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 internal laws of the State of Delaware, without giving effect to conflict
of laws principles (other than Delaware Code Title 6 [sec] 2708); provided
that, in the case of any conflict between those laws and the federal securities
laws, the latter shall govern.
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
either party without the prior written consent of the other party hereto.
Nothing herein expressed or implied is intended or shall be construed to confer
upon or give any person, firm or corporation, or other entity, other than the
parties hereto and their respective successors and assigns, any rights or
remedies under or by reason of this Agreement.
A-32
14.5 It is expressly agreed that the obligations of the Acquiring Trust
and the Safeco Trust shall not be binding upon any of their respective
trustees, shareholders, nominees, officers, agents or employees personally, but
bind only to the property of the Acquiring Fund or the Acquired Fund, as the
case may be, as provided in the trust instruments of the Acquiring Trust and
the Instrument of Trust of the Safeco Trust, respectively. The execution and
delivery of this Agreement have been authorized by the trustees of the
Acquiring Trust and of the Safeco Trust and this Agreement has been executed by
authorized officers of the Acquiring Trust and the Safeco Trust, acting as
such, and neither such authorization by such trustees nor such execution and
delivery by such officers shall be deemed to have been made by any of them
individually or to imposed any liability on any of them personally, but shall
bind only the property of the Acquiring Fund and the Acquired Fund, as the case
may be, as provided in the trust instruments of the Acquiring Trust and the
Instrument of Trust of the Safeco Trust, respectively.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed as of the date first set forth above by its President or Vice
President and attested by its Secretary or Assistant Secretary.
Attest: [SAFECO TRUST]
on behalf of
[SAFECO FUND]
By: _________________________________ By: _________________________________
Name: Name:
Title: Secretary Title: President
Attest: [PIONEER TRUST]
on behalf of
[PIONEER FUND]
By: _________________________________ By: _________________________________
Name: Name:
Title: Title:
A-33
Annex A
TAX REPRESENTATION CERTIFICATE OF
[PIONEER TRUST ON BEHALF OF PIONEER FUND]
This certificate is being delivered in connection with the transactions to
be effected pursuant to the Agreement and Plan of Reorganization made as of
_______ , 2004 between [Pioneer Trust], a [Delaware statutory][Massachusetts
business] trust (the "Acquiring Trust"), on behalf of its series [Pioneer Fund]
("Acquiring Fund"), and [Safeco Trust], a Delaware statutory trust, on behalf
of its series [Safeco Fund] ("Acquired Fund") (the "Agreement"). Pursuant to
the Agreement, Acquiring Fund will acquire all of the assets of Acquired Fund
in exchange solely for (i) the assumption by Acquiring Fund of the Assumed
Liabilities of Acquired Fund, and (ii) the issuance of Investor Class shares of
beneficial interest of Acquiring Fund (the "Acquiring Fund Shares") to Acquired
Fund, followed by the distribution by Acquired Fund, in liquidation of Acquired
Fund, of the Acquiring Fund Shares to the shareholders of Acquired Fund and the
termination of Acquired Fund (the foregoing together constituting the
"transaction").
The undersigned officer of Acquiring Trust, after consulting with its
counsel, auditors and tax advisers regarding the meaning of and factual support
for the following representations, on behalf of Acquiring Fund, hereby
certifies and represents that the following statements are true, complete and
correct and will be true, complete and correct on the date of the transaction
and thereafter as relevant. Unless otherwise indicated, all capitalized terms
used but not defined herein shall have the meanings ascribed to them in the
Agreement.
1. Acquiring Fund is a series of Acquiring Trust, a [statutory][business]
trust established under the laws of the [State of Delaware][Commonwealth of
Massachusetts], and Acquiring Fund will be treated after the Closing as a
separate corporation for federal tax purposes. Acquiring Fund was newly
organized solely for the purpose of effecting the transaction and continuing
thereafter to operate as a regulated investment company. Prior to the
transaction, Acquiring Fund did not and will not engage in any business
activities. There shall be no shares of Acquiring Fund issued and outstanding
prior to the Closing Date other than those issued to Pioneer Investment
Management, Inc. or one of its affiliates in connection with the creation of
Acquiring Fund, which shares shall be redeemed, for an amount equal to the
price paid therefor, at or before the Closing.
2. Neither Acquiring Fund nor any person "related" to Acquiring Fund (as
defined in Treasury Regulation Section 1.368-1(e)(3)), nor any partnership of
which Acquiring Fund or any such related person is a partner, has any plan or
intention to redeem or otherwise acquire any of the Acquiring Fund Shares
received by shareholders of Acquired Fund in the transaction except in the
ordinary course of Acquiring Fund's business in connection with its legal
obligation under Section 22(e) of the Investment Company Act of 1940, as
amended (the "1940 Act"), as a series of a registered open-end investment
company to redeem its own shares.
3. After the transaction, Acquiring Fund will continue the historic
business (as defined in Treasury Regulation Section 1.368-1(d)(2)) of Acquired
Fund or will use a significant portion of the historic business assets (as
defined in Treasury Regulation Section 1.368-1(d)(3)) of Acquired Fund in a
business.
4. Acquiring Fund has no plan or intention to sell or otherwise dispose of
any assets of Acquired Fund acquired in the transaction, except for
dispositions made in the ordinary course of its business or to maintain its
qualification as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code").
5. Any expenses of Acquired Fund incurred in connection with the
transaction which are paid or assumed by Acquiring Fund will be expenses of
Acquired Fund solely and directly related to the transaction in accordance with
Rev. Rul. 73 54, 1973 1 C.B. 187. Acquiring Fund will not pay or assume the
expenses, if any, incurred by any Acquired Fund Shareholders in connection with
the transaction.
6. There is no, and never has been any, indebtedness between Acquiring Fund
and Acquired Fund.
7. Acquiring Fund will qualify for the special tax treatment afforded
regulated investment companies under Subchapter M of the Code for all taxable
years ending after the date of the transaction.
8. Acquiring Fund meets the requirements of an "investment company" in
Section 368(a)(2)(F) of the Code.
9. Acquiring Fund is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
10. Acquiring Fund does not now own and has never owned, directly or
indirectly, any shares of Acquired Fund.
11. As of the date of the transaction, the fair market value of the
Acquiring Fund Shares issued to Acquired Fund will be approximately equal to
the fair market value of the Acquired Assets minus the Assumed Liabilities.
Acquiring Fund will not furnish any consideration
A-34
in connection with the acquisition of the Acquired Assets other than the
assumption of the Assumed Liabilities and the issuance of such Acquiring Fund
Shares.
12. Immediately following the transaction, the Acquired Fund Shareholders
will own all of the outstanding Acquiring Fund Shares and will own such shares
solely by reason of their ownership of the Acquired Fund Shares immediately
prior to the transaction. Acquiring Fund has no plan or intention to issue as
part of the transaction any shares of Acquiring Fund other than the Acquiring
Fund Shares issued in exchange for the Acquired Assets.
13. The transaction is being undertaken for valid and substantial business
purposes, including facilitating Acquired Fund's becoming a member of the
Pioneer family of mutual funds, which, in the long term, is intended to result
in lower expenses and increased assets.
14. No Acquired Fund shareholder is acting as agent for Acquiring Fund in
connection with the transaction or approval thereof. Acquiring Fund will not
reimburse any Acquired Fund shareholder for Acquired Fund Shares such
shareholder may have purchased or for other obligations such shareholder may
have incurred.
15. Acquiring Fund has no outstanding warrants, options, convertible
securities or any other type of right pursuant to which any person could
acquire stock in Acquiring Fund.
* * * * *
The undersigned officer of Acquiring Trust is authorized to make all of
the representations set forth herein, and the undersigned is authorized to
execute this certificate on behalf of Acquiring Fund. The undersigned
recognizes that Wilmer Cutler Pickering Hale and Dorr LLP will rely upon the
foregoing representations in evaluating the United States federal income tax
consequences of the transaction and rendering its opinion pursuant to Section
8.5 of the Agreement. If, prior to the date of the transaction, any of the
representations set forth herein ceases to be accurate, the undersigned agrees
to deliver immediately to Wilmer Cutler Pickering Hale and Dorr LLP a written
notice to that effect.
[PIONEER TRUST], on
behalf of [Pioneer Fund]
By: ___________________________________
Name: _______________________________
Title: ______________________________
Dated: ______________, 2004
A-35
:
Annex B
TAX REPRESENTATION CERTIFICATE OF
[SAFECO TRUST]
ON BEHALF OF [SAFECO FUND]
This certificate is being delivered in connection with the transactions to
be effected pursuant to the Agreement and Plan of Reorganization made as of
_______________________ , 2004 between [Pioneer Trust], a [Delaware statutory]
[Massachusetts business] trust, on behalf of its series [Pioneer Fund]
("Acquiring Fund"), and [Safeco Trust], a Delaware statutory trust ("Safeco
Trust"), on behalf of its series [Safeco Fund] ("Acquired Fund") (the
"Agreement"). Pursuant to the Agreement, Acquiring Fund will acquire all of the
assets of Acquired Fund in exchange solely for (i) the assumption by Acquiring
Fund of the Assumed Liabilities of Acquired Fund and (ii) the issuance of
Investor Class shares of beneficial interest of Acquiring Fund (the "Acquiring
Fund Shares") to Acquired Fund, followed by the distribution by Acquired Fund,
in liquidation of Acquired Fund, of the Acquiring Fund Shares to the
shareholders of Acquired Fund and the termination of Acquired Fund (the
foregoing together constituting the "transaction").
The undersigned officer of Safeco Trust, after consulting with its
counsel, auditors and tax advisers regarding the meaning of and factual support
for the following representations, on behalf of Acquired Fund, hereby certifies
and represents that the following statements are true, complete and correct and
will be true, complete and correct on the date of the transaction and
thereafter as relevant. Unless otherwise indicated, all capitalized terms used
but not defined herein shall have the meanings ascribed to them in the
Agreement.
1. Acquired Fund is a series of Safeco Trust, a statutory trust organized
under the laws of the State of Delaware, and Acquired Fund is, and has been at
all times, treated as a separate corporation for federal tax purposes.
2. As of the date of the transaction, the fair market value of the
Acquiring Fund Shares received by each shareholder that holds shares of
Acquired Fund (the "Acquired Fund Shares") will be approximately equal to the
fair market value of the Acquired Fund Shares with respect to which such
Acquiring Fund Shares are received, and the aggregate consideration received by
Acquired Fund shareholders in exchange for their Acquired Fund Shares will be
approximately equal to the fair market value of all of the outstanding Acquired
Fund Shares immediately prior to the transaction. No property other than
Acquiring Fund Shares will be distributed to shareholders of Acquired Fund in
exchange for their Acquired Fund Shares, nor will any such shareholder receive
cash or other property as part of the transaction.
3. Neither Acquired Fund nor any person "related" to Acquired Fund (as
defined in Treasury Regulation Section 1.368-1(e)(3)), nor any partnership in
which Acquired Fund or any such related person is a partner, has redeemed,
acquired or otherwise made any distributions with respect to any shares of
Acquired Fund as part of the transaction, or otherwise pursuant to a plan of
which the transaction is a part, other than redemptions and distributions made
in the ordinary course of Acquired Fund's business as a series of an open-end
investment company. To the best knowledge of management of Acquired Fund, there
is no plan or intention on the part of the shareholders of Acquired Fund to
engage in any transaction with Acquired Fund, Acquiring Fund, or any person
treated as related to Acquired Fund or Acquiring Fund under Treasury Regulation
Section 1.368-1(e)(3) or any partnership in which Acquired Fund, Acquiring
Fund, or any person treated as related to Acquired Fund or Acquiring Fund under
Treasury Regulation Section 1.368-1(e)(3) is a partner involving the sale,
redemption or exchange of any of the Acquired Fund Shares or any of the
Acquiring Fund Shares to be received in the transaction, as the case may be,
other than in the ordinary course of Acquired Fund's business as a series of an
open-end investment company.
4. In the transaction, Acquired Fund will transfer its assets to Acquiring
Fund, which will assume the Assumed Liabilities, such that immediately
following the transfer, Acquiring Fund will possess all of the same assets and
liabilities as were possessed by Acquired Fund immediately prior to the
transaction, except for assets used to pay expenses incurred in connection with
the transaction and assets distributed to shareholders in redemption of their
shares immediately preceding, or in contemplation of, the transaction (other
than redemptions and distributions made in the ordinary course of Acquired
Fund's business as an open-end investment company) which assets constitute less
than 1% of the net assets of Acquired Fund.
5. As of the date of the transaction, the fair market value of the
Acquiring Fund Shares issued to Acquired Fund will be approximately equal to
the fair market value of the Acquired Assets minus the Assumed Liabilities.
Acquired Fund will not receive any consideration from Acquiring Fund in
connection with the acquisition of the Acquired Assets other than the
assumption of the Assumed Liabilities and the issuance of such Acquiring Fund
Shares.
A-36
6. The Assumed Liabilities assumed by Acquiring Fund plus the Assumed
Liabilities, if any, to which the transferred assets are subject were incurred
by Acquired Fund in the ordinary course of its business. Acquired Fund is not
aware of any liabilities of any kind other than the Assumed Liabilities.
7. As of the Closing Date, the adjusted basis and the fair market value of
the Acquired Assets will equal or exceed the Assumed Liabilities for purposes
of Section 357(d) of the Code.
8. Acquired Fund currently conducts its historic business within the
meaning of Treasury Regulation Section 1.368-1(d)(2), which provides that, in
general, a corporation's historic business is the business it has conducted
most recently, but does not include a business that the corporation enters into
as part of a plan of reorganization. All of the assets of the Acquired Fund
held by Acquiring Fund as of the opening of business on August 2, 2004 (the
date the Acquiring Fund Adviser became the investment adviser to Acquired Fund)
were Acquired Fund's historic business assets within the meaning of Treasury
Regulation Section 1.368-1(d)(3) (which provides that a corporation's historic
business assets are the assets used in its historic business).
9. Acquired Fund will distribute to its shareholders the Acquiring Fund
Shares it receives pursuant to the transaction, and its other properties, if
any, and will be liquidated promptly thereafter.
10. The expenses of Acquired Fund incurred by it in connection with the
transaction, if any, will be only such expenses that are solely and directly
related to the transaction in accordance with Rev. Rul. 73-54, 1973-1 C.B. 187.
Acquired Fund will not pay any expenses incurred by its shareholders in
connection with the transaction.
11. There is no, and never has been any, indebtedness between Acquiring
Fund and Acquired Fund.
12. Acquired Fund has properly elected to be a regulated investment
company under Subchapter M of the Code, has qualified for the special tax
treatment afforded regulated investment companies under Subchapter M of the
Code for each taxable year since inception, and qualifies for such treatment as
of the time of the Closing.
13. Acquired Fund meets the requirements of an "investment company" in
Section 368(a)(2)(F) of the Code.
14. Acquired Fund is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
15. Acquired Fund does not pay compensation to any shareholder-employee.
16. Immediately following the transaction, the Acquired Fund Shareholders
will own all of the outstanding Acquiring Fund Shares and will own such shares
solely by reason of their ownership of the Acquired Fund Shares immediately
prior to the transaction.
17. Acquired Fund shareholders will not have dissenters' or appraisal
rights in the transaction.
18. The transaction is being undertaken for valid and substantial business
purposes, including facilitating Acquired Fund's becoming a member of the
Pioneer family of mutual funds, which, in the long term, is intended to result
in lower expenses and increased assets.
19. Acquired Fund has no outstanding warrants, options, convertible
securities or any other type of right pursuant to which any person could
acquire stock in Acquired Fund.
* * * * *
A-37
The undersigned officer of the Safeco Trust is authorized to make all of
the representations set forth herein, and the undersigned is authorized to
execute this certificate on behalf of Acquired Fund. The undersigned recognizes
that Wilmer Cutler Pickering Hale and Dorr LLP will rely upon the foregoing
representations in evaluating the United States federal income tax consequences
of the transaction and rendering its opinion pursuant to Section 8.5 of the
Agreement. If, prior to the date of the transaction, any of the representations
set forth herein ceases to be accurate, the undersigned agrees to deliver
immediately to Wilmer Cutler Pickering Hale and Dorr LLP a written notice to
that effect.
[SAFECO TRUST], on
behalf of [SAFECO FUND]
By: __________________________________
Name: ______________________________
Title: _____________________________
A-38
Exhibit B -- Form of Interim Advisory Agreement
AGREEMENT dated as of August 2, 2004, between Pioneer Investment
Management, Inc. ("Pioneer"), a Delaware corporation and a member of the
UniCreditio Italiano Banking Group, Register of Banking Groups, and [SAFECO
TRUST], a Delaware statutory trust (the "Trust"), on behalf of its series
[SAFECO FUNDS] (the "Fund").
Whereas, Safeco Asset Management Company has acted as investment adviser to
the Fund pursuant to an Investment Advisory Agreement dated (the "Prior
Agreement").
Whereas, the Prior Agreement has been approved by the Board of Trustees of
the Trust and the shareholders of the Fund.
Whereas, the Prior Agreement is being terminated as a result of
assignment.
Whereas, the Board of Trustees has determined to appoint Pioneer as
investment adviser to the Fund.
Whereas, this Agreement is being entered into in reliance upon Rule 15a-4
under the Investment Company Act of 1940, as amended (the "Investment Company
Act").
Now therefore the Trust and Pioneer agree as follow:
Section 1. The Trust appoints Pioneer as investment adviser of the Funds
for the period and on the terms set forth herein. Pioneer accepts such
appointment.
Section 2. Pioneer and the Trust, on behalf of the Fund, hereby agree that
the provisions of the Prior Agreement (other than as to the term of the Prior
Agreement, the identity of the Adviser and the use of the "Safeco" name) are
incorporated herein by reference and made a part hereof as if references to the
Adviser were to Pioneer. Without limiting the forgoing, Pioneer shall be
entitled to the fee for its services provided for in the Prior Agreement from
(but exclusive of) the date hereof until the termination of this Agreement,
except as provided in Section 3 below.
Section 3. In the event that this Agreement is not approved by a majority
of the Trust's outstanding voting securities (as such term is used in the
Investment Company Act), Pioneer shall be entitled to a fee equal to the cost
to Pioneer of performing its services under this Agreement in lieu of the fee
provided for in Section 2. For purposes of this Agreement, Pioneer's costs in
providing the services under this Agreement shall be equal to the pro rata
portion of Pioneer's expenses for the term of this Agreement attributable to
its investment company advisory business, calculated as follows: Pioneer cost
in providing investment advisory services to its investment companies of the
same type (i.e., domestic equity, international, fixed income, money market)
multiplied by a fraction the numerator of which shall be the average daily net
assets of the Fund during the term of this Agreement and the denominator of
which shall be the average month end net assets under Pioneer's management of
all of its investment company clients.
Section 4. The compensation earned by Pioneer under Section 2 of this
Agreement shall be held in an interest bearing escrow account with the Fund's
custodian. If a majority of the outstanding voting securities approves this
Agreement prior to the end of its term, the amount in the escrow account
(including any interest earned) shall be paid to Pioneer. If a majority of the
outstanding voting securities do not approve this Agreement prior to the end of
its term, Pioneer shall be entitled to be paid, out of the escrow account the
lesser of (i) the amount in the escrow account (including any interest earned
on that amount while in escrow) and (ii) the fee provided for in Section 3
(plus any interest on that amount while in escrow), with any remaining amount
in the escrow account being returned to the Fund.
Section 5. This Agreement shall become effective on August 2, 2004. Unless
terminated as provided below, this Agreement shall remain in full force and
effect until the earliest of (i) the closing of the reorganization of the Fund
into [name of Pioneer Fund], (ii) approval of a Management Contract between the
Fund and Pioneer and (iii) a date that is the later of 150 days after the date
of the termination of the Prior Agreement or such later date as may be
consistent with a rule or interpretive position (formal or informal) of the
staff of the Securities and Exchange Commission. This Agreement may be
terminated at any time without payment of penalty by vote of the Trustees of
the Trust or by vote of a majority of the outstanding voting securities of the
Fund. Pioneer may terminate this Agreement at any time without payment of any
penalty on not less than 60 days written notice to the Fund. This Agreement
shall automatically terminate upon its assignment as defined in the Investment
Company Act.
B-1
In witness whereof, the parties hereto have executed this Agreement as the 2nd
day of August 2004.
[SAFECO TRUST]
--------------
---------------------------------------
By: -----------------------------------
Its: ----------------------------------
PIONEER INVESTMENT MANAGEMENT, INC.
---------------------------------------
By: -----------------------------------
Its: ----------------------------------
B-2
Exhibit C -- Additional Information Pertaining to Pioneer
---------------------------------------------------------
PORTFOLIO TRANSACTION POLICIES
All orders for the purchase or sale of portfolio securities are placed on
behalf of each fund by Pioneer pursuant to authority contained in the fund's
management contract. Pioneer seeks to obtain the best execution on portfolio
trades. The price of securities and any commission rate paid are always
factors, but frequently not the only factors, in judging best execution. In
selecting brokers or dealers, Pioneer considers various relevant factors,
including, but not limited to, the size and type of the transaction; the nature
and character of the markets for the security to be purchased or sold; the
execution efficiency, settlement capability and financial condition of the
dealer; the dealer's execution services rendered on a continuing basis; and the
reasonableness of any dealer spreads. Transactions in non-U.S. equity
securities are executed by broker-dealers in non-U.S. countries in which
commission rates may not be negotiable (as such rates are in the U.S.).
Pioneer may select broker-dealers that provide brokerage and/or research
services to a fund and/or other investment companies or other accounts managed
by Pioneer. In addition, consistent with Section 28(e) of the Exchange Act, if
Pioneer determines in good faith that the amount of commissions charged by a
broker-dealer is reasonable in relation to the value of the brokerage and
research services provided by such broker, the fund may pay commissions to such
broker-dealer in an amount greater than the amount another firm may charge.
Such services may include advice concerning the value of securities; the
advisability of investing in, purchasing or selling securities; the
availability of securities or the purchasers or sellers of securities;
providing stock quotation services, credit rating service information and
comparative fund statistics; furnishing analyses, electronic information
services, manuals and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and performance of accounts
and particular investment decisions; and effecting securities transactions and
performing functions incidental thereto (such as clearance and settlement).
Pioneer maintains a listing of broker-dealers who provide such services on a
regular basis. However, because many transactions on behalf of a fund and other
investment companies or accounts managed by Pioneer are placed with
broker-dealers (including broker-dealers on the listing) without regard to the
furnishing of such services, it is not possible to estimate the proportion of
such transactions directed to such dealers solely because such services were
provided. Pioneer believes that no exact dollar value can be calculated for
such services.
The research received from broker-dealers may be useful to Pioneer in
rendering investment management services to any of the funds as well as other
investment companies or other accounts managed by Pioneer, although not all
such research may be useful to any of the funds. Conversely, such information
provided by brokers or dealers who have executed transaction orders on behalf
of such other accounts may be useful to Pioneer in carrying out its obligations
to any of the funds. The receipt of such research has not reduced Pioneer's
normal independent research activities; however, it enables Pioneer to avoid
the additional expenses which might otherwise be incurred if it were to attempt
to develop comparable information through its own staff.
In circumstances where two or more broker-dealers offer comparable prices
and executions, preference may be given to a broker-dealer which has sold
shares of a fund as well as shares of other investment companies managed by
Pioneer. This policy does not imply a commitment to execute all portfolio
transactions through all broker-dealers that sell shares of the fund.
None of the funds used any brokers affiliated with Pioneer during its most
recently completed fiscal year in connection with its portfolio transactions.
SIMILAR FUNDS
Pioneer serves as the investment adviser to each fund in the Pioneer
Family of Funds. The following table identifies other funds in the Pioneer
Family of Funds that have similar investment objectives to the Funds described
in this Proxy Statement/Prospectus and provides other information regarding the
similar funds.
C-1
- ------------------------------------------------------------------------------------------------------------------------
Net assets of Fund Management fee rate
Pioneer Fund (as of September 30, 2004) (as a percentage of average daily net assets)
- ------------------------------------------------------------------------------------------------------------------------
Pioneer America Income Trust $ 199,641,365 0.50%
- ------------------------------------------------------------------------------------------------------------------------
Pioneer Bond Fund $ 265,835,916 0.50%
- ------------------------------------------------------------------------------------------------------------------------
Pioneer Cash Reserves Fund $ 478,165,700 0.40%
- ------------------------------------------------------------------------------------------------------------------------
Pioneer Global High Yield Fund $ 145,376,065 0.70% of the Funds average net assets up to $500
million, 0.65% of the next $500 million and 0.60%
of the excess over $1 billion.
- ------------------------------------------------------------------------------------------------------------------------
Pioneer High Yield Fund $7,811,801,182 0.70% of the Funds average net assets up to $500
million, 0.65% of the next $500 million and 0.60%
of the excess over $1 billion.
- ------------------------------------------------------------------------------------------------------------------------
Pioneer Short Term Income Fund $ 12,321,110 0.40%
- ------------------------------------------------------------------------------------------------------------------------
Pioneer Strategic Income Fund $ 572,112,159 0.60% of the Funds average net assets up to $1
billion, 0.55% of the next $9 billion; and 0.50% of
the excess over $10 billion.
- ------------------------------------------------------------------------------------------------------------------------
Pioneer Tax Free Income Fund $ 338,100,498 0.50% of the Funds average net assets up to $250
million, 0.48% of the next $50 million; and 0.45%
of the excess over $300 million.
- ------------------------------------------------------------------------------------------------------------------------
Pioneer Variable Contracts Trust
- ------------------------------------------------------------------------------------------------------------------------
Pioneer America Income VCT $ 44,418,013 0.55%
Portfolio
- ------------------------------------------------------------------------------------------------------------------------
Pioneer High Yield VCT Portfolio $ 109,597,617 0.65%
- ------------------------------------------------------------------------------------------------------------------------
Pioneer Money Market VCT Portfolio $ 30,622,262 0.50%
- ------------------------------------------------------------------------------------------------------------------------
Pioneer Strategic Income VCT $ 38,535,065 0.65%
Portfolio
- ------------------------------------------------------------------------------------------------------------------------
C-2
Exhibit D -- Portfolio Manager's Discussion of Performance
Report From the Fund Managers
Safeco California Tax-Free Income Fund
As of June 30, 2004
How did the Fund perform?
Though it posted an overall negative return, the Safeco California
Tax-Free Income Fund outperformed its benchmark index, the Lehman Brothers Long
Municipal Bond Index, for the six-month period ending June 30, 2004.
What factors impacted the Fund's performance?
After a first quarter market rally, then sell-off, the first half ended
with long-term bond yields rising about 50 basis points during the second
quarter. The impetus for this change was more news demonstrating a stronger
economy and an increasing threat of renewed inflation, which in turn could
inspire the Federal Reserve to increase short-term yields at a faster pace than
expected. With a longer average maturity than most of its peers, the Fund
performed relatively poorly as bond prices declined sharply.
What changes did you make to the Fund and why?
Transactions for the period included two small sales of Los Angeles DWAP
4.25 '34 to retail customers at aggressive prices, and a tax swap. We sold San
Jose Airport 5 '32 and bought Orange County Sanitary District 5 '33 in order to
realize a small loss, which can be used to offset gains for tax purposes.
Stephen Bauer -- Portfolio Manager
Mary Metastasio -- Portfolio Manager
D-1
Performance Overview & Highlights
Safeco California Tax-Free Income Fund
(Unaudited)
INVESTOR CLASS
Average Annual Total Return
for the periods ended June 30, 2004 Six Month* 1 Year 5 Year 10 Year
- --------------------------------------------------------------------------------------------------
Safeco California Tax-Free Income Fund (0.90)% (0.30)% 5.57% 6.58%
Lehman Brothers Long Municipal Bond Index (1.26)% 0.53% 6.04% 7.08%
Lipper, Inc. (California Municipal Bond Funds) (0.96)% 0.23% 4.74% 5.71%
* Not annualized.
Performance does not reflect the deduction for taxes that a shareholder would
pay on Fund distributions or the redemption of Fund shares.
- ---------------------------------------------------------------------------------------------------
<Graphic omitted>
The performance graph compares a hypothetical $10,000 investment in the
Investor Class to a hypothetical investment in a relevant market index. The
index is unmanaged and includes no operating expenses or transaction costs.
Past performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
Current Yield (30 day) ............ 4.51%
Weighted Average Maturity ......... 24.76 years
Percent of
TOP FIVE TYPE OF BONDS Net Assets
- ------------------------ -----------
Hospital 18.6%
Lease Rental 10.2
University Revenue 9.8
Utilities (Water) 9.1
Percent of
TOP FIVE HOLDINGS Net Assets
- ---------------------------------------------------------------------
Alameda Corridor Transportation Authority Revenue 5.8%
California Health Facilities Financing Authority Health
Facility Revenue (Cedars Sinai Medical Center) 5.8
Duarte California Certificates of Participation (City of
Hope Medical Center) 5.6
San Joaquin Hills Transportation Corridor Agency
Senior Lien Toll Road Revenue 5.2
State of California General Obligation Bonds 5.0
CREDIT RATING DISTRIBUTION AS A PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
[THE FOLLOWING WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
AAA: 40.2%
AA: 4.2%
A: 16.3%
BBB: 27.5%
Cash & Other: 6.6%
D-2
Report From the Fund Managers
Safeco High-Yield Bond Fund
As of June 30, 2004
How did the Fund perform?
Year-to-date performance of the fund has exceeded both the benchmark, the
Merrill Lynch High-Yield Master II Index, and the high-yield peer median.
What Factors impacted the Fund's performance?
Our credit selection and overweight in CCC-rated bonds largely accounted
for the Fund's good relative performance during the first half of the year. We
likely removed the overweight in CCC too soon and missed the rally during the
last part of the second quarter.
Nine of our holdings announced refinancing and/or tenders, which provided
a positive "pop" to returns reflecting our credit picks. Two negative credit
events were Pegasus Satellite, which deteriorated quickly, and in MCI stock we
received in exchange for WorldCom bonds. The latter declined as short-term
bankruptcy investors sold the stock and long-term holders have been slow to add
positions in a difficult sector.
What changes did you make to the Fund and why?
The number of overall holdings has been reduced to a more manageable
level, between 100 and 120 positions. Diversification remained strong as we
trimmed larger holdings and selectively added to several top-25 positions. No
bond exceeds 2% of assets and we continue to reduce the percentage of our asset
level in the top 10.
We continue to overweight industrial and cyclical sectors, underweight
defensive sectors and BB-rated credits, and maintain a shorter duration versus
our benchmark. Our overall yield-to-maturity and coupon return to shareholders
are close to or exceed the benchmark. We achieve this by holding high coupon
"cushion" bonds likely to be called in the near term.
High-yield bonds, especially those rated BB, will be hurt as Treasury
rates rise at this point in the cycle. The effort to counteract rising interest
rates is three-fold. First, underweighting BB-rated issues and slightly shorten
the duration. Second, adding adjustable rate bonds to offset the Federal
Reserve rate increases. Finally, identifying near-term credit upgrade
candidates not fully reflected in the market. The latter is admittedly
difficult in this fairly valued market.
Gregory Card, CFA -- Portfolio Manager
Beverly R. Denny, CFA -- Portfolio Manager
D-3
Performance Overview & Highlights
Safeco High-Yield Bond Fund
(Unaudited)
INVESTOR CLASS
- ------------------------------------------------------------------------------------------
Average Annual Total Return
for the periods ended June 30, 2004 Six Month* 1 Year 5 Year 10 Year
- ------------------------------------------------------------------------------------------
Safeco High-Yield Bond Fund 1.44% 11.67% 0.74% 4.60%
Merrill Lynch High-Yield Master II Index 1.36% 10.19% 4.79% 7.50%
Lipper, Inc. (High Current Yield Funds) 1.15% 9.63% 3.48% 5.45%
* Not annualized.
Performance does not reflect the deduction for taxes that a shareholder would pay on Fund
distributions or the redemption of
Fund shares.
<GRAPHIC OMITTED>
The performance graph compares a hypothetical $10,000 investment in the
Investor Class to a hypothetical investment in a relevant market index. The
index is unmanaged and includes no operating expenses or transaction costs.
Past performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
Current Yield (30-day) ............ 6.93%
Weighted Average Maturity ......... 5.33 years
Percent of
TOP FIVE INDUSTRIES Net Assets
- ---------------------------------------- -----------
Integrated Telecommunications Services 6.0%
Metal & Glass Containers 5.8
Specialty Stores 4.5
Auto Parts & Equipment 4.0
Electric Utilities 3.7
Percent of
TOP FIVE HOLDINGS Net Assets
- -------------------------------------------- -----------
Champion Enterprises, Inc.
(Homebuilding) 1.6%
LCI International, Inc.
(Integrated Telecommunications Services) 1.6
Cogentrix Energy Inc.
(Multi-Utilities & Unregulated Power) 1.4
Graham Packaging Co., Inc.
(Paper Packaging) 1.4
AMF Bowling Worldwide, Inc.
(Leisure Facilities) 1.2
TOP FIVE PURCHASES Cost
For the Period Ended June 30, 2004 (000's)
- ------------------------------------------------- --------
Interface, Inc. $1,000
AMF Bowling Worldwide Inc. 650
Petro Stopping Centers, LP 513
BCP Caylux Holdings Luembourg SCA 508
American Casino & Entertainment Properties, LLC 500
TOP FIVE SALES Proceeds
For the Period Ended June 30, 2004 (000's)
- ------------------------------------ ---------
Interface, Inc. $598
Schuler Homes, Inc. 583
Nalco Co. 527
NRG Energy, Inc. 526
Petrozuata Finance, Inc. 524
CREDIT RATING DISTRIBUTION AS A PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
[THE FOLLOWING WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
Corporate Bonds - CCC: 14.0%
Not Rated: 3.0%
Common Stock: 1.9%
Preferred Stock: 2.3%
Commercial Paper: 9.5%
Cash & Other: 4.8%
Corporate Bonds - BBB: 0.9%
Corporate Bonds - BB: 10.4%
Corporate Bonds - B: 53.2%
D-4
Report From the Fund Managers
Safeco Intermediate-Term Bond Fund
As of June 30, 2004
How did the Fund perform?
The Safeco Intermediate-Term Bond Fund slightly outperformed its benchmark
index, the Lehman Aggregate Bond Index, for the six-month period ending June
30, 2004.
What factors impacted the Fund's performance?
While interest rates declined in the first quarter, they rose sharply
during the second. The Fund benefited its relatively short duration and 10.5%
underweight holdings in Treasury securities, which underperformed the most of
any sector. However, the fund was hurt by its 6.4% underweight in mortgage
securities, the best-performing sector of the second quarter.
The Federal Reserve increased the Fed Funds rate to 1.25% from 1.00% on
June 30; the first rate change in a year. We believe that the Fed will continue
to raise rates through year-end and into 2005, most likely in 25 basis points
steps. The Fed appears to be focused on inflation and employment so we expect
the bond market will be very sensitive to both data releases. Any unanticipated
strength or weakness in either could cause yields to gyrate in either direction
although we believe the overall trend should be up. In this scenario the Fund,
with its shorter duration versus the peer group, should perform well.
What changes did you make to the Fund and why?
Early in the year we restructured the maturity profile of our Treasury
exposure, laddering holdings across the entire yield curve and selecting
specific positions with the highest yield per unit of duration risk. We also
increased our exposure to callable agency securities to increase the
portfolio's yield; this helped cushion the blow from the second quarter's rise
in rates.
Second quarter activity was aimed at maintaining our slightly short
duration and maintaining the mortgage-backed securities (MBS) allocation. The
Fund used the cash from mortgage paydowns to purchase mortgage pass-through to
maintain the allocation of MBS helping to maintain the portfolio's yield. The
Fund reduced its exposure in the corporate bond sector modestly, swapping a
30-year corporate bond for a similar maturity Treasury bond. The Fund also
tendered some 10-year corporate bonds and invested the proceeds in similar
maturity Corporates.
Lesley Fox -- Portfolio Manager
Nancy McFadden, CFA -- Portfolio Manager
Tim Hokari -- Portfolio Manager
Gregory Card, CFA -- Portfolio Manager
D-5
Performance Overview & Highlights
Safeco Intermediate-Term Bond Fund
(Unaudited)
INVESTOR CLASS
Average Annual Total Return
for the periods ended June 30, 2004 Six Month* 1 Year 5 Year 10 Year
- ------------------------------------------------------------------------------------------------------
Safeco Intermediate-Term Bond Fund 0.16% 0.02% 5.86% 5.88%
Lehman Brothers Aggregate Bond Index 0.15% 0.32% 6.95% 7.39%
Lipper, Inc. (Intermediate Investment-Grade
Bond Funds) (0.08)% 0.18% 6.16% 6.61%
- ------------------------------------------------------------------------------------------------------
* Not annualized.
Performance does not reflect the deduction for taxes that a shareholder would
pay on Fund distributions or the redemption of Fund shares.
<GRAPHIC OMITTED>
The performance graph compares a hypothetical $10,000 investment in the
Investor Class to a hypothetical investment in a relevant market index. The
index is unmanaged and includes no operating expenses or transaction costs.
Past performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
Current Yield (30-day) ............ 3.67%
Weighted Average Maturity ......... 5.50 years
Percent of
BONDS BY TYPE Net Assets
- -----------------------------------------------------------------
Asset Backed Securities 1.4%
Corporate Bonds 32.5
Collateralized Mortgage Obligations 4.0
U.S. Government & Agency Obligations 25.6
U.S. Government Agency-Mortgage Backed Securities 28.3
Municipal Bonds 1.1
Cash & Other 7.1
-----
100.0%
=====
CREDIT RATING DISTRIBUTION AS A PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
[THE FOLLOWING WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
AAA: 62.0%
AA: 0.9%
A: 17.5%
BBB: 12.5%
Cash & Other: 7.1%
D-6
Report From the Fund Managers
Safeco Intermediate-Term Municipal Bond Fund
As of June 30, 2004
How did the Fund perform?
The Safeco Intermediate-Term Municipal Bond Fund matched its benchmark
index, the Lehman Brothers 7-Year Municipal Bond Index, for the six-month
period ending June 30, 2004.
What factors impacted the Fund's performance?
After gaining fairly steadily since last summer, bond prices moved down
during most of the first quarter, recovering somewhat in late May and June. We
underperformed during the period. The steep decline (approximately 100 basis
point in a two-month period beginning in March and ending in May) hurt us, and
the period of increased stability at the end of the quarter was not long enough
for us to recover from the hit.
What changes did you make to the Fund and why?
We did not make any changes in the basic structure of the fund. We did
just one trade during each quarter. During the first quarter, we added to our
position in Chicago, IL Tax Increment 5%. During the second quarter, we
purchased Columbus, Ohio, general obligation bonds. These are very high
credit-quality bonds from a state where a significant premium is usually paid
by investors in order to gain the state tax exemption. The bonds, however, were
sold at close to general market values. We believe that at some point in the
future, the spread will widen out and their value will increase relative to
other bonds.
Mary Metastasio -- Portfolio Manager
Stephen Bauer -- Portfolio Manager
D-7
Performance Overview & Highlights
Safeco Intermediate-Term Municipal Bond Fund
(Unaudited)
INVESTOR CLASS
Average Annual Total Return
for the periods ended June 30, 2004 Six Month* 1 Year 5 Year 10 Year
- ------------------------------------------------------------------------------------------------------
Safeco Intermediate-Term Municipal Bond Fund (1.03)% (0.27)% 4.94% 5.25%
Lehman Brothers 7-Year Municipal Bond Index (1.03)% 0.50% 5.88% 6.04%
Lipper, Inc. (Intermediate Municipal Bond Funds) (1.00)% 0.02% 4.93% 5.29%
- ------------------------------------------------------------------------------------------------------
* Not annualized.
Performance does not reflect the deduction for taxes that a shareholder would
pay on Fund distributions or the redemption of Fund shares.
<GRAPHIC OMITTED>
The performance graph compares a hypothetical $10,000 investment in the
Investor Class to a hypothetical investment in a relevant market index. The
index is unmanaged and includes no operating expenses or transaction costs.
Past performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
Current Yield (30-day) ............ .14%
Weighted Average Maturity ......... .81 years
Percent of
TOP FIVE HOLDINGS Net Assets
- --------------------------------------------------- -----------
New York State Housing Finance Agency Health
Facilities Revenue 4.3%
Tempe Arizona Unified High School District #213
General Obligation 3.8
Chicago Illinois Metropolitan Water Reclamation
District of Greater Chicago General Obligation 3.7
Ohio State Building Authority Adult Correction 3.4
Michigan State Trunk Line Revenue 3.4
Percent of
TOP FIVE STATES Net Assets
- ----------------- -----------
Washington 11.9%
Illinois 11.3
New York 10.9
Texas 10.1
South Carolina 6.4
CREDIT RATING DISTRIBUTION AS A PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
[THE FOLLOWING WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
AAA: 44.0%
AA: 25.1%
A: 12.6%
BBB: 17.4%
Cash & Other: 0.9%
D-8
Report From the Fund Managers
Safeco Intermediate-Term U.S. Government Fund
As of June 30, 2004
How did the Fund perform?
The Safeco Intermediate-Term U.S. Government Fund outperformed its
benchmark index, the Lehman Intermediate Government Index, for the six-month
period ending June 30, 2004.
What factors impacted the Fund's performance?
Rising interest rates marked a performance shift between the first and
second quarters. While rates fell in the first quarter, favoring longer
duration securities, rates began an upward climb in the second. The Fund's
shorter duration, along with its exposure to mortgage-backed securities (MBS),
allowed it to benefit from this rising interest-rate environment and
contributed to improved performance relative to the benchmark for the first six
months of the year.
What changes did you make to the Fund and why?
Trading activity for the first six months was aimed at modestly
lengthening the Fund's duration, increasing yield, and maintaining the MBS
allocation.
During the first half of the year, we sold a four-plus year Treasury to
buy a longer duration Treasury security (2023 maturity) to increase the Fund's
exposure to the long end of the yield curve and lengthen its duration. Some of
the proceeds were also used to buy 30-year 5.5% FNMA pass-throughs to maintain
the allocation of MBS slightly above 40%.
The Fund used the cash from mortgage pay downs to purchase a 30-year 5.0%
FNMA pass-through to maintain the allocation of MBS slightly above 40%. The
Fund also sold an eight-year Treasury and bought a 10-year Federal Home Loan
Bank (FHLB) bond. The FHLB bond yielded almost 1.5% more than the Treasury.
This added both yield and duration to the portfolio.
Paul Stevenson, CFA -- Portfolio Manager
Lesley Fox -- Portfolio Manager
Tim Hokari -- Portfolio Manager
D-9
Performance Overview & Highlights
Safeco Intermediate-Term U.S. Government Fund
(Unaudited)
INVESTOR CLASS
Average Annual Total Return
for the periods ended June 30, 2004 Six Month* 1 Year 5 Year 10 Year
- ------------------------------------------------------------------------------------------------------
Safeco Intermediate-Term U.S. Government Fund 0.15% (0.73)% 5.73% 6.29%
Lehman Brothers Intermediate Government Index (0.15)% (0.48)% 6.25% 6.56%
Merrill Lynch U.S. Treasury/Agency Master Index (0.18)% (1.29)% 6.66% 7.13%
Lipper, Inc. (General U.S. Gov't Funds) (0.32)% (1.45)% 5.68% 6.14%
- ------------------------------------------------------------------------------------------------------
* Not annualized.
Performance does not reflect the deduction for taxes that a shareholder would
pay on Fund distributions or the redemption of Fund shares.
<GRAPHIC OMITTED>
The performance graph compares a hypothetical $10,000 investment in the
Investor Class to a hypothetical investment in a relevant market index. The
index is unmanaged and includes no operating expenses or transaction costs.
Past performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
Current Yield (30-day) ............ 3.16%
Weighted Average Maturity ......... 4.6 years
D-10
Report From the Fund Managers
Safeco Money Market Fund
As of June 30, 2004
How did the Fund Perform?
The Fund had returns for the six-month period ending June 30, 2004 above
the average of other taxable money market funds. However, the 12-month return
on the Fund was lower than the 3.2% year-over-year increase in the Consumer
Price Index (CPI) as of the end of June 2004.
What factors impacted the Fund's performance?
After a full year of the Federal Funds target rate of 1.00%, the Federal
Reserve's Open Market Committee (FOMC) finally raised the rate to 1.25% on June
30. The Fed Funds futures market anticipates a 0.25% rise in the rate at each
of the four remaining FOMC meetings in 2004 and even higher rates in 2005.
The main reason the Fund outperformed the Lipper benchmark was the large
holdings (33%) of 7-day reset floating rate notes that reset off of the 1-month
London inter-bank offer rate (LIBOR). LIBOR-based securities currently offer
higher rates than other available money market securities, and the frequent
rate reset of the notes captures higher rates more quickly in a rapidly rising
rate environment. Also contributing to the superior returns were the Fund's
holdings of longer-term corporate bonds purchased at relatively high yields on
a steep money market yield curve.
What changes did you make to the Fund and why?
We increased the allocation of floating rate notes. This has become our
asset class of choice because the spread is much higher than commercial paper.
We continued to reduce our holdings of Commercial paper (to 31% of Fund)
relative to our peers (49% according to iMoneyNet). Commercial paper remains
one of the lowest-yielding assets in the prime money markets.
After rates had risen significantly, we made a purchase of a Federal Home
Loan Bank (FHLB) thirteen-month maturity bond which is callable every three
months and some purchases of one-year bank and broker paper.
Lesley Fox -- Portfolio Manager
Cathleen Beauchamp, CFA -- Portfolio Manager/Taxable Fixed Income Analyst
D-11
Performance Overview & Highlights
Safeco Money Market Fund
(Unaudited)
INVESTOR CLASS
Average Annual Total Return
for the periods ended June 30, 2004 Six Month* 1 Year 5 Year 10 Year
- -------------------------------------------------------------------------------------------------
Safeco Money Market Fund 0.25% 0.51% 2.86% 3.85%
Lipper, Inc. (Money Market Funds) 0.17% 0.35% 2.63% 3.81%
- -------------------------------------------------------------------------------------------------
* Not annualized.
Performance does not reflect the deduction for taxes that a shareholder would
pay on Fund distributions or the redemption of Fund shares.
Weighted Average Maturity ......... 56 Days
7 Day Yield ....................... 0.66%
D-12
Report From the Fund Managers
Safeco Municipal Bond Fund
As of June 30, 2004
How did the Fund perform?
Though it had negative overall performance, the Safeco Municipal Bond Fund
outperformed its benchmark Index, the Lehman Long Municipal Bond Index, for the
six-month period ending June 30, 2004.
What factors impacted the Fund's performance?
After a typical first quarter, long-term bond yields rose about 50 basis
points during the second quarter. This was due to more news demonstrating a
stronger economy and an increasing threat of renewed inflation, both of which
could inspire the Federal Reserve to increase short-term yields at a faster
pace than expected.
With a longer average maturity than most of its peers, the Fund performed
relatively poorly during the first half, as bond prices declined sharply.
What changes did you make to the Fund and why?
Three new issues were purchased during the first half of 2004. All were
rated A by Standard & Poor's, and offered significant additional yield to the
benchmark AAA scale. In the first quarter, we purchased $4 million of
Dorchester County School District 5.25 12/1/29 to yield 4.90%. These A-rated
bonds provided 55 basis points more yield than AAA bonds, a very attractive
spread.
In the second quarter, Empire State Development Authority 5.125 7/1/21
came to market at a yield of 4.70%, 49 basis points more than AAA bonds. Puerto
Rico Highway 5.125% 7/1/43 bonds were offered at a yield of 5.20%, which was an
additional 42 basis points over AAA-rated bonds.
We also swapped out of several bonds priced near par into deeper
discounts. This move afforded a greater total return in the event of a market
turnaround without adding significant downside potential.
Stephen Bauer -- Portfolio Manager
Mary Metastasio -- Portfolio Manager
D-13
Performance Overview & Highlights
Safeco Municipal Bond Fund
(Unaudited)
INVESTOR CLASS
Average Annual Total Return
for the periods ended June 30, 2004 Six Month* 1 Year 5 Year 10 Year
- -------------------------------------------------------------------------------------------
Safeco Municipal Bond Fund (0.86)% 0.42% 5.90% 6.60%
Lehman Brothers Long Municipal Bond Index (1.26)% 0.53% 6.04% 7.08%
Lipper, Inc. (General Municipal Bond Funds) (0.99)% 0.32% 4.64% 5.40%
- -------------------------------------------------------------------------------------------
* Not annualized.
Performance does not reflect the deduction for taxes that a shareholder would
pay on Fund distributions or the redemption of Fund shares.
<GRAPHIC OMITTED>
The performance graph compares a hypothetical $10,000 investment in the
Investor Class to a hypothetical investment in a relevant market index. The
index is unmanaged and includes no operating expenses or transaction costs.
Past performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
Current Yield (30-day) ............ 4.35%
Weighted Average Maturity ......... 22.59 years
Percent of
TOP FIVE HOLDINGS Net Assets
- ----------------------------------------------------------------
San Joaquin Hills Transportation Corridor Agency
Senior Lien Toll Road Revenue 3.9%
Massachusetts State Housing Finance Agency
(Series B) 3.7
Indiana State Development Finance Authority
Environmental Revenue 3.7
Los Angeles California Unified School District 2.7
Golden State Tobacco Securitization Corp. Tobacco
Settlement Revenue 2.7
Percent of
TOP FIVE STATES Net Assets
- ----------------- -----------
California 20.4%
Texas 7.3
Illinois 6.9
Massachusetts 5.6
Washington 5.6
CREDIT RATING DISTRIBUTION AS A PERCENT OF NET ASSET
- --------------------------------------------------------------------------------
[THE FOLLOWING WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
AAA: 42.1%
AA: 14.2%
A: 14.2%
BBB: 20.2%
BB: 3.9%
Not Rated: 1.0%
Cash & Other: 4.4%
D-14
Report From the Fund Managers
Safeco Tax-Free Money Market Fund
As of June 30, 2004
How did the Fund perform?
The Fund had returns above the average of other tax-free money market
funds for the six-month period ending June 30, 2004.
What factors impacted the fund's performance?
Although in absolute numbers the return is small, the fund has continued
to fare well compared to its peers. The structure of the portfolio serves us
well.
As of June 30, 66% of the fund was invested in variable rate demand option
(VRDO) bonds which can be tendered on a daily or weekly basis, and 34% in
six-month and one-year put bonds. The heavy weighting in VRDOs gives us
liquidity and flexibility, along with a competitive yield. The longer put bonds
let us lock in some higher rates on a smaller portion of the fund.
What changes did you make to the fund and why?
We have not made any significant changes to the fund. The barbell strategy
outlined above -- with a heavy concentration in VRDOs, a smaller concentration
in put bonds, and not much in between -- has worked for us consistently.
Mary Metastasio -- Portfolio Manager
Stephen Bauer -- Portfolio Manager
D-15
Report From the Fund Manager
Safeco Tax-Free Money Market Fund
As of June 30, 2004
Average Annual Total Return
for the periods ended June 30, 2004 Six Month* 1 Year 5 Year 10 Year
- ------------------------------------------------------------------------------------------------------
Safeco Tax-Free Money Market Fund 0.21% 0.43% 1.79% 2.45%
Lipper, Inc. (Tax-Exempt Money Market Funds) 0.19% 0.37% 1.75% 2.40%
- ------------------------------------------------------------------------------------------------------
* Not annualized.
Performance does not reflect the deduction for taxes that a shareholder would
pay on Fund distributions or the redemption of Fund shares.
Weighted Average Maturity ......... 42 Days
[THE FOLLOWING WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
Safeco Tax-Free Money Market Fund*
Actual 7-day Yield 0.50%
10% Tax Bracket Tax-Equivalent Yield 0.56%
15% Tax Bracket Tax-Equivalent Yield 0.59%
25% Tax Bracket Tax-Equivalent Yield 0.67%
28% Tax Bracket Tax-Equivalent Yield 0.69%
33% Tax Bracket Tax-Equivalent Yield 0.75%
35% Tax Bracket Tax-Equivalent Yield 0.77%
* Represents the Safeco Tax-Free Money Market Fund actual 7-day yield on June
30, 2004, and related tax-equivalent yields assuming various shareholder
tax brackets. Tax-equivalent yield comparisons may vary with market
conditions.
D-16
PIONEER HIGH YIELD FUND
Performance Update 7/30/04 Class A Shares
Share Prices and Distributions
4/30/04 10/31/03
Net Asset Value per Share $ 11.73 $ 11.59
Distributions per Share Net Short-Term Long-Term
(11/1/03 4/30/04) Investment Capital Gains Capital Gains
Income
$ 0.365 $ $ 0.0096
Investment Returns
The mountain chart on the right shows the change in value of a $10,000
investment made in Pioneer High Yield Fund at public offering price, compared
to that of the Merrill Lynch High Yield Master II Index and the Merrill Lynch
Index of Convertible Bonds (Speculative Quality).
[THE FOLLOWING WAS REPRESENTED AS A MOUNTAIN CHART IN THE PRINTED MATERIAL]
Average Annual Total Returns+
(As of April 30, 2004)
Value of $10,000 Investment
2/98 9,550 10,000 10,000
8,260 9,612 9,185
10/99 10,069 10,151 12,442
13,203 9,980 14,165
10/01 13,773 9,985 10,316
13,302 9,332 10,042
18,201 12,424 14,348
4/04 19,007 13,089 15,340
Period Net Asset Value Public Offering Price*
- ---------------- ----------------- -----------------------
Life-of-Class
(2/12/98) 11.92% 11.10%
5 Years 14.90 13.86
1 Year 17.87 12.57
All returns reflect reinvestment of distributions at net asset value.
* Reflects deduction of the maximum 4.5% sales charge at the beginning of the
period.
Performance data shown represents past performance. Past
performance does not guarantee future results. Assumes
reinvestment of all distributions at net asset value.
Investment return and principal value fluctuate, and
shares, when redeemed, may be worth more or less than
their original cost. Current performance may be lower or
higher than the performance shown. For performance data
that is current to the most recent month-end, please call
1-800-225-6292 or visit our website www.pioneerfunds.com.
+ The performance of each class of the Fund from February
12, 1998 to February 25, 2000 is the performance of Third
Avenue High Yield Fund's single class, which has been
reduced to reflect any applicable sales charges and Rule
12b-1 fees (but not other differences in expenses). This
adjustment has the effect of reducing the previously
reported performance of Third Avenue High Yield Fund.
++ Index comparisons begin 2/28/98. The Merrill Lynch
High Yield Master II Index is a broad-based measure of
the performance of the non-investment grade U.S. domestic
bond market. The Merrill Lynch Index of Convertible Bonds
(Speculative Quality) is a market-capitalization weighted
index including mandatory and non-mandatory domestic
corporate convertible securities. 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 either
Index. The performance table and graph do not reflect the
deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
D-17
Portfolio Management's Discussion of Fund Performance (as of April 30, 2004)
High-yield bonds continued a string of solid performance during the six months
ended April 30, 2004. Here, Fund manager Margaret Patel explains the rebound in
the high-yield market and the factors that influenced the Fund's performance.
Q: How did the Fund perform?
A: During the six months ended April 30, 2004, the Fund had a total return
based on net asset value of 4.43% for the Fund's Class A shares, 4.01% for
Class B shares, 4.07% for Class C shares, 4.65% for Class R shares, and
4.61% for Class Y shares. To compare, the Merrill Lynch High Yield Master
II Index returned 5.35%.
Q: What was the environment like for the high-yield market during the past six
months?
A: The yield spread, or differential, between high-yield bonds and comparable
Treasuries narrowed, highlighting the solid performance of the high-yield
market. This yield spread narrowing reflected a brighter outlook for the
economy and the declining default rate among high-yield bonds. The Federal
Reserve Board aided the positive backdrop by providing ample liquidity to
the markets in the form of historically low interest rates. A modest level
of new supply also benefited the high-yield market, helping to buoy price
appreciation among outstanding bonds as demand for the asset class remained
high. With interest rates so low, investors looked to the high-yield market
for more attractive yields at a time when the strengthening economy made
them more comfortable venturing there.
Q: Why did the Fund modestly under perform the Merrill Lynch High Yield Master
II Index?
A: Much of the stronger relative performance offered by the index came from the
out-performance of low-quality bonds rated CCC or lower. We had very little
exposure to the lower-rated segments of the market, instead focusing more
of the Fund on those securities rated BB or BBB. These higher-rated bonds
tend to be more sensitive to changes in interest rates and, thus, suffered
on a relative basis as yields on comparable intermediate Treasury
securities rose during the period. However, we felt that the better-quality
issues should offer more favorable performance at this juncture in the
market cycle. In addition, more speculative industries, such as airlines,
telecommunications and lower-tier electric utilities, were among the best
performers during the period. We avoided these industries, feeling that
they were too risky and did not meet our investment criteria, particularly
because we believed that they were less likely to benefit from an economic
upturn than the alternatives we found in other sectors.
Q: What was your strategy during the period?
A: We decreased the proportion of the Fund devoted to convertible securities
from about 56% of the portfolio to just over 49%, and increased its stake
in standard corporate high-yield bonds from about 43% to about 50%. We made
this move because many convertible securities became fully valued, having
benefited from low interest rates and the substantial increase in the
underlying value of the issuing companies' stocks. We invested the proceeds
from these sales in the areas we judged to be most attractively valued
within the high-yield market. We also reduced the Fund's allocations to the
technology and health care sectors, including investments in pharmaceutical
and biotechnology companies. These securities offered substantial
out-performance, reaching fully valued levels. In addition, some technology
companies called a number of convertible bonds. That is, the issuers
decided to redeem the bonds by paying them off, requiring us to surrender
the securities. The assets we gained from our sales and redemptions were
used to increase the Fund's focus on cyclical companies that we felt were
best positioned to benefit from an improving economy. Overall, these firms
should benefit from better supply and demand fundamentals, as well as being
helped modestly by the cheapening U.S. dollar.
Q: Does your recent strategy mean you're gravitating away from a focus on
convertible securities?
A: No, it does not. Convertible securities remain a viable investment
alternative for the Fund. When we use them, we look for those convertibles
that are selling at discounted prices and offering high yields. We invest
in companies within industries where generic high yield bonds are not in
strong supply, especially smaller companies within rapidly growing
industries. Discounted convertible securities can offer appealing prospects
because their prices can appreciate more than regular bonds if the
underlying value of the company's stock rises. Also, holders of convertible
bonds can earn attractive yields similar to those offered within the
high-yield market.
D-18
Q: Which investments proved to be some of the top performers during the fiscal
year? Which disappointed?
A: Tesoro Petroleum was one of the top performers during the period. This West
Coast refining company profited from improved refining margins. Wabash
National, which manufactures truck trailers, benefited from improved demand
and better pricing. The health care sector offered particularly strong
performance for the Fund, with Protein Design Labs, Enzon Pharmaceuticals,
Human Genome, Ligand Pharmaceuticals and Sepracor all demonstrating success
with drug discovery or bringing new pharmaceutical products forward for
approval. In technology, Flir Systems, Xerox, Conexant Systems, Lam
Research, Brooks Automation and Triquint Semiconductors all posted improved
operating results driven by firmer pricing and a better outlook for the
industry. Disappointments included basic materials holdings Freeport Mac
MoRan and Inco. These holdings declined due to concerns about softening
demand for their products from China. In addition, publisher Houghton
Mifflin fell due to disappointing earnings results and projections.
Q: What is your outlook?
A: We remain optimistic because we expect corporate earnings growth rates to
continue to come in above long-term averages as the U.S. economy expands.
We also anticipate further declines in the default rate to well below its
historical average of 3%, due to solid economic growth and substantial
liquidity in the marketplace. Although we expect yields on Treasuries to
rise, we feel that the extra income offered by high-yield bonds should
outweigh the price erosion that accompanies such an increase. The outlook
for the equity market is very bright, reflecting positive earnings
forecasts. As a result, convertible securities could appreciate in price
should the underlying stocks move upward in response to better earnings
reports.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Fund's historical or future performance are
statements of the opinion of Fund management as of the date of this report.
These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
D-19
PIONEER BOND FUND
Performance Update 6/30/04 Class A Shares
Share Prices and Distribution
6/30/04 6/30/03
Net Asset Value per Share $ 9.18 $ 9.41
Distributions per Share Net Short-Term Long-Term
(7/1/03 - 6/30/04) Investment Capital Gains Capital Gains
Income
$ 0.5038 $ -- $ --
Investment Returns
The mountain chart on the right shows the change in value of a $10,000
investment made in Pioneer Bond Fund at public offering price, compared to that
of the Lehman Brothers Aggregate Bond Index.
[THE FOLLOWING WAS REPRESENTED AS A MOUNTAIN CHART IN THE PRINTED MATERIAL]
Average Annual Total Returns+
(As of April 30, 2004)
Value of $10,000 Investment
6/94 9,550 10,000 10,000
10,642 11,277 11,255
6/96 11,070 11,801 11,819
11,854 12,715 12,783
6/98 13,045 14,150 14,129
13,221 14,532 14,572
6/00 13,392 15,158 15,235
14,825 16,846 16,947
6/02 15,944 18,234 18,410
17,759 20,630 20,325
6/04 18,289 20,483 20,391
Period Net Asset Value Public Offering Price*
- --------------------------------------------------------
10 Years 6.72% 6.22%
5 Years 6.70 5.73
1 Year 2.98 -1.62
All returns reflect reinvestment of distributions at net asset value.
* Reflects deduction of the maximum 4.5% sales charge at the beginning of the
period.
Performance data shown represents past
performance. Past performance does not guarantee
future results. Assumes reinvestment of all
distributions at net asset value. Investment
return and principal value fluctuate, and shares,
when redeemed, may be worth more or less than
their original cost. Current performance may be
lower or higher than the performance shown. For
performance data that is current to the most
recent month-end, please call 1-800-225-6292 or
visit our web site www.pioneerfunds.com.
The Lehman Brothers Aggregate Bond Index is a
widely recognized market value- weighted measure
of government and corporate securities, agency
mortgage pass-through securities, asset-backed
securities and commercial mortgage-backed
securities. 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
Indexes. The performance table and graph do not
reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption
of Fund shares.
D-20
Portfolio Management's Discussion of Fund Performance (as of June 30, 2004)
As market interest rates spiked up in the final half of the 12-month period
ending June 30, 2004, high-yield corporate bonds and mortgage-backed securities
provided the best defensive protection, as conditions changed in the U.S.
fixed-income market. In the following discussion, Kenneth J. Taubes discusses
the factors that influenced Pioneer Bond Fund's performance during the 12
months. Mr. Taubes, Director of Pioneer's Fixed Income Group, oversees the team
responsible for daily management of the Fund.
Q: How did the Fund perform during the 12 months ended June 30, 2004?
A: In a challenging period for fixed-income investing, Pioneer Bond Fund
outdistanced both market benchmarks and competitive peer group averages.
For the 12 months, the Fund's Class A shares had a total return of 2.98%,
while Class B and Class C shares returned 2.04% and 2.11%, respectively,
all at net asset value. During the same 12 months, the Lehman Aggregate
Bond Index had a return of 0.32%, while the average return of funds in
Lipper's A-Rated Corporate Debt category was 0.04%. The Fund also continued
to deliver a competitive yield. The standardized 30-day SEC yield on Class
A shares on June 30, for example, was 4.30%.
Q: What were the factors that affected performance?
A: The Fund's performance was helped both by asset allocation and good security
selection. We had the largest overweight positions in the two asset classes
with the best performance during the 12 months: high-yield corporate bonds
and mortgage-backed securities. Throughout the year, we kept the Fund's
high-yield exposure close to the 20% limit of our policy. That strategy
helped substantially as the high-yield market, as measured by the Merrill
Lynch High Yield Master II Index, returned 10.30% for the 12 months. We
also had more than 40% of assets invested in mortgage securities during a
period in which mortgages were the best performing part of the
investment-grade fixed-income market. As a result, typically 60% to 65% of
Fund assets were invested in the two best performing parts of the bond
market. Both high-yield bonds and mortgage-backed securities tend to be
more resistant to the effects of price losses from increasing
interest-rates than other bonds because of their yield advantages. The
performance of mortgage-backed securities is also helped by the tendency of
mortgage prepayment risk to decline as interest rates rise. We held our
allocation to Treasury securities, the worst performing part of the bond
market, to less than 10% of assets during the period, and focused our
Treasury exposure on inflation-protected Treasuries, which outperformed
standard Treasury securities. Treasuries were the worst performing part of
the fixed-income market. During the 12-month period, the prices of 10-year
Treasuries declined by 7.5%.
Q: What types of security selections had the greatest influence on performance?
A: Several high-yield corporate bonds made significant contributions to
performance. Bonds issued by Corning, which restructured its business to
focus on the production of the material used for flat screen monitors, did
very well, as did securities of retailer J.C. Penney, which improved its
credit position through restructuring and the sale of its pharmacy chain
division. Bonds issued by hotel chains also did well as the economy
improved and business travel increased. Among the top performers in the
portfolio were bonds issued by the Hilton, Starwood and John Q. Hammond
hotel chains. The securities of insurance company Allmerica Financial also
appreciated in price during the period as a result of that company's
positive restructuring efforts.
Q: How would you describe the Fund's overall positioning?
A: We kept the Fund positioned to benefit from the improving economy, which
helps support the corporate bond market, while guarding against the threat
of rising interest rates. At the end of the fiscal year, on June 30,
mortgage securities accounted for 44.9% of Fund assets, while corporate
high-yield bonds made up 18.5% of the portfolio. About 30.3% of assets were
in investment-grade corporates, and just 1.4% of assets were invested in
Treasuries. Because rising interest rates tend to undermine bond prices, we
shortened the Fund's duration to lower its sensitivity to changes in
interest rates. Duration, a measure of interest-rate sensitivity, declined
during the period from 4.7 years at the start of the fiscal year to 4.3
years on June 30, 2004. Average credit quality on June 30, 2004 was A.
D-21
Q: What is your outlook for the bond market?
A: We believe the economy is healthy and should continue to grow. Short-term
rates currently are below the rate of inflation and should be expected to
continue to rise in the coming months. The Federal Reserve began to raise
the important Fed Funds rate, the most influential short-term rate, on June
30, and we expect further tightening by the Fed in the months ahead. We
believe market rates on longer-term bonds, which rose in the months leading
up to the June 30 announcement, probably are priced appropriately for
current conditions, but pressure on shorter-term and intermediate-term
interest rates should continue for several more quarters. The outlook for
corporate securities appears good, however, as more companies gain
additional pricing power, which should help them strengthen their balance
sheets. We recently have initiated some positions in the steel industry,
for example, an area we have generally avoided in the past. In this
environment, we anticipate maintaining a focus on corporate bonds and
mortgage-backed securities and expect to maintain the Fund's position to
mute the impact of rising interest rates of short- and intermediate-term
securities by keeping duration relatively short.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Fund's historical or future performance are
statements of the opinion of Fund management as of the date of this report.
These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
D-22
PIONEER TAX FREE INCOME FUND
Performance Update 6/30/04 Class A Shares
Share Prices and Distribution
6/30/04 12/31/03
Net Asset Value per Share $ 11.24 $ 11.70
Distributions Per Share Net Short-Term Long-Term
(1/1/04 - 6/30/04) Investment Capital Gains Capital Gains
Income
$ 0.272 $ -- $ --
Investment Returns
The mountain chart on the right shows the change in value of a $10,000
investment in Pioneer Tax Free Income Fund at public offering price, compared
to that of the Lehman Brothers Municipal Bond Index.
[THE FOLLOWING WAS REPRESENTED AS A MOUNTAIN CHART IN THE PRINTED MATERIAL]
Average Annual Total Returns+
(As of April 30, 2004)
Value of $10,000 Investment
6/94 9,550 10,000
9,428 9,924
11,015 11,657
6/96 11,408 12,173
12,428 13,294
6/98 13,198 14,156
12,632 13,863
6/00 14,101 15,482
14,683 16,276
6/02 15,720 17,837
16,632 18,788
6/04 16,358 18,658
Period Net Asset Value Public Offering Price*
- ---------- ----------------- -----------------------
10 Years 5.53% 5.05%
5 Years 4.84 3.89
1 Year 1.55 -3.04
* Reflects deduction of the maximum 4.5% sales charge at the beginning of the
period and assumes reinvestment of distributions at net asset value.
Performance data shown represents past
performance. Past performance does not guarantee
future results. Assumes reinvestment of all
distributions at net asset value. Investment
return and principal value fluctuate, and shares,
when redeemed, may be worth more or less than
their original cost. Current performance may be
lower or higher than the performance shown. For
performance data that is current to the most
recent month-end, please call 1-800-225-6292 or
visit our web site www.pioneerfunds.com.
The performance table and graph do not reflect the
deduction of taxes that a shareholder would pay on
Fund distributions or the redemption of Fund
shares. The Lehman Brothers Municipal Bond Index
is a widely recognized, 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) or state and local taxes.
D-23
Portfolio Management's Discussion of Fund Performance (as of June 30, 2004)
While yields and prices on municipal bonds fluctuated widely during the
first half of 2004, on June 30, 2004, yields were higher and prices were lower
than they had been six months before. In this environment, the Fund distributed
a relatively high level of tax-free income to shareholders. In the following
interview, David Eurkus, a member of Pioneer's Fixed-Income management team,
discusses some of the factors that had an impact on the municipal bond market
and your Safeco Fund.
Q: How did the Fund perform?
A: For the six-month period ended June 30, 2004, Pioneer Tax Free Income Fund's
Class A shares produced a -1.65% return; Class B shares returned -1.96%;
and Class C shares -1.96%, all at net asset value. The Fund's benchmark,
the Lehman Brothers Municipal Bond Index returned -0.68%, and the average
return of the 302 funds in the Lipper General Municipal Debt Funds Category
was -0.99%. Lipper is an independent monitor of mutual fund performance.
While we shortened the duration of the Fund, we did not reduce it so much
as to sacrifice yield. The funds in the Lipper category have a much shorter
duration than the Fund; and that difference in duration accounted for the
underperformance relative to Lipper. (Duration measures a bond's
sensitivity to interest rate changes. In a rising interest rate
environment, a shorter duration is usually advantageous because it
mitigates price erosion.) The Fund's Class A shares generated a 30-day SEC
tax-free yield of 5.23% as of June 30, 2004. That translates into a taxable
equivalent yield of 8.05%, based on the maximum federal income-tax rate of
35%.
Q: Why did the Fund under perform the benchmark?
A: The relative underperformance of the Fund's tobacco bonds, which accounted
for about 9% of net assets, was the primary detractor from performance
versus the Lehman Brothers Municipal Bond Index. While tobacco bonds
provided a very high level of income, their prices declined because certain
court rulings regarding tobacco companies were interpreted negatively by
the investment community. The Fund's allocation to transportation bonds,
which was about 4% of net assets, also detracted from performance. During
the period, Delta Airlines raised the possibility of filing for bankruptcy.
While we did not hold Delta bonds, nearly all airline bonds were negatively
affected by the company's announcement. The Fund's 34.6% allocation to
AAA-rated bonds also held back total return.
Q: What was the investment environment like during the period?
A: There were two distinct environments during the period. For the first
quarter of 2004, interest rates continued to decline, because investors
were not sure about the sustainability of the economic recovery. As we
moved into the second quarter, however, data began to indicate that the
economy was on a relatively strong recovery course and that hundreds of
thousands of new jobs had been created. The strong jobs numbers sparked
concerns about accelerating inflation and higher interest rates. Against
this backdrop, yields on both taxable and tax-free bonds rose sharply.
While yields moved higher across all maturities, those on short-term bonds
went up the most.
Q: What contributed to performance?
A: The declining interest rates in the first quarter of 2004 were a substantial
help to performance. Also, the higher-yielding -- or below investment-grade
-- bonds in the portfolio aided results.
Q: What were the principal strategies used in managing the Fund?
A: In keeping with the Fund's guidelines, we maintained our strategy of keeping
up to 10% of net assets in below investment-grade securities, which
enhanced the Fund's income and performance. The rest of the portfolio was
invested in investment-grade bonds. We focused on economically sensitive
market sectors, areas in which the underlying credit quality of
fixed-income securities tends to improve during periods of economic
recovery. These sectors included the hospital/health care, transportation,
and power/energy parts of the market. As mentioned above, to moderate the
Fund's price decline as interest rates rose, we shortened duration.
D-24
Q: What is your outlook?
A: We believe the economy will continue on a positive growth path. The Fed
boosted rates by 0.25% on June 30, and we expect the central bank to
continue making modest rate hikes over the second half of 2004. The Fed's
actions could push short-term yields higher. We believe the possibility of
higher interest rates will increase the level of income to the Fund. At the
same time, the portfolio's shorter duration will help guard against the
possibility of price loss as interest rates begin to rise. Another factor
that could benefit the Fund is the significant decline in the issuance of
new bonds. In 2003, low interest rates made it attractive for
municipalities to borrow money in record numbers. In 2004, new issuance
could be down as much as 20%. While supply may be down, demand remains
constant. This supply/demand dynamic can raise the value of certain
municipal bonds.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Fund's historical or future performance are
statements of the opinion of Fund management as of the date of this report.
These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
D-25
PIONEER AMERICA INCOME TRUST
Performance Update 6/30/04 Class A Shares
Share Prices and Distribution
6/30/04 12/31/03
Net Asset Value Per Share $ 9.72 $ 9.95
Distributions per Share Net Short-Term Long-Term
(1/1/04 - 6/30/04) Investment Capital Gains Capital Gains
Income
$ 0.2171 $ $
Investment Returns
The mountain chart on the right shows the change in value of a $10,000
investment made in Pioneer America Income Trust at public offering price,
compared to that of the Lehman Brothers Government Bond Index and of the Lehman
Brothers Fixed-Rate Mortgage-Backed Securities Index.
[THE FOLLOWING WAS REPRESENTED AS A MOUNTAIN CHART IN THE PRINTED MATERIAL]
Average Annual Total Returns+
(As of April 30, 2004)
Value of $10,000 Investment
6/94 9,550 10,000 10,000
9,580 10,130 10,077
11,119 11,832 11,926
6/96 11,374 12,466 12,255
12,342 13,648 13,429
6/98 13,302 14,599 14,752
12,965 14,869 14,421
6/00 14,467 16,529 16,331
15,324 17,888 17,513
6/02 16,821 19,452 19,527
17,069 20,045 19,988
6/04 17,045 20,200 19,964
Period Net Asset Value Public Offering Price*
- ---------- ----------------- -----------------------
10 Years 5.97% 5.48%
5 Years 5.64 4.68
1 Year -0.37 -4.81
* Reflects deduction of the maximum 4.5% sales charge at the beginning of the
period and assumes reinvestment of distributions at net asset value.
Performance data shown represents past performance. Past
performance does not guarantee future results. Assumes
reinvestment of all distributions at net asset value.
Investment return and principal value fluctuate, and
shares, when redeemed, may be worth more or less than
their original cost. Current performance may be lower or
higher than the performance shown. For performance data
that is current to the most recent month-end, please call
1-800-225-6292 or visit our web site
www.pioneerfunds.com.
The performance table and graph do not reflect the
deduction of taxes that a shareholder would pay on Trust
distributions or the redemption of Trust shares. Prior to
May 1, 2003, the Trust's investment adviser, Pioneer
Investment Management, Inc., reduced its management fee
and certain other expenses, otherwise, returns would have
been lower. Expense limitation for the Trust's Class A
shares applies proportionately to Class B, C and R
shares. The Lehman Brothers Government Bond Index is an
unmanaged measure of the performance of U.S. Treasury
debt, all publicly issued debt of U.S. government
agencies and quasi-federal corporations, and corporate
debt guaranteed by the U.S. government. The Lehman
Brothers Fixed-Rate Mortgage-Backed Securities Index is
an unmanaged index including 15- and 30-year fixed rate
securities backed by mortgage pools of the Government
National Mortgage Association (GNMA), Federal Home Loan
Mortgage Corporation (FHLMC) and Federal National
Mortgage Association (FNMA). Index returns assume
reinvestment of dividends and, unlike Trust returns, do
not reflect any fees, expenses or sales charges.
D-26
You cannot invest directly in the Indexes.
Portfolio Management's Discussion of Fund Performance (as of June 30, 2004)
In an improving economy, uncertainty about rising interest rates dominated
market sentiment. As a result, the yields on fixed-income securities declined
and then rose, as investors tried to determine when the Federal Reserve would
raise interest rates and by how much. In this volatile environment, Pioneer
America Income Trust delivered a relatively high level of income to
shareholders. In the interview below, Richard Schlanger, a member of the
Pioneer fixed-income team, discusses the factors that affected the fixed-income
market and the Trust over the past six months.
Q: How did the Trust perform during the six-month period ended June 30, 2004?
A: For the six-month period ended June 30, 2004, Class A shares of Pioneer
America Income Trust produced a total return of -0.14% at net asset value.
The Trust performed in line with the Lehman Brothers Government Bond Index,
which returned -0.13% for the same period. It under performed the Lehman
Brothers Fixed-Rate Mortgage-Backed Index, which returned 0.77%. We
attribute the Fund's underperformance relative to the Lehman Brothers
Fixed-Rate Mortgage-Backed Index to the fact that the index has significant
exposure to securities issued by the Federal Home Loan Mortgage Corporation
(Freddie Mac) and the Federal National Mortgage Association (Fannie Mae),
which outperformed. Because these securities do not have the backing of the
full faith and credit of the U.S. Government, we do not invest in them. The
Trust outperformed the -0.32% return generated by the General U.S.
Government Funds Category of Lipper, Inc., an independent monitor of mutual
fund performance. At the end of the period, the 30-day SEC yield for Class
A shares was 4.26%.
Q: What was the investment environment like during the period?
A: For the first three months of 2004, concerns about geopolitical issues and
the "jobless" economic recovery kept interest rates at 45-year lows. When
we moved into the second calendar quarter of 2004, however, the employment
picture changed dramatically. Several hundred thousand jobs were added to
the economy in April and May, leading to concerns about accelerating
inflation, the pace of Federal Reserve tightening and higher interest
rates. In this environment, market interest rates rose, causing the yield
curve to flatten. (The yield curve shows the relationship between bond
yields and maturity lengths.) Normally, the yield curve is positively
sloped, with yields on long-term bonds exceeding those on short-term bonds.
The yield curve flattens when yields on short term bonds rise more than
those on long-term bonds, as was the case during the period. As interest
rates rose, bond yields went up and prices declined.
Q: What investment strategies contributed to performance?
A: Nearly 75% of net assets were invested in mortgage-backed securities issued
by the Government National Mortgage Association (GNMA), which are backed by
the full faith and credit of the U.S. government. (A full faith and credit
backing applies to underlying Trust securities, not to Trust shares.)
Because GNMA securities outperformed Treasuries, the Trust's focus on
mortgages relative to the benchmark was the biggest aid to total return. In
the volatile interest-rate environment, we were concerned about the
prepayment risk that is associated with mortgage-backed securities. When
interest rates decline, homeowners often "prepay" their existing mortgages
and refinance their homes at a lower rate. Significant prepayment activity
can result in declining yields and share prices in portfolios with
investments in mortgages. To mitigate this risk, we selected mortgages that
had lower weighted average coupon (stated rate of interest) rates, which we
believe are less likely to be prepaid.
D-27
Q: What investment strategies detracted from performance?
A: Nearly 25% of the portfolio was invested in Treasury securities with
predominantly short- and intermediate-term maturities. As yields on
securities in these maturity ranges moved higher, their prices declined. As
a result, the Trust's exposure to bonds in the middle of the yield curve
held back results.
Q: What is your outlook over the next several months?
A: We believe the economy is on a sustained path for improvement and are
concerned that the seeds for higher inflation are being planted. The
Federal Reserve raised interest rates by 0.25% on June 30 and is likely to
continue doing so at a measured pace over the next two years. As interest
rates move higher, we will consider using a barbell strategy in managing
the Treasury portion of the Trust -- that is, we may sell some of our
intermediate-term holdings and add securities in the one-to-two-year range
and in the 20 plus-year range. With this approach, the Trust should benefit
from the higher yields that long-term bonds provide and from the relative
price stability of short-term securities. We will also seek mortgage-backed
securities that are selling at a discount and that can provide the Trust
with relatively high yields as well as the potential for price
appreciation.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Trust's historical or future performance are
statements of the opinion of Trust management as of the date of this report.
These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
D-28
PIONEER CASH RESERVES FUND
Performance Update 6/30/04
Share Prices
Net Asset Value Per Share 6/30/04 12/31/03
- ---------------------------------------------------------
Class A Shares $ 1.00 $ 1.00
Class B Shares $ 1.00 $ 1.00
Class C Shares $ 1.00 $ 1.00
Class R Shares $ 1.00 $ 1.00
Distributions
Per Share Income Short-Term Long-Term
(1/1/04 - 6/30/04) Dividends Capital Gains Capital Gains
- -----------------------------------------------------------------------
Class A Shares $ 0.00089 $ $
Class B Shares $ 0.00024 $ $
Class C Shares $ 0.00024 $ $
Class R Shares $ 0.00030 $ $
Yields*
7-Day 7-Day
Annualized Effective **
- -----------------------------------------------------
Class A Shares 0.35% 0.35%
Class B Shares 0.05% 0.05%
Class C Shares 0.05% 0.05%
Class R Shares 0.11% 0.11%
* The 7-day yields do not reflect the deduction of the contingent deferred
sales charges (CDSC) for Class B (maximum 4%) and Class C (maximum 1%) shares.
Please contact Pioneer to obtain the Fund's current 7-day yields.
** Assumes daily compounding of dividends. The 7-day effective yield if fees
and expenses were not subsidized would be as follows: Class B 0.48%, Class C
0.35% and Class R 0.06%. Class A share fees and expenses were not subsidized.
Performance data shown represents past
performance. Past performance does not guarantee
future results. Investment returns will fluctuate,
and there can be no guarantee the Fund will be
able to maintain a stable net asset value of $1.00
per share. An investment in the Fund is not
insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the
value of your investment at $1.00 per share, it is
possible to lose money by investing in the Fund.
Pioneer has agreed to limit the fund's expenses
for any class of shares or waive a portion of its
management fee to maintain a net asset value of
$1.00. Under certain circumstances, this
limitation may result in a 0.00% yield for one or
more classes of shares. From time to time, Pioneer
and its affiliates may limit the expenses of one
or more classes for the purpose of increasing its
yield during the period of the limitation. These
expense limitation policies are voluntary and
temporary and may be revised or terminated by
Pioneer at any time without notice.
Performance does not reflect the deduction of
taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
D-29
Portfolio Management's Discussion of Fund Performance (as of June 30, 2004)
Short-term interest rates remained at 46-year lows during the first half of
2004, although the U.S. Federal Reserve Board finally signaled a shift in its
accommodative monetary policy on June 30 when it raised the key Fed Funds Rate
from 1.00% to 1.25%. Throughout the six months, Pioneer Cash Reserves Fund
maintained a $1 share price and provided modest current income consistent with
the low yields available in the money market. The Fund invests exclusively in
high quality money market instruments issued by the U.S. government and
domestic corporations and banks. All issues have the highest ratings from the
two leading nationally recognized ratings organizations: A1 by Standard &
Poor's Investors Services and P1 by Moody's Investor Services. (Ratings apply
to underlying securities, not Fund shares.) In the following discussion, Andrew
D. Feltus reviews the investment environment and the strategies that affected
Pioneer Cash Reserves Fund over the six months ended June 30, 2004. Mr. Feltus
is a member of Pioneer's Fixed Income Group, which is responsible for the daily
management of the Fund.
Q: How did the Fund perform during the first half of 2004?
A: For the six months ended June 30, 2004, Pioneer Cash Reserves Fund Class A
shares had a total return of 0.09%, while Class B, Class C and Class R
shares each had returns of 0.03%. All returns were at net asset value. For
the same six months, the average return in Lipper's Money Market Fund
category was 0.17%. On June 30, 2004, the Fund's seven-day effective yield
for Class A shares was 0.35%.
Q: What factors affected Fund performance?
A: Short-term interest rates remained at historically low levels over the six
months. It was a period, however, in which evidence steadily accumulated
that the U.S. economy was recovering briskly. Growth Domestic Product
(GDP), for example, grew by an annual rate of 3.9% for the first three
months. The nation's industrial production increased by 5.6% since June 30,
2004, and the economy added 1.4 million new jobs during the same 12 months.
Evidence of the economy's vibrancy became more persuasive during the six
months, especially after the Department of Labor released an unexpectedly
strong new-jobs report for March. Market interest rates began rising and
expectations grew that the Federal Reserve Board finally would shift from
its accommodative monetary policy and begin raising short-term interest
rates. The Fed confirmed those expectations on the final day of the six
month period when it raised the influential Fed Funds Rate by one quarter
of one percent and signaled that it was likely to raise the rate further in
subsequent months to head-off inflationary threats.
Q: Given this environment, what strategies did you pursue?
A: We held to our quality orientation in managing the Fund, but gradually
lowered the effective duration from 61 days on December 31, 2003, to 51
days by June 30, 2004. We did this as we saw that the Federal Reserve was
likely to begin to raise rates. A shorter duration portfolio gives the Fund
more flexibility in investing in new, higher-yielding securities as rates
start to rise.
Q: What is your investment outlook?
A: We anticipate that while the Federal Reserve will continue to stimulate
continued economic growth, it is likely to raise short term rates further
for the remainder of 2004 and at least the beginning of 2005. Given this
outlook, we expect to keep effective duration relatively short to give us
the flexibility to capture additional yield as rates rise. However, we also
expect to take a more bar belled approach, with concentrations both in very
short, one-to two-month securities and in one-year maturities, where higher
yields are available. We also intend to consider opportunities to invest in
floating-rate notes, where we can obtain higher yields without taking more
risk.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Fund's historical or future performance are
statements of the opinion of Fund management as of the date of this report.
These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
D-30
PIONEER CALIFORNIA TAX FREE INCOME FUND
(a series of Pioneer Series Trust II)
STATEMENT OF ADDITIONAL INFORMATION
October 25, 2004
This Statement of Additional Information is not a Prospectus. It should
be read in conjunction with the related Proxy Statement and Prospectus (also
dated October 25, 2004) which covers Investor Class shares of Pioneer California
Tax Free Income Fund, a newly created series of Pioneer Series Trust II, to be
issued in exchange for shares of Safeco California Tax-Free Income Fund, a
series of Safeco Tax-Exempt Bond Trust. Please retain this Statement of
Additional Information for further reference.
The Prospectus is available to you free of charge (please call
1-800-407-7298).
INTRODUCTION..................................................................2
EXHIBITS......................................................................2
ADDITIONAL INFORMATION ABOUT PIONEER CALIFORNIA TAX FREE INCOME FUND..........2
FUND HISTORY.........................................................2
DESCRIPTION OF THE FUND AND ITS INVESTMENT RISKS.....................2
MANAGEMENT OF THE FUND..............................................23
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.................31
INVESTMENT ADVISORY AND OTHER SERVICES..............................31
BROKERAGE ALLOCATION AND OTHER PRACTICES............................34
CAPITAL STOCK AND OTHER SECURITIES..................................35
PURCHASE, REDEMPTION AND PRICING OF SHARES..........................36
TAXATION OF THE FUND................................................43
UNDERWRITERS........................................................48
CALCULATION OF PERFORMANCE DATA.....................................52
FINANCIAL STATEMENTS................................................52
ANNUAL FEE, EXPENSE AND OTHER INFORMATION...........................52
INTRODUCTION
This Statement of Additional Information is intended to supplement the
information provided in a Proxy Statement and Prospectus dated October 25, 2004
(the "Proxy Statement and Prospectus") relating to the proposed reorganization
of Safeco California Tax-Free Income Fund, a series of Safeco Tax-Exempt Bond
Trust, into Pioneer California Tax Free Income Fund, a newly created series of
Pioneer Series Trust II, and in connection with the solicitation by the
management of Safeco Tax-Exempt Bond Trust of proxies to be voted at the Meeting
of Shareholders of Safeco California Tax-Free Income Fund to be held on December
8, 2004.
EXHIBITS AND DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated herein by reference, unless otherwise
indicated. Shareholders will receive a copy of each document that is
incorporated by reference upon any request to receive a copy of this Statement
of Additional Information.
1. Safeco Tax-Exempt Bond Trust's statement of additional information, dated
April 30, 2004 (File No. 33-53532), as filed with the Securities and
Exchange Commission on April 29, 2004 (Accession No. 0001193125-04-072484)
is incorporated herein by reference.
2. Safeco California Tax-Free Income Fund's Annual Report for the fiscal year
ended December 31, 2003 (File No. 811-07300), as filed with the Securities
and Exchange Commission on February 26, 2004 (Accession No.
0001193125-04-030255) is incorporated herein by reference.
3. Safeco California Tax-Free Income Fund's Semi-Annual Report for the period
ended June 30, 2004 (File No. 811-21460), as filed with the Securities and
Exchange Commission on August 31, 2004 (Accession No. 0001143607-04-000012)
is incorporated herein by reference.
ADDITIONAL INFORMATION ABOUT
PIONEER CALIFORNIA TAX FREE INCOME FUND
FUND HISTORY
The fund is a diversified series of Pioneer Series Trust II, an open-end
management investment company. The fund originally was established as Safeco
California Tax-Free Income Fund, a series of Safeco Tax-Exempt Bond Trust, a
Delaware statutory trust, on May 13, 1993. Pursuant to an agreement and plan of
reorganization, the fund was reorganized as a series of Pioneer Series Trust II,
a Delaware statutory trust, on August 8, 2004.
DESCRIPTION OF THE FUND AND ITS INVESTMENT RISKS
The prospectus presents the investment objective and the principal investment
strategies and risks of the fund. This section supplements the disclosure in the
fund's prospectuses and provides additional information on the fund's investment
policies or restrictions. Restrictions or policies stated as a maximum
percentage of the fund's assets are only applied immediately after a portfolio
investment to which the policy or restriction is applicable (other than the
limitations on borrowing and illiquid securities). Accordingly, any later
increase or decrease resulting from a change in values, net assets or other
circumstances will not be considered in determining whether the investment
complies with the fund's restrictions and policies.
-2-
Debt Securities Rating Criteria
While ratings at the time of purchase will determine which securities may be
acquired, a subsequent reduction in rating will not require the fund to dispose
of the securities. Investment in lower-quality securities may provide higher
yields than higher-rated securities; however, the added risk of investing in
lower quality securities might not be consistent with preservation of capital.
The ratings of Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's
Ratings Group ("S&P") represent their opinions as to the quality of the bonds
issued by or on behalf of states, counties and municipalities of the U.S. and
their authorities and political subdivisions ("Tax-Exempt Bonds") which they
undertake to rate. It should be emphasized, however, that ratings are general
and are not absolute standards of quality. Consequently, Tax-Exempt Bonds with
the same maturity, coupon and rating may have different yields while bonds of
the same maturity and coupon with different ratings may have the same yield.
There is no assurance the fund will attain its investment objective. See
Appendix A for a description of rating categories.
Investment grade debt securities are those rated "BBB" or higher by S&P or the
equivalent rating of other nationally recognized statistical rating
organizations. Debt securities rated BBB are considered medium grade obligations
with speculative characteristics, and adverse economic conditions or changing
circumstances may weaken the issuer's ability to pay interest and repay
principal. If the rating of an investment grade debt security falls below
investment grade, Pioneer Investment Management, Inc. ("Pioneer"), the fund's
investment adviser, will consider if any action is appropriate in light of the
fund's investment objective and policies. Below investment grade debt securities
are those rated "BB" and below by S&P or the equivalent rating of other
nationally recognized statistical rating organizations.
Below investment grade debt securities or comparable unrated securities are
commonly referred to as "junk bonds" and are considered predominantly
speculative and may be questionable as to principal and interest payments.
Changes in economic conditions are more likely to lead to a weakened capacity to
make principal payments and interest payments. The amount of high yield
securities outstanding has proliferated as an increasing number of issuers have
used high yield securities for corporate financing. An economic downturn could
severely affect the ability of highly leveraged issuers to service their debt
obligations or to repay their obligations upon maturity. Factors having an
adverse impact on the market value of lower quality securities will have an
adverse effect on the fund's net asset value to the extent that it invests in
such securities. In addition, the fund may incur additional expenses to the
extent it is required to seek recovery upon a default in payment of principal or
interest on its portfolio holdings.
The secondary market for high yield securities may not be as liquid as the
secondary market for more highly rated securities, a factor which may have an
adverse effect on the fund's ability to dispose of a particular security when
necessary to meet its liquidity needs. Under adverse market or economic
conditions, the secondary market for high yield securities could contract
further, independent of any specific adverse changes in the condition of a
particular issuer. As a result, the fund could find it more difficult to sell
these securities or may be able to sell the securities only at prices lower than
if such securities were widely traded. Prices realized upon the sale of such
lower rated or unrated securities, under these circumstances, may be less than
the prices used in calculating the fund's net asset value.
Since investors generally perceive that there are greater risks associated with
lower quality debt securities of the type in which the fund may invest a portion
of its assets, the yields and prices of such securities may tend to fluctuate
more than those for higher rated securities. In the lower quality segments of
the debt securities market, changes in perceptions of issuers' creditworthiness
tend to occur more frequently and in a more pronounced manner than do changes in
higher quality segments of the debt securities market, resulting in greater
yield and price volatility.
Lower rated and comparable unrated debt securities tend to offer higher yields
than higher rated securities with the same maturities because the historical
financial condition of the issuers of such securities may not have been as
strong as that of other issuers. However, lower rated securities generally
involve greater risks of loss of income and principal than higher rated
securities. Accordingly, investing in lower quality securities might not be
consistent with preservation of capital. Pioneer will attempt to reduce these
risks
-3-
through portfolio diversification and by analysis of each issuer and its ability
to make timely payments of income and principal, as well as broad economic
trends and corporate developments.
The fund may invest up to xx% of its net assets in debt securities rated below
investment grade or, if unrated, of equivalent quality as determined by Pioneer.
At December 31, 2004, xx% of the fund's total assets were rated BB (or were of
equivalent quality), xxx% of the fund's total assets were rated B (or were of
equivalent quality) and xxx% of the fund's total assets were rated below B (or
were of equivalent quality).
For purposes of the fund's credit quality policies, if a security receives
different ratings from nationally recognized statistical rating organizations,
the fund will use the rating chosen by the portfolio manager as most
representative of the security's credit quality. If a rating organization
downgrades the quality rating assigned to one or more of the fund's portfolio
securities, Pioneer will consider what actions, if any, are appropriate
including selling the downgraded security or purchasing additional investment
grade securities of the appropriate credit quality as soon as it is prudent to
do so.
Municipal Obligations
The term "municipal obligations" generally is understood to include debt
obligations issued by municipalities to obtain funds for various public
purposes, the interest on which is, in the opinion of bond counsel to the
issuer, excluded from gross income for U.S. federal income tax purposes. In
addition, if the proceeds from private activity bonds are used for the
construction, repair or improvement of privately operated industrial or
commercial facilities, the interest paid on such bonds may be excluded from
gross income for U.S. federal income tax purposes, although current federal tax
laws place substantial limitations on the size of these issues.
The two principal classifications of municipal obligations are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its faith, credit, and taxing power for the payment of
principal and interest. Revenue bonds are payable from the revenues derived from
a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source, but not from the
general taxing power. Sizable investments in these obligations could involve an
increased risk to the fund should any of the related facilities experience
financial difficulties. Private activity bonds are in most cases revenue bonds
and do not generally carry the pledge of the credit of the issuing municipality.
There are, of course, variations in the security of municipal obligations, both
within a particular classification and between classifications.
The yields on Tax-Exempt Bonds are dependent on a variety of factors, including
general money market conditions, general conditions of the Tax-Exempt Bond
market, the size of a particular offering, the maturity of the obligation, and
the rating of the issue. The value of outstanding Tax-Exempt Bonds will vary as
a result of changing evaluations of the ability of their issuers to meet the
interest and principal payments. Such values will also change in response to
changes in the interest rates payable on new issues of Tax-Exempt Bonds. Should
such interest rates rise, the values of outstanding bonds, including those held
in the fund's portfolio, will decline and (if purchased at principal amount)
would sell at a discount, and, if such interest rates fall, the values of
outstanding bonds will increase and (if purchased at principal amount) would
sell at a premium. Changes in the value of the Tax-Exempt Bonds held in the
fund's portfolio arising from these or other factors will cause changes in the
net asset value per share of the fund.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the U.S. federal income tax exemption for
interest on Tax-Exempt Bonds. It can be expected that similar proposals may be
introduced in the future. If such a proposal were enacted, the availability of
Tax-Exempt Bonds for investment by the fund and the value of the fund's
portfolio would be affected. Additionally, the fund would reevaluate its
investment objective and policies and consider changes in the structure of the
fund.
-4-
Municipal Lease Obligations
Municipal lease obligations or installment purchase contract obligations
(collectively, "lease obligations") have special risks not ordinarily associated
with other Tax-Exempt Bonds. Although lease obligations do not constitute
general obligations of the municipality for which the municipality's taxing
power is pledged, a lease obligation ordinarily is backed by the municipality's
covenant to budget for, appropriate and make the payments due under the lease
obligations. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. In addition to the non-appropriation risk, these
securities represent a relatively new type of financing that has not yet
developed the depth of marketability associated with more conventional bonds.
Although non-appropriation lease obligations are secured by the leased property,
disposition of the property in the event of foreclosure might prove difficult.
The fund will seek to minimize these risks.
In determining the liquidity of municipal lease obligations, Pioneer, under
guidelines established by the fund's Board of Trustees, will consider: (1) the
essential nature of the leased property; and (2) the likelihood that the
municipality will discontinue appropriating funding for the leased property
because the property is no longer deemed essential to the operation of the
municipality.
If leased property is determined not to be essential in nature or if there is a
likelihood that the municipality will discontinue appropriating funding, then
the following factors will also be considered in determining liquidity:
(1) any relevant factors related to the general credit quality of the
municipality, which may include: (a) whether the lease can be canceled; (b) what
assurance there is that the assets represented by the lease can be sold; (c) the
strength of the lessee's general credit (e.g., its debt, administrative,
economic and financial characteristics); and (d) the legal recourse in the event
of failure to appropriate.
(2) any relevant factors related to the marketability of the municipal lease
obligation which may include: (a) the frequency of trades and quotes for the
obligation; (b) the number of dealers willing to purchase or sell the obligation
and the number of other potential purchasers; (c) the willingness of dealers to
undertake to make a market in the obligation; and (d) the nature of the
marketplace trades, including the time needed to dispose of the obligation, the
method of soliciting offers, and the mechanics of transfer.
Investments in Securities Issued by California and Its Municipalities
The following is a condensed and general description of conditions affecting the
taxing ability and fiscal condition of the State of California (hereinafter
"State" or "California") and its various political subdivisions and their
ability to meet their debt service obligations.
Since during normal market conditions the California Tax-Free Income Fund plans
to invest primarily in bonds issued by California and its political
subdivisions, the investment risk of such concentration should be carefully
considered. The description below summarizes discussions contained in official
statements relating to various types of bonds issued by California and its
political subdivisions. A more detailed description can be found in such
official statements. The California Tax-Free Income Fund has not independently
verified any of the information presented in this section.
General Economic Conditions. California's economy is the largest among the 50
states and is one of the largest in the world, having major components in high
technology, trade, entertainment, agriculture, manufacturing, tourism,
construction and services. California's population of approximately 35 million
represents over 12 percent of the total United States population.
Following a severe recession in the early 1990's, California began a period of
strong growth in 1994 in virtually all sectors, particularly in high technology
manufacturing and services, including computer software and other services,
entertainment, tourism, and construction, and also with very strong growth in
exports. The California economy outpaced the nation during this period. By the
end of 2000, unemployment in the State had dropped in half from the recession to
under 5%, its lowest level in three
-5-
decades. The strongest growth in a decade occurred in 1999 and 2000, but in 2001
the State finally showed the impact of the nationwide economic slowdown, coupled
with a cyclical downturn in the high technology sector (including
Internet-related businesses) and entered a mild recession. International trade
has also slowed since the start of 2001. The terrorist attacks on September 11,
2001 further weakened the economy, particularly in tourism-based areas. The
severe financial challenges which have faced the State since early 2001 may
continue for several years.
Job losses have been concentrated in the San Francisco Bay area, particularly in
high technology industries; economic conditions have been better in other parts
of the State. Statewide, modest job growth appeared to have begun by early 2002,
but job growth stalled by summer 2002. Unemployment reached almost 7% by
year-end, at which time the State Department of Finance described the State
economy as in a holding pattern. Personal income rose by only 1% in 2002.
Residential construction and home sales remained strong, in part due to low
interest rates, but nonresidential construction declined for the second
consecutive year in 2002. In January 2003, the State Department of Finance
projected there would be only slow growth in the economy in 2003, with moderate
growth in 2004. The recession, combined particularly with the decline in the
stock markets since mid-2000, will result in much weaker State revenues than
previously projected.
The State is facing serious cash flow difficulties. It has had to resort to
external borrowing starting in the fall of 2001 to assure sufficient cash
resources to pay its ongoing obligations, including maturing cash flow notes.
Further external cash flow borrowings will be required into the 2003-2004 fiscal
year. The State's ability to meet its cash requirements will continue to depend
on access to capital markets until it brings revenues and expenses into closer
balance.
2002 Budget Act. The 2002-2003 Budget, released on January 10, 2002 (the
"2002-2003 Governor's Budget"), projected a fall-off in General Fund revenues
due to the national economic recession combined with the stock market decline,
which began in mid-2000. Personal income tax receipts, which include stock
option and capital gains realizations, were particularly impacted by the slowing
economy and stock market decline. As a result, in January of 2002, the Governor
projected a combined budget gap for 2001-2002 and 2002-2003 of approximately
$12.5 billion. The May Revision to the 2002-2003 Governor's Budget (the "May
Revision") projected further deterioration in revenues of $9.5 billion and
additional costs of $1.6 billion over the 2001-2002 and 2002-2003 fiscal years.
As a result, the combined budget gap for 2001-2002 and 2002-2003 rose from the
$12.5 billion estimated in January to $23.6 billion.
The 2002 Budget Act, signed by the Governor on September 5, 2002, closed the
$23.6 billion budget gap between expenditures and revenues (the "Budget Gap")
through a combination of program reductions, loans, fund shifts, accelerations
and transfers and modest tax changes. However, the State Legislative Analyst
(the "Legislative Analyst"), fiscal experts and political leaders in the State
acknowledged that the 2002 Budget Act left a large gap between the expected
level of tax and other continuing revenues and projected expenditures under
current programs for future years, referred to as a "structural deficit."
In late November 2002, the Governor directed State agencies to take immediate
action to reduce any non-critical or non-essential activities. In December 2002,
the Governor released proposals for immediate action to reduce the projected
two-year budget gap by about $10.2 billion ($5.5 billion for 2002-03). The
Governor requested action on these proposals early in 2003 in order to maximize
savings in Fiscal Year 2002-03. The Legislature passed budget adjustment
legislation in March and April 2003, totaling about $10.4 billion in spending
reductions, deferrals and funding transfers ($5.1 billion for Fiscal Year
2002-03 and $5.3 billion for Fiscal Year 2003-04). The largest part of the
reductions (including a $1.1 billion deferral into Fiscal Year 2003-04) was for
K-12 education funding. The spending reductions reflected the enactment of
legislation in May 2003 permitting the sale of about $1.9 billion of pension
obligation bonds to fund the State's 2003-04 payments to the California Public
Employees' Retirement System ("CalPERS"). However, the issuance of the pension
obligation bonds may be delayed or cancelled for the Fiscal Year 2003-04 due to
delays from litigation.
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The 2003-04 Budget projected revenues from the three largest tax sources to be
about $61.7 billion, more than $6 billion lower than projected in the 2002
Budget Act. The 2003-04 Budget projected total revenues and transfers of $73.1
billion and $69.2 billion in Fiscal Years 2002-03 and 2003-04, respectively. The
2003-04 Budget projected a $34.6 billion cumulative budget shortfall through
June 30, 2004, and proposed to close this shortfall with expenditure reductions
including the reduction of the VLF backfill to cities and counties, the
realignment of responsibility for certain health and welfare programs to cities
and counties to be supported by increased sales tax, personal income tax and
cigarette tax increases, fund shifts from the General Fund, revenues from the
renegotiation of compacts with Indian tribes, and loans and borrowings.
On May 14, 2003, the Governor released the May Revision to the Budget. The May
Revision reduced the revenue estimate for Fiscal Year 2003-04 to $70.8 billion
from the 2003-04 Budget estimate of $73.1 billion, primarily from the loss of $2
billion of revenues due to the delay of the second sale of tobacco
securitization bonds. As a result, together with the lost opportunities for
savings because of legislative action in lower amounts than requested by the
Governor and higher than expected caseloads/populations for certain health and
social services and correctional programs and required school payments, the May
Revision estimated the budget gap for Fiscal Years2002-03 to 2003-04 increased
from $34.6 billion to $38.2 billion.
The Governor made a number of fundamental changes in the May Revision from his
earlier budget proposals. The Governor proposed to address the budget shortfalls
in three phases: (1) eliminate the estimated $10.7 billion budget deficit by
issuing fiscal recovery bonds ("FRBs"); (2) balance the 2003-04 Budget with a
combination of measures ($5.3 billion of which were approved by the Legislature
in March and April) including expenditure cuts, fund shifts, transfers, loans,
and the realignment of certain health and social services programs from the
State to counties; and (3) pursue legislative action during the balance of the
2003 Legislative session to enact structural reforms that would eliminate the
estimated $7.9 billion remaining funding gap for Fiscal Year 2004-05.
Although the largest and most critical component of the budget proposals, the
issuance of the FRBs is the subject of current litigation over Constitutional
debt-limit provisions, and their issuance is uncertain. In addition, the
Legislature established a Fiscal Recovery Fund to deposit revenues from a
temporary 1/2(cent) sales taxes that begins July 1, 2004. The Legislature
currently plans on paying the debt service on the FRBs from future
appropriations from the Fiscal Recovery Fund.
In the event that litigation materially delays or prevents the issuance of the
FRBs, the size of the remaining shortfall would most certainly exceed the amount
of discretionary spending within the 2003 Budget Act that could be cut to
address the shortfall, which would also result in a cash shortfall. The State
would almost certainly be required to substantially reduce spending, raise taxes
and/or incur other short-term or long-term borrowings.
2003 Budget Act. The 2003 Budget Act was adopted by the Legislature on July 29,
2003, and signed into law by the Governor on August 2, 2003. The 2003 Budget Act
largely reflected the proposals contained in the May Revision, including the
issuance of FRBs to address the budget deficit. The 2003 Budget Act rejected the
proposed realignment of certain health and social services programs, and
instead, increased reliance upon fund shifts and transfers and additional
(non-tax) revenues sources.
Under the 2003 Budget Act, General Fund revenues are projected to increase 3.3%,
from $70.9 billion in Fiscal Year 2002-03 to $73.3 billion in Fiscal Year
2003-04. The revenue projections incorporate a 4% increase in State tax
revenues, as projected by the Legislative Analyst's Office ("LAO"), reflecting a
correspondingly moderate growth in the State's economy.
General Fund expenditures are estimated to drop 9% from $78.1 billion in Fiscal
Year 2002-03, to $71.1 billion in Fiscal Year 2003-04. Most of this decline can
be explained by: (1) the suspension of VLF backfill payments to local
governments; (2) additional Federal funds of approximately $1.5 billion under
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the Federal Jobs and Growth Tax Relief Reconciliation Act of 2003, which will be
used to offset Medi-Cal costs and to cover other critical State program
spending; (3) the anticipated receipt of $1.355 billion of pension obligation
bond proceeds to cover CalPERS contributions; and (4) a one-time shift of
Medi-Cal accounting from accrual to cash basis for estimated savings of
approximately $930 million.
In its August 1, 2003 budget analysis, the LAO concluded that, absent the
above-described factors, underlying spending for Fiscal Years 2002-03 and
2003-04 would be roughly equal. The LAO also concluded that Fiscal Year 2003-04
spending is considerably less than what would be required to maintain baseline
spending for that fiscal year, which would encompass all spending requirements
mandated by law at the outset of the fiscal year.
The 2003 Budget Act projects the June 30, 2004 reserve to be just over $2
billion. This reflects the assumed elimination of the $10.7 billion accumulated
deficit. The LAO has predicted that additional Legislative action will be
required in Fiscal Year 2004-05 to eliminate the estimated $7.9 billion
remaining funding gap. Absent the corrective measures contained in the 2003
Budget Act, the State was projected to expend $90.9 billion in Fiscal Year
2003-04 rather than the budgeted $71.1 billion.
It cannot be predicted what actions will be taken in the future by the State
Legislature and the Governor to deal with changing State revenues and
expenditures. The State budget will be affected by national and State economic
conditions and other factors.
Election of New Governor. Following the recall of Governor Davis, newly elected
Governor Arnold Schwarzenegger began assembling his staff and evaluating the
State's financial condition. As a result of his evaluation, he may take actions
that could affect the State's receipts, disbursements and proposed borrowings
during the current fiscal year.
2004-2005 Fiscal Year Budget. On January 9, 2004, Governor Schwarzenegger
released his proposed 2004-2005 Budget (the "2004-2005 Governor's Budget"). In
order to address the State's $22 billion accumulated debt the Governor proposed
a four-part recovery plan consisting of (i) the California Economic Recovery
Bond Act authorizing, subject to voter approval, the issuance of up to $15
billion in bonds to finance the negative General Fund reserve balance as of June
30, 2004, and other General Fund obligations undertaken prior to June 30, 2004;
(ii) additional budget solutions to close the budget gap (see below); (iii) a
constitutional amendment requiring the Sate to adopt a balanced budget; and (iv)
improving the business and jobs climate in California in order to revitalize the
State's economy an d improve revenue growth over time.
Under the 2004-2005 Governor's Budget, revenues are projected to grow from $74.6
billion in the current year to 76.4 billion in 2004-2005, an increase of 2.4%.
Expenditures are projected to decline from 78 billion in 2003-2004 to 76.1
billion in 2004-2005. The 2004-2005 Governor's Budget proposes to address the
$17 billion projected budget shortfall through $18 billion in budgetary
solutions including $7.3 billion in program reductions and related cost savings
in the current and budget years combined. These reductions include a $2 billion
reduction in Proposition 98 spending (assistance to local public schools and
community college districts) and a $950 million reduction in transportation
spending related to suspension of Proposition 42 transfer (allocation of
gasoline and diesel fuel sales tax revenues for specific transportation
purposes, including highways, streets and roads, and transit improvements); over
$700 million in reductions in higher education, backfilled in large part by
student fee increases; a $1.4 billion reduction in social services related to
grant reductions, cost of living adjustment deletions, and elimination of
state-only services In-Home Supportive Services; a $1.1 billion reduction in
Medi-Cal, primarily related to 10% provider rate reductions; and a $400 million
unallocated reduction to corrections.
The 2004-2005 Governor's Budget also proposes to address the budget shortfall
through using proceeds from the Governor's proposed economic recovery bond to
offset $5 billion of the budget gap; other loans and borrowing, including $930
million related to a proposed pension obligation bond sale, $947 million related
to Proposition 98 "settle-up" obligations for 2002-2003 and 2003-2004, which are
being deferred until after 2005-2006; local government related actions including
a $1.3 billion property tax shift from local government to schools, reduced
funding for juvenile probation, and a reduction in transportation funding
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related to the suspension of the Proposition 42 transfer; and transfers, other
revenues and funds shifts, including a one-time shift of about $685 million in
transportation funds to the General Fund in 2003-2004 and $350 million in new
federal funds.
Based on its forecast of lower revenues and higher costs in both 2003-2004 and
2004-2005, the LAO estimates that even if all the elements of the 2004-2005
Governor's Budget were adopted, 2004-2005 would end with a General Fund deficit
of $783 million. In addition, the LAO projects that the State would face an
operating shortfall of approximately $7 billion beyond 2004-2005, absent
corrective action.
Bond Ratings. S&P, Moody's, and Fitch made rating reductions on the State's
long-term bonds and cash flow notes in late 2002 or 2003. As of March, 2004,
,S&P and Fitch had reduced California's general obligation bond ratings to BBB,
and Moody's had reduced its ratings to Baa1. These ratings apply to the State
only and are not indicative of the ratings assigned to local governments, such
as counties, cities, school districts and other local agencies. Any explanation
of the significance of such ratings may be obtained only from the rating agency
furnishing such ratings. There is no assurance that such ratings will continue
for any given period of time or that they will not be revised downward or
withdrawn entirely if, in the judgment of the particular rating agency,
circumstances so warrant.
Recent Developments Regarding Energy. From mid-2000 through early 2001, the
State faced occasional shortages of electricity and dramatic increases in the
spot market price for electricity, as a result of many complex factors deriving
generally from a deregulation plan implemented in 1997. The three major
investor-owned utilities in the State ("IOUs") purchased electricity to meet
their needs above their own generating capacity and contracted supplies at
fluctuating short-term and spot market rates, which rose sharply, while the
retail prices they could charge their residential and small business customers
were capped at specified levels under the deregulation plan. By early January,
2001, the two largest IOUs had exhausted their cash reserves and could no longer
purchase electricity in the spot market.
The Governor declared a state of emergency under State law on January 17, 2001,
and ordered the State's Department of Water Resources ("DWR") to begin
purchasing electricity for resale to retail end use customers, to fill the gap
in supplies resulting from the inability of the IOUs to continue to purchase
power. The DWR also started to enter into long-term power supply contracts to
reduce reliance on short-term and spot markets. DWR's purchases were initially
funded primarily by unsecured, interest-bearing loans from the State's General
Fund.
The DWR has issued approximately $11.25 billion in revenue bonds and used the
net proceeds to repay outstanding loans from banks and commercial lenders in the
amount of approximately $3.5 billion and a loan from the General Fund of $6.1
billion plus accrued interest of approximately $500 million. Issuance of the DWR
revenue bonds had been delayed since mid-2001 by a number of factors, including
administrative and legal challenges.
The loans from the General Fund, banks and commercial lenders financed DWR's
power supply program costs during 2001 that exceeded DWR's revenues from the
sale of electricity. The power supply program has become self-supporting and no
additional loans from the General Fund are authorized. As of January 1, 2003,
the DWR's authority to enter into new power purchase contracts terminated, and
the IOUs resumed responsibility for obtaining electricity for their customers.
The primary source of money to pay debt service on the DWR revenue bonds is
revenues derived from customers of the IOUs resulting from charges set by the
California Public Utilities Commission. The DWR revenue bonds are not a debt or
liability of the State and do not directly or indirectly or contingently
obligate the State to levy or to pledge any form of taxation whatever therefore
or to make any appropriation for their payment.
Constitutional and Statutory Limitations on Taxing and Spending . The taxing
powers of California public agencies are limited by Article XIII A of the State
Constitution, added by an initiative amendment approved by voters on June 6,
1978, and commonly known as "Proposition 13."
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Article XIII A limits the maximum ad valorem tax on real property to one percent
of "full cash value," which is defined as "the County Assessor's valuation of
real property as shown on the fiscal year 1975-76 tax bill under `full cash
value' or, thereafter, the appraised value of real property when purchased,
newly constructed, or a change in ownership has occurred after the 1975
assessment." The full cash value may be adjusted annually to reflect inflation
at a rate not to exceed two percent per year, or reduction in the consumer price
index or comparable local data, or declining property value caused by damage,
destruction, or other factors.
The tax rate limitation referred to above does not apply to ad valorem taxes to
pay the interest and redemption charges on any indebtedness approved by the
voters before July 1, 1978 or any bonded indebtedness for the acquisition or
improvement of real property approved by two-thirds of the votes cast by the
voters voting on the proposition.
Article XIII A also requires a two-thirds vote of the electors prior to the
imposition of any special taxes and totally precludes the imposition of any new
ad valorem taxes on real property or sales or transaction taxes on the sales of
real property.
Legislation adopted in 1979 exempts business inventories from taxation. However,
the same legislation provides a formula for reimbursement by California to
cities and counties, special districts and school districts for the amount of
tax revenues lost by reason of such exemption or adjusted for changes in the
population and the cost of living. Legislation adopted in 1980 provides for
state reimbursements to redevelopment agencies to replace revenues lost due to
the exemption of business inventories from taxation. Such legislation provides
for restoration of business inventory tax revenues through the annual addition
of artificial assessed value, not actually existing in a project area, to the
tax rolls of redevelopment projects. These reimbursements are adjusted for
changes in the population and the cost of living. All such reimbursements are
subject to change or repeal by the Legislature, and they have been changed since
1980. Furthermore, current law generally prohibits the pledging of such
reimbursement revenues to secure redevelopment agency bonds.
Redevelopment agencies in California have no power to levy and collect taxes;
hence, any decrease in property taxes or limitations in the amounts by which
property taxes may increase adversely affects such agencies, which lack the
inherent power to correct for such decreases or limitations.
State and local government agencies in California and the State itself are
subject to annual "appropriation limits" imposed by Article XIII B, an
initiative constitutional amendment approved by the voters on November 6, 1979,
which prohibits government agencies and the State from spending "appropriations
subject to limitation" in excess of the appropriations limit imposed.
"Appropriations subject to limitation" are authorizations to spend "proceeds of
taxes," which consist of tax revenues, certain State subventions and certain
other funds, including proceeds from regulatory licenses, user revenues, certain
State subventions and certain other funds to the extent that such proceeds
exceed "the cost reasonably borne by such entity in providing the regulation,
product, or service." No limit is imposed on appropriation of funds which are
not "proceeds of taxes," on debt service or indebtedness existing or authorized
January 1, 1979, or subsequently authorized by the voters, or appropriations
required to comply with mandates of courts or the federal government, or user
charges or fees which don't exceed the cost of the service provided, nor on
certain other non-tax funds.
By statute (which has been upheld by the California Court of Appeals), tax
revenues allocated to redevelopment agencies are not "proceeds of taxes" within
the meaning of Article XIII B, and the expenditure of such revenues is therefore
not subject to the limitations under Article XIII B.
The imposition of taxes by local agencies other than charter cities is further
limited by the provisions of an initiative statute ("Proposition 62") approved
by the voters on November 4, 1986. Proposition 62, as enacted in the California
Government Code, among other things, generally (1) requires that any tax for
general governmental purposes imposed by these local government entities be
approved by resolution or ordinance adopted by two-thirds vote of the
governmental entity's legislative body and by a majority vote of the electorate
of the governmental entity, and (2) requires that any special tax (defined as a
tax levied for
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other than general governmental purposes) imposed by any of these local
governmental entities be approved by a two-thirds vote of the voters within that
jurisdiction..
Following its adoption by the voters, various provisions of Proposition 62 were
declared unconstitutional at the appellate court level and in reliance on such
decisions many local governments imposed taxes without compliance with the
specified voter approval requirements of Proposition 62. On September 28, 1995,
however, the California Supreme Court, in Santa Clara County Local
Transportation Authority v. Guardino, upheld the constitutionality of the
portion of Proposition 62 requiring voter approval as a condition precedent to
the imposition of taxes by a local government.
On June 4, 2001, in Howard Jarvis Taxpayers Association v. City of La Habra, the
California Supreme Court disapproved a December 15, 1997 holding in McBreaty v.
City of Brawley in which the State Court of Appeals concluded that the
three-year statute of limitations applicable to taxes subject to Proposition 62
requirements ran from the date of the Guardino decision. The Supreme Court held
that a local governmental entity's continued imposition and collection of a tax
without voter approval was an ongoing or continuous violation of Proposition 62
and that the validity of a tax measure may be challenged within the statutory
period after any collection of the tax, regardless of whether more than three
years had passed since the tax measure was adopted. Thus, each time an
unconstitutional tax is collected, the statute of limitations is triggered
again.
As a result of this ruling, absent the application of a different statute of
limitations, a tax originally imposed in violation of Proposition 62
requirements is potentially subject to court challenge within three years of its
collection. Various California local governments may be subject to challenge
under the City of La Habra ruling. Should a challenge be successful, Proposition
62 provides that the portion of the one percent general ad valorem property tax
levy allocated to that local government is reduced by $1 for every $1 in revenue
attributable to the improperly imposed tax for each year that such tax is
collected. The practical applicability of this provision has not been
determined. Future litigation and legislation may resolve some or all of the
issues raised by the Guardino and City of La Habra decisions.
An initiative constitutional amendment known as Proposition 218 and also called
the "Right to Vote on Taxes Act" was approved by the voters on November 5, 1996.
This measure added Articles XIII C and XIII D to the State Constitution. The
measure requires that general tax increases by all local government entities be
approved by not less than a majority vote and that taxes for special purposes be
approved by a two-thirds vote; provides that existing language in the California
Constitution shall not be construed to limit the initiative power with respect
to reducing or repealing any local tax, assessment, fee or charge; prescribes
procedures applicable to assessments on real property and requires that such
assessments be approved by property owners; prohibits property related fees and
charges from exceeding costs of the service being provided; imposes procedural
requirements, including notice and public hearing, prior to imposition of new or
increased fees or charges on property; and requires that, except for fees for
sewer, water and refuse collection, fees be approved by a majority vote of the
electorate.
Given the turbulent history of California electoral, judicial and legal
proceedings affecting taxation since 1978, it is impossible to predict what
proceedings might occur in the future which would affect the ability of
California and its political subdivisions to service their outstanding
indebtedness.
Tobacco Litigation. In late 1998, the State signed a settlement agreement with
the four major cigarette manufacturers. The State agreed to drop its lawsuit and
not to sue in the future for monetary damages. Tobacco manufacturers agreed to
billions of dollars in payments and restrictions in marketing activities. Under
the settlement agreement, the tobacco manufacturers agreed to pay California
governments a total of approximately $25 billion (subject to adjustments) over a
period of 25 years. Beyond 2025, payments of approximately $900 million per year
will continue in perpetuity. Under a separate Memorandum of Understanding, half
of the moneys will be paid to the State and half to local governments (all
counties and the cities of San Diego, Los Angeles, San Francisco and San Jose).
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During Fiscal Year 2001-2002, the General Fund received $478 million in
settlement payments. Of that amount $76 million was deposited in the General
Fund and $402 million was deposited into a special fund to pay certain
healthcare costs. During Fiscal Year 2002-2003, the General Fund received $474
million, all of which was deposited in the healthcare fund.
State law allows the issuance of revenue bonds to generate $5.0 billion for the
General Fund during Fiscal Year 2002-03 secured by revenues received by the
State under the settlement agreement beginning in Fiscal Year 2003-04. An
initial sale producing $2.5 billion in revenue was completed in January 2003. A
second sale of the remaining 43.43% of the State's tobacco settlement revenues,
which produced $2.264 billion in revenue, was completed in September 2003.
The specific amount to be received by the State and local governments is subject
to adjustment. Details in the settlement agreement allow reduction of the
tobacco companies' payments because of certain types of federal legislation, or
decreases in cigarette sales. Settlement payments can increase due to inflation
or increases in cigarette sales. The "second annual" payment, received in April
2002, was 15.3 percent lower than the base settlement amount due to reduced
sales. Future payment estimates have been reduced by a similar percentage. In
the event that any of the tobacco companies goes into bankruptcy, the State
could seek to terminate the agreement with respect to those companies filing
bankruptcy actions, thereby reinstating all claims against those companies. The
State may then pursue those claims in the bankruptcy litigation, or as otherwise
provided by law. Also, several parties have brought a lawsuit challenging the
settlement and seeking damages.
Pending Litigation. The State is involved in certain legal proceedings
(described in the State's recent financial statements) that, if decided against
the State, may require the State to make significant future expenditures or may
substantially impair revenues. If the State eventually loses any of these cases,
the final remedies may not have to be implemented in one year.
Local Governments. The primary units of local government in California are the
counties, ranging in population from 1,200 (Alpine) to approximately ten million
(Los Angeles). Counties are responsible for providing many basic services,
including indigent healthcare, welfare, jails and public safety in
unincorporated areas. There are also about 478 incorporated cities and thousands
of special districts formed for education, utility and other services. The
fiscal condition of local governments has been constrained since the enactment
of "Proposition 13" in 1978 and other constitutional amendments, which reduced
and limited the future growth of property taxes and limited the ability of local
governments to impose "special taxes" (those devoted to a specific purpose)
without two-thirds voter approval. Counties, in particular, have had fewer
options to raise revenues than many other local governmental entities, and have
been required to maintain many services.
In the aftermath of Proposition 13, the State provided aid to local governments
from the General Fund to make up some of the loss of property tax moneys,
including taking over the principal responsibility for funding local K-12
schools and community colleges. During the recession of the early 1990s, the
Legislature eliminated most of the remaining components of the post-Proposition
13 aid to local government entities other than K-14 education districts, by
requiring cities and counties to transfer some of their property tax revenues to
school districts. However, the Legislature also provided additional funding
sources (such as sales taxes) and reduced certain mandates for local services.
The State has also provided additional funding to counties and cities through
various programs. The 2003 Budget Act and related legislation continue to
provide assistance to local governments, including $238.2 million for various
local public safety programs, including $100 million for the Citizens' Option
for Public Safety ("COPS") program to support local front-line law enforcement,
$100 million for county juvenile justice and crime prevention programs, and
$38.2 million for reimbursement of jail booking fees. The 2003 Budget Act also
provides $40.15 million for open space subvention reimbursements to cities and
counties.
A program to offset a portion of the vehicle license fees (the "VLFs") paid by
vehicle owners was established in 1998. The legislation that established the VLF
offset program also provided that if there were insufficient General Fund monies
to fully backfill the VLF offset, the percentage offset would be reduced
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proportionately to assure that local governments were not disadvantaged. In June
2003, it was determined that insufficient General Fund monies were available to
continue to fund any portion of the VLF offsets. Accordingly, the VLFs paid by
taxpayers returned to the pre-1999 level and the State is not being obligated to
make any offset payments in Fiscal Year 2003-04. The 2003 Budget Act requires
the State to repay the $825 million VLF "gap" loss to local governments no later
than August 15, 2006. The 2003 Budget Act also increases the portion of VLF
revenues that are dedicated to State-local realignment programs in 2003-04 so
that those programs are held harmless from the VLF "gap" loss. Litigation has
been filed challenging the restoration of the pre-1999 VLF levels.
The entire Statewide welfare system was changed in response to the change in
federal welfare law in 1996. The federal block grant formula established in 1996
is operative through federal fiscal year 2002. Under the revised basic State
welfare system, California Work Opportunity and Responsibility to Kids
("CalWORKs"), counties are given flexibility to develop their own plans,
consistent with State law, to implement Welfare-to-Work and to administer many
of its elements and their costs for administrative and support services are
capped at 1996-1997 levels. Counties are also given financial incentives if, at
the individual county level or statewide, the CalWORKs program produces savings
associated with specified Welfare-to Work outcomes. Under Ca1WORKs, counties
will still be required to provide "general assistance" aid to certain persons
who cannot obtain welfare from other programs.
Welfare caseloads have declined considerably with the implementation of the
CalWORKs program. The 2003-2004 CalWORKS caseload is projected to be 466,000,
down from 480,000 cases in 2002-2003. This represents a major improvement from
the rapid growth of the early 1990s, when caseload peaked at 921,000 cases in
1994-1995.
In 2003-2004 it is anticipated that California will continue to meet, but not
exceed, the federally-required $2.7 billion combined State and county
maintenance-of-effort ("MOE") requirement. In an effort to keep program
expenditures within the Temporary Assistance for Needy Families ("TANF") Block
Grant and TANF MOE amounts, the 2003 Budget suspends the October 2003 statutory
cost-of-living adjustment for cash grants. The 2003 Budget Act includes a
one-time augmentation of $91.9 million for employment services to enable
recipients to leave aid and become self-sufficient. The 2003 Budget Act includes
total CalWORKs-related expenditures of $6.9 billion for 2003-04, including child
care transfer amounts for the Department of Education and the State's general
TANF reserve. The 2003 Budget Act also includes a TANF reserve of $175.3
million, which is available for unanticipated needs in any program for which
TANF block grant funds are appropriated, including CalWORKs benefits, employment
services, county administration, and child care costs.
Historically, funding for the State's trial court system was divided between the
State and the counties. In 1997, legislation consolidated the trial court
funding at the State level in order to streamline the operation of the courts,
provide a dedicated revenue source and relieve fiscal pressure on the counties.
Since then, the county general purpose contribution for court operations was
reduced by $415 million and cities are retaining $68 million in fine and penalty
revenue previously remitted to the State. The State's trial court system will
receive approximately $1.9 billion in State resources and $475 million in
resources from the counties in Fiscal Year 2003-2004.
Obligations of Other Issuers of California Municipal Obligations. There are a
number of State agencies, instrumentalities and political subdivisions of the
State that issue Municipal Obligations, some of which may be conduit revenue
obligations payable from payments from private borrowers. These entities are
subject to various economic risks and uncertainties, and the credit quality of
the securities issued by them may vary considerably from the credit quality of
obligations backed by the full faith and credit of the State.
Assessment Bonds. California Municipal Obligations which are assessment bonds
may be adversely affected by a general decline in real estate values or a
slowdown in real estate sales activity. In many cases, such bonds are secured by
land which is undeveloped at the time of issuance but anticipated to be
developed within a few years after issuance. In the event of such reduction or
slowdown, such development may not occur or may be delayed, thereby increasing
the risk of a default on the bonds. Because the special assessments or taxes
securing these bonds are not the personal liability of the owners of the
property
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assessed, the lien on the property is the only security for the bonds. Moreover,
in most cases the issuer of these bonds is not required to make payments on the
bonds in the event of delinquency in the payment of assessments or taxes, except
from amounts, if any, in a reserve fund established for the bonds.
California Long Term Lease Obligations. Based on a series of court decisions,
certain long-term lease obligations, though typically payable from the general
fund of the State or a municipality, are not considered "indebtedness" requiring
voter approval. Such leases, however, are subject to "abatement" in the event
the facility being leased is unavailable for beneficial use and occupancy by the
municipality during the term of the lease. Abatement is not a default, and there
may be no remedies available to the holders of the certificates evidencing the
lease obligation in the event abatement occurs. The most common cases of
abatement are failure to complete construction of the facility before the end of
the period during which lease payments have been capitalized and uninsured
casualty losses to the facility (e.g., due to earthquake). In the event
abatement occurs with respect to a lease obligation, lease payments may be
interrupted (if all available insurance proceeds and reserves are exhausted) and
the certificates may not be paid when due. Although litigation is brought from
time to time which challenges the constitutionality of such lease arrangements,
the California Supreme Court issued a ruling in August, 1998 which reconfirmed
the legality of these financing methods.
Other Considerations. The repayment of industrial development securities secured
by real property may be affected by California laws limiting foreclosure rights
of creditors. Securities backed by health care and hospital revenues may be
affected by changes in State regulations governing cost reimbursements to health
care providers under Medi-Cal (the State's Medicaid program), including risks
related to the policy of awarding exclusive contracts to certain hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project decline (e.g., because of a major natural
disaster such as an earthquake), the tax increment revenue may be insufficient
to make principal and interest payments on these bonds. Both Moody's and S&P
suspended ratings on California tax allocation bonds after the enactment of
Articles XIII A and XIII B, and only resumed such ratings on a selective basis.
Proposition 87, approved by California voters in 1988, requires that all
revenues produced by a tax rate increase go directly to the taxing entity which
increased such tax rate to repay that entity's general obligation indebtedness.
As a result, redevelopment agencies (which, typically, are the issuers of tax
allocation securities) no longer receive an increase in tax increment when taxes
on property in the project area are increased to repay voter-approved bonded
indebtedness.
The effect of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and principal
on their obligations remains unclear. Furthermore, other measures affecting the
taxing or spending authority of California or its political subdivisions may be
approved or enacted in the future. Legislation has been or may be introduced
which would modify existing taxes or other revenue-raising measures or which
either would further limit or, alternatively, would increase the abilities of
state and local governments to impose new taxes or increase existing taxes. It
is not possible, at present, to predict the extent to which any such legislation
will be enacted. Nor is it possible, at present, to determine the impact of any
such legislation on California Municipal Obligations in which the Fund may
invest, future allocations of state revenues to local governments or the
abilities of state or local governments to pay the interest on, or repay the
principal of, such California Municipal Obligations.
Substantially all of California is within an active geologic region subject to
major seismic activity. Northern California in 1989 and Southern California in
1994 experienced major earthquakes causing billions of dollars in damages. The
federal government provided more than $13 billion in aid for both earthquakes,
and neither event has had any long-term negative economic impact. Any California
Municipal Obligation in the Fund could be affected by an interruption of
revenues because of damaged facilities, or,
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consequently, income tax deductions for casualty losses or property tax
assessment reductions. Compensatory financial assistance could be constrained by
the inability of (i) an issuer to have obtained earthquake insurance coverage
rates; (ii) an insurer to perform on its contracts of insurance in the event of
widespread losses; or (iii) the federal or State government to appropriate
sufficient funds within their respective budget limitations.
Illiquid Securities
The fund will not invest more than 15% of its net assets in illiquid and other
securities that are not readily marketable. Repurchase agreements maturing in
more than seven days will be included for purposes of the foregoing limit.
Securities subject to restrictions on resale under the Securities Act of 1933,
as amended (the "1933 Act"), are considered illiquid unless they are eligible
for resale pursuant to Rule 144A or another exemption from the registration
requirements of the 1933 Act and are determined to be liquid by Pioneer, the
fund's investment adviser. Pioneer determines the liquidity of Rule 144A and
other restricted securities according to procedures adopted by the Board of
Trustees. Under the direction of the Board of Trustees, Pioneer monitors the
application of these guidelines and procedures. The inability of the fund to
dispose of illiquid investments readily or at reasonable prices could impair the
fund's ability to raise cash for redemptions or other purposes. If the fund sold
restricted securities other than pursuant to an exception from registration
under the 1933 Act such as Rule 144A, it may be deemed to be acting as an
underwriter and subject to liability under the 1933 Act.
Zero Coupon and Deferred Interest Bonds
Tax-Exempt Bonds in which the fund may invest also include zero coupon bonds and
deferred interest bonds. Zero coupon bonds and deferred interest bonds are debt
obligations which are issued at a significant discount from face value. While
zero coupon bonds do not require the periodic payment of interest, deferred
interest bonds provide for a period of delay before the regular payment of
interest begins. The discount approximates the total amount of interest the
bonds will accrue and compound over the period until maturity or the first
interest payment date at a rate of interest reflecting the market rate of the
security at the time of issuance. Zero coupon bonds and deferred interest bonds
benefit the issuer by mitigating its need for cash to service its debt, but
generally require a higher rate of return to attract investors who are willing
to defer receipt of such cash. Such investments may experience greater
volatility in value than debt obligations which make regular payments of
interest. The fund will accrue income on such investments for tax and accounting
purposes, which is distributable to shareholders. Since no cash is received at
the time of accrual, the fund may be required to liquidate other portfolio
securities to satisfy its distribution obligations.
Residual Interests in Municipal Securities
Certain municipal securities are divided into short-term and long-term
components. The short-term component has a long-term maturity, but pays interest
at a short-term rate that is reset by means of a "dutch auction" or similar
method at specified intervals (typically 35 days). The long-term component or
"residual interest" pays interest at a rate that is determined by subtracting
the interest paid on the short-term component from the coupon rate on the
municipal securities themselves. Consequently, the interest rate paid on
residual interests will increase when short-term interest rates are declining
and will decrease when short-term interest rates are increasing. This interest
rate adjustment formula results in the market value of residual interests being
significantly more volatile than that of ordinary municipal securities. In a
declining interest rate environment, residual interests can provide the fund
with a means of increasing or maintaining the level of tax-exempt interest paid
to shareholders. However, because of the market volatility associated with
residual interests, the fund will not invest more than 10% of its total assets
in residual interests in municipal securities.
U.S. Government Securities
U.S. government securities in which the fund may invest include debt obligations
of varying maturities issued by the U.S. Treasury or issued or guaranteed by an
agency or instrumentality of the U.S. government, including the Federal Housing
Administration, Federal Financing Bank, Farmers Home
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Administration, Export-Import Bank of the U.S., Small Business Administration,
Government National Mortgage Association ("GNMA"), General Services
Administration, Central Bank for Cooperatives, Federal Farm Credit Banks,
Federal Home Loan Banks, Federal Home Loan Mortgage Corporation ("FHLMC"),
Federal National Mortgage Association ("FNMA"), Maritime Administration,
Tennessee Valley Authority, District of Columbia Armory Board, Student Loan
Marketing Association, Resolution Trust Corporation and various institutions
that previously were or currently are part of the Farm Credit System (which has
been undergoing reorganization since 1987). Some U.S. government securities,
such as U.S. Treasury bills, Treasury notes and Treasury bonds, which differ
only in their interest rates, maturities and times of issuance, are supported by
the full faith and credit of the United States. Others are supported by: (i) the
right of the issuer to borrow from the U.S. Treasury, such as securities of the
Federal Home Loan Banks; (ii) the discretionary authority of the U.S. government
to purchase the agency's obligations, such as securities of the FNMA; or (iii)
only the credit of the issuer. No assurance can be given that the U.S.
government will provide financial support in the future to U.S. government
agencies, authorities or instrumentalities that are not supported by the full
faith and credit of the United States. Securities guaranteed as to principal and
interest by the U.S. government, its agencies, authorities or instrumentalities
include: (i) securities for which the payment of principal and interest is
backed by an irrevocable letter of credit issued by the U.S. government or any
of its agencies, authorities or instrumentalities; and (ii) participations in
loans made to non-U.S. governments or other entities that are so guaranteed. The
secondary market for certain of these participations is limited and, therefore,
may be regarded as illiquid.
U.S. government securities may include zero coupon securities that may be
purchased when yields are attractive and/or to enhance portfolio liquidity. Zero
coupon U.S. government securities are debt obligations that are issued or
purchased at a significant discount from face value. The discount approximates
the total amount of interest the security will accrue and compound over the
period until maturity or the particular interest payment date at a rate of
interest reflecting the market rate of the security at the time of issuance.
Zero coupon U.S. government securities do not require the periodic payment of
interest. These investments benefit the issuer by mitigating its need for cash
to meet debt service, but generally require a higher rate of return to attract
investors who are willing to defer receipt of cash. These investments may
experience greater volatility in market value than U.S. government securities
that make regular payments of interest. The fund accrues income on these
investments for tax and accounting purposes, which is distributable to
shareholders and which, because no cash is received at the time of accrual, may
require the liquidation of other portfolio securities to satisfy the fund's
distribution obligations, in which case the fund will forgo the purchase of
additional income producing assets with these funds. Zero coupon U.S. government
securities include STRIPS and CUBES, which are issued by the U.S. Treasury as
component parts of U.S. Treasury bonds and represent scheduled interest and
principal payments on the bonds.
Debt Obligations of Non-U.S. Governments
An investment in debt obligations of non-U.S. governments and their political
subdivisions (sovereign debt) involves special risks that are not present in
corporate debt obligations. The non-U.S. issuer of the sovereign debt or the
non-U.S. governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or interest when due, and a fund may have
limited recourse in the event of a default. During periods of economic
uncertainty, the market prices of sovereign debt may be more volatile than
prices of debt obligations of U.S. issuers. In the past, certain non-U.S.
countries have encountered difficulties in servicing their debt obligations,
withheld payments of principal and interest and declared moratoria on the
payment of principal and interest on their sovereign debt.
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign currency reserves, the availability of
sufficient non-U.S. exchange, the relative size of the debt service burden, the
sovereign debtor's policy toward its principal international lenders and local
political constraints. Sovereign debtors may also be dependent on expected
disbursements from non-U.S. governments, multilateral agencies and other
entities to reduce principal and interest arrearages on their debt. The failure
of a sovereign debtor to implement economic reforms, achieve specified levels of
economic performance or repay principal or
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interest when due may result in the cancellation of third-party commitments to
lend funds to the sovereign debtor, which may further impair such debtor's
ability or willingness to service its debts.
Risks of Non-U.S. Investments
Investing in securities of non-U.S. issuers involves considerations and risks
not typically associated with investing in the securities of issuers in the U.S.
The risks of investing in securities of non-U.S. issuers generally or in issuers
with significant exposure to non-U.S. markets may be related, among other
things, to (i) differences in size, liquidity and volatility of, and the degree
and manner of regulation of, the securities markets of certain non-U.S. markets
compared to the securities markets in the U.S.; and (ii) economic, political and
social factors. The political and economic structures in certain countries are
expected to undergo significant evolution and rapid development, and such
countries may lack the social, political and economic stability characteristic
of more developed countries. Unanticipated political or social developments may
affect the values of the fund's investments in such countries. In the past, the
economies and securities and currency markets of many emerging markets have
experienced significant disruption and declines. There can be no assurances that
these economic and market disruptions might not occur again.
When-Issued and Delayed Delivery Securities
The fund may purchase securities, including U.S. government securities, on a
when-issued basis or may purchase or sell securities for delayed delivery. In
such transactions, delivery of the securities occurs beyond the normal
settlement period, but no payment or delivery is made by the fund prior to the
actual delivery or payment by the other party to the transaction. The fund will
not earn income on these securities until delivered. The purchase of securities
on a when-issued or delayed delivery basis involves the risk that the value of
the securities purchased will decline prior to the settlement date. The sale of
securities for delayed delivery involves the risk that the prices available in
the market on the delivery date may be greater than those obtained in the sale
transaction. The fund's obligations with respect to when-issued and delayed
delivery transactions will be fully collateralized by segregating liquid assets
with a value equal to the fund's obligations. See "Asset Segregation."
Other Investment Companies
The fund may invest in the securities of other investment companies to the
extent that such investments are consistent with the fund's investment objective
and policies and permissible under the Investment Company Act of 1940, as
amended (the "1940 Act"). Under the 1940 Act, the fund may not acquire the
securities of other domestic or non-U.S. investment companies if, as a result,
(i) more than 10% of the fund's total assets would be invested in securities of
other investment companies, (ii) such purchase would result in more than 3% of
the total outstanding voting securities of any one investment company being held
by the fund, or (iii) more than 5% of the fund's total assets would be invested
in any one investment company. These limitations do not apply to the purchase of
shares of any investment company in connection with a merger, consolidation,
reorganization or acquisition of substantially all the assets of another
investment company. The fund may invest in money market funds managed by Pioneer
in reliance on an exemptive order granted by the Securities and Exchange
Commission (the "SEC").
The fund, as a holder of the securities of other investment companies, will bear
its pro rata portion of the other investment companies' expenses, including
advisory fees. These expenses are in addition to the direct expenses of the
fund's own operations.
Subject to the limitations on investment in other investment companies, the fund
may invest in exchange traded funds (ETFs). ETFs, such as SPDRs, NASDAQ 100
Index Trading Stock (QQQs), iShares and various country index funds, are funds
whose shares are traded on a national exchange or the National Association of
Securities Dealers' Automatic Quotation System (NASDAQ). ETFs may be based on
underlying equity or fixed income securities. SPDRs, for example, seek to
provide investment results that generally correspond to the performance of the
component common stocks of the S&P 500. ETFs do not sell individual shares
directly to investors and only issue their shares in large blocks known as
"creation
-17-
units." The investor purchasing a creation unit then sells the individual shares
on a secondary market. Therefore, the liquidity of ETFs depends on the adequacy
of the secondary market. There can be no assurance that an ETF's investment
objective will be achieved. ETFs based on an index may not replicate and
maintain exactly the composition and relative weightings of securities in the
index. ETFs are subject to the risks of investing in the underlying securities.
The fund, as a holder of the securities of the ETF, will bear its pro rata
portion of the ETF's expenses, including advisory fees. These expenses are in
addition to the direct expenses of the fund's own operations.
Repurchase Agreements
The fund may enter into repurchase agreements with broker-dealers, member banks
of the Federal Reserve System and other financial institutions. Repurchase
agreements are arrangements under which the fund purchases securities and the
seller agrees to repurchase the securities within a specific time and at a
specific price. The repurchase price is generally higher than the fund's
purchase price, with the difference being income to the fund. Under the
direction of the Board of Trustees, Pioneer reviews and monitors the
creditworthiness of any institution which enters into a repurchase agreement
with the fund. The counterparty's obligations under the repurchase agreement are
collateralized with U.S. Treasury and/or agency obligations with a market value
of not less than 100% of the obligations, valued daily. Collateral is held by
the fund's custodian in a segregated, safekeeping account for the benefit of the
fund. Repurchase agreements afford the fund an opportunity to earn income on
temporarily available cash at low risk. In the event of commencement of
bankruptcy or insolvency proceedings with respect to the seller of the security
before repurchase of the security under a repurchase agreement, the fund may
encounter delay and incur costs before being able to sell the security. Such a
delay may involve loss of interest or a decline in price of the security. If the
court characterizes the transaction as a loan and the fund has not perfected a
security interest in the security, the fund may be required to return the
security to the seller's estate and be treated as an unsecured creditor of the
seller. As an unsecured creditor, the fund would be at risk of losing some or
all of the principal and interest involved in the transaction.
Other Eligible Investments
For temporary defensive or cash management purposes, the fund may invest in all
types of short-term investments including, but not limited to, (a) commercial
paper and other short-term commercial obligations; (b) obligations (including
certificates of deposit and bankers' acceptances) of banks; (c) obligations
issued or guaranteed by a governmental issuer, including governmental agencies
or instrumentalities; and (d) fixed income securities of corporate issuers.
These securities may be denominated in any currency and, excluding the fund's
permissible investments in below investment grade debt and convertible debt
securities, will be rated, at the time of investment, Prime-1, Baa or better by
Moody's Investors Service, Inc. ("Moody's"), or A-1, BBB or better by Standard &
Poor's or determined by Pioneer to be of equivalent credit quality. During
normal market conditions, the fund will only invest in the foregoing short-term
investments for cash management purposes to an extent consistent with the fund's
investment objective. When the fund adopts a defensive strategy due to adverse
market, economic or other such conditions, the fund may not be able to achieve
its investment objective.
Asset Segregation
The 1940 Act requires that the fund segregate assets in connection with certain
types of transactions that may have the effect of leveraging the fund's
portfolio. If the fund enters into a transaction requiring segregation, such as
a forward commitment, the custodian or Pioneer will segregate liquid assets in
an amount required to comply with the 1940 Act. Such segregated assets will be
valued at market daily. If the aggregate value of such segregated assets
declines below the aggregate value required to satisfy the 1940 Act, additional
liquid assets will be segregated.
Portfolio Turnover
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The fund will limit portfolio turnover to the extent practicable and consistent
with its investment objective and policies. While it does not intend to engage
in short-term trading, the fund will not preclude itself from taking advantage
of short-term trends and yield disparities that might occur from time to time. A
higher portfolio turnover rate will result in correspondingly higher transaction
costs. See Annual Fee, Expense and Other Information for the fund's annual
portfolio turnover rate.
Futures Contracts
To hedge against changes in securities prices or interest rates or to seek to
increase total return, the fund may purchase and sell various kinds of futures
contracts. The fund may also enter into closing purchase and sale transactions
with respect to any of such contracts. The futures contracts may be based on
various securities (such as U.S. government securities), securities indices and
other financial instruments and indices. All futures contracts entered into by
the fund are traded on U.S. exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission (the "CFTC").
Futures Contracts. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments for an
agreed price during a designated month (or to deliver the final cash settlement
price, in the case of a contract relating to an index or otherwise not calling
for physical delivery at the end of trading in the contract).
When interest rates are rising or securities prices are falling, the fund can
seek to offset a decline in the value of its current portfolio securities
through the sale of futures contracts. When interest rates are falling or
securities prices are rising, the fund, through the purchase of futures
contracts, can attempt to secure better rates or prices than might later be
available in the market when it effects anticipated purchases.
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities will usually be liquidated in
this manner, the fund may instead make, or take, delivery of the underlying
securities whenever it appears economically advantageous to do so. A clearing
corporation associated with the exchange on which futures on securities are
traded guarantees that, if still open, the sale or purchase will be performed on
the settlement date.
Hedging Strategies. Hedging, by use of futures contracts, seeks to establish
with more certainty the effective price and rate of return on portfolio
securities and securities that the fund owns or proposes to acquire. The fund
may, for example, take a "short" position in the futures market by selling
futures contracts in order to hedge against an anticipated rise in interest
rates or a decline in market prices that would adversely affect the value of the
fund's portfolio securities. Such futures contracts may include contracts for
the future delivery of securities held by the fund or securities with
characteristics similar to those of the fund's portfolio securities. If, in the
opinion of Pioneer, there is a sufficient degree of correlation between price
trends for the fund's portfolio securities and futures contracts based on other
financial instruments, securities indices or other indices, the fund may also
enter into such futures contracts as part of its hedging strategies. Although
under some circumstances prices of securities in the fund's portfolio may be
more or less volatile than prices of such futures contracts, Pioneer will
attempt to estimate the extent of this volatility difference based on historical
patterns and compensate for any such differential by having the fund enter into
a greater or lesser number of futures contracts or by attempting to achieve only
a partial hedge against price changes affecting the fund's portfolio securities.
When hedging of this character is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of the fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, the fund may take a "long" position by purchasing futures
contracts. This may be done, for example, when the fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices then available in the applicable market to be less favorable
than prices or rates that are currently available.
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Other Considerations. The fund will engage in futures transactions in accordance
with CFTC regulations which permit principals of an investment company
registered under the 1940 Act to engage in such transactions without registering
as commodity pool operators.
The fund will engage in transactions in futures contracts only to the extent
such transactions are consistent with the requirements of the Code for
maintaining its qualification as a regulated investment company for U.S. federal
income tax purposes.
Futures contracts involve brokerage costs, require margin deposits and, in the
case of contracts obligating the fund to purchase securities, require the fund
to segregate assets to cover such contracts.
While transactions in futures contracts may reduce certain risks, such
transactions themselves entail certain other risks. Thus, while the fund may
benefit from the use of futures, unanticipated changes in interest rates or
securities prices may result in a poorer overall performance for the fund than
if it had not entered into any futures contracts. In the event of an imperfect
correlation between a futures position and a portfolio position which is
intended to be protected, the desired protection may not be obtained and the
fund may be exposed to risk of loss.
Inverse Floating Rate Securities
The interest on an inverse floater resets in the opposite direction from the
market rate of interest to which the inverse floater is indexed. An inverse
floater may be considered to be leveraged to the extent that its interest rate
varies by a magnitude that exceeds the magnitude of the change in the index rate
of interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values.
Lending of Portfolio Securities
The fund may lend portfolio securities to registered broker-dealers or other
institutional investors deemed by Pioneer to be of good standing under
agreements which require that the loans be secured continuously by collateral in
cash, cash equivalents or U.S. Treasury bills maintained on a current basis at
an amount at least equal to the market value of the securities loaned. The fund
continues to receive the equivalent of the interest or dividends paid by the
issuer on the securities loaned as well as the benefit of an increase and the
detriment of any decrease in the market value of the securities loaned and would
also receive compensation based on investment of the collateral. The fund may
pay administrative and custodial fees in connection with loans of securities and
may pay a portion of the income or fee earned thereon to the borrower, lending
agent or other intermediary. The fund would not, however, have the right to vote
any securities having voting rights during the existence of the loan, but would
call the loan in anticipation of an important vote to be taken among holders of
the securities or of the giving or withholding of consent on a material matter
affecting the investment.
As with other extensions of credit, there are risks of delay in recovery or even
loss of rights in the collateral should the borrower of the securities fail
financially. The fund will lend portfolio securities only to firms that have
been approved in advance by the Board of Trustees, which will monitor the
creditworthiness of any such firms. At no time would the value of the securities
loaned exceed 33 1/3% of the value of the fund's total assets.
Money Market Instruments
The fund may invest in short term money market instruments including commercial
bank obligations and commercial paper. These instruments may be denominated in
both U.S. and, to a limited extent, foreign currency. The fund's investment in
commercial bank obligations includes certificates of deposit ("CDs"), time
deposits ("TDs") and bankers' acceptances. Obligations of foreign branches of
U.S. banks and of foreign banks may be general obligations of the parent bank in
addition to the issuing bank, or may be limited by the terms of a specific
obligation and by government regulation. As with investment in non-U.S.
securities in general, investments in the obligations of foreign branches of
U.S. banks and of foreign banks
-20-
may subject the fund to investment risks that are different in some respects
from those of investments in obligations of domestic issuers.
The fund's investments in commercial paper consist of short-term (usually from 1
to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations.
Fundamental investment restrictions
The fund has adopted certain fundamental investment restrictions which, along
with the fund's investment objective, may not be changed without the affirmative
vote of the holders of a "majority of the outstanding voting securities" (as
defined in the 1940 Act) of the fund. Statements in italics are not part of the
restriction. For this purpose, a majority of the outstanding shares of the fund
means the vote of the lesser of:
(i) 67% or more of the shares represented at a meeting, if the holders of more
than 50% of the outstanding shares are present in person or by proxy, or
(ii) more than 50% of the outstanding shares of the fund.
The fund may not:
(1) Issue senior securities, except to the extent permitted by applicable law,
as amended and interpreted or modified from time to time by any regulatory
authority having jurisdiction. Senior securities that a fund may issue in
accordance with the 1940 Act include borrowing, futures, when-issued and delayed
delivery securities and forward foreign currency exchange transactions.
(2) Borrow money, except on a temporary basis and to the extent permitted by
applicable law, as amended and interpreted or modified from time to time by any
regulatory authority having jurisdiction. Under current regulatory requirements,
a fund may: (a) borrow from banks or through reverse repurchase agreements in an
amount up to 33 1/3% of the fund's total assets (including the amount borrowed);
(b) borrow up to an additional 5% of the fund's assets for temporary purposes;
(c) obtain such short-term credits as are necessary for the clearance of
portfolio transactions; (d) purchase securities on margin to the extent
permitted by applicable law; and (e) engage in transactions in mortgage dollar
rolls that are accounted for as financings.
(3) Invest in real estate, except (a) that the fund may invest in securities of
issuers that invest in real estate or interests therein, securities that are
secured by real estate or interests therein, securities of real estate
investment trusts, mortgage-backed securities and other securities that
represent a similar indirect interest in real estate; and (b) the fund may
acquire real estate or interests therein through exercising rights or remedies
with regard to an instrument or security.
(4) Make loans, except that the fund may (i) lend portfolio securities in
accordance with the fund's investment policies, (ii) enter into repurchase
agreements, (iii) purchase all or a portion of an issue of publicly distributed
debt securities, bank loan participation interests, bank certificates of
deposit, bankers' acceptances, debentures or other securities, whether or not
the purchase is made upon the original issuance of the securities, (iv)
participate in a credit facility whereby the fund may directly lend to and
borrow money from other affiliated funds to the extent permitted under the 1940
Act or an exemption therefrom, and (v) make loans in any other manner consistent
with applicable law, as amended and interpreted or modified from time to time by
any regulatory authority having jurisdiction.
(5) Invest in commodities or commodity contracts, except that the fund may
invest in currency instruments and currency contracts and financial instruments
and financial contracts that might be deemed to be commodities and commodity
contracts in accordance with applicable law. A futures contract, for example,
may be deemed to be a commodity contract.
(6) Make any investment inconsistent with its classification as a diversified
open-end investment company (or series thereof) under the 1940 Act. Currently,
diversification means that, with respect to 75% of its total
-21-
assets, the fund may not purchase securities of an issuer (other than the U.S.
government, its agencies or instrumentalities and securities of investment
companies), if
(a) such purchase would cause more than 5% of the fund's total assets,
taken at market value, to be invested in the securities of such issuer, or
(b) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the fund.
(7) Act as an underwriter, except insofar as the fund technically may be deemed
to be an underwriter in connection with the purchase or sale of its portfolio
securities.
(8) Invest 25% or more of the value of its total assets in any one industry,
provided that this limitation does not apply to municipal securities other than
those municipal securities backed only by assets and revenues of
non-governmental issuers. For purposes of applying the limitation set forth in
this restriction, securities of the U.S. government, its agencies, or
instrumentalities, and securities backed by the credit of a governmental entity
are not considered to represent industries. However, obligations backed only by
the assets and revenues of non-governmental issuers may for this purpose be
deemed to be issued by such non-governmental issuers. Thus, the 25% limitation
would apply to such obligations. It is nonetheless possible that the fund may
invest more than 25% of its total assets in a broader economic sector of the
market for municipal obligations, such as revenue obligations of hospitals and
other health care facilities or electrical utility revenue obligations. In
addition, for the purpose of applying the limitation set forth this restriction,
a non-governmental issuer shall be deemed the sole issuer of a security when its
assets and revenues are separate from other governmental entities and its
securities are backed only by its assets and revenues. Similarly, in the case of
a non-governmental issuer, such as an industrial corporation or a privately
owned or operated hospital, if the security is backed only by the assets and
revenues of the non-governmental issuer, then such non-governmental issuer would
be deemed to be the sole issuer. Where a security is also backed by the
enforceable obligation of a superior or unrelated governmental or other entity
(other than a bond insurer), it shall also be included in the computation of
securities owned that are issued by such governmental or other entity. Where a
security is guaranteed by a governmental entity or some other facility, such as
a bank guarantee or letter of credit, such a guarantee or letter of credit would
be considered a separate security and would be treated as an issue of such
government, other entity or bank. When a municipal bond is insured by bond
insurance, it shall not be considered a security that is issued or guaranteed by
the insurer; instead, the issuer of such municipal bond will be determined in
accordance with the principles set forth above. The foregoing restrictions do
not limit the percentage of thefund's assets that may be invested in municipal
bonds insured by any given insurer. Governmental issuers of municipal securities
are not considered part of any "industry." In the opinion of the SEC,
investments are concentrated in a particular industry if such investments
aggregate 25% or more of the fund's total assets. When identifying industries
for purposes of its concentration policy, the fund may rely upon available
industry classifications. The fund's policy does not apply to investments in
U.S. government securities.
(9) Normally, the fund will invest at least 80% of its net assets in investments
the income from which will be exempt from regular federal income tax and
California state personal income tax.
Non-Fundamental Investment Restrictions
The following restrictions have been designated as non-fundamental and may be
changed by a vote of the fund's Board of Trustees without approval of
shareholders.
(1) The fund will not purchase securities during the current fiscal year at any
time that outstanding borrowings exceed 5% of the fund's total assets.
(2) The fund may not engage in short sales, except short sales against the box.
-22-
(3) The fund will not invest in any investment company in reliance on Section
12(d)(1)(F) of the 1940 Act, which would allow the fund to invest in other
Pioneer Funds, or Section 12(d)(1)(G) of the 1940 Act, which would allow the
fund to invest in other investment companies, , in each case without being
subject to the limitations discussed above under "Other Investment Companies" so
long as another investment company invests in the fund in reliance on Section
12(d)(1)(G), such as one of the series of Pioneer Asset Allocation Trust.
(4) The fund does not invest in companies for the purposes of exercising control
or management.
MANAGEMENT OF THE FUND
The fund's Board of Trustees provides broad supervision over the fund's affairs.
The officers of the fund are responsible for the fund's operations. The fund's
Trustees and officers are listed below, together with their principal
occupations during the past five years. Trustees who are interested persons of
the fund within the meaning of the 1940 Act are referred to as Interested
Trustees. Trustees who are not interested persons of the fund are referred to as
Independent Trustees. Each of the Trustees serves as a trustee of each of the 65
U.S. registered investment portfolios for which Pioneer serves as investment
adviser (the "Pioneer Funds"). The address for all Interested Trustees and all
officers of the fund is 60 State Street, Boston, Massachusetts 02109.
- --------------------------------------------------------------------------------------------------------------------------
Term of Office
Name, Age and Position Held and Length of Principal Occupation During Past Other Directorships Held by
Address With the Fund Service Five Years this Trustee
- --------------------------------------------------------------------------------------------------------------------------
Interested Trustees:
- --------------------------------------------------------------------------------------------------------------------------
John F. Cogan, Chairman of the Trustee since Deputy Chairman and a Director Director of Harbor Global
Jr. (78)* Board, Trustee 2004. Serves of Pioneer Global Asset Company, Ltd.
and President until retirement Management S.p.A. ("PGAM");
or removal. Non-Executive Chairman and a
Director of Pioneer
Investment Management
USA Inc. ("PIM-USA");
Chairman and a
Director of Pioneer;
Director of Pioneer
Alternative Investment
Management Limited
(Dublin); President
and a Director of
Pioneer Alternative
Investment Management
(Bermuda) Limited and
affiliated funds;
President and Director
of Pioneer Funds
Distributor, Inc.
("PFD"); President of
all of the Pioneer
Funds; and Of Counsel
(since 2000, partner
prior to 2000), Wilmer
Cutler Pickering Hale
and Dorr LLP (counsel
to PIM-USA and the
Pioneer Funds)
- --------------------------------------------------------------------------------------------------------------------------
Osbert M. Hood Trustee and Trustee since President and Chief Executive None
(52)* Executive Vice 2004. Serves Officer, PIM-USA since May, 2003
President until a (Director since January, 2001);
successor President and Director of
trustee is Pioneer since May, 2003;
elected or Chairman and Director of Pioneer
earlier Investment Management
retirement or Shareholder Services, Inc.
removal. ("PIMSS") since May, 2003;
- --------------------------------------------------------------------------------------------------------------------------
-23-
- --------------------------------------------------------------------------------------------------------------------------
Executive Vice
President of all of
the Pioneer Funds
since June 3, 2003;
Executive Vice
President and Chief
Operating Officer of
PIM-USA, November
2000-May 2003;
Executive Vice
President, Chief
Financial Officer and
Treasurer, John
Hancock Advisers, LLC,
Boston, MA, November
1999-November 2000;
Senior Vice President
and Chief Financial
Officer, John Hancock
Advisers, LLC, April
1997-November 1999
- --------------------------------------------------------------------------------------------------------------------------
Independent Trustees:
- --------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (56) Trustee Trustee since President, Bush International Director of Brady
3509 Woodbine Street, 2004. Serves (international financial Corporation (industrial
Chevy Chase, MD 20815 until a advisory firm) identification and
successor specialty coated material
trustee is products manufacturer),
elected or Millenium Chemicals, Inc.
earlier (commodity chemicals),
retirement or Mortgage Guaranty Insurance
removal. Corporation, and R.J.
Reynolds Tobacco Holdings,
Inc. (tobacco)
- --------------------------------------------------------------------------------------------------------------------------
Richard H. Egdahl, Trustee Trustee since Alexander Graham Bell Professor None
M.D. (77) 2004. Serves of Health Care Entrepreneurship,
Boston University until a Boston University; Professor of
Healthcare successor Management, Boston University
Entrepreneurship trustee is School of Management; Professor
Program, 53 Bay State elected or of Public Health, Boston
Road, Boston, MA 02215 earlier University School of Public
retirement or Health; Professor of Surgery,
removal. Boston University School of
Medicine; and University
Professor, Boston University
- --------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham Trustee Trustee since Founding Director, The Winthrop None
(57) 2043. Serves Group, Inc. (consulting firm);
1001 Sherbrooke Street until a Professor of Management, Faculty
West, Montreal, successor of Management, McGill University
Quebec, Canada trustee is
elected or
earlier
retirement or
removal.
- --------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret Trustee Trustee since President and Chief Executive None
(56) 2004. Serves Officer, Newbury, Piret &
One Boston Place, 28th until a Company, Inc. (investment
Floor, Boston, MA 02108 successor banking firm)
trustee is
elected or
earlier
retirement or
removal.
- --------------------------------------------------------------------------------------------------------------------------
-24-
- --------------------------------------------------------------------------------------------------------------------------
Stephen K. West (75) Trustee Trustee since Senior Counsel, Sullivan & Director, The Swiss
125 Broad Street, New 2004. Serves Cromwell (law firm) Helvetia Fund, Inc.
York, NY 10004 until a (closed-end investment
successor company) and AMVESCAP PLC
trustee is (investment managers)
elected or
earlier
retirement or
removal.
- --------------------------------------------------------------------------------------------------------------------------
John Winthrop (68) Trustee Trustee since President, John Winthrop & Co., None
One North Adgers 2004. Serves Inc. (private investment firm)
Wharf, Charleston, SC until a
29401 successor
trustee is
elected or
earlier
retirement or
removal.
- --------------------------------------------------------------------------------------------------------------------------
Other Directorships Held by
Fund Officers: this Officer
- --------------------------------------------------------------------------------------------------------------------------
Dorothy E. Secretary Since September, Secretary of PIM-USA; Senior None
Bourassa (56) 2004. Serves at Vice President- Legal of
the discretion Pioneer; and Secretary/Clerk of
of Board most of PIM-USA's subsidiaries
since October 2000;
Secretary of all of
the Pioneer Funds
since September 2003
(Assistant Secretary
from November 2000 to
September 2003); and
Senior Counsel,
Assistant Vice
President and Director
of Compliance of
PIM-USA from April
1998 through October
2000
- --------------------------------------------------------------------------------------------------------------------------
Christopher J. Assistant Since September, Assistant Vice President and None
Kelley (39) Secretary 2004. Serves at Senior Counsel of Pioneer since
the discretion July 2002; Vice President and
of Board Senior Counsel of BISYS Fund
Services, Inc. (April 2001 to
June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor,
Inc. (July 2000 to April 2001;
Vice President and Associate
General Counsel from July 1996
to July 2000); Assistant
Secretary of all Pioneer Funds
since September 2003
- --------------------------------------------------------------------------------------------------------------------------
-25-
- --------------------------------------------------------------------------------------------------------------------------
David C. Phelan Assistant Since September, Partner, Wilmer Cutler Pickering None
(47) Secretary 2004. Serves at Hale and Dorr LLP; Assistant
the discretion Secretary of all Pioneer Funds
of Board since September 2003
- --------------------------------------------------------------------------------------------------------------------------
Vincent Nave (59) Treasurer Since 2004. Vice President-Fund Accounting, None
Serves at the Administration and Custody
discretion of Services of Pioneer (Manager
Board from September 1996 to
February 1999); and
Treasurer of all of
the Pioneer Funds
(Assistant Treasurer
from June 1999 to
November 2000)
- --------------------------------------------------------------------------------------------------------------------------
Luis I. Presutti Assistant Since 2004. Assistant Vice President-Fund None
(39) Treasurer Serves at the Accounting, Administration and
discretion of Custody Services of Pioneer
Board (Fund Accounting Manager from
1994 to 1999); and Assistant
Treasurer of all of the Pioneer
Funds since November 2000
- --------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (46) Assistant Since 2004. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of Custody Services of Pioneer; and
Board Assistant Treasurer of all of
the Pioneer Funds since May 2002
- --------------------------------------------------------------------------------------------------------------------------
Katharine Kim Assistant Since 2004. Fund Administration Manager - None
Sullivan (30) Treasurer Serves at the Fund Accounting, Administration
discretion of and Custody Services since June
Board 2003; Assistant Vice President -
Mutual Fund Operations of State
Street Corporation from June
2002 to June 2003 (formerly
Deutsche Bank Asset Management);
Pioneer Fund Accounting,
Administration and Custody
Services (Fund Accounting
Manager from August 1999 to May
2002, Fund Accounting Services
Supervisor from 1997 to July
1999); Assistant Treasurer of
all Pioneer Funds since
September 2003
- --------------------------------------------------------------------------------------------------------------------------
*Mr. Cogan and Mr. Hood are Interested Trustees because each is an officer or
director of the fund's investment adviser and certain of its affiliates.
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly
owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. Pioneer, the fund's
-26-
investment adviser, provides investment management and financial services to
mutual funds, institutional and other clients.
Board Committees
Because the Trust is newly organized the Board of Trustees of Pioneer Series
Trust II attended one meeting during the most recent fiscal year.
The Board of Trustees has an Audit Committee, an Independent Trustees Committee,
a Nominating Committee, a Valuation Committee and a Policy Administration
Committee. Committee members are as follows:
Audit
Marguerite A. Piret (Chair), Margaret B.W. Graham and John Winthrop
Independent Trustees
Mary K. Bush, Richard H. Egdahl, Margaret B.W. Graham (Chair), Marguerite A.
Piret, Stephen K. West and John Winthrop
Nominating
Mary K. Bush, Richard H. Egdahl (Chair) and Marguerite A. Piret
Valuation
Marguerite A. Piret (Chair), Stephen K. West and John Winthrop
Policy Administration
Mary K. Bush (Chair), Richard H. Egdahl and Margaret B.W. Graham
During the most recent fiscal year, the Audit, Nominating, Valuation,
Independent Trustees and Policy Administration Committees did not hold any
meetings, because the Trust is newly organized.
The Board of Trustees has adopted a charter for the Audit Committee. In
accordance with its charter, the purposes of the Audit Committee are to:
|X| act as a liaison between the fund's independent auditors and the full Board
of Trustees of the fund;
|X| discuss with the fund's independent auditors their judgments about the
quality of the fund's accounting principles and underlying estimates as
applied in the fund's financial reporting;
|X| review and assess the renewal materials of all related party contracts and
agreements, including management advisory agreements, underwriting
contracts, administration agreements, distribution contracts, and transfer
agency contracts, among any other instruments and agreements that may be
appropriate from time to time;
|X| review and approve insurance coverage and allocations of premiums between
the management and the fund and among the Pioneer Funds;
|X| review and approve expenses under the administration agreement between
Pioneer and the fund and allocations of such expenses among the Pioneer
Funds; and
|X| receive on a periodic basis a formal written statement delineating all
relationships between the auditors and the fund or Pioneer; to actively
engage in a dialogue with the independent auditors with respect to any
disclosed relationships or services that may impact the objectivity and
independence of the independent auditors; and to recommend that the
Trustees take appropriate action in response to the independent auditors'
report to satisfy itself of the independent auditors' independence.
-27-
The Nominating Committee reviews the qualifications of any candidate recommended
by the Independent Trustees to serve as an Independent Trustee and makes a
recommendation regarding that person's qualifications. The Committee does not
accept nominations from shareholders.
The Valuation Committee reviews the valuation assigned to certain securities by
Pioneer in accordance with the fund's valuation procedures.
The Policy Administration Committee reviews the implementation of certain of the
fund's administrative policies and procedures.
The Independent Trustees Committee reviews the fund's management contract and
other related party contracts annually and is also responsible for any other
action required to be taken, under the 1940 Act, by the Independent Trustees
acting alone.
The fund's Declaration of Trust provides that the fund will indemnify the
Trustees and officers against liabilities and expenses incurred in connection
with any litigation in which they may be involved because of their offices with
the fund, unless it is determined in the manner specified in the Declaration of
Trust that they have not acted in good faith in the reasonable belief that their
actions were in the best interests of the fund or that such indemnification
would relieve any officer or Trustee of any liability to the fund or its
shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his or her duties.
Compensation of Officers and Trustees
The fund pays no salaries or compensation to any of its officers. The Pioneer
Funds, including the fund, compensate their trustees. The Independent Trustees
review and set their compensation annually, taking into consideration the
committee and other responsibilities assigned to specific trustees. The table
under "Annual Fees, Expense and Other Information-Compensation of Officers and
Trustees" sets forth the compensation paid to each of the Trustees. The
compensation paid to the Trustees is then allocated among the funds as follows:
o each fund with assets less than $250 million pays each Trustee who is not
affiliated with PIM-USA, Pioneer, PFD, PIMSS or UniCredito Italiano (i.e.,
Independent Trustees) an annual fee of $1,000.
o the remaining compensation of the Independent Trustees is allocated to each
fund with assets greater than $250 million based on the fund's net assets.
o the Interested Trustees receive an annual fee of $500 from each fund,
except in the case of funds with net assets of $50 million or less, which
pay each Interested Trustee an annual fee of $200. Pioneer reimburses the
funds for the fees aid to the Interested Trustees.
See "Compensation of Officers and Trustees" in Annual Fee, Expense and Other
Information.
Sales Loads. The fund offers its shares to Trustees and officers of the fund and
employees of Pioneer and its affiliates without a sales charge in order to
encourage investment in the fund by individuals who are responsible for its
management and because the sales to such persons do not entail any sales effort
by the fund, brokers or other intermediaries.
Other Information
Material Relationships of the Independent Trustees. For purposes of the
statements below:
o the immediate family members of any person are their spouse, children
in the person's household (including step and adoptive children) and
any dependent of the person.
-28-
o an entity in a control relationship means any person who controls, is
controlled by or is under common control with the named person. For
example, UniCredito Italiano is an entity that is in a control relationship
with Pioneer.
o a related fund is a registered investment company or an entity exempt from
the definition of an investment company pursuant to Sections 3(c)(1) or
3(c)(7) of the 1940 Act, for which Pioneer or any of its affiliates act as
investment adviser or for which PFD or any of its affiliates act as
principal underwriter. For example, the Fund's related funds include all of
the Pioneer Funds and any non-U.S. funds managed by Pioneer or its
affiliates.
As of December 31, 2003, none of the Independent Trustees, nor any of their
immediate family members, beneficially owned any securities issued by Pioneer,
UniCredito Italiano or any other entity in a control relationship to Pioneer or
PFD. During the calendar years 2002 and 2003, none of the Independent Trustees,
nor any of their immediate family members, had any direct or indirect interest
(the value of which exceeded $60,000), whether by contract, arrangement or
otherwise, in Pioneer, UniCredito Italiano, or any other entity in a control
relationship to Pioneer or PFD. During the calendar years 2002 and 2003, none of
the Independent Trustees, nor any of their immediate family members, had an
interest in a transaction or a series of transactions in which the aggregate
amount involved exceeded $60,000 and to which any of the following were a party
(each a "fund related party"):
o the fund
o an officer of the fund
o a related fund
o an officer of any related fund
o Pioneer
o PFD
o an officer of Pioneer or PFD
o any affiliate of Pioneer or PFD
o an officer of any such affiliate
During the calendar years 2002 and 2003, none of the Independent Trustees, nor
any of their immediate family members, had any relationship (the value of which
exceeded $60,000) with any fund related party, including, but not limited to,
relationships arising out of (i) the payment for property and services, (ii) the
provision of legal services, (iii) the provision of investment banking services
(other than as a member of the underwriting syndicate) or (iv) the provision of
consulting services, except that Mr. West, an Independent Trustee, is Senior
Counsel to Sullivan & Cromwell and acts as counsel to the Independent Trustees
and the Independent Trustees of the other Pioneer Funds. The aggregate
compensation paid to Sullivan & Cromwell by the fund and the other Pioneer Funds
was approximately $53,000 and $126,603 in each of 2002 and 2003.
During the calendar years 2002 and 2003, none of the Independent Trustees, nor
any of their immediate family members, served as a member of a board of
directors on which an officer of any of the following entities also serves as a
director:
o Pioneer
o PFD
o UniCredito Italiano
o any other entity in a control relationship with Pioneer or PFD
None of the fund's Trustees or officers has any arrangement with any other
person pursuant to which that Trustee or officer serves on the Board of
Trustees. During the calendar years 2002 and 2003, none of the Independent
Trustees, nor any of their immediate family members, had any position, including
as an officer, employee, director or partner, with any of the following:
o the fund
-29-
o any related fund
o Pioneer
o PFD
o any affiliated person of the fund, Pioneer or PFD
o UniCredito Italiano
o any other entity in a control relationship to the fund, Pioneer or PFD
Factors Considered by the Independent Trustees in Approving the Management
Contract. The 1940 Act requires that the fund's management contract be approved
annually by both the Board of Trustees and a majority of the Independent
Trustees voting separately. The Independent Trustees have determined that the
terms of the fund's management contract are fair and reasonable and that the
contract is in the fund's best interest. The Independent Trustees believe that
the management contract will enable the fund to enjoy high quality investment
advisory services at a cost they deem appropriate, reasonable and in the best
interests of the fund and its shareholders. In making such determinations, the
Independent Trustees met independently from the Interested Trustees of the fund
and any officers of Pioneer or its affiliates. The Independent Trustees also
relied upon the assistance of counsel to the Independent Trustees and counsel to
the fund.
In evaluating the management contract, the Independent Trustees reviewed
materials furnished by Pioneer, including information regarding Pioneer,
UniCredito Italiano, their respective affiliates and their personnel, operations
and financial condition. The Independent Trustees discussed with representatives
of Pioneer the fund's operations and Pioneer's ability to provide advisory and
other services to the fund. The Independent Trustees also reviewed:
o the investment performance of the fund and other Pioneer Funds with similar
investment strategies;
o the fee charged by Pioneer for investment advisory and administrative
services, as well as other compensation received by PFD and PIMSS;
o the fund's projected total operating expenses;
o the investment performance, fees and total expenses of investment companies
with similar objectives and strategies managed by other investment
advisers;
o the experience of the investment advisory and other personnel providing
services to the fund and the historical quality of the services provided by
Pioneer; and
o the profitability to Pioneer of managing the fund.
The Independent Trustees considered the following as relevant to their
recommendations: (1) the favorable history, reputation, qualification and
background of Pioneer and UniCredito Italiano, as well as the qualifications of
their personnel and their respective financial conditions; (2) that the fee and
expense ratios of the fund are reasonable given the quality of services expected
to be provided and are comparable to the fee and expense ratios of similar
investment companies; and (3) the relative performance of similar funds advised
by Pioneer since commencement of operations to comparable investment companies
and unmanaged indices. The Independent Trustees deemed each of these factors to
be relevant to their consideration of the fund's management contract.
Share Ownership. See Annual Fee, Expense and Other Information for annual
information on the ownership of fund shares by the Trustees, the fund's officers
and owners in excess of 5% of any class of shares of the fund and a table
indicating the value of shares that each Trustee beneficially owns in the fund
and in all the Pioneer Funds.
Code of Ethics. The fund's Board of Trustees approved a code of ethics under
Rule 17j-1 under the 1940 Act that covers the fund, Pioneer and certain of
Pioneer's affiliates. The code of ethics establishes
-30-
procedures for personal investing and restricts certain transactions. Employees
subject to the code of ethics may invest in securities for their personal
investment accounts, including securities that may be purchased or held by the
fund.
Proxy Voting Policies. Effective August 31, 2004, information regarding how the
fund voted proxies relating to portfolio securities during the most recent
12-month period ended June 30 will be publicly available to shareowners at
www.pioneerfunds.com and on the SEC's website at http://www.sec.gov.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Not Applicable.
INVESTMENT ADVISORY AND OTHER SERVICES
The fund has contracted with Pioneer to act as its investment adviser. Pioneer
is an indirect, wholly owned subsidiary of UniCredito Italiano. Certain Trustees
or officers of the fund are also directors and/or officers of certain of
UniCredito Italiano's subsidiaries (see management biographies above). Pioneer
has entered into an agreement with its affiliate, Pioneer Investment Management
Limited ("PIML"), pursuant to which PIML provides certain services and personnel
to Pioneer.
As the fund's investment adviser, Pioneer provides the fund with investment
research, advice and supervision and furnishes an investment program for the
fund consistent with the fund's investment objective and policies, subject to
the supervision of the fund's Trustees. Pioneer determines what portfolio
securities will be purchased or sold, arranges for the placing of orders for the
purchase or sale of portfolio securities, selects brokers or dealers to place
those orders, maintains books and records with respect to the fund's securities
transactions, and reports to the Trustees on the fund's investments and
performance.
Under the terms of its management contract with the fund, Pioneer pays all the
operating expenses, including executive salaries and the rental of office space,
relating to its services for the fund, with the exception of the following,
which are to be paid by the fund: (a) charges and expenses for fund accounting,
pricing and appraisal services and related overhead, including, to the extent
such services are performed by personnel of Pioneer, or its affiliates, office
space and facilities and personnel compensation, training and benefits; (b) the
charges and expenses of auditors; (c) the charges and expenses of any custodian,
transfer agent, plan agent, dividend disbursing agent and registrar appointed by
the fund; (d) issue and transfer taxes chargeable to the fund in connection with
securities transactions to which the fund is a party; (e) insurance premiums,
interest charges, dues and fees for membership in trade associations and all
taxes and corporate fees payable by the fund to federal, state or other
governmental agencies; (f) fees and expenses involved in registering and
maintaining registrations of the fund and/or its shares with the federal
regulatory agencies, state or blue sky securities agencies and foreign
jurisdictions, including the preparation of prospectuses and statements of
additional information for filing with such regulatory authorities; (g) all
expenses of shareholders' and Trustees' meetings and of preparing, printing and
distributing prospectuses, notices, proxy statements and all reports to
shareholders and to governmental agencies; (h) charges and expenses of legal
counsel to the fund and the Trustees; (i) distribution fees paid by the fund in
accordance with Rule 12b-1 promulgated by the SEC pursuant to the 1940 Act; (j)
compensation of those Trustees of the fund who are not affiliated with or
interested persons of Pioneer, the fund (other than as Trustees), PIM-USA or
PFD; (k) the cost of preparing and printing share certificates; (l) interest on
borrowed money, if any and (m) any other expense that the fund, Pioneer or any
other agent of the fund may incur (A) as a result of a change in the laws or
regulations, (B) as a result of a mandate from the Board of Trustees with
associated costs of a character generally assumed by similarly structured
investment companies or (C) that is similar to the expenses listed above, and
that is approved by the Board of Trustees (including a majority of the
Independent Trustees) as being an appropriate expense of the fund. In addition,
the fund shall pay all brokers' and underwriting commissions chargeable to the
fund in connection with securities transactions to which the fund is a party.
The Trustees' approval of and the terms, continuance and termination of the
management contract are governed by the 1940 Act and the Investment Advisers Act
of 1940, as applicable. Pursuant to the management contract, Pioneer will not be
liable for any error of judgment or mistake of law or for any loss sustained by
reason of the adoption of any investment policy or the purchase,
-31-
sale or retention of any securities on the recommendation of Pioneer. Pioneer,
however, is not protected against liability by reason of willful misfeasance,
bad faith or gross negligence in the performance of its duties or by reason of
its reckless disregard of its obligations and duties under the management
contract.
Advisory Fee. As compensation for its management services and expenses incurred,
the fund pays Pioneer a fee at the annual rate of 0.50% of the fund's average
daily net assets up to $250 million, 0.45% of the next $500 million and 0.40% on
assets over $750 million. This fee is computed and accrued daily and paid
monthly.
Prior to August 2, 2004, Safeco Asset Management Company ("SAM") was the fund's
investment adviser. The investment advisory services of SAM were performed under
an investment advisory agreement, pursuant to which the fund paid SAM an annual
fee equal to 0.45% of the average daily net assets of the fund.
See the table in Annual Fee, Expense and Other Information for management fees
paid to Pioneer during recently completed fiscal years.
Expense Limit. Pioneer has agreed to waive all or part of its management fee or
to reimburse the fund for other expenses (other than extraordinary expenses) to
the extent the expenses of the fund's Class A shares exceed 0.86% of average
daily net assets. The portion of fund expenses (including the amount of the
management fee waived) attributable to other share class will be reduced only to
the extent such expenses were reduced for the fund's Class A shares. If Pioneer
waives any fee or reimburses any expenses, and the expenses of the fund's Class
A shares are subsequently less than 0.86% of average daily net assets, the fund
will reimburse Pioneer for such waived fees or reimbursed expenses provided that
such reimbursement does not cause the fund's Class A expenses to exceed 0.86% of
average daily net assets. Pioneer shall also be entitled to reimbursement of the
amount of expenses that it waived or reimbursed with regard to any other
authorized class of shares if the expense ratio of such other class is less than
the expense ratio for that class in effect at the time the expense was incurred.
In addition, the fund will not reimburse Pioneer for such waived fees or
reimbursed expenses more than three years after such fees were waived or such
expenses were incurred. Each class will reimburse Pioneer by no more than the
dollar amount by which that class' expenses were reduced. Any differences in the
fee waiver and limitation among classes result from rounding in the daily
calculation of a class' net assets and expense limit, which may exceed 0.01%
annually. Pioneer expects to continue its limitation of expenses and subsequent
reimbursement from the fund unless the expense limit and reimbursement agreement
with the fund is terminated pursuant to the terms of the expense limit and
reimbursement agreement. However, there can be no assurance that Pioneer will
extend the expense limitation beyond May 1, 2006. The fund may terminate the
expense limit and reimbursement agreement, including its obligation to reimburse
prior expenses, at any time.
Investor Class Shares Only. Through the second anniversary of the closing of the
reorganization of the predecessor Safeco fund into the fund, Pioneer has
contractually agreed not to impose all or a portion of its management fee and,
if necessary, to limit other ordinary operating expenses (excluding taxes,
commissions, interest and extraordinary expenses) to the extent required to
reduce Investor Class expenses to 0.61% of the average daily net assets
attributable to Investor Class shares. There can be no assurance that Pioneer
will extend the expense limitation beyond the two-year period.
Administration Agreement. The fund has entered into an administration agreement
with Pioneer pursuant to which certain accounting, administration and legal
services which are expenses payable by the fund under the management contract
are performed by Pioneer and pursuant to which Pioneer is reimbursed for its
costs of providing such services. The costs of these services is based on direct
costs and costs of overhead, subject to annual approval by the Board. See Annual
Fee, Expense and Other Information for fees the fund paid to Pioneer for
administration and related services.
Potential Conflict of Interest. The fund is managed by Pioneer which also serves
as investment adviser to other Pioneer mutual funds and other accounts with
investment objectives identical or similar to those of the fund. Securities
frequently meet the investment objectives of the fund, the other Pioneer mutual
funds and such other accounts. In such cases, the decision to recommend a
purchase to one fund or account rather
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than another is based on a number of factors. The determining factors in most
cases are the amount of securities of the issuer then outstanding, the value of
those securities and the market for them. Other factors considered in the
investment recommendations include other investments which each fund or account
presently has in a particular industry and the availability of investment funds
in each fund or account.
It is possible that at times identical securities will be held by more than one
fund and/or account. However, positions in the same issue may vary and the
length of time that any fund or account may choose to hold its investment in the
same issue may likewise vary. To the extent that more than one of the Pioneer
mutual funds or a private account managed by Pioneer seeks to acquire the same
security at about the same time, the fund may not be able to acquire as large a
position in such security as it desires or it may have to pay a higher price for
the security. Similarly, the fund may not be able to obtain as large an
execution of an order to sell or as high a price for any particular portfolio
security if Pioneer decides to sell on behalf of another account the same
portfolio security at the same time. On the other hand, if the same securities
are bought or sold at the same time by more than one fund or account, the
resulting participation in volume transactions could produce better executions
for the fund. In the event more than one account purchases or sells the same
security on a given date, the purchases and sales will normally be made as
nearly as practicable on a pro rata basis in proportion to the amounts desired
to be purchased or sold by each account. Although the other Pioneer mutual funds
may have the same or similar investment objectives and policies as the fund,
their portfolios do not generally consist of the same investments as the fund or
each other, and their performance results are likely to differ from those of the
fund.
Personal Securities Transactions. The fund, Pioneer and PFD have adopted a code
of ethics under Rule 17j-1 under the 1940 Act which is applicable to officers,
trustees/directors and designated employees of Pioneer and PIML. The code
permits such persons to engage in personal securities transactions for their own
accounts, including securities that may be purchased or held by the fund, and is
designed to prescribe means reasonably necessary to prevent conflicts of
interest from arising in connection with personal securities transactions. The
code is on public file with and available from the SEC.
Shareholder Servicing / Transfer Agent
The fund has contracted with PIMSS, 60 State Street, Boston, Massachusetts
02109, to act as shareholder servicing and transfer agent for the fund.
Under the terms of its contract with the fund, PIMSS services shareholder
accounts, and its duties include: (i) processing sales, redemptions and
exchanges of shares of the fund; (ii) distributing dividends and capital gains
associated with the fund's portfolio; and (iii) maintaining account records and
responding to shareholder inquiries.
PIMSS receives an annual fee of $33.00 for each Class A, Class B, Class C and
Investor Class shareholder account from the fund as compensation for the
services described above. PIMSS is also reimbursed by the fund for its cash
out-of-pocket expenditures. The fund may compensate entities which have agreed
to provide certain sub-accounting services such as specific transaction
processing and recordkeeping services. Any such payments by the fund would be in
lieu of the per account fee which would otherwise be paid by the fund to PIMSS.
Custodian
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109, is
the custodian of the fund's assets. The custodian's responsibilities include
safekeeping and controlling the fund's cash and securities, handling the receipt
and delivery of securities, and collecting interest and dividends on the fund's
investments.
Independent Registered Public Accounting Firm
Ernst & Young LLP, the fund's independent registered public accounting firm,
provides audit services, tax return review, and assistance and consultation with
respect to the preparation of filings with the SEC.
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BROKERAGE ALLOCATION AND OTHER PRACTICES
All orders for the purchase or sale of portfolio securities are placed on behalf
of the fund by Pioneer pursuant to authority contained in the fund's management
contract. Securities purchased and sold on behalf of the fund normally will be
traded in the over-the counter market on a net basis (i.e. without commission)
through dealers acting for their own account and not as brokers or otherwise
through transactions directly with the issuer of the instrument. The cost of
securities purchased from underwriters includes an underwriter's commission or
concession, and the prices at which securities are purchased and sold from and
to dealers include a dealer's markup or markdown. Pioneer normally seeks to deal
directly with the primary market makers unless, in its opinion, better prices
are available elsewhere. Some securities are purchased and sold on an exchange
or in over-the-counter transactions conducted on an agency basis involving a
commission. Pioneer seeks to obtain the best execution on portfolio trades. The
price of securities and any commission rate paid are always factors, but
frequently not the only factors, in judging best execution. In selecting brokers
or dealers, Pioneer considers various relevant factors, including, but not
limited to, the size and type of the transaction; the nature and character of
the markets for the security to be purchased or sold; the execution efficiency,
settlement capability and financial condition of the dealer; the dealer's
execution services rendered on a continuing basis; and the reasonableness of any
dealer spreads.
Pioneer may select broker-dealers that provide brokerage and/or research
services to the fund and/or other investment companies or other accounts managed
by Pioneer over which it or its affiliates exercise investment discretion. In
addition, consistent with Section 28(e) of the Securities Exchange Act of 1934,
as amended, if Pioneer determines in good faith that the amount of commissions
charged by a broker-dealer is reasonable in relation to the value of the
brokerage and research services provided by such broker, the fund may pay
commissions to such broker-dealer in an amount greater than the amount another
firm may charge. Such services may include advice concerning the value of
securities; the advisability of investing in, purchasing or selling securities;
the availability of securities or the purchasers or sellers of securities;
providing stock quotation services, credit rating service information and
comparative fund statistics; furnishing analyses, electronic information
services, manuals and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and performance of accounts and
particular investment decisions; and effecting securities transactions and
performing functions incidental thereto (such as clearance and settlement).
Pioneer maintains a listing of broker-dealers who provide such services on a
regular basis. However, because many transactions on behalf of the fund and
other investment companies or accounts managed by Pioneer are placed with
broker-dealers (including broker-dealers on the listing) without regard to the
furnishing of such services, it is not possible to estimate the proportion of
such transactions directed to such dealers solely because such services were
provided. Pioneer believes that no exact dollar value can be calculated for such
services.
The research received from broker-dealers may be useful to Pioneer in rendering
investment management services to the fund as well as other investment companies
or other accounts managed by Pioneer, although not all such research may be
useful to the fund. Conversely, such information provided by brokers or dealers
who have executed transaction orders on behalf of such other accounts may be
useful to Pioneer in carrying out its obligations to the fund. The receipt of
such research has not reduced Pioneer's normal independent research activities;
however, it enables Pioneer to avoid the additional expenses which might
otherwise be incurred if it were to attempt to develop comparable information
through its own staff.
The Pioneer funds have entered into third-party brokerage and/or expense offset
arrangements to reduce the funds' total operating expenses. Pursuant to
third-party brokerage arrangements, certain of the funds that invest primarily
in U.S. equity securities may incur lower custody fees by directing brokerage to
third-party broker-dealers. Pursuant to expense offset arrangements, the funds
incur lower transfer agency expenses by maintaining their cash balances with the
custodian. See "Financial highlights" in the prospectus.
See the table in Annual Fee, Expense and Other Information for aggregate
brokerage and underwriting commissions paid by the fund in connection with its
portfolio transactions during recently completed fiscal
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years. The Board of Trustees periodically reviews Pioneer's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the fund.
CAPITAL STOCK AND OTHER SECURITIES
As an open-end management investment company, the fund continuously offers its
shares to the public and under normal conditions must redeem its shares upon the
demand of any shareholder at the next determined net asset value per share less
any applicable CDSC. See "Sales Charges." When issued and paid for in accordance
with the terms of the prospectus and statement of additional information, shares
of the fund are fully paid and non-assessable. Shares will remain on deposit
with the fund's transfer agent and certificates will not normally be issued.
The trust's Agreement and Declaration of Trust, dated as of September 2, 2003
(the "Declaration"), as amended from time to time, permits the Board of Trustees
to authorize the issuance of an unlimited number of full and fractional shares
of beneficial interest which may be divided into such separate series as the
Trustees may establish. Currently, the trust consists of eight series. The
Trustees may, however, establish additional series of shares and may divide or
combine the shares into a greater or lesser number of shares without thereby
changing the proportionate beneficial interests in the fund. The Declaration
further authorizes the Trustees to classify or reclassify any series of the
shares into one or more classes. Pursuant thereto, the Trustees have authorized
the issuance of fourclasses of shares of the fund, designated as Class A shares,
Class B shares, Class C shares and Investor Class shares. Each share of a class
of the fund represents an equal proportionate interest in the assets of the fund
allocable to that class. Upon liquidation of the fund, shareholders of each
class of the fund are entitled to share pro rata in the fund's net assets
allocable to such class available for distribution to shareholders. The trust
reserves the right to create and issue additional series or classes of shares,
in which case the shares of each class of a series would participate equally in
the earnings, dividends and assets allocable to that class of the particular
series.
The shares of each class represent an interest in the same portfolio of
investments of the fund. Each class has equal rights as to voting, redemption,
dividends and liquidation, except that each class bears different distribution
and transfer agent fees and may bear other expenses properly attributable to the
particular class. Class A, Class B and Class C shareholders have exclusive
voting rights with respect to the Rule 12b-1 Plans adopted by holders of those
shares in connection with the distribution of shares.
Shareholders are entitled to one vote for each share held and may vote in the
election of Trustees and on other matters submitted to a meeting of
shareholders. Although Trustees are not elected annually by the shareholders,
shareholders have, under certain circumstances, the right to remove one or more
Trustees. The fund is not required, and does not intend, to hold annual
shareholder meetings although special meetings may be called for the purpose of
electing or removing Trustees, changing fundamental investment restrictions or
approving a management contract.
The shares of each series of the fund are entitled to vote separately to approve
investment advisory agreements or changes in investment restrictions, but
shareholders of all series vote together in the election and selection of
Trustees and accountants. Shares of all series of the fund vote together as a
class on matters that affect all series of the fund in substantially the same
manner. As to matters affecting a single series or class, shares of such series
or class will vote separately. No amendment adversely affecting the rights of
shareholders may be made to the Declaration without the affirmative vote of a
majority of the fund's shares. Shares have no preemptive or conversion rights,
except that under certain circumstances Class B shares may convert to Class A
shares. All Investor Class shares of the fund, convert to Class A shares of the
fund on December 31, 2006, as described in the fund's Investor Class prospectus.
As a Delaware business trust, the fund's operations are governed by the
Declaration. Generally, Delaware statutory trust shareholders are not personally
liable for obligations of the Delaware statutory trust under Delaware law. The
Delaware Statutory Business Trust Act (the "Delaware Act") provides that a
shareholder of a Delaware statutory trust shall be entitled to the same
limitation of liability extended to shareholders of private for-profit
corporations. The Declaration expressly provides that the fund is
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organized under the Delaware Act and that the Declaration is to be governed by
Delaware law. There is nevertheless a possibility that a Delaware statutory
trust, such as the fund, might become a party to an action in another state
whose courts refused to apply Delaware law, in which case the fund's
shareholders could become subject to personal liability.
To guard against this risk, the Declaration (i) contains an express disclaimer
of shareholder liability for acts or obligations of the fund and provides that
notice of such disclaimer may be given in each agreement, obligation or
instrument entered into or executed by the fund or its Trustees, (ii) provides
for the indemnification out of fund property of any shareholders held personally
liable for any obligations of the fund or any series of the fund and (iii)
provides that the fund shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of the fund and satisfy any
judgment thereon. Thus, the risk of a shareholder incurring financial loss
beyond his or her investment because of shareholder liability is limited to
circumstances in which all of the following factors are present: (1) a court
refused to apply Delaware law; (2) the liability arose under tort law or, if
not, no contractual limitation of liability was in effect; and (3) the fund
itself would be unable to meet its obligations. In light of Delaware law, the
nature of the fund's business and the nature of its assets, the risk of personal
liability to a fund shareholder is remote.
In addition to the requirements under Delaware law, the Declaration provides
that a shareholder of the fund may bring a derivative action on behalf of the
fund only if the following conditions are met: (a) shareholders eligible to
bring such derivative action under Delaware law who hold at least 10% of the
outstanding shares of the fund, or 10% of the outstanding shares of the series
or class to which such action relates, shall join in the request for the
Trustees to commence such action; and (b) the Trustees must be afforded a
reasonable amount of time to consider such shareholder request and investigate
the basis of such claim. The Trustees shall be entitled to retain counsel or
other advisers in considering the merits of the request and shall require an
undertaking by the shareholders making such request to reimburse the fund for
the expense of any such advisers in the event that the Trustees determine not to
bring such action.
The Declaration further provides that the fund shall indemnify each of its
Trustees and officers against liabilities and expenses reasonably incurred by
them in connection with, or arising out of, any action, suit or proceeding,
threatened against or otherwise involving such Trustee or officer, directly or
indirectly, by reason of being or having been a Trustee or officer of the fund.
The Declaration does not authorize the fund to indemnify any Trustee or officer
against any liability to which he or she would otherwise be subject by reason of
or for willful misfeasance, bad faith, gross negligence or reckless disregard of
such person's duties.
The Declaration provides that any Trustee who is not an "interested person" of
Pioneer shall be considered to be independent for purposes of Delaware law
notwithstanding the fact that such Trustee receives compensation for serving as
a trustee of the fund or other investment companies for which Pioneer acts as
investment adviser.
PURCHASE, REDEMPTION AND PRICING OF SHARES
The fund continuously offers four classes of shares designated as Class A, Class
B, Class C and Investor Class as described in the prospectuses. The fund offers
its shares at a reduced sales charge to investors who meet certain criteria that
permit the fund's shares to be sold with low distribution costs. These criteria
are described below or in the prospectus.
Class A Share Sales Charges
You may buy Class A shares at the public offering price, including a sales
charge, as follows:
Sales Charge as a % of
---------------------------------------------
Offering Net Amount Dealer
Amount of Purchase Price Invested Reallowance
Less than $100,000 4.50 4.71 4.00
$100,000 but less than $250,000 3.50 3.63 3.00
$250,000 but less than $500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 2.00 2.04 1.75
$1,000,000 or more 0.00 0.00 see below
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The schedule of sales charges above is applicable to purchases of Class A shares
of the fund by (i) an individual, (ii) an individual and his or her spouse and
children under the age of 21 and (iii) a trustee or other fiduciary of a trust
estate or fiduciary account or related trusts or accounts including pension,
profit-sharing and other employee benefit trusts qualified under Sections 401 or
408 of the Code although more than one beneficiary is involved; however,
pension, profit-sharing and other employee benefit trusts qualified under
Sections 401 or 408 of the Code which are eligible to purchase Class R shares
may aggregate purchases by beneficiaries of such plans only if the pension,
profit-sharing or other employee benefit trust has determined that it does not
require the services provided under the Class R Service Plan. The sales charges
applicable to a current purchase of Class A shares of the fund by a person
listed above is determined by adding the value of shares to be purchased to the
aggregate value (at the then current offering price) of shares of any of the
other Pioneer mutual funds previously purchased and then owned, provided PFD is
notified by such person or his or her broker-dealer each time a purchase is made
which would qualify. Pioneer mutual funds include all mutual funds for which PFD
serves as principal underwriter. At the sole discretion of PFD, holdings of
funds domiciled outside the U.S., but which are managed by affiliates of
Pioneer, may be included for this purpose.
No sales charge is payable at the time of purchase on investments of $1 million
or more, or for purchases by participants in employer-sponsored retirement plans
described below subject to a CDSC of 1% which may be imposed in the event of a
redemption of Class A shares within 18 months of purchase (one year of purchase
for shares purchased prior to February 1, 2004). PFD may, in its discretion, pay
a commission to broker-dealers who initiate and are responsible for such
purchases as follows:
Accounts Other than Employer-Sponsored Retirement Plans
1.00% Up to $4 million
0.50% Next $46 million
0.25% Over $50 million
Employer-Sponsored Retirement Plans
0.50% Up to $50 million
0.25% Over $50 million
These commissions shall not be payable if the purchaser is affiliated with the
broker-dealer or if the purchase represents the reinvestment of a redemption
made during the previous 12 calendar months. Broker-dealers who receive a
commission in connection with Class A share purchases at net asset value by
employer-sponsored retirement plans with at least $10 million in total plan
assets (or that has 1,000 or more eligible participants for employer-sponsored
retirement plans with accounts established with Pioneer on or before March 31,
2004) will be required to return any commissions paid or a pro rata portion
thereof if the retirement plan redeems its shares within 18 months of purchase.
Letter of Intent ("LOI"). Reduced sales charges are available for purchases of
$100,000 or more of Class A shares (excluding any reinvestments of dividends and
capital gain distributions) made within a 13-month period pursuant to an LOI
which may be established by completing the Letter of Intent section of the
Account Application. The reduced sales charge will be the charge that would be
applicable to the purchase of the specified amount of Class A shares as if the
shares had all been purchased at the same time. A purchase not made pursuant to
an LOI may be included if the LOI is submitted to PIMSS within 90 days of such
purchase. You may also obtain the reduced sales charge by including the value
(at current offering price) of all your Class A shares in the fund and all other
Pioneer mutual funds held of record as of the date of your LOI in the amount
used to determine the applicable sales charge for the Class A shares to be
purchased under the LOI. Five percent of your total intended purchase amount
will be held in escrow by
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PIMSS, registered in your name, until the terms of the LOI are fulfilled. When
you sign the Account Application, you agree to irrevocably appoint PIMSS your
attorney-in-fact to surrender for redemption any or all shares held in escrow
with full power of substitution. An LOI is not a binding obligation upon the
investor to purchase, or the fund to sell, the amount specified in the LOI.
If the total purchases, less redemptions, exceed the amount specified under the
LOI and are in an amount which would qualify for a further quantity discount,
all transactions will be recomputed on the expiration date of the LOI to effect
the lower sales charge. Any difference in the sales charge resulting from such
recomputation will be either delivered to you in cash or invested in additional
shares at the lower sales charge. The dealer, by signing the Account
Application, agrees to return to PFD, as part of such retroactive adjustment,
the excess of the commission previously reallowed or paid to the dealer over
that which is applicable to the actual amount of the total purchases under the
LOI.
If the total purchases, less redemptions, are less than the amount specified
under the LOI, you must remit to PFD any difference between the sales charge on
the amount actually purchased and the amount originally specified in the LOI.
When the difference is paid, the shares held in escrow will be deposited to your
account. If you do not pay the difference in sales charge within 20 days after
written request from PFD or your dealer, PIMSS, after receiving instructions
from PFD, will redeem the appropriate number of shares held in escrow to realize
the difference and release any excess.
Class B Shares
You may buy Class B shares at the net asset value per share next computed after
receipt of a purchase order without the imposition of an initial sales charge;
however, Class B shares redeemed within six years of purchase will be subject to
a CDSC at the rates shown in the table below. The charge will be assessed on the
amount equal to the lesser of the current market value or the original purchase
cost of the shares being redeemed. No CDSC will be imposed on increases in
account value above the initial purchase price, including shares derived from
the reinvestment of dividends or capital gain distributions.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of purchase until the time of redemption of Class B shares. In
processing redemptions of Class B shares, the fund will first redeem shares not
subject to any CDSC and then shares held longest during the six-year period. As
a result, you will pay the lowest possible CDSC.
The CDSC for Class B shares subject to a CDSC upon redemption will be determined
as follows:
CDSC as a % of Dollar
Year Since Purchase Amount Subject to CDSC
First 4.0
Second 4.0
Third 3.0
Fourth 3.0
Fifth 2.0
Sixth 1.0
Seventh and thereafter 0.0
Proceeds from the CDSC are paid to PFD and are used in whole or in part to
defray PFD's expenses related to providing distribution-related services to the
fund in connection with the sale of Class B shares, including the payment of
compensation to broker-dealers.
Class B shares will automatically convert into Class A shares eight years (five
years in the case of Class B shares issued to former shareowners of Pioneer
Intermediate Tax-Free Fund in connection with the reorganization described
above) after the purchase date, except as noted below. Class B shares acquired
by exchange from Class B shares of another Pioneer mutual fund will convert into
Class A shares based on the date of the initial purchase and the applicable
CDSC. Class B shares acquired through reinvestment of
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distributions will convert into Class A shares over time in the same proportion
as other shares held in the account. For this purpose, Class B shares acquired
through reinvestment of distributions will be attributed to particular purchases
of Class B shares in accordance with such procedures as the Trustees may
determine from time to time. The conversion of Class B shares to Class A shares
is subject to the continuing availability of a ruling from the Internal Revenue
Service (the "IRS") or an opinion of counsel that such conversions will not
constitute taxable events for U.S. federal income tax purposes. The conversion
of Class B shares to Class A shares will not occur if such ruling or opinion is
not available and, therefore, Class B shares would continue to be subject to
higher expenses than Class A shares for an indeterminate period.
Class C Shares
You may buy Class C shares at net asset value per share next computed after
receipt of a purchase order without the imposition of an initial sales charge;
however, Class C shares redeemed within one year of purchase will be subject to
a CDSC of 1%. The charge will be assessed on the amount equal to the lesser of
the current market value or the original purchase cost of the shares being
redeemed. No CDSC will be imposed on increases in account value above the
initial purchase price, including shares derived from the reinvestment of
dividends or capital gain distributions. Class C shares do not convert to any
other class of fund shares. In processing redemptions of Class C shares, the
fund will first redeem shares not subject to any CDSC and then shares held for
the longest period of time during the one-year period. As a result, you will pay
the lowest possible CDSC.
Proceeds from the CDSC are paid to PFD and are used in whole or in part to
defray PFD's expenses related to providing distribution-related services to the
fund in connection with the sale of Class C shares, including the payment of
compensation to broker-dealers.
Investor Class shares
No front-end, deferred or asset based sales charges are applicable to Investor
Class shares.
Additional Payments to Dealers
From time to time, PFD or its affiliates may elect to make payments to
broker-dealers in addition to the commissions described above. PFD may elect to
reallow the entire initial sales charge to participating dealers for all Class A
sales with respect to which orders are placed during a particular period.
Dealers to whom substantially the entire sales charge is reallowed may be deemed
to be underwriters under federal securities laws. Contingent upon the
achievement of certain sales objectives, PFD may pay to Mutual of Omaha Investor
Services, Inc. a fee of up to 0.20% on qualifying sales of the fund's Class A,
Class B or Class C shares through such dealer. In addition, PFD or its
affiliates may elect to pay broker-dealers an additional commission based on the
net asset value of all of the fund's Class B or Class C shares sold by a dealer
during a particular period.
PFD may elect to pay, at its own expense, additional cash or other incentives to
dealers that sell or arrange for the sale of shares of the fund. Such cash or
other incentives may take the form of payment for attendance at preapproved
conferences or seminars, sales or training programs for invited registered
representatives and other employees, payment for travel expenses, including
lodging, incurred by registered representatives and other employees for such
seminars or training programs, seminars for the public, advertising and
preapproved sales campaigns or dealer-sponsored events. PFD may also elect to
make expense reimbursements for special training of a dealer's registered
representatives and other employees in group meetings or to help pay the
expenses of sales contests. PFD will offer such cash and other incentives only
to the extent permitted by applicable law or by a self-regulatory agency such as
the NASD.
-39-
REDEEMING SHARES
Redemptions may be suspended or payment postponed during any period in which any
of the following conditions exist: the New York Stock Exchange (the "Exchange")
is closed or trading on the Exchange is restricted; an emergency exists as a
result of which disposal by the fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the fund to fairly determine
the value of the net assets of its portfolio; or the SEC, by order, so permits.
Redemptions and repurchases are taxable transactions for shareholders that are
subject to U.S. federal income tax. The net asset value per share received upon
redemption or repurchase may be more or less than the cost of shares to an
investor, depending on the market value of the portfolio at the time of
redemption or repurchase.
Systematic Withdrawal Plan(s) ("SWP") (Class A, Class B and Class C Shares) . A
SWP is designed to provide a convenient method of receiving fixed payments at
regular intervals from fund share accounts having a total value of not less than
$10,000. You must also be reinvesting all dividends and capital gain
distributions to use the SWP option.
Periodic payments of $50 or more will be deposited monthly, quarterly,
semiannually or annually directly into a bank account designated by the
applicant or will be sent by check to the applicant, or any person designated by
the applicant. Payments can be made either by check or electronic funds transfer
to a bank account designated by you. Withdrawals from Class B and Class C share
accounts are limited to 10% of the value of the account at the time the SWP is
established. See "Qualifying for a reduced sales charge" in the prospectus. If
you direct that withdrawal payments be paid to another person, want to change
the bank where payments are sent or designate an address that is different from
the account's address of record after you have opened your account, a medallion
signature guarantee must accompany your instructions. Withdrawals under the SWP
are redemptions that may have tax consequences for you.
While you are making systematic withdrawals from your account, you may pay
unnecessary initial sales charges on additional purchases of Class A shares or
contingent deferred sales charges. SWP redemptions reduce and may ultimately
exhaust the number of shares in your account. In addition, the amounts received
by a shareholder cannot be considered as yield or income on his or her
investment because part of such payments may be a return of his or her
investment.
A SWP may be terminated at any time (1) by written notice to PIMSS or from PIMSS
to the shareholder; (2) upon receipt by PIMSS of appropriate evidence of the
shareholder's death; or (3) when all shares in the shareholder's account have
been redeemed.
You may obtain additional information by calling PIMSS at 1-800-225-6292.
Reinstatement Privilege (Class A and Class B Shares). Subject to the provisions
outlined in the prospectus, you may reinvest all or part of your sale proceeds
from Class A or Class B shares without a sales charge into Class A shares of a
Pioneer mutual fund. However, the distributor will not pay your investment firm
a commission on any reinvested amount.
TELEPHONE AND ONLINE TRANSACTIONS
You may purchase, exchange or sell Class A, Class B or Class C shares by
telephone or online. For personal assistance, call 1-800-225-6292 between 8:00
a.m. and 7:00 p.m. Eastern time on weekdays. Computer-assisted telephone
transactions may be available to shareholders who have prerecorded certain bank
information (see "FactFone(SM)"). You are strongly urged to consult with your
investment professional prior to requesting any telephone or online transaction.
Telephone Transaction Privileges. To confirm that each transaction instruction
received by telephone is genuine, the fund will record each telephone
transaction, require the caller to provide validating information for the
account and send you a written confirmation of each telephone transaction.
Different
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procedures may apply to accounts that are registered to non-U.S. citizens or
that are held in the name of an institution or in the name of an investment
broker-dealer or other third party. If reasonable procedures, such as those
described above, are not followed, the fund may be liable for any loss due to
unauthorized or fraudulent instructions. The fund may implement other procedures
from time to time. In all other cases, neither the fund, PIMSS nor PFD will be
responsible for the authenticity of instructions received by telephone;
therefore, you bear the risk of loss for unauthorized or fraudulent telephone
transactions.
Online Transaction Privileges. If your account is registered in your name, you
may be able buy, exchange or sell fund shares online. Your investment firm may
also be able to buy, exchange or sell your fund shares online.
To establish online transaction privileges:
|X| For new accounts, complete the online section of the account application
|X| For existing accounts, complete an account options form, write to the
transfer agent or complete the online authorization screen on
www.pioneerfunds.com
To use online transactions, you must read and agree to the terms of an online
transaction agreement available on the Pioneer website. When you or your
investment firm requests an online transaction the transfer agent electronically
records the transaction, requires an authorizing password and sends a written
confirmation. The fund may implement other 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.
You may not be able to use the online transaction privilege for certain types of
accounts, including most retirement accounts.
Telephone and Website Online Access. You may have difficulty contacting the fund
by telephone or accessing www.pioneerfunds.com during times of market volatility
or disruption in telephone or Internet services. On Exchange holidays or on days
when the Exchange closes early, Pioneer will adjust the hours for the telephone
center and for online transaction processing accordingly. If you are unable to
access pioneerfunds.com or to reach the fund by telephone, you should
communicate with the fund in writing.
FactFone(SM). FactFone(SM) is an automated inquiry and telephone transaction
system available to Pioneer mutual fund shareholders by dialing 1-800-225-4321.
FactFone(SM) allows shareholder access to current information on Pioneer mutual
fund accounts and to the prices and yields of all publicly available Pioneer
mutual funds. In addition, you may use FactFone(SM) to make computer-assisted
telephone purchases, exchanges or redemptions from your Pioneer mutual fund
accounts, access your account balances and last three transactions and order a
duplicate statement if you have activated your PIN. Telephone purchases or
redemptions require the establishment of a bank account of record. You are
strongly urged to consult with your investment professional prior to requesting
any telephone transaction. Shareholders whose accounts are registered in the
name of a broker-dealer or other third party may not be able to use
FactFone(SM). Call PIMSS for assistance.
FactFone(SM) allows shareholders to hear the following recorded fund
information:
o net asset value prices for all Pioneer mutual funds;
o annualized 30-day yields on Pioneer's fixed income funds;
o annualized 7-day yields and 7-day effective (compound) yields for Pioneer's
money market fund; and
o dividends and capital gain distributions on all Pioneer mutual funds.
Yields are calculated in accordance with SEC mandated standard formulas.
All performance numbers communicated through FactFone(SM) represent past
performance, and figures include the maximum applicable sales charge. A
shareholder's actual yield and total return will vary with
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changing market conditions. The value of each class of shares (except for
Pioneer Cash Reserves Fund and Pioneer Tax Free Money Market Fund, which each
seek to maintain a stable $1.00 share price) will also vary, and such shares may
be worth more or less at redemption than their original cost.
PRICING OF SHARES
The net asset value per share of each class of the fund is determined as of the
close of regular trading on the Exchange (normally 4:00 p.m. Eastern time) on
each day on which the Exchange is open for trading. As of the date of this
statement of additional information, the Exchange is open for trading every
weekday except for the following holidays: New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. The net asset value per share of each
class of the fund is also determined on any other day on which the level of
trading in its portfolio securities is sufficiently high that the current net
asset value per share might be materially affected by changes in the value of
its portfolio securities. The fund is not required to determine its net asset
value per share on any day on which no purchase orders in good order for fund
shares are received and no shares are tendered and accepted for redemption.
Ordinarily, investments in debt securities are valued on the basis of
information furnished by a pricing service which utilizes primarily a matrix
system (which reflects such factors as security prices, yields, maturities and
ratings), supplemented by dealer and exchange quotations. Other securities are
valued at the last sale price on the principal exchange or market where they are
traded. Debt securities with remaining maturities of 60 days or less are valued
at amortized cost, which is a method of determining a security's fair value.
Securities which have not traded on the date of valuation or securities for
which sales prices are not generally reported are valued at the mean between the
current bid and asked prices.
Securities quoted in foreign currencies are converted to U.S. dollars utilizing
foreign exchange rates employed by the fund's independent pricing services.
Generally, trading in non U.S. securities is substantially completed each day at
various times prior to the close of regular trading on the Exchange. The values
of such securities used in computing the net asset value of the fund's shares
are determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of regular trading on the Exchange.
Occasionally, events which affect the values of such securities and such
exchange rates may occur between the times at which they are determined and the
close of regular trading on the Exchange and will therefore not be reflected in
the computation of the fund's net asset value. International securities markets
may be open on days when the U.S. markets are closed. For this reason, the value
of any international securities owned by the fund could change on a day you
cannot buy or sell shares of the fund.
When prices determined using the foregoing methods are not available or are
considered by Pioneer to be unreliable, the fund uses a security's fair value.
Fair value is the valuation of a security determined on the basis of factors
other than market value in accordance with procedures approved by the fund's
trustees. The fund also may use the fair value of a security, including a
non-U.S. security, when Pioneer determines that prices determined using the
foregoing methods no longer accurately reflect the value of the security due to
factors affecting one or more relevant securities markets or the specific
issuer. The use of fair value pricing by the fund may cause the net asset value
of its shares to differ from the net asset value that would be calculated using
closing market prices. In connection with making fair value determinations of
the value of fixed income securities, the fund's Trustees may use a pricing
matrix.
The net asset value per share of each class of the fund is computed by taking
the value of all of the fund's assets attributable to a class, less the fund's
liabilities attributable to that class, and dividing the result by the number of
outstanding shares of that class. For purposes of determining net asset value,
expenses of the classes of the fund are accrued daily and taken into account.
The fund's maximum offering price per Class A share is determined by adding the
maximum sales charge to the net asset value per Class A share. Class B, Class C
and Investor Class shares are offered at net asset value without the imposition
of an initial sales charge (Class B and Class C shares may be subject to a
CDSC).
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TAXATION OF THE FUND
The fund has elected to be treated, has qualified and intends to qualify each
year as a "regulated investment company" under Subchapter M of the Code so that
it will not pay U.S. federal income tax on income and capital gains distributed
to shareholders (provided that the distribution requirements set forth below are
satisfied). In order to qualify as a regulated investment company under
Subchapter M of the Code, the fund must, among other things, derive at least 90%
of its gross income for each taxable year from dividends, interest, payments
with respect to securities loans, gains from the sale or other disposition of
securities or other income (including gains from options and futures contracts)
derived with respect to its business of investing in such securities (the "90%
income test") and satisfy certain quarterly asset diversification requirements.
For purposes of the 90% income test, the character of income earned by certain
entities in which the fund invests that are not treated as corporations for U.S.
federal income tax purposes (e.g., partnerships or trusts) will generally pass
through to the fund. Consequently, the fund may be required to limit its equity
investments in such entities that earn fee income, rental income or other
nonqualifying income.
If the fund qualifies as a regulated investment company and properly distributes
to its shareholders each taxable year an amount equal to or exceeding the sum of
(i) 90% of its "investment company taxable income" as that term is defined in
the Code (which includes, among other things, dividends, taxable interest, and
the excess of any net short-term capital gains over net long-term capital
losses, as reduced by certain deductible expenses) without regard to the
deduction for dividends paid and (ii) 90% of the excess of its gross tax-exempt
interest, if any, over certain disallowed deductions, the fund generally will be
relieved of U.S. federal income tax on any income of the fund, including "net
capital gain" (the excess of net long-term capital gain over net short-term
capital loss), distributed to shareholders. However, if the fund meets such
distribution requirements, but chooses to retain some portion of investment
company taxable income or net capital gain, it generally will be subject to U.S.
federal income tax at regular corporate rates on the amount retained. The fund
intends to distribute at least annually all or substantially all of its
investment company taxable income, net tax-exempt interest, and net capital
gain.
If the fund did not qualify as a regulated investment company for any taxable
year, it would be treated as a U.S. corporation subject to U.S. federal income
tax, thereby subjecting any income earned by the fund to tax at the corporate
level at a maximum 35% federal income tax rate, and when such income is
distributed, to a further tax at the shareholder level.
Under the Code, the fund will be subject to a nondeductible 4% U.S. federal
excise tax on a portion of its undistributed taxable ordinary income and capital
gain net income if it fails to meet certain distribution requirements with
respect to each calendar year. The fund intends to make distributions in a
timely manner and accordingly does not expect to be subject to the excise tax.
The fund declares a dividend from any net investment income each business day.
The fund generally pays dividends from any net investment income on the last
business day of the month or shortly thereafter. The fund distributes any net
short- and long-term capital gains in November. Dividends from income and/or
capital gains may also be paid at such other times as may be necessary for the
fund to avoid U.S. federal income or excise tax.
In accordance with its investment objective, the fund invests its assets in a
manner which will provide as large a portion of tax-exempt income as is
consistent with the protection of shareholders' capital. The fund may from time
to time invest a portion of its portfolio in short-term taxable obligations and
may engage in transactions generating gains or income which is not tax-exempt,
e.g., purchase non-municipal securities, sell or lend portfolio securities,
enter into repurchase agreements, dispose of rights to when-issued securities
prior to issuance, acquire any debt obligation at a market discount, acquire
certain stripped tax-exempt obligations or their coupons or enter into options
and futures transactions. The fund's distributions from such gains or income
will not be "exempt-interest dividends", as described below, and accordingly
will be taxable.
The Code permits tax-exempt interest received by the fund to flow through as
tax-exempt "exempt-interest dividends" to the fund's shareholders, provided that
the fund qualifies as a regulated investment company
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and at least 50% of the value of the fund's total assets at the close of each
quarter of its taxable year consists of tax-exempt obligations, i.e.,
obligations described in Section 103(a) of the Code. That part of the fund's net
investment income which is attributable to interest from tax-exempt obligations
and which is distributed to shareholders will be designated by the fund as an
"exempt-interest dividend" under the Code. Exempt-interest dividends are
excluded from a shareholder's gross income under the Code but are nevertheless
required to be reported on the shareholder's U.S. federal income tax return. The
percentage of income designated as tax-exempt is applied uniformly to all
distributions made during each taxable year and may differ from the actual
tax-exempt percentage earned by the fund during any particular month. That
portion of the fund's dividends and distributions not designated as tax-exempt
will be taxable as described below.
The fund will not invest in certain "private activity bonds" that generate
interest that constitute items of tax preference that are subject to U.S.
federal alternative minimum tax for individuals or entities that are subject to
such tax. However, all exempt-interest dividends may result in or increase a
corporate shareholder's liability for the federal alternative minimum tax.
Interest on indebtedness incurred (directly or indirectly) by a shareholder to
purchase or carry shares of the fund will not be deductible for U.S. federal
income tax purposes to the extent it is deemed under the Code and applicable
regulations to relate to exempt-interest dividends received from the fund. The
fund may not be an appropriate investment for persons who are "substantial
users" of facilities financed by industrial revenue or private activity bonds or
persons related to substantial users. Shareholders receiving social security or
certain railroad retirement benefits may be subject to U.S. federal income tax
on a portion of such benefits as a result of receiving investment income,
including exempt-interest dividends and other distributions paid by the fund.
Unless shareholders specify otherwise, all distributions from the fund will be
automatically reinvested in additional full and fractional shares of the fund.
For U.S. federal income tax purposes, all dividends from the fund, other than
exempt-interest dividends, are taxed as described below whether a shareholder
takes them in cash or reinvests them in additional shares of the fund. In
general, assuming that the fund has sufficient earnings and profits, dividends
from investment company taxable income are taxable as ordinary income. Since the
fund's income is derived primarily from sources that do not pay qualified
dividend income, dividends from the fund generally will not qualify for taxation
at the maximum 15% U.S. federal income tax rate available to individuals on
qualified dividend income
Dividends from net capital gain, if any, that are designated as capital gain
dividends are taxable as long-term capital gains for U.S. federal income tax
purposes without regard to the length of time the shareholder has held shares of
the fund.
Capital gain dividends distributed by the fund to individual shareholders
generally will qualify for the maximum 15% U.S. federal income tax rate on
long-term capital gains, subject to certain limited exceptions. A shareholder
should also be aware that the benefits of the favorable tax rate applicable to
long-term capital gains may be impacted by the application of the alternative
minimum tax to individual shareholders. Under current law, the maximum 15% U.S.
federal income tax rate on long-term capital gains will cease to apply to
taxable years beginning after December 31, 2008.
Distributions by the fund in excess of the fund's current and accumulated
earnings and profits will be treated as a return of capital to the extent of
(and in reduction of) the shareholder's tax basis in its shares and any such
amount in excess of that basis will be treated as gain from the sale of shares,
as discussed below. The U.S. federal income tax status of all distributions will
be reported to shareholders annually.
Although dividends generally will be treated as distributed when paid, any
dividend declared by the fund as of a record date in October, November or
December and paid during the following January will be treated for U.S. federal
income tax purposes as received by shareholders on December 31 of the calendar
year in which it is declared. In addition, certain other distributions made
after the close of a taxable year of the fund may be "spilled back" and treated
as paid by the fund (except for purposes of the 4% excise tax) during such
taxable year. In such case, shareholders generally will be treated as having
received such dividends in the taxable year in which the distributions were
actually made.
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If the fund invests in certain pay-in-kind securities, zero coupon securities,
deferred interest securities or, in general, any other securities with original
issue discount (or with market discount if the fund elects to include market
discount in income currently), the fund generally must accrue income on such
investments for each taxable year, which generally will be prior to the receipt
of the corresponding cash payments. However, the fund must distribute, at least
annually, all or substantially all of its taxable and tax-exempt income,
including such accrued income, to shareholders to qualify as a regulated
investment company under the Code and avoid U.S. federal income and excise
taxes. Therefore, the fund may have to dispose of its portfolio securities under
disadvantageous circumstances to generate cash, or may have to borrow the cash,
to satisfy distribution requirements.
The fund may invest to a limited extent in debt obligations that are in the
lowest rating categories or are unrated, including debt obligations of issuers
not currently paying interest or who are in default. Investments in debt
obligations that are at risk of or in default present special tax issues for the
fund. Tax rules are not entirely clear about issues such as when the fund may
cease to accrue interest, original issue discount or market discount, when and
to what extent deductions may be taken for bad debts or worthless securities,
how payments received on obligations in default should be allocated between
principal and income and whether exchanges of debt obligations in a workout
context are taxable. These and other issues will be addressed by the fund, in
the event it invests in such securities, in order to seek to ensure that it
distributes sufficient income to preserve its status as a regulated investment
company and does not become subject to U.S. federal income or excise tax.
For U.S. federal income tax purposes, the fund is permitted to carry forward a
net capital loss for any year to offset its capital gains, if any, for up to the
eight years following the year of the loss. To the extent subsequent capital
gains are offset by such losses, they would not result in U.S. federal income
tax liability to the fund and are not expected to be distributed as such to
shareholders. See Annual Fee, Expense and Other Information for the fund's
available capital loss carryforwards.
At the time of an investor's purchase of fund shares, a portion of the purchase
price may be attributable to realized or unrealized appreciation in the fund's
portfolio or undistributed taxable income of the fund. Consequently, subsequent
distributions by the fund with respect to these shares from such appreciation or
income may be taxable to such investor even if the net asset value of the
investor's shares is, as a result of the distributions, reduced below the
investor's cost for such shares and the distributions economically represent a
return of a portion of the investment.
The fund may be subject to withholding and other taxes imposed by foreign
countries, including taxes on interest and capital gain (if any), with respect
to its investments in those countries which would, if imposed, reduce the yield
on or return from those investments. Tax conventions between certain countries
and the U.S. may reduce or eliminate such taxes in some cases. The fund does not
expect to satisfy the requirements for passing though to its shareholders their
pro rata shares of qualified foreign taxes paid by the fund, with the result
that shareholders will not include such taxes in their gross incomes and will
not be entitled to a tax deduction or credit for such taxes on their own
returns.
Redemptions and exchanges generally are taxable events for shareholders that are
subject to tax. Shareholders should consult their own tax advisers with
reference to their individual circumstances to determine whether any particular
transaction in fund shares is properly treated as a sale for tax purposes, as
the following discussion assumes, and the tax treatment of any gains or losses
recognized in such transactions. In general, if fund shares are sold, the
shareholder will recognize gain or loss equal to the difference between the
amount realized on the sale and the shareholder's adjusted basis in the shares.
Such gain or loss generally will be treated as long-term capital gain or loss if
the shares were held for more than one year and otherwise generally will be
treated as short-term capital gain or loss. Any loss recognized by a shareholder
upon the redemption, exchange or other disposition of shares with a tax holding
period of six months or less will be disallowed to the extent of any
exempt-interest dividends paid with respect to such shares, and any portion of
such loss that exceeds the amount disallowed will be treated as a long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gain with respect to such shares.
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In addition, if Class A or Class B shares that have been held for less than 91
days are redeemed and the proceeds are reinvested in Class A shares of the fund
or in Class A shares of another mutual fund at net asset value pursuant to the
reinstatement privilege, or if Class A shares in the fund that have been held
for less than 91 days are exchanged for the same class of shares in another fund
at net asset value pursuant to the exchange privilege, all or a portion of the
sales charge paid on the shares that are redeemed or exchanged will not be
included in the tax basis of such shares under the Code to the extent a sales
charge that would otherwise apply to the shares received is reduced pursuant to
the reinstatement or exchange privilege. In either case, the portion of the
sales charge not included in the tax basis of the shares redeemed or surrendered
in an exchange is included in the tax basis of the shares acquired in the
reinvestment or exchange. Losses on redemptions or other dispositions of shares
may be disallowed under "wash sale" rules in the event of other investments in
the fund (including those made pursuant to reinvestment of dividends and/or
capital gain distributions) within a period of 61 days beginning 30 days before
and ending 30 days after a redemption or other disposition of shares. In such a
case, the disallowed portion of any loss generally would be included in the U.S.
federal tax basis of the shares acquired in the other investments.
Under Treasury regulations, if a shareholder recognizes a loss with respect to
shares of $2 million or more for an individual shareholder, or $10 million or
more for a corporate shareholder, in any single taxable year (or greater amounts
over a combination of years), the shareholder must file with the IRS a
disclosure statement on Form 8886. Shareholders who own portfolio securities
directly are in many cases excepted from this reporting requirement but, under
current guidance, shareholders of regulated investment companies are not
excepted. The fact that a loss is reportable under these regulations does not
affect the legal determination of whether or not the taxpayer's treatment of the
loss is proper. Shareholders should consult with their tax advisers to determine
the applicability of these regulations in light of their individual
circumstances.
Options written or purchased and futures contracts entered into by the fund on
certain securities or indices may cause the fund to recognize gains or losses
from marking-to-market even though such options may not have lapsed, been closed
out, or exercised, or such futures contracts may not have been performed or
closed out. The tax rules applicable to these contracts may affect the
characterization of some capital gains and losses realized by the fund as
long-term or short-term. Additionally, the fund may be required to recognize
gain if an option, futures contract, short sale or other transaction that is not
subject to the mark-to-market rules is treated as a "constructive sale" of an
"appreciated financial position" held by the fund under Section 1259 of the
Code. Any net mark-to-market gains and/or gains from constructive sales may also
have to be distributed to satisfy the distribution requirements referred to
above even though the fund may receive no corresponding cash amounts, possibly
requiring the disposition of portfolio securities or borrowing to obtain the
necessary cash. Losses on certain options or futures contracts and/or offsetting
positions (portfolio securities or other positions with respect to which the
fund's risk of loss is substantially diminished by one or more options or
futures contracts) may also be deferred under the tax straddle rules of the
Code, which may also affect the characterization of capital gains or losses from
straddle positions and certain successor positions as long-term or short-term.
Certain tax elections may be available that would enable the fund to ameliorate
some adverse effects of the tax rules described in this paragraph. The tax rules
applicable to options, futures and straddles may affect the amount, timing and
character of the fund's income and gains or losses and hence of its
distributions to shareholders.
The fund's dividends and distributions will generally not qualify to any
material extent for any dividends-received deduction that might otherwise be
available for certain dividends received by shareholders that are corporations.
In addition, no portion of the fund's distributions from net capital gain will
qualify for this deduction.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent the fund's distributions are
derived from interest on (or, in the case of intangible property taxes, the
value of its assets is attributable to) certain U.S. government obligations,
provided in some states that certain thresholds for holdings of such obligations
and/or reporting requirements are satisfied. The fund will not seek to satisfy
any threshold or reporting requirements that may apply in particular taxing
jurisdictions, although the fund may in its sole discretion provide relevant
information to shareholders.
-46-
Federal law requires that the fund withhold (as "backup withholding") 28% of
reportable payments, including dividends (other than exempt-interest dividends),
capital gain distributions and the proceeds of redemptions and exchanges or
repurchases of fund shares, paid to shareholders who have not complied with IRS
regulations. In order to avoid this withholding requirement, shareholders must
certify on their Account Applications, or on separate IRS Forms W-9, that the
Social Security Number or other Taxpayer Identification Number they provide is
their correct number and that they are not currently subject to backup
withholding, or that they are exempt from backup withholding. The fund may
nevertheless be required to backup withhold if it receives notice from the IRS
or a broker that the number provided is incorrect or backup withholding is
applicable as a result of previous underreporting of interest or dividend
income. Backup withholding may be inapplicable for any year in which the fund
reasonably estimates that at least 95% of its dividends paid with respect to
such year are exempt-interest dividends.
If, as anticipated, the fund continues to qualify as a regulated investment
company under the Code, it will not be required to pay any Massachusetts income,
corporate excise or franchise taxes or any Delaware corporation income tax.
The description of certain U.S. federal tax provisions above relates only to
U.S. federal income tax consequences for shareholders who are U.S. persons,
i.e., U.S. citizens or residents or U.S. corporations, partnerships, trusts or
estates, and who are subject to U.S. federal income tax and hold their shares as
capital assets. This description does not address the special tax rules that may
be applicable to particular types of investors, such as financial institutions,
insurance companies, securities dealers, or tax-exempt or tax-deferred plans,
accounts or entities. Investors other than U.S. persons may be subject to
different U.S. federal income tax treatment, including a non-resident alien U.S.
withholding tax at the rate of 30% or at a lower treaty rate on amounts treated
as ordinary dividends from the fund and, unless an effective IRS Form W-8BEN, or
other authorized withholding certificate is on file, to backup withholding at
the rate of 28% on certain other payments from the fund. Shareholders should
consult their own tax advisers on these matters and on state, local, foreign and
other applicable tax laws.
CALIFORNIA STATE AND LOCAL TAX MATTERS
If the fund maintains at least 50% of the value of its assets in obligations the
interest on which is exempt from California personal income tax, individual
shareholders of the fund who are subject to California personal income tax will
not be required to include in their California gross income that portion of
their dividends which the fund clearly and accurately identifies as directly
attributable to interest earned on obligations, the interest on which is exempt
from California personal income tax. Distributions to such individual
shareholders derived from interest on municipal obligations issued by
governmental authorities in states other than California, net short-term capital
gains and other taxable income will be taxed as dividends for purposes of
California personal income taxation. Distributions to individual shareholders
who are subject to California personal income tax that derive from interest,
dividends, net short-term capital gains and other ordinary income by a fund that
does not maintain at least 50% of the value of its assets in obligations the
interest on which is exempt from California personal income tax will be taxed in
their entirety as dividends for purposes of California personal income taxation.
The fund's distributions of net capital gain for federal income tax purposes
will be taxed as long-term capital gains to individual shareholders of the fund
for purposes of California personal income taxation. Gain or loss, if any,
resulting from an exchange or redemption of shares will be recognized in the
year of the exchange or redemption. Present California law taxes both long-term
and short-term capital gains at the rates applicable to ordinary income.
Interest on indebtedness incurred or continued by a shareholder in connection
with the purchase of shares of the fund generally will not be deductible for
California personal income tax purposes. California has an alternative minimum
tax similar to the federal alternative minimum tax. However, the California
alternative minimum tax does not include interest from private activity bonds as
an item of tax preference.
Generally corporate shareholders of the fund subject to the California franchise
tax will be required to include any gain on an exchange or redemption of shares
and all distributions of exempt-interest, capital gains and other taxable
income, if any, as income subject to such tax.
-47-
The fund will not be subject to California franchise or corporate income tax on
interest income or net capital gain it distributes to its shareholders.
Shares of the fund will be exempt from local property taxes in California.
The foregoing is a general, abbreviated summary of certain provisions of the
California Revenue and Taxation Code presently in effect as it directly governs
the taxation of shareholders of the fund. These provisions are subject to change
by legislative or administrative action, and any such change may be retroactive
with respect to Fund transactions. Shareholders are advised to consult with
their tax advisors for more detailed information concerning California tax
matters.
UNDERWRITERS
Principal Underwriter
PFD, 60 State Street, Boston, Massachusetts 02109, is the principal underwriter
for the fund in connection with the continuous offering of its shares. PFD is an
indirect wholly owned subsidiary of PIM-USA.
The fund entered into an underwriting agreement with PFD which provides that PFD
will bear expenses for the distribution of the fund's shares, except for
expenses incurred by PFD for which it is reimbursed or compensated by the fund
under the distribution plans (discussed below). PFD bears all expenses it incurs
in providing services under the underwriting agreement. Such expenses include
compensation to its employees and representatives and to securities dealers for
distribution-related services performed for the fund. PFD also pays certain
expenses in connection with the distribution of the fund's shares, including the
cost of preparing, printing and distributing advertising or promotional
materials, and the cost of printing and distributing prospectuses and
supplements to prospective shareholders. The fund bears the cost of registering
its shares under federal and state securities law and the laws of certain
non-U.S. countries. Under the underwriting agreement, PFD will use its best
efforts in rendering services to the fund.
See "Sales Charges" for the schedule of initial sales charge reallowed to
dealers as a percentage of the offering price of the fund's Class A shares.
See the tables in Annual Fee, Expense and Other Information for commissions
retained by PFD and reallowed to dealers in connection with PFD's offering of
the fund's Class A and Class C shares during recently completed fiscal years.
The fund will not generally issue fund shares for consideration other than cash.
At the fund's sole discretion, however, it may issue fund shares for
consideration other than cash in connection with a bona fide reorganization,
statutory merger or other acquisition of portfolio securities.
It is the fund's general practice to repurchase its shares of beneficial
interest for cash consideration in any amount; however, the redemption price of
shares of the fund may, at Pioneer's discretion, be paid in portfolio
securities. The fund has elected to be governed by Rule 18f-1 under the 1940 Act
pursuant to which the fund is obligated to redeem shares solely in cash up to
the lesser of $250,000 or 1% of the fund's net asset value during any 90-day
period for any one shareholder. Should the amount of redemptions by any
shareholder exceed such limitation, the fund will have the option of redeeming
the excess in cash or portfolio securities. In the latter case, the securities
are taken at their value employed in determining the fund's net asset value. You
may incur additional costs, such as brokerage fees and taxes, and risks,
including a decline in the value of the securities you receive, if the fund
makes an in-kind distribution. The selection of such securities will be made in
such manner as the Board of Trustees deems fair and reasonable; however, the
fund will not distribute illiquid securities in kind.
-48-
Distribution Plans
The fund has adopted a plan of distribution pursuant to Rule 12b-1 under the
1940 Act with respect to its Class A shares (the "Class A Plan"), a plan of
distribution with respect to its Class B shares (the "Class B Plan") and a plan
of distribution with respect to its Class C shares (the "Class C Plan")
(together, the "Plans"), pursuant to which certain distribution and service fees
are paid to PFD. The fund has not adopted a plan of distribution with respect to
its Investor Class shares. Because of the Plans, long-term shareholders may pay
more than the economic equivalent of the maximum sales charge permitted by the
National Association of Securities Dealers, Inc. (the "NASD") regarding
investment companies. The Class A Plan is a reimbursement plan, and distribution
expenses of PFD are expected to substantially exceed the distribution fees paid
by the fund in a given year. The Class B Plan and Class C Plan are compensation
plans, which means that the amount of payments under the plans are not linked to
PFD's expenditures, and, consequently, PFD can make a profit under each of those
plans.
Class A Plan. Pursuant to the Class A Plan the fund reimburses PFD for its
actual expenditures to finance any activity primarily intended to result in the
sale of Class A shares or to provide services to holders of Class A shares,
provided the categories of expenses for which reimbursement is made are approved
by the Board of Trustees. The Board of Trustees has approved the following
categories of expenses that may be reimbursed under the Class A Plan: (i) a
service fee to be paid to qualified broker-dealers in an amount not to exceed
0.25% per annum of the fund's daily net assets attributable to Class A shares;
(ii) reimbursement to PFD for its expenditures for broker-dealer commissions and
employee compensation on certain sales of the fund's Class A shares with no
initial sales charge; and (iii) reimbursement to PFD for expenses incurred in
providing services to Class A shareholders and supporting broker-dealers and
other organizations (such as banks and trust companies) in their efforts to
provide such services. The expenses of the fund pursuant to the Class A Plan are
accrued daily at a rate which may not exceed the annual rate of 0.25% of the
fund's average daily net assets attributable to Class A shares.
The Class A Plan does not provide for the carryover of reimbursable expenses
beyond 12 months from the time the fund is first invoiced for an expense. The
limited carryover provision in the Class A Plan may result in an expense
invoiced to the 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, the 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 attributable to
Class A shares during such period. See Annual Fee, Expense and Other Information
for the amount, if any, of carryover of distribution expenses as of the end of
the most recent calendar year.
Class B Plan. PFD pays the selling broker-dealer a commission on the sale of
Class B shares equal to 3.75% of the amount invested. This commission is paid at
the time of sale of the Class B Shares. In order to be entitled to a commission,
the selling broker-dealer must have entered into a sales agreements with PFD. At
the time of the sale of a Class B share, PFD may also advance to the
broker-dealer, from PFD's own assets, the first-year service fee payable under
the Class B Plan at a rate up to 0.25% of the purchase price of such shares. If
such an advance is made, the broker-dealer would not receive any further service
fee until the 13th month following the purchase of Class B shares. As
compensation for advancing the service fee, PFD may retain the service fee paid
by the fund with respect to such shares for the first year after purchase.
The Class B Plan provides that the fund shall pay to PFD, as the fund's
distributor for its Class B shares:
o a distribution fee equal on an annual basis to 0.75% of the fund's
average daily net assets attributable to Class B shares. The
distribution fee compensates PFD for its distribution services with
respect to Class B shares. PFD pays the commissions to broker-dealers
discussed above and also pays:
o the cost of printing prospectuses and reports used for sales
purposes and the preparation and printing of sales literature and
-49-
o other distribution-related expenses, including, without
limitation, the cost necessary to provide distribution-related
services, or personnel, travel, office expenses and equipment.
o a service fee equal to 0.25% of the fund's average daily net assets
attributable to Class B shares. PFD in turn pays the service fee to
broker-dealers at a rate of up to 0.25% of the fund's average daily
net assets attributable to Class B shares owned by shareholder for
whom that broker-dealer is the holder or dealer of record. This
service fee compensates the broker-dealer for providing personal
services and/or account maintenance services rendered by the
broker-dealer with respect to Class B shares. PFD may from time to
time require that dealers, in addition to providing these services,
meet certain criteria in order to receive service fees. PFD is
entitled to retain all service fees with respect to Class B shares for
which there is no dealer of record or with respect to which a dealer
is not otherwise entitled to a service fee. Such service fees are paid
to PFD for personal services and/or account maintenance services that
PFD or its affiliates perform for shareholder accounts.
PFD also receives contingent deferred sales charges ("CDSCs") attributable to
Class B shares to compensate PFD for its distribution expenses. When a
broker-dealer sells Class B shares and elects, with PFD's approval, to waive its
right to receive the commission normally paid at the time of the sale, PFD may
cause all or a portion of the distribution fees described above to be paid to
the broker-dealer.
Since PFD pays commissions to broker-dealers at the time of the sale of Class B
shares but only receives compensation for such expenses over time through the
distribution fee and CDSC, the Class B Plan and underwriting agreement permit
PFD to finance the payment of commissions to broker-dealers. In order to
facilitate such financing, the fund has agreed that the distribution fee will
not be terminated or modified (including a modification in the rules relating to
the conversion of Class B shares into Class A shares) with respect to Class B
shares:
o issued prior to the date of any termination or modification;
o attributable to Class B shares issued through one or a series of
exchanges of shares of another investment company for which PFD acts
as principal underwriter which were initially issued prior to the date
of such termination or modification; or
o issued as a dividend or distribution upon Class B shares initially
issued or attributable to Class B shares issued prior to the date of
any such termination or modification.
The foregoing limitation does not apply to Class B shares issued after the
termination or modification. The foregoing limitation on terminating or
modifying the Class B Plan also does not apply to a termination or modification:
o if a change in the 1940 Act, the rules or regulations under the 1940
Act, the Conduct Rules of the NASD or an order of any court or
governmental agency requires such termination or modification (e.g. if
the Conduct Rules were amended to establish a lower limit on the
maximum aggregate sales charges that could be imposed on sales of fund
shares);
o if the fund (or any successor) terminates the Class B Plan and all
payments under the plan and neither the fund (nor any successor)
establishes another class of shares which has substantially similar
characteristics to the Class B Shares of the fund; or
o at any time by the Board of Trustees. However, the Board of Trustees
may terminate or modify the Class B Plan only if the fund and Pioneer
agree that none of the fund, PFD or any of their affiliates will pay,
after the date of termination or modification, a service fee with
respect to the fund's Class B shares and the termination or
modification of the distribution fee applies equally to all Class B
shares outstanding from time to time.
-50-
In the underwriting agreement, the fund agrees that subsequent to the issuance
of a Class B share, the fund will not waive or change any CDSC (including a
change in the rules applicable to conversion of Class B shares into another
class) in respect of such Class B share, except:
o as provided in the fund's prospectus or statement of additional
information; or
o as required by a change in the 1940 Act and the rules and regulations
thereunder, the Conduct Rules of the NASD or any order of any court or
governmental agency.
Class C Plan. Commissions on the sale of Class C shares of up to 0.75% of the
amount invested in Class C shares are paid to broker-dealers who have sales
agreements with PFD. PFD may also advance to dealers the first-year service fee
payable under the Class C Plan at a rate up to 0.25% of the purchase price of
such shares. As compensation for such advance of the service fee, PFD may retain
the service fee paid by the fund with respect to such shares for the first year
after purchase.
The Class C Plan provides that the fund will pay PFD, as the fund's distributor
for its Class C shares, a distribution fee accrued daily and paid quarterly,
equal on an annual basis to 0.75% of the fund's average daily net assets
attributable to Class C shares and will pay PFD a service fee equal to 0.25% of
the fund's average daily net assets attributable to Class C shares. PFD will in
turn pay to securities dealers that enter into a sales agreement with PFD a
distribution fee and a service fee at rates of up to 0.75% and 0.25%,
respectively, of the fund's average daily net assets attributable to Class C
shares owned by investors for whom that securities dealer is the holder or
dealer of record. The service fee is intended to be in consideration of personal
services and/or account maintenance services rendered by the dealer with respect
to Class C shares. PFD will advance to dealers the first-year service fee at a
rate equal to 0.25% of the amount invested. As compensation therefor, PFD may
retain the service fee paid by the fund with respect to such shares for the
first year after purchase. Commencing in the 13th month following the purchase
of Class C shares, dealers will become eligible for additional annual
distribution fees and service fees of up to 0.75% and 0.25%, respectively, of
the net asset value of such shares. Dealers may from time to time be required to
meet certain other criteria in order to receive service fees. PFD or its
affiliates are entitled to retain all service fees payable under the Class C
Plan for which there is no dealer of record or for which qualification standards
have not been met as partial consideration for personal services and/or account
maintenance services performed by PFD or its affiliates for shareholder
accounts.
The purpose of distribution payments to PFD under the Class C Plan is to
compensate PFD for its distribution services with respect to Class C shares of
the fund. PFD pays commissions to dealers as well as expenses of printing
prospectuses and reports used for sales purposes, expenses with respect to the
preparation and printing of sales literature and other distribution-related
expenses, including, without limitation, the cost necessary to provide
distribution-related services, or personnel, travel, office expenses and
equipment. The Class C Plan also provides that PFD will receive all CDSCs
attributable to Class C shares. When a broker-dealer sells Class C shares and
elects, with PFD's approval, to waive its right to receive the commission
normally paid at the time of the sale, PFD may cause all or a portion of the
distribution fees described above to be paid to the broker-dealer.
General
In accordance with the terms of each Plan, PFD provides to the fund for review
by the Trustees a quarterly written report of the amounts expended under the
Plan and the purposes for which such expenditures were made. In the Trustees'
quarterly review of the Plans, they will consider the continued appropriateness
and the level of reimbursement or compensation the Plans provide.
No interested person of the fund, nor any Trustee of the fund who is not an
interested person of the fund, has any direct or indirect financial interest in
the operation of the Plans except to the extent that PFD and certain of its
employees may be deemed to have such an interest as a result of receiving a
portion of the amounts expended under the Plans by the fund and except to the
extent certain officers may have an interest in PFD's ultimate parent,
UniCredito Italiano, or in UniCredito Italiano's subsidiaries.
-51-
Each Plan's adoption, terms, continuance and termination are governed by Rule
12b-1 under the 1940 Act. The Board of Trustees believes that there is a
reasonable likelihood that the Plans will benefit the fund and its current and
future shareholders. The Plans may not be amended to increase materially the
annual percentage limitation of average net assets which may be spent for the
services described therein without approval of the shareholders of the fund
affected thereby, and material amendments of the Plans must also be approved by
the Trustees as provided in Rule 12b-1.
See Annual Fee, Expense and Other Information for fund expenses under the Class
A Plan, Class B Plan and Class C Plan and CDSCs paid to PFD for the most
recently completed fiscal year.
Upon redemption, Class A shares may be subject to a 1% CDSC, Class B shares are
subject to a CDSC at a rate declining from a maximum 4% of the lower of the cost
or market value of the shares and Class C shares may be subject to a 1% CDSC.
Investor Class shares are not subject to a CDSC.
CALCULATION OF PERFORMANCE DATA
See Annual Fee, Expense and Other Information for performance information for
each class of fund shares as of the most recently completed fiscal year.
FINANCIAL STATEMENTS
Safeco California Tax-Free Income Fund's (the predecessor to Pioneer California
Tax Free Income Fund) financial statements and financial highlights for the
fiscal year ended December 31, 2003 appearing in the fund's annual report, as
filed with the SEC on February 26, 2004 (Accession No. 0001193125-04-030255),
and the fund's unaudited financial statements as of June 30, 2004, as filed with
the SEC on August 26, 2004 (Accession No. 0001193125-04-000012) are incorporated
by reference into this statement of additional information. The financial
statements and financial highlights for the fiscal year ended December 31, 2003
have been audited by Ernst & Young LLP, an independent registered public
accounting firm, as indicated in their report thereon, and are incorporated
herein by reference, in reliance upon such report, given on the authority of
Ernst & Young LLP as experts in accounting and auditing.
Safeco California Tax-Free Income Fund's annual and semi-annual reports include
the financial statements referenced above and are available without charge upon
request by calling Shareholder Services at 1-800-225-6292.
ANNUAL FEE, EXPENSE AND OTHER INFORMATION
Portfolio Turnover
Not applicable(1)
Share Ownership
Not applicable(1)
Trustee Ownership of Shares of the Fund and Other Pioneer Funds
The following table indicates the value of shares that each Trustee beneficially
owned in the fund and Pioneer Funds in the aggregate as of December 31, 2003.
Beneficial ownership is determined in accordance with SEC rules. The share value
of any closed-end fund is based on its closing market price on December 31,
2003. The share value of any open-end Pioneer Fund is based on the net asset
value of the class of shares on December 31, 2003. The dollar ranges in this
table are in accordance with SEC requirements.
-52-
- ------------------------------------------------------------------------------------------------------------
Name of Trustee Aggregate Dollar Range of Equity
Dollar Range of Equity Securities in All Registered Investment
Securities in the Fund(1) Companies in the Pioneer Family of Funds
- ------------------------------------------------------------------------------------------------------------
Interested Trustees
- ------------------------------------------------------------------------------------------------------------
John F. Cogan, Jr. None Over $100,000
- ------------------------------------------------------------------------------------------------------------
Osbert M. Hood None Over $100,000
- ------------------------------------------------------------------------------------------------------------
Independent Trustees
- ------------------------------------------------------------------------------------------------------------
Mary K. Bush None $10,001-$50,000
- ------------------------------------------------------------------------------------------------------------
Richard H. Egdahl, M.D. None $50,001-$100,000
- ------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham None $10,001-$50,000
- ------------------------------------------------------------------------------------------------------------
Marguerite A. Piret None $50,001-$100,000
- ------------------------------------------------------------------------------------------------------------
Stephen K. West None Over $100,000
- ------------------------------------------------------------------------------------------------------------
John Winthrop None Over $100,000
- ------------------------------------------------------------------------------------------------------------
Compensation of Officers and Trustees
The following table sets forth certain information with respect to the
compensation of each Trustee of the fund.
- ------------------------------------------------------------------------------------------------------------
Pension or
Aggregate Retirement Benefits Total Compensation from
Compensation Accrued as Part of the Fund and Other
Name of Trustee from Fund** Fund Expenses Pioneer Funds***
- ------------------------------------------------------------------------------------------------------------
Interested Trustees:
- ------------------------------------------------------------------------------------------------------------
John F. Cogan, Jr*. $500 $0.00 $19,200.00
- ------------------------------------------------------------------------------------------------------------
Osbert M. Hood*+ $500 11,520.00
- ------------------------------------------------------------------------------------------------------------
Independent Trustees:
- ------------------------------------------------------------------------------------------------------------
Mary K. Bush $1,000 0.00 104,000.00
- ------------------------------------------------------------------------------------------------------------
Richard H. Egdahl, M.D. $1,000 0.00 99,750.00
- ------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham $1,000 0.00 104,000.00
- ------------------------------------------------------------------------------------------------------------
Marguerite A. Piret $1,000 0.00 113,562.50
- ------------------------------------------------------------------------------------------------------------
Stephen K. West $1,000 0.00 99,750.00
- ------------------------------------------------------------------------------------------------------------
John Winthrop $1,000 0.00 99,750.00
- ------------------------------------------------------------------------------------------------------------
Total: $7,000 $0.00 $651,532.50
- ------------------------------------------------------------------------------------------------------------
* Under the management contract, Pioneer reimburses the fund for any
Interested Trustee fees paid by the fund.
** Estimated for the fiscal year ended December 31, 2005.
*** For the calendar year ended December 31, 2003. There are 65 U.S. registered
investment portfolios in the Pioneer Family of Funds.
Approximate Management Fees the Fund Paid or Owed Pioneer
Not applicable(1)
Fees the Fund Paid to Pioneer under the Administration Agreement
Not applicable(1)
Carryovers of Distribution Expenses
Not applicable(1)
Approximate Net Underwriting Commissions Retained by PFD (Class A)
-53-
Not applicable(1)
Approximate Commissions Reallowed to Dealers (Class A)
Not applicable(1)
Fund Expenses under the Distribution Plans
Not applicable(1)
CDSCs
Not applicable(1)
Brokerage and Underwriting Commissions (Portfolio Transactions)
Not applicable(1)
Capital Loss Carryforwards as of December 31, 2003
Not applicable(1)
Average Annual Total Returns (December 31, 2003)
Not applicable(1)
(1) As of December 31, 2003, the fund had not yet commenced operations. As of
the date of this statement of additional information, the fund had not yet
completed a fiscal year.
-54-
PIONEER GROWTH OPPORTUNITIES FUND
(a series of Pioneer Series Trust II)
STATEMENT OF ADDITIONAL INFORMATION
October 25, 2004
This Statement of Additional Information is not a Prospectus. It should be
read in conjunction with the related combined Proxy Statement and Prospectus
(also dated October 25, 2004) which covers Investor Class shares of Pioneer
Growth Opportunities Fund (the "fund"), a newly created series of Pioneer Series
Trust II, to be issued in exchange for shares of Safeco Growth Opportunities
Fund, a series of Safeco Common Stock Trust. Please retain this Statement of
Additional Information for further reference.
The Prospectus is available to you free of charge (please call
1-800-407-7298).
INTRODUCTION.................................................................2
EXHIBITS.....................................................................2
ADDITIONAL INFORMATION ABOUT PIONEER GROWTH OPPORTUNITIES FUND...............2
FUND HISTORY........................................................2
DESCRIPTION OF THE FUND AND ITS INVESTMENT RISKS....................2
MANAGEMENT OF THE FUND..............................................20
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.................28
INVESTMENT ADVISORY AND OTHER SERVICES..............................28
BROKERAGE ALLOCATION AND OTHER PRACTICES............................31
CAPITAL STOCK AND OTHER SECURITIES..................................32
PURCHASE, REDEMPTION AND PRICING OF SHARES..........................33
TAXATION OF THE FUND................................................39
UNDERWRITERS........................................................45
CALCULATION OF PERFORMANCE DATA.....................................49
FINANCIAL STATEMENTS................................................49
ANNUAL FEE, EXPENSE AND OTHER INFORMATION...........................49
INTRODUCTION
This Statement of Additional Information is intended to supplement the
information provided in a Proxy Statement and Prospectus dated October 25, 2004
(the "Proxy Statement and Prospectus") relating to the proposed reorganization
of Safeco Growth Opportunities Fund, a series of Safeco Common Stock Trust, into
Pioneer Growth Opportunities Fund, a newly created series of Pioneer Series
Trust II, and in connection with the solicitation by the management of Safeco
Common Stock Trust of proxies to be voted at the Meeting of Shareholders of
Safeco Growth Opportunities Fund to be held on December 8, 2004.
EXHIBITS AND DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated herein by reference, unless
otherwise indicated. Shareholders will receive a copy of each document that is
incorporated by reference upon any request to receive a copy of this Statement
of Additional Information.
1. Safeco Common Stock Trust's statement of additional information, dated
April 30, 2004 (File No. 33-36700), as filed with the Securities and
Exchange Commission on April 29, 2004 (Accession No. 0001193125-04-072454)
is incorporated herein by reference.
2. Safeco Growth Opportunities Fund's Annual Report for the fiscal year ended
December 31, 2003 (File No. 811-06167), as filed with the Securities and
Exchange Commission on February 26, 2004 (Accession No.
0001193125-04-030270) is incorporated herein by reference.
3. Safeco Growth Opportunities Fund's Semi-Annual Report for the period ended
June 30, 2004 (File No. 811-06167), as filed with the Securities and
Exchange Commission on August 26, 2004 (Accession No. 0001193125-04-147286)
is incorporated herein by reference.
ADDITIONAL INFORMATION ABOUT
PIONEER GROWTH OPPORTUNITIES FUND
FUND HISTORY
The fund is a diversified series of Pioneer Series Trust II, an open-end
management investment company. The fund originally was established as Safeco
Growth Fund, a series of Safeco Common Stock Trust, a Delaware statutory trust,
on May 13, 1993. Pursuant to an agreement and plan of reorganization, the fund
was reorganized as a series of Pioneer Series Trust II, a Delaware statutory
trust, on August 8, 2004.
DESCRIPTION OF THE FUND AND ITS INVESTMENT RISKS
The prospectus presents the investment objective and the principal investment
strategies and risks of the fund. This section supplements the disclosure in the
fund's prospectus and provides additional information on the fund's investment
policies or restrictions. Restrictions or policies stated as a maximum
percentage of the fund's assets are only applied immediately after a portfolio
investment to which the policy or restriction is applicable (other than the
limitations on borrowing and illiquid securities). Accordingly, any later
increase or decrease resulting from a change in values, net assets or other
circumstances will not be considered in determining whether the investment
complies with the fund's restrictions and policies.
-2-
Investments in Equity Securities
Equity securities, such as common stock, generally represent an ownership
interest in a company. While equity securities have historically generated
higher average returns than fixed income securities, equity securities have also
experienced significantly more volatility in those returns. An adverse event,
such as an unfavorable earnings report, may depress the value of a particular
equity security held by the fund. Also, the price of equity securities,
particularly common stocks, are sensitive to general movements in the stock
market. A drop in the stock market may depress the price of equity securities
held by the fund.
Illiquid Securities
The fund will not invest more than 15% of its net assets in illiquid and other
securities that are not readily marketable. Repurchase agreements maturing in
more than seven days will be included for purposes of the foregoing limit.
Securities subject to restrictions on resale under the Securities Act of 1933,
as amended (the "1933 Act"), are considered illiquid unless they are eligible
for resale pursuant to Rule 144A or another exemption from the registration
requirements of the 1933 Act and are determined to be liquid by Pioneer
Investment Management, Inc. ("Pioneer"), the fund's investment adviser. Pioneer
determines the liquidity of Rule 144A and other restricted securities according
to procedures adopted by the Board of Trustees. Under the direction of the Board
of Trustees, Pioneer monitors the application of these guidelines and
procedures. The inability of the fund to dispose of illiquid investments readily
or at reasonable prices could impair the fund's ability to raise cash for
redemptions or other purposes. If the fund sold restricted securities other than
pursuant to an exception from registration under the 1933 Act such as Rule 144A,
it may be deemed to be acting as an underwriter and subject to liability under
the 1933 Act.
Investments in Initial Public Offerings
To the extent consistent with its investment objective, the fund may invest in
initial public offerings of equity securities. The market for such securities
may be more volatile and entail greater risk of loss than investments in more
established companies. Investments in initial public offerings may represent a
significant portion of the fund's investment performance. The fund cannot assure
that investments in initial public offerings will continue to be available to
the fund or, if available, will result in positive investment performance. In
addition, as the fund's portfolio grows in size, the impact of investments in
initial public offerings on the overall performance of the fund is likely to
decrease.
Debt Securities Selection
In selecting debt securities for the fund, Pioneer gives primary consideration
to the fund's investment objective, the attractiveness of the market for debt
securities given Pioneer's outlook for the equity markets and the fund's
liquidity requirements. Once Pioneer determines to allocate a portion of the
fund's assets to debt securities, Pioneer generally focuses on short-term
instruments to provide liquidity and may invest in a range of fixed income
securities if the fund is investing in such instruments for income or capital
gains. Pioneer selects individual securities based on broad economic factors and
issuer specific factors including the terms of the securities (such as yields
compared to U.S. Treasuries or comparable issues), liquidity and rating, sector
and issuer diversification.
Convertible Debt Securities
The fund may invest in convertible debt securities which are debt obligations
convertible at a stated exchange rate or formula into common stock or other
equity securities of or owned by the issuer. Convertible securities rank senior
to common stocks in an issuer's capital structure and consequently may be of
higher quality and entail less risk than the issuer's common stock. As with all
debt securities, the market values of convertible securities tend to increase
when interest rates decline and, conversely, tend to decline when interest rates
increase.
-3-
Debt Securities Rating Criteria
Investment grade debt securities are those rated "BBB" or higher by Standard &
Poor's Ratings Group ("Standard & Poor's") or the equivalent rating of other
nationally recognized statistical rating organizations. Debt securities rated
BBB are considered medium grade obligations with speculative characteristics,
and adverse economic conditions or changing circumstances may weaken the
issuer's ability to pay interest and repay principal. If the rating of an
investment grade debt security falls below investment grade, Pioneer will
consider if any action is appropriate in light of the fund's investment
objective and policies.
Below investment grade debt securities are those rated "BB" and below by
Standard & Poor's or the equivalent rating of other nationally recognized
statistical rating organizations. See Appendix A for a description of rating
categories. The fund may invest in debt securities rated "C" or better.
Below investment grade debt securities or comparable unrated securities are
commonly referred to as "junk bonds" and are considered predominantly
speculative and may be questionable as to principal and interest payments.
Changes in economic conditions are more likely to lead to a weakened capacity to
make principal payments and interest payments. The amount of high yield
securities outstanding has proliferated as an increasing number of issuers have
used high yield securities for corporate financing. An economic downturn could
severely affect the ability of highly leveraged issuers to service their debt
obligations or to repay their obligations upon maturity. Factors having an
adverse impact on the market value of lower quality securities will have an
adverse effect on the fund's net asset value to the extent that it invests in
such securities. In addition, the fund may incur additional expenses to the
extent it is required to seek recovery upon a default in payment of principal or
interest on its portfolio holdings.
The secondary market for high yield securities may not be as liquid as the
secondary market for more highly rated securities, a factor which may have an
adverse effect on the fund's ability to dispose of a particular security when
necessary to meet its liquidity needs. Under adverse market or economic
conditions, the secondary market for high yield securities could contract
further, independent of any specific adverse changes in the condition of a
particular issuer. As a result, the fund could find it more difficult to sell
these securities or may be able to sell the securities only at prices lower than
if such securities were widely traded. Prices realized upon the sale of such
lower rated or unrated securities, under these circumstances, may be less than
the prices used in calculating the fund's net asset value.
Since investors generally perceive that there are greater risks associated with
lower quality debt securities of the type in which the fund may invest a portion
of its assets, the yields and prices of such securities may tend to fluctuate
more than those for higher rated securities. In the lower quality segments of
the debt securities market, changes in perceptions of issuers' creditworthiness
tend to occur more frequently and in a more pronounced manner than do changes in
higher quality segments of the debt securities market, resulting in greater
yield and price volatility.
Lower rated and comparable unrated debt securities tend to offer higher yields
than higher rated securities with the same maturities because the historical
financial condition of the issuers of such securities may not have been as
strong as that of other issuers. However, lower rated securities generally
involve greater risks of loss of income and principal than higher rated
securities. Pioneer will attempt to reduce these risks through portfolio
diversification and by analysis of each issuer and its ability to make timely
payments of income and principal, as well as broad economic trends and corporate
developments.
U.S. Government Securities
U.S. government securities in which the fund invests include debt obligations of
varying maturities issued by the U.S. Treasury or issued or guaranteed by an
agency or instrumentality of the U.S. government, including the Federal Housing
Administration, Federal Financing Bank, Farmers Home Administration,
Export-Import Bank of the U.S., Small Business Administration, Government
National Mortgage Association ("GNMA"), General Services Administration, Central
Bank for Cooperatives, Federal Farm
-4-
Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation
("FHLMC"), Federal National Mortgage Association ("FNMA"), Maritime
Administration, Tennessee Valley Authority, District of Columbia Armory Board,
Student Loan Marketing Association, Resolution Trust Corporation and various
institutions that previously were or currently are part of the Farm Credit
System (which has been undergoing reorganization since 1987). Some U.S.
government securities, such as U.S. Treasury bills, Treasury notes and Treasury
bonds, which differ only in their interest rates, maturities and times of
issuance, are supported by the full faith and credit of the United States.
Others are supported by: (i) the right of the issuer to borrow from the U.S.
Treasury, such as securities of the Federal Home Loan Banks; (ii) the
discretionary authority of the U.S. government to purchase the agency's
obligations, such as securities of the FNMA; or (iii) only the credit of the
issuer. No assurance can be given that the U.S. government will provide
financial support in the future to U.S. government agencies, authorities or
instrumentalities that are not supported by the full faith and credit of the
United States. Securities guaranteed as to principal and interest by the U.S.
government, its agencies, authorities or instrumentalities include: (i)
securities for which the payment of principal and interest is backed by an
irrevocable letter of credit issued by the U.S. government or any of its
agencies, authorities or instrumentalities; and (ii) participations in loans
made to non-U.S. governments or other entities that are so guaranteed. The
secondary market for certain of these participations is limited and, therefore,
may be regarded as illiquid.
U.S. government securities may include zero coupon securities that may be
purchased when yields are attractive and/or to enhance portfolio liquidity. Zero
coupon U.S. government securities are debt obligations that are issued or
purchased at a significant discount from face value. The discount approximates
the total amount of interest the security will accrue and compound over the
period until maturity or the particular interest payment date at a rate of
interest reflecting the market rate of the security at the time of issuance.
Zero coupon U.S. government securities do not require the periodic payment of
interest. These investments benefit the issuer by mitigating its need for cash
to meet debt service, but generally require a higher rate of return to attract
investors who are willing to defer receipt of cash. These investments may
experience greater volatility in market value than U.S. government securities
that make regular payments of interest. The fund accrues income on these
investments for tax and accounting purposes, which is distributable to
shareholders and which, because no cash is received at the time of accrual, may
require the liquidation of other portfolio securities to satisfy the fund's
distribution obligations, in which case the fund will forego the purchase of
additional income producing assets with these funds. Zero coupon U.S. government
securities include STRIPS and CUBES, which are issued by the U.S. Treasury as
component parts of U.S. Treasury bonds and represent scheduled interest and
principal payments on the bonds.
Debt Obligations of Non-U.S. Governments
The fund may invest in debt obligations of foreign governments. An investment in
debt obligations of foreign governments and their political subdivisions
(sovereign debt) involves special risks which are not present when investing in
corporate debt obligations. The foreign issuer of the sovereign debt or the
foreign governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or interest when due, and the fund may
have limited recourse in the event of a default. During periods of economic
uncertainty, the market prices of sovereign debt may be more volatile than
prices of U.S. debt issues. In the past, certain foreign countries have
encountered difficulties in servicing their debt obligations, withheld payments
of principal and interest and declared moratoria on the payment of principal and
interest on their sovereign debt.
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange, the relative size of the debt service burden, the
sovereign debtor's policy toward principal international lenders and local
political constraints. Sovereign debtors may also be dependent on expected
disbursements from foreign governments, multilateral agencies and other entities
to reduce principal and interest arrearages on their debt. The failure of a
sovereign debtor to implement economic reforms, achieve specified levels of
economic performance or repay principal or interest when due may result in the
cancellation of third-party commitments to lend funds to the sovereign debtor,
which may further impair such debtor's ability or willingness to service its
debts.
-5-
Other Eligible Investments
For temporary defensive or cash management purposes, the fund may invest in all
types of short-term investments including, but not limited to, (a) commercial
paper and other short-term commercial obligations; (b) obligations (including
certificates of deposit and bankers' acceptances) of banks; (c) obligations
issued or guaranteed by a governmental issuer, including governmental agencies
or instrumentalities; and (d) fixed income securities of corporate issuers.
These securities may be denominated in any currency and, excluding the fund's
permissible investments in below investment grade debt and convertible debt
securities, will be rated, at the time of investment, Prime-1, Baa or better by
Moody's Investors Service, Inc. ("Moody's"), or A-1, BBB or better by Standard &
Poor's or determined by Pioneer to be of equivalent credit quality. During
normal market conditions, the fund will only invest in the foregoing short-term
investments for cash management purposes to an extent consistent with the fund's
investment objective. When the fund adopts a defensive strategy due to adverse
market, economic or other such conditions, the fund may not be able to achieve
its investment objective.
Risks of Non-U.S. Investments
Investing in securities of non-U.S. issuers involves considerations and risks
not typically associated with investing in the securities of issuers in the U.S.
These risks are heightened with respect to investments in countries with
emerging markets and economies. The risks of investing in securities of non-U.S.
issuers generally, or in issuers with significant exposure to non-U.S. markets,
may be related, among other things, to (i) differences in size, liquidity and
volatility of, and the degree and manner of regulation of, the securities
markets of certain non-U.S. markets compared to the securities markets in the
U.S.; (ii) economic, political and social factors; and (iii) foreign exchange
matters, such as restrictions on the repatriation of capital, fluctuations in
exchange rates between the U.S. dollar and the currencies in which the fund's
portfolio securities are quoted or denominated, exchange control regulations and
costs associated with currency exchange. The political and economic structures
in certain countries, particularly emerging markets, are expected to undergo
significant evolution and rapid development, and such countries may lack the
social, political and economic stability characteristic of more developed
countries. Unanticipated political or social developments may affect the values
of the fund's investments in such countries. The economies and securities and
currency markets of many emerging markets have experienced significant
disruption and declines. There can be no assurances that these economic and
market disruptions might not occur again.
Investments in Emerging Markets. The fund may invest in securities of issuers in
countries with emerging economies or securities markets. Emerging economies or
securities markets will generally include, but not be limited to, countries
included in the MSCI Emerging Markets Free Index. The fund will generally focus
on emerging markets that do not impose unusual trading requirements which tend
to restrict the flow of investments. In addition, the fund may invest in
unquoted securities, including securities of emerging market issuers.
Non-U.S. Securities Markets and Regulations. There may be less publicly
available information about non-U.S. markets and issuers than is available with
respect to U.S. securities and issuers. Non-U.S. companies generally are not
subject to accounting, auditing and financial reporting standards, practices and
requirements comparable to those applicable to U.S. companies. The trading
markets for most non-U.S. securities are generally less liquid and subject to
greater price volatility than the markets for comparable securities in the U.S.
The markets for securities in certain emerging markets are in the earliest
stages of their development. Even the markets for relatively widely traded
securities in certain non-U.S. markets, including emerging market countries, may
not be able to absorb, without price disruptions, a significant increase in
trading volume or trades of a size customarily undertaken by institutional
investors in the U.S. Additionally, market making and arbitrage activities are
generally less extensive in such markets, which may contribute to increased
volatility and reduced liquidity. The less liquid a market, the more difficult
it may be for the fund to price its portfolio securities accurately or to
dispose of such securities at the times determined by Pioneer to be appropriate.
The risks associated with reduced liquidity may be particularly
-6-
acute in situations in which the fund's operations require cash, such as in
order to meet redemptions and to pay its expenses.
Economic, Political and Social Factors. Certain countries, including emerging
markets, may be subject to a greater degree of economic, political and social
instability than is the case in the U.S. and Western European countries. Such
instability may result from, among other things: (i) authoritarian governments
or military involvement in political and economic decision making; (ii) popular
unrest associated with demands for improved economic, political and social
conditions; (iii) internal insurgencies; (iv) hostile relations with neighboring
countries; and (v) ethnic, religious and racial disaffection and conflict. Such
economic, political and social instability could significantly disrupt the
financial markets in such countries and the ability of the issuers in such
countries to repay their obligations. Investing in emerging market countries
also involves the risk of expropriation, nationalization, confiscation of assets
and property or the imposition of restrictions on foreign investments and on
repatriation of capital invested. In the event of such expropriation,
nationalization or other confiscation in any emerging country, the fund could
lose its entire investment in that country.
Certain emerging market countries restrict or control foreign investment in
their securities markets to varying degrees. These restrictions may limit the
fund's investment in those markets and may increase the expenses of the fund. In
addition, the repatriation of both investment income and capital from certain
markets in the region is subject to restrictions such as the need for certain
governmental consents. Even where there is no outright restriction on
repatriation of capital, the mechanics of repatriation may affect certain
aspects of the fund's operation.
Economies in individual countries may differ favorably or unfavorably from the
U.S. economy in such respects as growth of gross domestic product, rates of
inflation, currency valuation, capital reinvestment, resource self-sufficiency
and balance of payments positions. Many countries have experienced substantial,
and in some cases extremely high, rates of inflation for many years. Inflation
and rapid fluctuations in inflation rates have had, and may continue to have,
very negative effects on the economies and securities markets of certain
emerging countries.
Unanticipated political or social developments may also affect the values of the
fund's investments and the availability to the fund of additional investments in
such countries. In the past, the economies and securities and currency markets
of many emerging markets have experienced significant disruption and declines.
There can be no assurances that these economic and market disruptions might not
occur again. Economies in emerging market countries generally are dependent
heavily upon international trade and, accordingly, have been and may continue to
be affected adversely by trade barriers, exchange controls, managed adjustments
in relative currency values and other protectionist measures imposed or
negotiated by the countries with which they trade. These economies also have
been, and may continue to be, affected adversely by economic conditions in the
countries with which they trade.
Currency Risks. The value of the securities quoted or denominated in foreign
currencies may be adversely affected by fluctuations in the relative currency
exchange rates and by exchange control regulations. The fund's investment
performance may be negatively affected by a devaluation of a currency in which
the fund's investments are quoted or denominated. Further, the fund's investment
performance may be significantly affected, either positively or negatively, by
currency exchange rates because the U.S. dollar value of securities quoted or
denominated in another currency will increase or decrease in response to changes
in the value of such currency in relation to the U.S. dollar.
Custodian Services and Related Investment Costs. Custodial services and other
costs relating to investment in international securities markets generally are
more expensive than in the U.S. Such markets have settlement and clearance
procedures that differ from those in the U.S. In certain markets there have been
times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions. The
inability of the fund to make intended securities purchases due to settlement
problems could cause the fund to miss attractive investment opportunities.
Inability to dispose of a portfolio security caused by settlement problems could
result either in losses to the fund due to a subsequent decline in value of the
portfolio security or could result in possible liability to the
-7-
fund. In addition, custodial, security settlement and clearance procedures in
some emerging countries may not fully protect the fund against loss or theft of
its assets.
Withholding and Other Taxes. The fund will be subject to taxes, including
withholding taxes, on income (possibly including, in some cases, capital gains)
that are or may be imposed by certain countries with respect to the fund's
investments in such countries. These taxes will reduce the return achieved by
the fund. Treaties between the U.S. and such countries may not be available to
reduce the otherwise applicable tax rates.
Investments in Depositary Receipts
The fund may hold securities of non-U.S. issuers in the form of American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs") and other similar instruments. Generally, ADRs in
registered form are designed for use in U.S. securities markets, and EDRs and
GDRs and other similar global instruments in bearer form are designed for use in
non-U.S. securities markets.
ADRs are denominated in U.S. dollars and represent an interest in the right to
receive securities of non-U.S. issuers deposited in a U.S. bank or correspondent
bank. ADRs do not eliminate all the risk inherent in investing in the securities
of non-U.S. issuers. However, by investing in ADRs rather than directly in
equity securities of non-U.S. issuers, the fund will avoid currency risks during
the settlement period for either purchases or sales. EDRs and GDRs are not
necessarily denominated in the same currency as the underlying securities which
they represent.
For purposes of the fund's investment policies, investments in ADRs, GDRs and
similar instruments will be deemed to be investments in the underlying equity
securities of non-U.S. issuers. The fund may acquire depositary receipts from
banks that do not have a contractual relationship with the issuer of the
security underlying the depositary receipt to issue and secure such depositary
receipt. To the extent the fund invests in such unsponsored depositary receipts
there may be an increased possibility that the fund may not become aware of
events affecting the underlying security and thus the value of the related
depositary receipt. In addition, certain benefits (i.e., rights offerings) which
may be associated with the security underlying the depositary receipt may not
inure to the benefit of the holder of such depositary receipt.
Real Estate Investment Trusts ("REITs") and Associated Risk Factors
REITs are companies which invest primarily in income producing real estate or
real estate related loans or interests. REITs are generally classified as equity
REITs, mortgage REITs or a combination of equity and mortgage REITs. Equity
REITs invest the majority of their assets directly in real property and derive
income primarily from the collection of rents. Equity REITs can also realize
capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. REITs are not taxed on income
distributed to shareholders provided they comply with the applicable
requirements of the Internal Revenue Code of 1986, as amended (the "Code"). In
some cases, the fund will indirectly bear its proportionate share of any
management and other expenses paid by REITs in which it invests in addition to
the expenses paid by the fund. Debt securities issued by REITs are, for the most
part, general and unsecured obligations and are subject to risks associated with
REITs.
Investing in REITs involves certain unique risks in addition to those risks
associated with investing in the real estate industry in general. An equity REIT
may be affected by changes in the value of the underlying properties owned by
the REIT. A mortgage REIT may be affected by changes in interest rates and the
ability of the issuers of its portfolio mortgages to repay their obligations.
REITs are dependent upon the skills of their managers and are not diversified.
REITs are generally dependent upon maintaining cash flows to repay borrowings
and to make distributions to shareholders and are subject to the risk of default
by lessees or borrowers. REITs whose underlying assets are concentrated in
properties used by a particular industry, such as health care, are also subject
to risks associated with such industry.
-8-
REITs (especially mortgage REITs) are also subject to interest rate risks. When
interest rates decline, the value of a REIT's investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a REIT's investment in fixed rate obligations can be expected to
decline. If the REIT invests in adjustable rate mortgage loans the interest
rates on which are reset periodically, yields on a REIT's investments in such
loans will gradually align themselves to reflect changes in market interest
rates. This causes the value of such investments to fluctuate less dramatically
in response to interest rate fluctuations than would investments in fixed rate
obligations.
REITs may have limited financial resources and may trade less frequently and in
a more limited volume than larger company securities. Historically REITs have
been more volatile in price than the larger capitalization stocks included in
Standard & Poor's 500 Stock Index.
Other Investment Companies
The fund may invest in the securities of other investment companies to the
extent that such investments are consistent with the fund's investment objective
and policies and permissible under the Investment Company Act of 1940, as
amended (the "1940 Act"). Under the 1940 Act, the fund may not acquire the
securities of other domestic or non-U.S. investment companies if, as a result,
(i) more than 10% of the fund's total assets would be invested in securities of
other investment companies, (ii) such purchase would result in more than 3% of
the total outstanding voting securities of any one investment company being held
by the fund, or (iii) more than 5% of the fund's total assets would be invested
in any one investment company. These limitations do not apply to the purchase of
shares of any investment company in connection with a merger, consolidation,
reorganization or acquisition of substantially all the assets of another
investment company. The fund may invest in money market funds managed by Pioneer
in reliance on an exemptive order granted by the Securities and Exchange
Commission (the "SEC").
The fund, as a holder of the securities of other investment companies, will bear
its pro rata portion of the other investment companies' expenses, including
advisory fees. These expenses are in addition to the direct expenses of the
fund's own operations.
Repurchase Agreements
The fund may enter into repurchase agreements with broker-dealers, member banks
of the Federal Reserve System and other financial institutions. Repurchase
agreements are arrangements under which the fund purchases securities and the
seller agrees to repurchase the securities within a specific time and at a
specific price. The repurchase price is generally higher than the fund's
purchase price, with the difference being income to the fund. Under the
direction of the Board of Trustees, Pioneer reviews and monitors the
creditworthiness of any institution which enters into a repurchase agreement
with the fund. The counterparty's obligations under the repurchase agreement are
collateralized with U.S. Treasury and/or agency obligations with a market value
of not less than 100% of the obligations, valued daily. Collateral is held by
the fund's custodian in a segregated, safekeeping account for the benefit of the
fund. Repurchase agreements afford the fund an opportunity to earn income on
temporarily available cash at low risk. In the event of commencement of
bankruptcy or insolvency proceedings with respect to the seller of the security
before repurchase of the security under a repurchase agreement, the fund may
encounter delay and incur costs before being able to sell the security. Such a
delay may involve loss of interest or a decline in price of the security. If the
court characterizes the transaction as a loan and the fund has not perfected a
security interest in the security, the fund may be required to return the
security to the seller's estate and be treated as an unsecured creditor of the
seller. As an unsecured creditor, the fund would be at risk of losing some or
all of the principal and interest involved in the transaction.
Short Sales Against the Box
The fund may sell securities "short against the box." A short sale involves the
fund borrowing securities from a broker and selling the borrowed securities. The
fund has an obligation to return securities identical to the borrowed securities
to the broker. In a short sale against the box, the fund at all times owns an
equal
-9-
amount of the security sold short or securities convertible into or exchangeable
for, with or without payment of additional consideration, an equal amount of the
security sold short. The fund intends to use short sales against the box to
hedge. For example, when the fund believes that the price of a current portfolio
security may decline, the fund may use a short sale against the box to lock in a
sale price for a security rather than selling the security immediately. In such
a case, any future losses in the fund's long position should be offset by a gain
in the short position and, conversely, any gain in the long position should be
reduced by a loss in the short position.
If the fund effects a short sale against the box at a time when it has an
unrealized gain on the security, it may be required to recognize that gain as if
it had actually sold the security (a "constructive sale") on the date it effects
the short sale. However, such constructive sale treatment may not apply if the
fund closes out the short sale with securities other than the appreciated
securities held at the time of the short sale provided that certain other
conditions are satisfied. Uncertainty regarding certain tax consequences of
effecting short sales may limit the extent to which the fund may make short
sales against the box.
Asset Segregation
The 1940 Act requires that the fund segregate assets in connection with certain
types of transactions that may have the effect of leveraging the fund's
portfolio. If the fund enters into a transaction requiring segregation, such as
a forward commitment, the custodian or Pioneer will segregate liquid assets in
an amount required to comply with the 1940 Act. Such segregated assets will be
valued at market daily. If the aggregate value of such segregated assets
declines below the aggregate value required to satisfy the 1940 Act, additional
liquid assets will be segregated.
When-Issued and Delayed Delivery Securities
The fund may purchase securities, including U.S. government securities, on a
when-issued basis or may purchase or sell securities for delayed delivery. In
such transactions, delivery of the securities occurs beyond the normal
settlement period, but no payment or delivery is made by the fund prior to the
actual delivery or payment by the other party to the transaction. The fund will
not earn income on these securities until delivered. The purchase of securities
on a when-issued or delayed delivery basis involves the risk that the value of
the securities purchased will decline prior to the settlement date. The sale of
securities for delayed delivery involves the risk that the prices available in
the market on the delivery date may be greater than those obtained in the sale
transaction. The fund's obligations with respect to when-issued and delayed
delivery transactions will be fully collateralized by segregating liquid assets
with a value equal to the fund's obligations. See "Asset Segregation."
Portfolio Turnover
It is the policy of the fund not to engage in trading for short-term profits
although portfolio turnover rate is not considered a limiting factor in the
execution of investment decisions for the fund. The fund's annual portfolio
turnover rate may exceed 100%. A high rate of portfolio turnover (100% or more)
involves correspondingly greater transaction costs which must be borne by the
fund and its shareholders.
Foreign Currency Transactions
The fund may engage in foreign currency transactions. These transactions may be
conducted at the prevailing spot rate for purchasing or selling currency in the
foreign exchange market. The fund also has authority to enter into forward
foreign currency exchange contracts involving currencies of the different
countries in which the fund invests as a hedge against possible variations in
the foreign exchange rates between these currencies and the U.S. dollar. This is
accomplished through contractual agreements to purchase or sell a specified
currency at a specified future date and price set at the time of the contract.
Transaction hedging is the purchase or sale of forward foreign currency
contracts with respect to specific receivables or payables of the fund, accrued
in connection with the purchase and sale of its portfolio securities quoted in
foreign currencies. Portfolio hedging is the use of forward foreign currency
contracts to
-10-
offset portfolio security positions denominated or quoted in such foreign
currencies. There is no guarantee that the fund will be engaged in hedging
activities when adverse exchange rate movements occur. The fund will not attempt
to hedge all of its foreign portfolio positions and will enter into such
transactions only to the extent, if any, deemed appropriate by Pioneer.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also limit the opportunity
for gain if the value of the hedged currency should rise. Moreover, it may not
be possible for the fund to hedge against a devaluation that is so generally
anticipated that the fund is not able to contract to sell the currency at a
price above the devaluation level it anticipates.
The cost to the fund of engaging in foreign currency transactions varies with
such factors as the currency involved, the size of the contract, the length of
the contract period, differences in interest rates between the two currencies
and the market conditions then prevailing. Since transactions in foreign
currency and forward contracts are usually conducted on a principal basis, no
fees or commissions are involved. The fund may close out a forward position in a
currency by selling the forward contract or by entering into an offsetting
forward contract.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. Using forward contracts to
protect the value of the fund's portfolio securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices of
the securities. It simply establishes a rate of exchange which the fund can
achieve at some future point in time. The precise projection of short-term
currency market movements is not possible, and short-term hedging provides a
means of fixing the U.S. dollar value of only a portion of the fund's foreign
assets.
While the fund will enter into forward contracts to reduce currency exchange
rate risks, transactions in such contracts involve certain other risks. While
the fund may benefit from such transactions, unanticipated changes in currency
prices may result in a poorer overall performance for the fund than if it had
not engaged in any such transactions. Moreover, there may be imperfect
correlation between the fund's portfolio holdings of securities quoted or
denominated in a particular currency and forward contracts entered into by the
fund. Such imperfect correlation may cause the fund to sustain losses which will
prevent the fund from achieving a complete hedge or expose the fund to risk of
foreign exchange loss.
Over-the-counter markets for trading foreign forward currency contracts offer
less protection against defaults than is available when trading in currency
instruments on an exchange. Since a forward foreign currency exchange contract
is not guaranteed by an exchange or clearinghouse, a default on the contract
would deprive the fund of unrealized profits or force the fund to cover its
commitments for purchase or resale, if any, at the current market price.
If the fund enters into a forward contract to purchase foreign currency, the
custodian or Pioneer will segregate liquid assets. See "Asset Segregation."
Options on Foreign Currencies
The fund may purchase and write options on foreign currencies for hedging
purposes in a manner similar to that of transactions in forward contracts. For
example, a decline in the dollar value of a foreign currency in which portfolio
securities are quoted or denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In an
attempt to protect against such decreases in the value of portfolio securities,
the fund may purchase put options on the foreign currency. If the value of the
currency declines, the fund will have the right to sell such currency for a
fixed amount of dollars which exceeds the market value of such currency. This
would result in a gain that may offset, in whole or in part, the negative effect
of currency depreciation on the value of the fund's securities quoted or
denominated in that currency.
-11-
Conversely, if a rise in the dollar value of a currency is projected for those
securities to be acquired, thereby increasing the cost of such securities, the
fund may purchase call options on such currency. If the value of such currency
increases, the purchase of such call options would enable the fund to purchase
currency for a fixed amount of dollars which is less than the market value of
such currency. Such a purchase would result in a gain that may offset, at least
partially, the effect of any currency related increase in the price of
securities the fund intends to acquire. As in the case of other types of options
transactions, however, the benefit the fund derives from purchasing foreign
currency options will be reduced by the amount of the premium and related
transaction costs. In addition, if currency exchange rates do not move in the
direction or to the extent anticipated, the fund could sustain losses on
transactions in foreign currency options which would deprive it of a portion or
all of the benefits of advantageous changes in such rates.
The fund may also write options on foreign currencies for hedging purposes. For
example, if the fund anticipated a decline in the dollar value of securities
quoted or denominated in a foreign currency because of declining exchange rates,
it could, instead of purchasing a put option, write a covered call option on the
relevant currency. If the expected decline occurs, the option will most likely
not be exercised, and the decrease in value of portfolio securities will be
partially offset by the amount of the premium received by the fund.
Similarly, the fund could write a put option on the relevant currency, instead
of purchasing a call option, to hedge against an anticipated increase in the
dollar cost of securities to be acquired. If exchange rates move in the manner
projected, the put option will expire unexercised and allow the fund to offset
such increased cost up to the amount of the premium. However, as in the case of
other types of options transactions, the writing of a foreign currency option
will constitute only a partial hedge up to the amount of the premium, only if
rates move in the expected direction. If unanticipated exchange rate
fluctuations occur, the option may be exercised and the fund would be required
to purchase or sell the underlying currency at a loss which may not be fully
offset by the amount of the premium. As a result of writing options on foreign
currencies, the fund also may be required to forgo all or a portion of the
benefits which might otherwise have been obtained from favorable movements in
currency exchange rates.
A call option written on foreign currency by the fund is "covered" if the fund
owns the underlying foreign currency subject to the call, or if it has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration. A call option is also covered if the fund holds a call on
the same foreign currency for the same principal amount as the call written
where the exercise price of the call held is (a) equal to or less than the
exercise price of the call written or (b) greater than the exercise price of the
call written if the amount of the difference is maintained by the fund in cash
or liquid securities. See "Asset Segregation."
The fund may close out its position in a currency option by either selling the
option it has purchased or entering into an offsetting option. An
exchange-traded options position may be closed out only on an options exchange
which provides a secondary market for an option of the same series. Although the
fund will generally purchase or write only those options for which there appears
to be an active secondary market, there is no assurance that a liquid secondary
market on an exchange will exist for any particular option, or at any particular
time. For some options no secondary market on an exchange may exist. In such
event, it might not be possible to effect closing transactions in particular
options, with the result that the fund would have to exercise its options in
order to realize any profit and would incur transaction costs upon the sale of
underlying currencies pursuant to the exercise of put options. If the fund as a
covered call option writer is unable to effect a closing purchase transaction in
a secondary market, it will not be able to sell the underlying currency (or
security quoted or denominated in that currency) until the option expires or it
delivers the underlying currency upon exercise.
The fund may purchase and write over-the-counter options to the extent
consistent with its limitation on investments in illiquid securities. Trading in
over-the-counter options is subject to the risk that the other party will be
unable or unwilling to close out options purchased or written by the fund.
-12-
Options on Securities and Securities Indices
For hedging purposes or to seek to increase total return, the fund may purchase
put and call options on any security in which it may invest or options on any
securities index based on securities in which it may invest. The fund would also
be able to enter into closing sale transactions in order to realize gains or
minimize losses on options it has purchased.
Writing Call and Put Options on Securities. A call option written by the fund
obligates the fund to sell specified securities to the holder of the option at a
specified price if the option is exercised at any time before the expiration
date. All call options written by the fund are covered, which means that the
fund will own the securities subject to the options as long as the options are
outstanding, or the fund will use the other methods described below. The fund's
purpose in writing covered call options is to realize greater income than would
be realized on portfolio securities transactions alone. However, the fund may
forgo the opportunity to profit from an increase in the market price of the
underlying security.
A put option written by the fund would obligate the fund to purchase specified
securities from the option holder at a specified price if the option is
exercised at any time before the expiration date. All put options written by the
fund would be covered, which means that the fund would have segregated assets
with a value at least equal to the exercise price of the put option. The purpose
of writing such options is to generate additional income for the fund. However,
in return for the option premium, the fund accepts the risk that it may be
required to purchase the underlying security at a price in excess of its market
value at the time of purchase.
Call and put options written by the fund will also be considered to be covered
to the extent that the fund's liabilities under such options are wholly or
partially offset by its rights under call and put options purchased by the fund.
In addition, a written call option or put may be covered by entering into an
offsetting forward contract and/or by purchasing an offsetting option or any
other option which, by virtue of its exercise price or otherwise, reduces the
fund's net exposure on its written option position.
Writing Call and Put Options on Securities Indices. The fund may also write
(sell) covered call and put options on any securities index composed of
securities in which it may invest. Options on securities indices are similar to
options on securities, except that the exercise of securities index options
requires cash payments and does not involve the actual purchase or sale of
securities. In addition, securities index options are designed to reflect price
fluctuations in a group of securities or segments of the securities market
rather than price fluctuations in a single security.
The fund may cover call options on a securities index by owning securities whose
price changes are expected to be similar to those of the underlying index, or by
having an absolute and immediate right to acquire such securities without
additional cash consideration (or for additional consideration if cash in such
amount is segregated) upon conversion or exchange of other securities in its
portfolio. The fund may cover call and put options on a securities index by
segregating assets with a value equal to the exercise price.
Purchasing Call and Put Options. The fund would normally purchase call options
in anticipation of an increase in the market value of securities of the type in
which it may invest. The purchase of a call option would entitle the fund, in
return for the premium paid, to purchase specified securities at a specified
price during the option period. The fund would ordinarily realize a gain if,
during the option period, the value of such securities exceeded the sum of the
exercise price, the premium paid and transaction costs; otherwise the fund would
realize either no gain or a loss on the purchase of the call option.
The fund would normally purchase put options in anticipation of a decline in the
market value of securities in its portfolio ("protective puts") or in securities
in which it may invest. The purchase of a put option would entitle the fund, in
exchange for the premium paid, to sell specified securities at a specified price
during the option period. The purchase of protective puts is designed to offset
or hedge against a decline in the market value of the fund's securities. Put
options may also be purchased by the fund for the purpose of affirmatively
benefiting from a decline in the price of securities which it does not own. The
fund would
-13-
ordinarily realize a gain if, during the option period, the value of the
underlying securities decreased below the exercise price sufficiently to more
than cover the premium and transaction costs; otherwise the fund would realize
either no gain or a loss on the purchase of the put option. Gains and losses on
the purchase of protective put options would tend to be offset by countervailing
changes in the value of the underlying portfolio securities.
The fund may terminate its obligations under an exchange-traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."
Risks of Trading Options. There is no assurance that a liquid secondary market
on an options exchange will exist for any particular exchange-traded option, or
at any particular time. If the fund is unable to effect a closing purchase
transaction with respect to covered options it has written, the fund will not be
able to sell the underlying securities or dispose of its segregated assets until
the options expire or are exercised. Similarly, if the fund is unable to effect
a closing sale transaction with respect to options it has purchased, it will
have to exercise the options in order to realize any profit and will incur
transaction costs upon the purchase or sale of underlying securities.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening or closing
transactions or both; (iii) trading halts, suspensions or other restrictions may
be imposed with respect to particular classes or series of options; (iv) unusual
or unforeseen circumstances may interrupt normal operations on an exchange; (v)
the facilities of an exchange or the Options Clearing Corporation (the "OCC")
may not at all times be adequate to handle current trading volume; or (vi) one
or more exchanges could, for economic or other reasons, decide or be compelled
at some future date to discontinue the trading of options (or a particular class
or series of options), in which event the secondary market on that exchange (or
in that class or series of options) would cease to exist, although outstanding
options on that exchange, if any, that had been issued by the OCC as a result of
trades on that exchange would continue to be exercisable in accordance with
their terms.
The fund may purchase and sell both options that are traded on U.S. and non-U.S.
exchanges and options traded over the counter with broker-dealers who make
markets in these options. The ability to terminate over-the-counter options is
more limited than with exchange-traded options and may involve the risk that
broker-dealers participating in such transactions will not fulfill their
obligations. Until such time as the staff of the SEC changes its position, the
fund will treat purchased over-the-counter options and all assets used to cover
written over-the-counter options as illiquid securities, except that with
respect to options written with primary dealers in U.S. government securities
pursuant to an agreement requiring a closing purchase transaction at a formula
price, the amount of illiquid securities may be calculated with reference to the
formula.
Transactions by the fund in options on securities and indices will be subject to
limitations established by each of the exchanges, boards of trade or other
trading facilities governing the maximum number of options in each class which
may be written or purchased by a single investor or group of investors acting in
concert. Thus, the number of options which the fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
Pioneer. An exchange, board of trade or other trading facility may order the
liquidations of positions found to be in excess of these limits, and it may
impose certain other sanctions.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of protective
puts for hedging purposes depends in part on Pioneer's ability to predict future
price fluctuations and the degree of correlation between the options and
securities markets.
The hours of trading for options may not conform to the hours during which the
underlying securities are traded. To the extent that the options markets close
before the markets for the underlying securities,
-14-
significant price movements can take place in the underlying markets that cannot
be reflected in the options markets.
In addition to the risks of imperfect correlation between the fund's portfolio
and the index underlying the option, the purchase of securities index options
involves the risk that the premium and transaction costs paid by the fund in
purchasing an option will be lost. This could occur as a result of unanticipated
movements in the price of the securities comprising the securities index on
which the option is based.
Futures Contracts and Options on Futures Contracts
To hedge against changes in securities prices or currency exchange rates or to
seek to increase total return, the fund may purchase and sell various kinds of
futures contracts, and purchase and write (sell) call and put options on any of
such futures contracts. The fund may also enter into closing purchase and sale
transactions with respect to any of such contracts and options. The futures
contracts may be based on various securities (such as U.S. government
securities), securities indices, foreign currencies and other financial
instruments and indices. The fund will engage in futures and related options
transactions for bona fide hedging and non-hedging purposes as described below.
All futures contracts entered into by the fund are traded on U.S. exchanges or
boards of trade that are licensed and regulated by the Commodity Futures Trading
Commission (the "CFTC") or on non-U.S. exchanges.
Futures Contracts. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments for an
agreed price during a designated month (or to deliver the final cash settlement
price, in the case of a contract relating to an index or otherwise not calling
for physical delivery at the end of trading in the contract).
When interest rates are rising or securities prices are falling, the fund can
seek to offset a decline in the value of its current portfolio securities
through the sale of futures contracts. When interest rates are falling or
securities prices are rising, the fund, through the purchase of futures
contracts, can attempt to secure better rates or prices than might later be
available in the market when it effects anticipated purchases. Similarly, the
fund can sell futures contracts on a specified currency to protect against a
decline in the value of such currency and a decline in the value of its
portfolio securities which are denominated in such currency. The fund can
purchase futures contracts on a foreign currency to establish the price in U.S.
dollars of a security denominated in such currency that the fund has acquired or
expects to acquire.
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities or currency will usually be
liquidated in this manner, the fund may instead make, or take, delivery of the
underlying securities or currency whenever it appears economically advantageous
to do so. A clearing corporation associated with the exchange on which futures
on securities or currency are traded guarantees that, if still open, the sale or
purchase will be performed on the settlement date.
Hedging Strategies. Hedging, by use of futures contracts, seeks to establish
with more certainty the effective price, rate of return and currency exchange
rate on portfolio securities and securities that the fund owns or proposes to
acquire. The fund may, for example, take a "short" position in the futures
market by selling futures contracts in order to hedge against an anticipated
rise in interest rates or a decline in market prices or foreign currency rates
that would adversely affect the value of the fund's portfolio securities. Such
futures contracts may include contracts for the future delivery of securities
held by the fund or securities with characteristics similar to those of the
fund's portfolio securities. Similarly, the fund may sell futures contracts in a
foreign currency in which its portfolio securities are denominated or in one
currency to hedge against fluctuations in the value of securities denominated in
a different currency if there is an established historical pattern of
correlation between the two currencies. If, in the opinion of Pioneer, there is
a sufficient degree of correlation between price trends for the fund's portfolio
securities and futures contracts based on other financial instruments,
securities indices or other indices, the fund may also enter into such futures
contracts as part of its hedging strategies. Although under some circumstances
prices of securities in the fund's portfolio may be more or less volatile than
prices of such futures contracts, Pioneer will attempt to estimate the extent of
this volatility difference based on historical patterns and compensate for any
such
-15-
differential by having the fund enter into a greater or lesser number of futures
contracts or by attempting to achieve only a partial hedge against price changes
affecting the fund's portfolio securities. When hedging of this character is
successful, any depreciation in the value of portfolio securities will be
substantially offset by appreciation in the value of the futures position. On
the other hand, any unanticipated appreciation in the value of the fund's
portfolio securities would be substantially offset by a decline in the value of
the futures position.
On other occasions, the fund may take a "long" position by purchasing futures
contracts. This may be done, for example, when the fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices or rates that are currently available.
Options on Futures Contracts. The acquisition of put and call options on futures
contracts will give the fund the right (but not the obligation) for a specified
price to sell or to purchase, respectively, the underlying futures contract at
any time during the option period. As the purchaser of an option on a futures
contract, the fund obtains the benefit of the futures position if prices move in
a favorable direction but limits its risk of loss in the event of an unfavorable
price movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of the fund's assets. By writing a call
option, the fund becomes obligated, in exchange for the premium, to sell a
futures contract (if the option is exercised), which may have a value higher
than the exercise price. Conversely, the writing of a put option on a futures
contract generates a premium which may partially offset an increase in the price
of securities that the fund intends to purchase. However, the fund becomes
obligated to purchase a futures contract (if the option is exercised) which may
have a value lower than the exercise price. Thus, the loss incurred by the fund
in writing options on futures is potentially unlimited and may exceed the amount
of the premium received. The fund will incur transaction costs in connection
with the writing of options on futures.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option on the same series. There
is no guarantee that such closing transactions can be effected. The fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
Other Considerations. The fund will engage in futures and related options
transactions in accordance with CFTC regulations which permit principals of an
investment company registered under the 1940 Act to engage in such transactions
without registering as commodity pool operators.
The fund will engage in transactions in futures contracts and related options
only to the extent such transactions are consistent with the requirements of the
Code for maintaining its qualification as a regulated investment company for
U.S. federal income tax purposes.
Futures contracts and related options involve brokerage costs, require margin
deposits and, in the case of contracts and options obligating the fund to
purchase securities or currencies, require the fund to segregate assets to cover
such contracts and options.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
while the fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates, securities prices or currency exchange
rates may result in a poorer overall performance for the fund than if it had not
entered into any futures contracts or options transactions. In the event of an
imperfect correlation between a futures position and a portfolio position which
is intended to be protected, the desired protection may not be obtained and the
fund may be exposed to risk of loss. It is not possible to hedge fully or
perfectly against the effect of currency fluctuations on the value of non-U.S.
securities because currency movements impact the value of different securities
in differing degrees.
-16-
Equity Swaps, Caps, Floors and Collars
The fund may enter into equity swaps, caps, floors and collars to hedge assets
or liabilities or to seek to increase total return. Equity swaps involve the
exchange by a fund with another party of their respective commitments to make or
receive payments based on notional equity securities. The purchase of an equity
cap entitles the purchaser, to the extent that the market value of a specified
equity security or benchmark exceeds a predetermined level, to receive payments
of a contractually-based amount from the party selling the cap. The purchase of
an equity floor entitles the purchaser, to the extent that the market value of a
specified equity security or benchmark falls below a predetermined level, to
receive payments of a contractually-based amount from the party selling the
floor. A collar is a combination of a cap and a floor that preserves a certain
return within a predetermined range of values. Investments in swaps, caps,
floors and collars are highly specialized activities which involve investment
techniques and risks different from those associated with ordinary portfolio
transactions. Investments in equity swaps, caps, floors and collars may be
considered speculative because they involve significant risk of loss. If Pioneer
is incorrect in its forecast of market values, these investments could
negatively impact the fund's performance. These investments also are subject to
default risk of the counterparty and may be less liquid than other portfolio
securities. Moreover, investments in swaps, caps, floors and collars may involve
greater transaction costs than investments in other equity securities.
Warrants and Stock Purchase Rights
The fund may invest in warrants, which are securities permitting, but not
obligating, their holder to subscribe for other securities. Warrants do not
carry with them the right to dividends or voting rights with respect to the
securities that they entitle their holders to purchase, and they do not
represent any rights in the assets of the issuer.
The fund may also invest in stock purchase rights. Stock purchase rights are
instruments, frequently distributed to an issuer's shareholders as a dividend,
that entitle the holder to purchase a specific number of shares of common stock
on a specific date or during a specific period of time. The exercise price on
the rights is normally at a discount from market value of the common stock at
the time of distribution. The rights do not carry with them the right to
dividends or to vote and may or may not be transferable. Stock purchase rights
are frequently used outside of the United States as a means of raising
additional capital from an issuer's current shareholders.
As a result, an investment in warrants or stock purchase rights may be
considered more speculative than certain other types of investments. In
addition, the value of a warrant or a stock purchase right does not necessarily
change with the value of the underlying securities, and warrants and stock
purchase rights expire worthless if they are not exercised on or prior to their
expiration date.
Preferred Shares
The fund may invest in preferred shares of beneficial interest of trust
instruments. Preferred shares are equity securities, but they have many
characteristics of fixed income securities, such as a fixed dividend payment
rate and/or a liquidity preference over the issuer's common shares. However,
because preferred shares are equity securities, they may be more susceptible to
risks traditionally associated with equity investments than the fund's fixed
income securities.
Lending of Portfolio Securities
The fund may lend portfolio securities to registered broker-dealers or other
institutional investors deemed by Pioneer to be of good standing under
agreements which require that the loans be secured continuously by collateral in
cash, cash equivalents or U.S. Treasury bills maintained on a current basis at
an amount at least equal to the market value of the securities loaned. The fund
continues to receive the equivalent of the interest or dividends paid by the
issuer on the securities loaned as well as the benefit of an increase and the
detriment of any decrease in the market value of the securities loaned and would
also receive compensation based on investment of the collateral. The fund may
pay administrative and custodial fees in connection
-17-
with loans of securities and may pay a portion of the income or fee earned
thereon to the borrower, lending agent or other intermediary. The fund would
not, however, have the right to vote any securities having voting rights during
the existence of the loan, but would call the loan in anticipation of an
important vote to be taken among holders of the securities or of the giving or
withholding of consent on a material matter affecting the investment.
As with other extensions of credit, there are risks of delay in recovery or even
loss of rights in the collateral should the borrower of the securities fail
financially. The fund will lend portfolio securities only to firms that have
been approved in advance by the Board of Trustees, which will monitor the
creditworthiness of any such firms. At no time would the value of the securities
loaned exceed 33 1/3% of the value of the fund's total assets.
Market Segments
The fund may not "concentrate" its assets in securities of companies in a
particular industry. The fund would be concentrating if it invested more than
25% of its assets in the securities of issuers within the same industry. At
times, more than 25% of the fund's assets may be invested in the same market
segment, such as financials or technology. To the extent that the fund
emphasizes its investments in a market segment, the fund may be subject to a
greater degree to the risks particular to such segment and experience greater
market fluctuation than a fund without the same exposure to those industries.
For example, the industries in the financial segment are subject to extensive
government regulation and can be significantly affected by availability and cost
of capital funds, changes in competition among industries in the segment,
changes in interest rates, and the rate of corporate and consumer debt defaults.
The industries in the technology segment can be significantly affected by
rapidly evolving technology, short product lives, rates of corporate
expenditures, falling prices and profits, competition from new market entrants,
and general economic conditions.
Fundamental Investment Restrictions
The fund has adopted certain fundamental investment restrictions which, along
with the fund's investment objective, may not be changed without the affirmative
vote of the holders of a "majority of the outstanding voting securities" (as
defined in the 1940 Act) of the fund. Statements in italics are not part of the
restriction. For this purpose, a majority of the outstanding shares of the fund
means the vote of the lesser of:
(i) 67% or more of the shares represented at a meeting, if the holders of more
than 50% of the outstanding shares are present in person or by proxy, or
(ii) more than 50% of the outstanding shares of the fund.
The fund may not:
(1) Issue senior securities, except to the extent permitted by applicable law,
as amended and interpreted or modified from time to time by any regulatory
authority having jurisdiction. Senior securities that the fund may issue in
accordance with the 1940 Act include borrowing, futures, when-issued and delayed
delivery securities and forward foreign currency exchange transactions.
(2) Borrow money, except on a temporary basis and to the extent permitted by
applicable law, as amended and interpreted or modified from time to time by any
regulatory authority having jurisdiction. Under current regulatory requirements,
the fund may: (a) borrow from banks or through reverse repurchase agreements in
an amount up to 33 1/3% of the fund's total assets (including the amount
borrowed); (b) borrow up to an additional 5% of the fund's assets for temporary
purposes; (c) obtain such short-term credits as are necessary for the clearance
of portfolio transactions; (d) purchase securities on margin to the extent
permitted by applicable law; and (e) engage in transactions in mortgage dollar
rolls that are accounted for as financings.
-18-
(3) Invest in real estate, except (a) that the fund may invest in securities of
issuers that invest in real estate or interests therein, securities that are
secured by real estate or interests therein, securities of real estate
investment trusts, mortgage-backed securities and other securities that
represent a similar indirect interest in real estate; and (b) the fund may
acquire real estate or interests therein through exercising rights or remedies
with regard to an instrument or security.
(4) Make loans, except that the fund may (i) lend portfolio securities in
accordance with the fund's investment policies, (ii) enter into repurchase
agreements, (iii) purchase all or a portion of an issue of publicly distributed
debt securities, bank loan participation interests, bank certificates of
deposit, bankers' acceptances, debentures or other securities, whether or not
the purchase is made upon the original issuance of the securities, (iv)
participate in a credit facility whereby the fund may directly lend to and
borrow money from other affiliated funds to the extent permitted under the 1940
Act or an exemption therefrom, and (v) make loans in any other manner consistent
with applicable law, as amended and interpreted or modified from time to time by
any regulatory authority having jurisdiction.
(5) Invest in commodities or commodity contracts, except that the fund may
invest in currency instruments and currency contracts and financial instruments
and financial contracts that might be deemed to be commodities and commodity
contracts in accordance with applicable law. A futures contract, for example,
may be deemed to be a commodity contract.
(6) Make any investment inconsistent with its classification as a diversified
open-end investment company (or series thereof) under the 1940 Act. Currently,
diversification means that, with respect to 75% of its total assets, the fund
may not purchase securities of an issuer (other than the U.S. government, its
agencies or instrumentalities and securities of investment companies), if
(a) such purchase would cause more than 5% of the fund's total assets,
taken at market value, to be invested in the securities of such issuer, or
(b) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the fund.
(7) Act as an underwriter, except insofar as the fund technically may be deemed
to be an underwriter in connection with the purchase or sale of its portfolio
securities.
(8) Concentrate its investments in securities of companies in any particular
industry. In the opinion of the SEC, investments are concentrated in a
particular industry if such investments aggregate 25% or more of the fund's
total assets. When identifying industries for purposes of its concentration
policy, the fund will rely upon available industry classifications. The fund's
policy does not apply to investments in U.S. government securities.
Non-Fundamental Investment Restrictions
The following restrictions have been designated as non-fundamental and may be
changed by a vote of the fund's Board of Trustees without approval of
shareholders.
(1) The fund will not purchase securities during the current fiscal year at any
time that outstanding borrowings exceed 5% of the fund's total assets.
(2) The fund may not engage in short sales, except short sales against the box.
(3) The fund will not invest in any investment company in reliance on Section
12(d)(1)(F) of the 1940 Act, which would allow the fund to invest in other
Pioneer Funds, or Section 12(d)(1)(G) of the 1940 Act, which would allow the
fund to invest in other investment companies, , in each case without being
subject to the limitations discussed above under "Other Investment Companies" so
long as another investment company invests in the fund in reliance on Section
12(d)(1)(G), such as one of the series of Pioneer Asset Allocation Trust.
-19-
(4) The fund does not invest in companies for the purposes of exercising control
or management
MANAGEMENT OF THE FUND
The fund's Board of Trustees provides broad supervision over the fund's affairs.
The officers of the fund are responsible for the fund's operations. The fund's
Trustees and officers are listed below, together with their principal
occupations during the past five years. Trustees who are interested persons of
the fund within the meaning of the 1940 Act are referred to as Interested
Trustees. Trustees who are not interested persons of the fund are referred to as
Independent Trustees. Each of the Trustees serves as a trustee of each of the 65
U.S. registered investment portfolios for which Pioneer serves as investment
adviser (the "Pioneer Funds"). The address for all Interested Trustees and all
officers of the fund is 60 State Street, Boston, Massachusetts 02109.
- --------------------------------------------------------------------------------------------------------------------------
Term of Office
Name, Age and Position Held and Length of Principal Occupation During Past Other Directorships Held by
Address With the Fund Service Five Years this Trustee
- --------------------------------------------------------------------------------------------------------------------------
Interested Trustees:
- --------------------------------------------------------------------------------------------------------------------------
John F. Cogan, Chairman of the Trustee since Deputy Chairman and a Director Director of Harbor Global
Jr. (78)* Board, Trustee 2003. Serves of Pioneer Global Asset Company, Ltd.
and President until a Management S.p.A. ("PGAM");
successor Non-Executive Chairman and a
trustee is Director of Pioneer Investment
elected or Management USA Inc. ("PIM-USA");
earlier Chairman and a Director of
retirement or Pioneer; Director of Pioneer
removal. Alternative Investment
Management Limited
(Dublin); President
and a Director of
Pioneer Alternative
Investment Management
(Bermuda) Limited and
affiliated funds;
President and Director
of Pioneer Funds
Distributor, Inc.
("PFD"); President of
all of the Pioneer
Funds; and Of Counsel
(since 2000, partner
prior to 2000), Wilmer
Cutler Pickering Hale
and Dorr LLP (counsel
to PIM-USA and the
Pioneer Funds)
- --------------------------------------------------------------------------------------------------------------------------
-20-
- --------------------------------------------------------------------------------------------------------------------------
Osbert M. Hood Trustee and Trustee since President and Chief Executive None
(52)* Executive Vice 2003. Serves Officer, PIM-USA since May, 2003
President until a (Director since January, 2001);
successor President and Director of
trustee is Pioneer since May, 2003;
elected or Chairman and Director of Pioneer
earlier Investment Management
retirement or Shareholder Services, Inc.
removal. ("PIMSS") since May, 2003;
Executive Vice
President of all of
the Pioneer Funds
since June 3, 2003;
Executive Vice
President and Chief
Operating Officer of
PIM-USA, November
2000-May 2003;
Executive Vice
President, Chief
Financial Officer and
Treasurer, John
Hancock Advisers, LLC,
Boston, MA, November
1999-November 2000;
Senior Vice President
and Chief Financial
Officer, John Hancock
Advisers, LLC, April
1997-November 1999
- --------------------------------------------------------------------------------------------------------------------------
Independent Trustees:
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Mary K. Bush (56) Trustee Trustee since President, Bush International Director of Brady
3509 Woodbine Street, 2003. Serves (international financial Corporation (industrial
Chevy Chase, MD 20815 until a advisory firm) identification and
successor specialty coated material
trustee is products manufacturer),
elected or Millennium Chemicals, Inc.
earlier (commodity chemicals),
retirement or Mortgage Guaranty Insurance
removal. Corporation and R.J.
Reynolds Tobacco Holdings,
Inc. (tobacco)
- --------------------------------------------------------------------------------------------------------------------------
Richard H. Egdahl, Trustee Trustee since Alexander Graham Bell Professor None
M.D. (77) 2003. Serves of Health Care Entrepreneurship,
Boston University until a Boston University; Professor of
Healthcare successor Management, Boston University
Entrepreneurship trustee is School of Management; Professor
Program, 53 Bay State elected or of Public Health, Boston
Road, Boston, MA 02215 earlier University School of Public
retirement or Health; Professor of Surgery,
removal. Boston University School of
Medicine; and University
Professor, Boston University
- --------------------------------------------------------------------------------------------------------------------------
-21-
- --------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham Trustee Trustee since Founding Director, The Winthrop None
(57) 2003. Serves Group, Inc. (consulting firm);
1001 Sherbrooke Street until a Professor of Management, Faculty
West, Montreal, successor of Management, McGill University
Quebec, Canada trustee is
elected or
earlier
retirement or
removal.
- --------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret Trustee Trustee since President and Chief Executive None
(56) 2003. Serves Officer, Newbury, Piret &
One Boston Place, 28th until a Company, Inc. (investment
Floor, Boston, MA 02108 successor banking firm)
trustee is
elected or
earlier
retirement or
removal.
- --------------------------------------------------------------------------------------------------------------------------
Stephen K. West (75) Trustee Trustee since Senior Counsel, Sullivan & Director, The Swiss
125 Broad Street, New 2003. Serves Cromwell (law firm) Helvetia Fund, Inc.
York, NY 10004 until a (closed-end investment
successor company) and AMVESCAP PLC
trustee is (investment managers)
elected or
earlier
retirement or
removal.
- --------------------------------------------------------------------------------------------------------------------------
John Winthrop (68) Trustee Trustee since President, John Winthrop & Co., None
One North Adgers 2003. Serves Inc. (private investment firm)
Wharf, Charleston, SC until a
29401 successor
trustee is
elected or
earlier
retirement or
removal.
- --------------------------------------------------------------------------------------------------------------------------
-22-
Fund Officers:
- --------------------------------------------------------------------------------------------------------------------------
Other Directorships Held by
this Officer
- --------------------------------------------------------------------------------------------------------------------------
Dorothy E. Secretary Since 2003. Secretary of PIM-USA; Senior None
Bourassa (56) Serves at the Vice President - Legal of
discretion of Pioneer; and Secretary/Clerk of
Board most of PIM-USA's subsidiaries
since October 2000;
Assistant Secretary of
all of the Pioneer
Funds since November
2000; Senior Counsel,
Assistant Vice
President and Director
of Compliance of
PIM-USA from April
1998 through October
2000
- --------------------------------------------------------------------------------------------------------------------------
Christopher J. Assistant Since 2003. Assistant Vice President and None
Kelley (39) Secretary Serves at the Senior Counsel of Pioneer since
discretion of July 2002; Vice President and
Board Senior Counsel of BISYS Fund
Services, Inc. (April 2001 to
June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor,
Inc. (July 2000 to April 2001;
Vice President and Associate
General Counsel from July 1996
to July 2000); Assistant
Secretary of all Pioneer Funds
since September 2003
- --------------------------------------------------------------------------------------------------------------------------
David C. Phelan Assistant Since 2003. Partner, Wilmer Cutler Pickering None
(46) Secretary Serves at the Hale and Dorr LLP; Assistant
discretion of Secretary of all Pioneer Funds
the Board since September 2003
- --------------------------------------------------------------------------------------------------------------------------
Vincent Nave (59) Treasurer Since 2003. Vice President-Fund Accounting, None
Serves at the Administration and Custody
discretion of Services of Pioneer (Manager
Board from September 1996 to February
1999); and Treasurer of all of
the Pioneer Funds (Assistant
Treasurer from June 1999 to
November 2000)
- --------------------------------------------------------------------------------------------------------------------------
Luis I. Presutti Assistant Since 2003. Assistant Vice President-Fund None
(39) Treasurer Serves at the Accounting, Administration and
discretion of Custody Services of Pioneer
Board (Fund Accounting Manager from
1994 to 1999); and Assistant
Treasurer of all of the Pioneer
Funds since November 2000
- --------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (46) Assistant Since 2003. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of Custody Services of Pioneer; and
Board Assistant Treasurer of all of
the Pioneer Funds since May 2002
- --------------------------------------------------------------------------------------------------------------------------
-23-
Katharine Kim Assistant Since 2003. Fund Accounting Manager - Fund None
Sullivan (30) Treasurer Serves at the Accounting, Administration and
discretion of Custody Services of Pioneer; and
the Board Assistant Treasurer of all of
the Pioneer Funds since May 2002
- --------------------------------------------------------------------------------------------------------------------------
*Mr. Cogan and Mr. Hood are Interested Trustees because each is an officer or
director of the fund's investment adviser and certain of its affiliates.
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly
owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. Pioneer, the fund's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
Board Committees
Because the Trust is newly organized the Board of Trustees of Pioneer Series
Trust II attended one meeting during the most recent fiscal year.
The Board of Trustees has an Audit Committee, a Nominating Committee, a
Valuation Committee, an Independent Trustees Committee and a Policy
Administration Committee. Committee members are as follows:
Audit
- -----
Marguerite A. Piret (Chair), Margaret B.W. Graham and John Winthrop
Independent Trustees
- --------------------
Mary K. Bush, Richard H. Egdahl, Margaret B.W. Graham (Chair), Marguerite A.
Piret, Stephen K. West and John Winthrop
Nominating
- ----------
Mary K. Bush, Richard H. Egdahl (Chair) and Marguerite A. Piret
Valuation
- ---------
Marguerite A. Piret (Chair), Stephen K. West and John Winthrop
Policy Administration
- ---------------------
Mary K. Bush (Chair), Richard H. Egdahl and Margaret B.W. Graham
During the most recent fiscal year, the Audit, Nominating, Valuation,
Independent Trustees and Policy Administration Committees did not hold any
meetings, because the Trust is newly organized.
The Board of Trustees has adopted a charter for the Audit Committee. In
accordance with its charter, the purposes of the Audit Committee are to:
|X| act as a liaison between the fund's independent auditors and the full Board
of Trustees of the fund;
|X| discuss with the fund's independent auditors their judgments about the
quality of the fund's accounting principles and underlying estimates as
applied in the fund's financial reporting;
|X| review and assess the renewal materials of all related party contracts and
agreements, including management advisory agreements, underwriting
contracts, administration agreements, distribution contracts, and transfer
agency contracts, among any other instruments and agreements that may be
appropriate from time to time;
-24-
|X| review and approve insurance coverage and allocations of premiums between
the management and the fund and among the Pioneer Funds;
|X| review and approve expenses under the administration agreement between
Pioneer and the fund and allocations of such expenses among the Pioneer
Funds; and
|X| receive on a periodic basis a formal written statement delineating all
relationships between the auditors and the fund or Pioneer; to actively
engage in a dialogue with the independent auditors with respect to any
disclosed relationships or services that may impact the objectivity and
independence of the independent auditors; and to recommend that the
Trustees take appropriate action in response to the independent auditors'
report to satisfy itself of the independent auditors' independence.
The Nominating Committee reviews the qualifications of any candidate recommended
by the Independent Trustees to serve as an Independent Trustee and makes a
recommendation regarding that person's qualifications. The Committee does not
accept nominations from shareholders.
The Valuation Committee reviews the valuation assigned to certain securities by
Pioneer in accordance with the fund's valuation procedures.
The Policy Administration Committee reviews the implementation of certain of the
fund's administrative policies and procedures.
The Independent Trustees Committee reviews the fund's management contract and
other related party contracts annually and is also responsible for any other
action required to be taken, under the 1940 Act, by the Independent Trustees
acting alone.
During the most recent fiscal year, the Audit, Nominating, Valuation,
Independent Trustees and Policy Administration Committees did not hold any
meetings, because the Trust is newly organized.
The fund's Declaration of Trust provides that the fund will indemnify the
Trustees and officers against liabilities and expenses incurred in connection
with any litigation in which they may be involved because of their offices with
the fund, unless it is determined in the manner specified in the Declaration of
Trust that they have not acted in good faith in the reasonable belief that their
actions were in the best interests of the fund or that such indemnification
would relieve any officer or Trustee of any liability to the fund or its
shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his or her duties.
Compensation of Officers and Trustees
The fund pays no salaries or compensation to any of its officers. The Pioneer
Funds, including the fund, compensate their trustees. The Independent Trustees
review and set their compensation annually, taking into consideration the
committee and other responsibilities assigned to specific trustees. The table
under "Annual Fees, Expense and Other Information-Compensation of Officer and
Trustees" sets forth the compensation paid to each of the Trustees. The
compensation paid to the Trustees is then allocated among the funds as follows:
o each fund with assets less than $250 million pays each Trustee who is not
affiliated with PIM-USA, Pioneer, PFD, PIMSS or UniCredito Italiano (i.e.,
Independent Trustees) an annual fee of $1,000.
o the remaining compensation of the Independent Trustees is allocated to each
fund with assets greater than $250 million based on the fund's net assets.
o the Interested Trustees receive an annual fee of $500 from each fund,
except in the case of funds with net assets of $50 million or less, which
pay each Interested Trustee an annual fee of $200. Pioneer reimburses the
funds for the fees paid to the Interested Trustees.
See "Compensation of Officers and Trustees" in Annual Fee, Expense and Other
Information.
-25-
Sales Loads. The fund offers its shares to Trustees and officers of the fund and
employees of Pioneer and its affiliates without a sales charge in order to
encourage investment in the fund by individuals who are responsible for its
management and because the sales to such persons do not entail any sales effort
by the fund, brokers or other intermediaries.
Other Information
Material Relationships of the Independent Trustees. For purposes of the
statements below:
o the immediate family members of any person are their spouse, children
in the person's household (including step and adoptive children) and
any dependent of the person.
o an entity in a control relationship means any person who controls, is
controlled by or is under common control with the named person. For
example, UniCredito Italiano is an entity that is in a control
relationship with Pioneer.
o a related fund is a registered investment company or an entity exempt
from the definition of an investment company pursuant to Sections
3(c)(1) or 3(c)(7) of the 1940 Act, for which Pioneer or any of its
affiliates act as investment adviser or for which PFD or any of its
affiliates act as principal underwriter. For example, the fund's
related funds include all of the Pioneer Funds and any non-U.S. funds
managed by Pioneer or its affiliates.
As of December 31, 2003, none of the Independent Trustees, nor any of their
immediate family members, beneficially owned any securities issued by Pioneer,
UniCredito Italiano or any other entity in a control relationship to Pioneer or
PFD. During the calendar years 2002 and 2003, none of the Independent Trustees,
nor any of their immediate family members, had any direct or indirect interest
(the value of which exceeded $60,000), whether by contract, arrangement or
otherwise, in Pioneer, UniCredito Italiano, or any other entity in a control
relationship to Pioneer or PFD. During the calendar years 2002 and 2003, none of
the Independent Trustees, nor any of their immediate family members, had an
interest in a transaction or a series of transactions in which the aggregate
amount involved exceeded $60,000 and to which any of the following were a party
(each a "fund related party"):
o the fund
o an officer of the fund
o a related fund
o an officer of any related fund
o Pioneer
o PFD
o an officer of Pioneer or PFD
o any affiliate of Pioneer or PFD
o an officer of any such affiliate
During the calendar years 2002 and 2003, none of the Independent Trustees, nor
any of their immediate family members, had any relationship (the value of which
exceeded $60,000) with any fund related party, including, but not limited to,
relationships arising out of (i) the payment for property and services, (ii) the
provision of legal services, (iii) the provision of investment banking services
(other than as a member of the underwriting syndicate) or (iv) the provision of
consulting services, except that Mr. West, an Independent Trustee, is Senior
Counsel to Sullivan & Cromwell and acts as counsel to the Independent Trustees
and the Independent Trustees of the other Pioneer Funds. The aggregate
compensation paid to Sullivan & Cromwell by the fund and the other Pioneer Funds
was approximately $53,000 and $126,603 in 2002 and 2003, respectively.
-26-
During the calendar years 2002 and 2003, none of the Independent Trustees, nor
any of their immediate family members, served as a member of a board of
directors on which an officer of any of the following entities also serves as a
director:
o Pioneer
o PFD
o UniCredito Italiano
o any other entity in a control relationship with Pioneer or PFD
None of the fund's Trustees or officers has any arrangement with any other
person pursuant to which that Trustee or officer serves on the Board of
Trustees. During the calendar years 2002 and 2003, none of the Independent
Trustees, nor any of their immediate family members, had any position, including
as an officer, employee, director or partner, with any of the following:
o the fund
o any related fund
o Pioneer
o PFD
o any affiliated person of the fund, Pioneer or PFD
o UniCredito Italiano
o any other entity in a control relationship to the fund, Pioneer or PFD
Factors Considered by the Independent Trustees in Approving the Management
Contract. The 1940 Act requires that the fund's management contract be approved
annually by both the Board of Trustees and a majority of the Independent
Trustees voting separately. The Independent Trustees have determined that the
terms of the fund's management contract are fair and reasonable and that the
contract is in the fund's best interest. The Independent Trustees believe that
the management contract will enable the fund to enjoy high quality investment
advisory services at a cost they deem appropriate, reasonable and in the best
interests of the fund and its shareholders. In making such determinations, the
Independent Trustees met independently from the Interested Trustees of the fund
and any officers of Pioneer or its affiliates. The Independent Trustees also
relied upon the assistance of counsel to the Independent Trustees and counsel to
the fund.
In evaluating the management contract, the Independent Trustees reviewed
materials furnished by Pioneer, including information regarding Pioneer,
UniCredito Italiano, their respective affiliates and their personnel, operations
and financial condition. The Independent Trustees discussed with representatives
of Pioneer the fund's operations and Pioneer's ability to provide advisory and
other services to the fund. The Independent Trustees also reviewed:
o the investment performance of the fund and other Pioneer Funds with
similar investment strategies;
o the fee charged by Pioneer for investment advisory and administrative
services, as well as other compensation received by PFD and PIMSS;
o the fund's projected total operating expenses;
o the investment performance, fees and total expenses of investment
companies with similar objectives and strategies managed by other
investment advisers;
o the experience of the investment advisory and other personnel
providing services to the fund and the historical quality of the
services provided by Pioneer; and
o the profitability to Pioneer of managing the fund.
-27-
The Independent Trustees considered the following as relevant to their
recommendations: (1) the favorable history, reputation, qualification and
background of Pioneer and UniCredito Italiano, as well as the qualifications of
their personnel and their respective financial conditions; (2) that the fee and
expense ratios of the fund are reasonable given the quality of services expected
to be provided and are comparable to the fee and expense ratios of similar
investment companies; and (3) the relative performance of similar funds
management by Pioneer since commencement of operations to comparable investment
companies and unmanaged indices. The Independent Trustees deemed each of these
factors to be relevant to their consideration of the fund's management contract.
Share Ownership. See Annual Fee, Expense and Other Information for annual
information on the ownership of fund shares by the Trustees, the fund's officers
and owners in excess of 5% of any class of shares of the fund and a table
indicating the value of shares that each Trustee beneficially owns in the fund
and in all the Pioneer Funds.
Code of Ethics. The fund's Board of Trustees approved a code of ethics under
Rule 17j-1 under the 1940 Act that covers the fund, Pioneer and certain of
Pioneer's affiliates. The code of ethics establishes procedures for personal
investing and restricts certain transactions. Employees subject to the code of
ethics may invest in securities for their personal investment accounts,
including securities that may be purchased or held by the fund.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Not Applicable.
INVESTMENT ADVISORY AND OTHER SERVICES
The fund has contracted with Pioneer to act as its investment adviser. Pioneer
is an indirect, wholly owned subsidiary of UniCredito Italiano. Certain Trustees
or officers of the fund are also directors and/or officers of certain of
UniCredito Italiano's subsidiaries (see management biographies above). Pioneer
has entered into an agreement with its affiliate, Pioneer Investment Management
Limited ("PIML"), pursuant to which PIML provides certain services and personnel
to Pioneer.
As the fund's investment adviser, Pioneer provides the fund with investment
research, advice and supervision and furnishes an investment program for the
fund consistent with the fund's investment objective and policies, subject to
the supervision of the fund's Trustees. Pioneer determines what portfolio
securities will be purchased or sold, arranges for the placing of orders for the
purchase or sale of portfolio securities, selects brokers or dealers to place
those orders, maintains books and records with respect to the fund's securities
transactions, and reports to the Trustees on the fund's investments and
performance.
Under the terms of its management contract with the fund, Pioneer pays all the
operating expenses, including executive salaries and the rental of office space,
relating to its services for the fund, with the exception of the following,
which are paid by the fund: (a) charges and expenses for fund accounting,
pricing and appraisal services and related overhead, including, to the extent
such services are performed by personnel of Pioneer or its affiliates, office
space and facilities and personnel compensation, training and benefits; (b) the
charges and expenses of auditors; (c) the charges and expenses of any custodian,
transfer agent, plan agent, dividend disbursing agent and registrar appointed by
the fund; (d) issue and transfer taxes chargeable to the fund in connection with
securities transactions to which the fund is a party; (e) insurance premiums,
interest charges, dues and fees for membership in trade associations and all
taxes and corporate fees payable by the fund to federal, state or other
governmental agencies; (f) fees and expenses involved in registering and
maintaining registrations of the fund and/or its shares with federal regulatory
agencies, state or blue sky securities agencies and foreign jurisdictions,
including the preparation of prospectuses and statements of additional
information for filing with such regulatory authorities; (g) all expenses of
shareholders' and Trustees' meetings and of preparing, printing and distributing
prospectuses, notices, proxy statements and all reports to shareholders and to
governmental agencies; (h) charges and expenses of legal counsel to the fund and
the Trustees; (i) any distribution fees paid by the fund in accordance with Rule
12b-1 promulgated by the SEC pursuant to the 1940 Act; (j) compensation of those
Trustees of the
-28-
fund who are not affiliated with or interested persons of Pioneer, the fund
(other than as Trustees), PIM-USA or PFD; (k) the cost of preparing and printing
share certificates; (l) interest on borrowed money; if any, and (m) any other
expense that the fund, Pioneer or any other agent of the fund may incur (A) as a
result of a change in the law or regulations, (B) as a result of a mandate from
the Board of Trustees with associated costs of a character generally assumed by
similarly structured investment companies or (C) that is similar to the expenses
listed above, and that is approved by the Board of Trustees (including a
majority of the Independent Trustees) as being an appropriate expense of the
fund. In addition, the fund shall pay all brokers' and underwriting commissions
chargeable to the fund in connection with securities transactions to which the
fund is a party. The Trustees' approval of and the terms, continuance and
termination of the management contract are governed by the 1940 Act and the
Investment Advisers Act of 1940, as applicable. Pursuant to the management
contract, Pioneer will not be liable for any error of judgment or mistake of law
or for any loss sustained by reason of the adoption of any investment policy or
the purchase, sale or retention of any securities on the recommendation of
Pioneer. Pioneer, however, is not protected against liability by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
under the management contract.
Advisory Fee. As compensation for its management services and expenses incurred,
the fund pays Pioneer a fee at the annual rate of 0.70% of the fund's average
daily net assets up to $250 million, 0.65% of the next $500 million; 0.60% on
the next $500 million and 0.55% on assets over $1.25 billion. This fee is
computed and accrued daily and paid monthly.
Prior to August 1, 2004, Safeco Asset Management Company ("SAM") was the fund's
investment adviser. The investment advisory services of SAM were performed under
an investment advisory agreement, pursuant to which the fund paid SAM an annual
fee equal to 0.65% of the average daily net assets of the fund.
See the table in Annual Fee, Expense and Other Information for management fees
paid to Pioneer during recently completed fiscal years.
Expense Limit. Pioneer has agreed to waive all or part of its management fee or
to reimburse the fund for other expenses (other than extraordinary expenses) to
the extent the expenses of the fund's Class A shares exceed 1.30% of average
daily net assets. The portion of fund expenses (including the amount of the
management fee waived) attributable to other share class will be reduced only to
the extent such expenses were reduced for the fund's Class A shares. If Pioneer
waives any fee or reimburses any expenses, and the expenses of the fund's Class
A shares are subsequently less than 1.30% of average daily net assets, the fund
will reimburse Pioneer for such waived fees or reimbursed expenses provided that
such reimbursement does not cause the fund's Class A expenses to exceed 1.30% of
average daily net assets. Pioneer shall also be entitled to reimbursement of the
amount of expenses that it waived or reimbursed with regard to any other
authorized class of shares if the expense ratio of such other class is less than
the expense ratio for that class in effect at the time the expense was incurred.
In addition, the fund will not reimburse Pioneer for such waived fees or
reimbursed expenses more than three years after such fees were waived or such
expenses were incurred. Each class will reimburse Pioneer by no more than the
dollar amount by which that class' expenses were reduced. Any differences in the
fee waiver and limitation among classes result from rounding in the daily
calculation of a class' net assets and expense limit, which may exceed 0.01%
annually. Pioneer expects to continue its limitation of expenses and subsequent
reimbursement from the fund unless the expense limit and reimbursement agreement
with the fund is terminated pursuant to the terms of the expense limit and
reimbursement agreement. However, there can be no assurance that Pioneer will
extend the expense limitation beyond May 1, 2006. The fund may terminate the
expense limit and reimbursement agreement, including its obligation to reimburse
prior expenses, at any time.
Investor Class Shares Only. Through the second anniversary of the closing of the
reorganization of the predecessor Safeco fund into the fund, Pioneer has
contractually agreed not to impose all or a portion of its management and, if
necessary, to limit other ordinary operating expenses (excluding taxes,
commissions, interest and extraordinary expenses) to the extent required to
reduce Investor Class expenses to 1.05% of the average daily net assets
attributable to Investor Class shares. There can be no assurance that Pioneer
will extend the expense limitation beyond the two-year period.
-29-
Administration Agreement. The fund has entered into an administration agreement
with Pioneer pursuant to which certain accounting, administration and legal
services which are expenses payable by the fund under the management contract
are performed by Pioneer and pursuant to which Pioneer is reimbursed for its
costs of providing such services. The costs of these services is based on direct
costs and costs of overhead, subject to annual approval by the Board. See Annual
Fee, Expense and Other Information for fees the fund paid to Pioneer for
administration and related services.
Potential Conflict of Interest. The fund is managed by Pioneer which also serves
as investment adviser to other Pioneer mutual funds and other accounts with
investment objectives identical or similar to those of the fund. Securities
frequently meet the investment objectives of the fund, the other Pioneer mutual
funds and such other accounts. In such cases, the decision to recommend a
purchase to one fund or account rather than another is based on a number of
factors. The determining factors in most cases are the amount of securities of
the issuer then outstanding, the value of those securities and the market for
them. Other factors considered in the investment recommendations include other
investments which each fund or account presently has in a particular industry
and the availability of investment funds in each fund or account.
It is possible that at times identical securities will be held by more than one
fund and/or account. However, positions in the same issue may vary and the
length of time that any fund or account may choose to hold its investment in the
same issue may likewise vary. To the extent that more than one of the Pioneer
mutual funds or a private account managed by Pioneer seeks to acquire the same
security at about the same time, the fund may not be able to acquire as large a
position in such security as it desires or it may have to pay a higher price for
the security. Similarly, the fund may not be able to obtain as large an
execution of an order to sell or as high a price for any particular portfolio
security if Pioneer decides to sell on behalf of another account the same
portfolio security at the same time. On the other hand, if the same securities
are bought or sold at the same time by more than one fund or account, the
resulting participation in volume transactions could produce better executions
for the fund. In the event more than one account purchases or sells the same
security on a given date, the purchases and sales will normally be made as
nearly as practicable on a pro rata basis in proportion to the amounts desired
to be purchased or sold by each account. Although the other Pioneer mutual funds
may have the same or similar investment objectives and policies as the fund,
their portfolios do not generally consist of the same investments as the fund or
each other, and their performance results are likely to differ from those of the
fund.
Personal Securities Transactions. The fund, Pioneer, and PFD have adopted a code
of ethics under Rule 17j-1 under the 1940 Act which is applicable to officers,
trustees/directors and designated employees of Pioneer and PIML. The code
permits such persons to engage in personal securities transactions for their own
accounts, including securities that may be purchased or held by the fund, and is
designed to prescribe means reasonably necessary to prevent conflicts of
interest from arising in connection with personal securities transactions. The
code is on public file with and available from the SEC.
Shareholder Servicing / Transfer Agent
The fund has contracted with PIMSS, 60 State Street, Boston, Massachusetts
02109, to act as shareholder servicing and transfer agent for the fund.
Under the terms of its contract with the fund, PIMSS services shareholder
accounts, and its duties include: (i) processing sales, redemptions and
exchanges of shares of the fund; (ii) distributing dividends and capital gains
associated with the fund's portfolio; and (iii) maintaining account records and
responding to shareholder inquiries.
PIMSS receives an annual fee of $26.60 for each Class A, Class B, Class C and
Investor Class shareholder account from the fund as compensation for the
services described above. PIMSS is also reimbursed by the fund for its cash
out-of-pocket expenditures. The fund may compensate entities which have agreed
to provide certain sub-accounting services such as specific transaction
processing and recordkeeping services. Any such payments by the fund would be in
lieu of the per account fee which would otherwise be paid by the fund to PIMSS.
-30-
Cusdodian
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109, is
the custodian of the fund's assets. The custodian's responsibilities include
safekeeping and controlling the fund's cash and securities, handling the receipt
and delivery of securities, and collecting interest and dividends on the fund's
investments.
Independent Registered Public Accounting Firm
Ernst & Young LLP, the fund's independent registered public accounting firm,
provides audit services, tax return review, and assistance and consultation with
respect to the preparation of filings with the SEC.
BROKERAGE ALLOCATION AND OTHER PRACTICES
All orders for the purchase or sale of portfolio securities are placed on behalf
of the fund by Pioneer pursuant to authority contained in the fund's management
contract. Pioneer seeks to obtain the best execution on portfolio trades. The
price of securities and any commission rate paid are always factors, but
frequently not the only factors, in judging best execution. In selecting brokers
or dealers, Pioneer considers various relevant factors, including, but not
limited to, the size and type of the transaction; the nature and character of
the markets for the security to be purchased or sold; the execution efficiency,
settlement capability and financial condition of the dealer; the dealer's
execution services rendered on a continuing basis; and the reasonableness of any
dealer spreads. Transactions in non-U.S. equity securities are executed by
broker-dealers in non-U.S. countries in which commission rates may not be
negotiable (as such rates are in the U.S.).
Pioneer may select broker-dealers that provide brokerage and/or research
services to the fund and/or other investment companies or other accounts managed
by Pioneer over which it or its affiliates exercise investment discretion. In
addition, consistent with Section 28(e) of the Securities Exchange Act of 1934,
as amended, if Pioneer determines in good faith that the amount of commissions
charged by a broker-dealer is reasonable in relation to the value of the
brokerage and research services provided by such broker, the fund may pay
commissions to such broker-dealer in an amount greater than the amount another
firm may charge. Such services may include advice concerning the value of
securities; the advisability of investing in, purchasing or selling securities;
the availability of securities or the purchasers or sellers of securities;
providing stock quotation services, credit rating service information and
comparative fund statistics; furnishing analyses, electronic information
services, manuals and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and performance of accounts and
particular investment decisions; and effecting securities transactions and
performing functions incidental thereto (such as clearance and settlement).
Pioneer maintains a listing of broker-dealers who provide such services on a
regular basis. However, because many transactions on behalf of the fund and
other investment companies or accounts managed by Pioneer are placed with
broker-dealers (including broker-dealers on the listing) without regard to the
furnishing of such services, it is not possible to estimate the proportion of
such transactions directed to such dealers solely because such services were
provided. Pioneer believes that no exact dollar value can be calculated for such
services.
The research received from broker-dealers may be useful to Pioneer in rendering
investment management services to the fund as well as other investment companies
or other accounts managed by Pioneer, although not all such research may be
useful to the fund. Conversely, such information provided by brokers or dealers
who have executed transaction orders on behalf of such other accounts may be
useful to Pioneer in carrying out its obligations to the fund. The receipt of
such research has not reduced Pioneer's normal independent research activities;
however, it enables Pioneer to avoid the additional expenses which might
otherwise be incurred if it were to attempt to develop comparable information
through its own staff.
The Pioneer funds have entered into third-party brokerage and/or expense offset
arrangements to reduce the funds' total operating expenses. Pursuant to
third-party brokerage arrangements, certain of the funds that invest primarily
in U.S. equity securities may incur lower custody fees by directing brokerage to
third-party
-31-
broker-dealers. Pursuant to expense offset arrangements, the funds incur lower
transfer agency expenses by maintaining their cash balances with the custodian.
See "Financial highlights" in the prospectus.
See the table in Annual Fee, Expense and Other Information for aggregate
brokerage and underwriting commissions paid by the fund in connection with its
portfolio transactions during recently completed fiscal years. The Board of
Trustees periodically reviews Pioneer's performance of its responsibilities in
connection with the placement of portfolio transactions on behalf of the fund.
CAPITAL STOCK AND OTHER SECURITIES
As an open-end management investment company, the fund continuously offers its
shares to the public and under normal conditions must redeem its shares upon the
demand of any shareholder at the next determined net asset value per share less
any applicable CDSC. See "Sales Charges." When issued and paid for in accordance
with the terms of the prospectus and statement of additional information, shares
of the fund are fully paid and non-assessable. Shares will remain on deposit
with the fund's transfer agent and certificates will not normally be issued.
The trust's Agreement and Declaration of Trust, dated as of September 2, 2003
(the "Declaration"), as amended from time to time, permits the Board of Trustees
to authorize the issuance of an unlimited number of full and fractional shares
of beneficial interest which may be divided into such separate series as the
Trustees may establish. Currently, the trust consists of eight series. The
Trustees may, however, establish additional series of shares and may divide or
combine the shares into a greater or lesser number of shares without thereby
changing the proportionate beneficial interests in the fund. The Declaration
further authorizes the Trustees to classify or reclassify any series of the
shares into one or more classes. Pursuant thereto, the Trustees have authorized
the issuance of four classes of shares of the fund, designated as Class A
shares, Class B shares, Class C shares and Investor Class shares. Each share of
a class of the fund represents an equal proportionate interest in the assets of
the fund allocable to that class. Upon liquidation of the fund, shareholders of
each class of the fund are entitled to share pro rata in the fund's net assets
allocable to such class available for distribution to shareholders. The trust
reserves the right to create and issue additional series or classes of shares,
in which case the shares of each class of a series would participate equally in
the earnings, dividends and assets allocable to that class of the particular
series.
The shares of each class represent an interest in the same portfolio of
investments of the fund. Each class has equal rights as to voting, redemption,
dividends and liquidation, except that each class bears different distribution
and transfer agent fees and may bear other expenses properly attributable to the
particular class. Class A, Class B and Class C shareholders have exclusive
voting rights with respect to the Rule 12b-1 Plans adopted by holders of those
shares in connection with the distribution of shares.
Shareholders are entitled to one vote for each share held and may vote in the
election of Trustees and on other matters submitted to a meeting of
shareholders. Although Trustees are not elected annually by the shareholders,
shareholders have, under certain circumstances, the right to remove one or more
Trustees. The fund is not required, and does not intend, to hold annual
shareholder meetings although special meetings may be called for the purpose of
electing or removing Trustees, changing fundamental investment restrictions or
approving a management contract.
The shares of each series of the fund are entitled to vote separately to approve
investment advisory agreements or changes in investment restrictions, but
shareholders of all series vote together in the election and selection of
Trustees and accountants. Shares of all series of the fund vote together as a
class on matters that affect all series of the fund in substantially the same
manner. As to matters affecting a single series or class, shares of such series
or class will vote separately. No amendment adversely affecting the rights of
shareholders may be made to the Declaration without the affirmative vote of a
majority of the fund's shares. Shares have no preemptive or conversion rights,
except that under certain circumstances Class B shares may convert to Class A
shares. All Investor Class shares of the fund, convert to Class A shares of the
fund on December 31, 2006, as described in the fund's Investor Class prospectus.
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As a Delaware statutory trust, the fund's operations are governed by the
Declaration. Generally, Delaware statutory trust shareholders are not personally
liable for obligations of the Delaware statutory trust under Delaware law. The
Delaware Statutory Trust Act (the "Delaware Act") provides that a shareholder of
a Delaware statutory trust shall be entitled to the same limitation of liability
extended to shareholders of private for-profit corporations. The Declaration
expressly provides that the fund is organized under the Delaware Act and that
the Declaration is to be governed by Delaware law. There is nevertheless a
possibility that a Delaware statutory trust, such as the fund, might become a
party to an action in another state whose courts refused to apply Delaware law,
in which case the fund's shareholders could become subject to personal
liability.
To guard against this risk, the Declaration (i) contains an express disclaimer
of shareholder liability for acts or obligations of the fund and provides that
notice of such disclaimer may be given in each agreement, obligation or
instrument entered into or executed by the fund or its Trustees, (ii) provides
for the indemnification out of fund property of any shareholders held personally
liable for any obligations of the fund or any series of the fund and (iii)
provides that the fund shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of the fund and satisfy any
judgment thereon. Thus, the risk of a shareholder incurring financial loss
beyond his or her investment because of shareholder liability is limited to
circumstances in which all of the following factors are present: (1) a court
refused to apply Delaware law; (2) the liability arose under tort law or, if
not, no contractual limitation of liability was in effect; and (3) the fund
itself would be unable to meet its obligations. In light of Delaware law, the
nature of the fund's business and the nature of its assets, the risk of personal
liability to a fund shareholder is remote.
In addition to the requirements under Delaware law, the Declaration provides
that a shareholder of the fund may bring a derivative action on behalf of the
fund only if the following conditions are met: (a) shareholders eligible to
bring such derivative action under Delaware law who hold at least 10% of the
outstanding shares of the fund, or 10% of the outstanding shares of the series
or class to which such action relates, shall join in the request for the
Trustees to commence such action; and (b) the Trustees must be afforded a
reasonable amount of time to consider such shareholder request and investigate
the basis of such claim. The Trustees shall be entitled to retain counsel or
other advisers in considering the merits of the request and shall require an
undertaking by the shareholders making such request to reimburse the fund for
the expense of any such advisers in the event that the Trustees determine not to
bring such action.
The Declaration further provides that the fund shall indemnify each of its
Trustees and officers against liabilities and expenses reasonably incurred by
them in connection with, or arising out of, any action, suit or proceeding,
threatened against or otherwise involving such Trustee or officer, directly or
indirectly, by reason of being or having been a Trustee or officer of the fund.
The Declaration does not authorize the fund to indemnify any Trustee or officer
against any liability to which he or she would otherwise be subject by reason of
or for willful misfeasance, bad faith, gross negligence or reckless disregard of
such person's duties.
The Declaration provides that any Trustee who is not an "interested person" of
Pioneer shall be considered to be independent for purposes of Delaware law
notwithstanding the fact that such Trustee receives compensation for serving as
a trustee of the fund or other investment companies for which Pioneer acts as
investment adviser.
PURCHASE, REDEMPTION AND PRICING OF SHARES
SALES CHARGES
The fund continuously offers four classes of shares designated as Class A, Class
B, Class C and Investor Shares as described in the prospectus. The fund offers
its shares at a reduced sales charge to investors who meet certain criteria that
permit the fund's shares to be sold with low distribution costs. These criteria
are described below or in the prospectus.
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Class A Share Sales Charges
You may buy Class A shares at the public offering price, including a sales
charge, as follows:
Sales Charge as a % of
----------------------
Offering Net Amount Dealer
Amount of Purchase Price Invested Reallowance
Less than $50,000 5.75 6.10 5.00
$50,000 but less than $100,000 4.50 4.71 4.00
$100,000 but less than $250,000 3.50 3.63 3.00
$250,000 but less than $500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 2.00 2.04 1.75
$1,000,000 or more 0.00 0.00 see below
The schedule of sales charges above is applicable to purchases of Class A shares
of the fund by (i) an individual, (ii) an individual and his or her spouse and
children under the age of 21 and (iii) a trustee or other fiduciary of a trust
estate or fiduciary account or related trusts or accounts including pension,
profit-sharing and other employee benefit trusts qualified under Sections 401 or
408 of the Code although more than one beneficiary is involved; however,
pension, profit-sharing and other employee benefit trusts qualified under
Sections 401 or 408 of the Code which are eligible to purchase Class R shares
may aggregate purchases by beneficiaries of such plans only if the pension,
profit-sharing or other employee benefit trust has determined that it does not
require the services provided under the Class R Service Plan. The sales charges
applicable to a current purchase of Class A shares of the fund by a person
listed above is determined by adding the value of shares to be purchased to the
aggregate value (at the then current offering price) of shares of any of the
other Pioneer mutual funds previously purchased and then owned, provided PFD is
notified by such person or his or her broker-dealer each time a purchase is made
which would qualify. Pioneer mutual funds include all mutual funds for which PFD
serves as principal underwriter. At the sole discretion of PFD, holdings of
funds domiciled outside the U.S., but which are managed by affiliates of
Pioneer, may be included for this purpose.
No sales charge is payable at the time of purchase on investments of $1 million
or more, or for purchases by participants in employer-sponsored retirement plans
described below subject to a CDSC of 1% which may be imposed in the event of a
redemption of Class A shares within 18 months of purchase (one year of purchase
for shares purchased prior to February 1, 2004). PFD may, in its discretion, pay
a commission to broker-dealers who initiate and are responsible for such
purchases as follows:
Accounts Other than Employer-Sponsored Retirement Plans
1.00% Up to $4 million
0.50% Next $46 million
0.25% Over $50 million
Employer-Sponsored Retirement Plans
0.50% Up to $50 million
0.25% Over $50 million
These commissions shall not be payable if the purchaser is affiliated with the
broker-dealer or if the purchase represents the reinvestment of a redemption
made during the previous 12 calendar months. Broker-dealers who receive a
commission in connection with Class A share purchases at net asset value by
employer-sponsored retirement plans with at least $10 million in total plan
assets (or that has 1,000 or more eligible participants for employer-sponsored
retirement plans with accounts established with Pioneer on or before March 31,
2004) will be required to return any commissions paid or a pro rata portion
thereof if the retirement plan redeems its shares within 18 months of purchase.
-34-
Letter of Intent ("LOI"). Reduced sales charges are available for purchases of
$50,000 or more of Class A shares (excluding any reinvestments of dividends and
capital gain distributions) made within a 13-month period pursuant to an LOI
which may be established by completing the Letter of Intent section of the
Account Application. The reduced sales charge will be the charge that would be
applicable to the purchase of the specified amount of Class A shares as if the
shares had all been purchased at the same time. A purchase not made pursuant to
an LOI may be included if the LOI is submitted to PIMSS within 90 days of such
purchase. You may also obtain the reduced sales charge by including the value
(at current offering price) of all your Class A shares in the fund and all other
Pioneer mutual funds held of record as of the date of your LOI in the amount
used to determine the applicable sales charge for the Class A shares to be
purchased under the LOI. Five percent of your total intended purchase amount
will be held in escrow by PIMSS, registered in your name, until the terms of the
LOI are fulfilled. When you sign the Account Application, you agree to
irrevocably appoint PIMSS your attorney-in-fact to surrender for redemption any
or all shares held in escrow with full power of substitution. An LOI is not a
binding obligation upon the investor to purchase, or the fund to sell, the
amount specified in the LOI.
If the total purchases, less redemptions, exceed the amount specified under the
LOI and are in an amount which would qualify for a further quantity discount,
all transactions will be recomputed on the expiration date of the LOI to effect
the lower sales charge. Any difference in the sales charge resulting from such
recomputation will be either delivered to you in cash or invested in additional
shares at the lower sales charge. The dealer, by signing the Account
Application, agrees to return to PFD, as part of such retroactive adjustment,
the excess of the commission previously reallowed or paid to the dealer over
that which is applicable to the actual amount of the total purchases under the
LOI.
If the total purchases, less redemptions, are less than the amount specified
under the LOI, you must remit to PFD any difference between the sales charge on
the amount actually purchased and the amount originally specified in the LOI.
When the difference is paid, the shares held in escrow will be deposited to your
account. If you do not pay the difference in sales charge within 20 days after
written request from PFD or your dealer, PIMSS, after receiving instructions
from PFD, will redeem the appropriate number of shares held in escrow to realize
the difference and release any excess.
Class B Shares
You may buy Class B shares at the net asset value per share next computed after
receipt of a purchase order without the imposition of an initial sales charge;
however, Class B shares redeemed within six years of purchase will be subject to
a CDSC at the rates shown in the table below. The charge will be assessed on the
amount equal to the lesser of the current market value or the original purchase
cost of the shares being redeemed. No CDSC will be imposed on increases in
account value above the initial purchase price, including shares derived from
the reinvestment of dividends or capital gain distributions.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of purchase until the time of redemption of Class B shares. In
processing redemptions of Class B shares, the fund will first redeem shares not
subject to any CDSC and then shares held longest during the six-year period. As
a result, you will pay the lowest possible CDSC.
The CDSC for Class B shares subject to a CDSC upon redemption will be determined
as follows:
CDSC as a % of Dollar
Year Since Purchase Amount Subject to CDSC
First 4.0
Second 4.0
Third 3.0
Fourth 3.0
Fifth 2.0
Sixth 1.0
Seventh and thereafter 0.0
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Proceeds from the CDSC are paid to PFD and are used in whole or in part to
defray PFD's expenses related to providing distribution-related services to the
fund in connection with the sale of Class B shares, including the payment of
compensation to broker-dealers.
Class B shares will automatically convert into Class A shares eight years after
the purchase date, except as noted below. Class B shares acquired by exchange
from Class B shares of another Pioneer mutual fund will convert into Class A
shares based on the date of the initial purchase and the applicable CDSC. Class
B shares acquired through reinvestment of distributions will convert into Class
A shares over time in the same proportion as other shares held in the account.
For this purpose, Class B shares acquired through reinvestment of distributions
will be attributed to particular purchases of Class B shares in accordance with
such procedures as the Trustees may determine from time to time. The conversion
of Class B shares to Class A shares is subject to the continuing availability of
a ruling from the Internal Revenue Service (the "IRS") or an opinion of counsel
that such conversions will not constitute taxable events for U.S. federal income
tax purposes. The conversion of Class B shares to Class A shares will not occur
if such ruling or opinion is not available and, therefore, Class B shares would
continue to be subject to higher expenses than Class A shares for an
indeterminate period.
Class C Shares
You may buy Class C shares at net asset value per share next computed after
receipt of a purchase order without the imposition of an initial sales charge;
however, Class C shares redeemed within one year of purchase will be subject to
a CDSC of 1%. The charge will be assessed on the amount equal to the lesser of
the current market value or the original purchase cost of the shares being
redeemed. No CDSC will be imposed on increases in account value above the
initial purchase price, including shares derived from the reinvestment of
dividends or capital gain distributions. Class C shares do not convert to any
other class of fund shares.
In processing redemptions of Class C shares, the fund will first redeem shares
not subject to any CDSC and then shares held for the longest period of time
during the one-year period. As a result, you will pay the lowest possible CDSC.
Proceeds from the CDSC are paid to PFD and are used in whole or in part to
defray PFD's expenses related to providing distribution-related services to the
fund in connection with the sale of Class C shares, including the payment of
compensation to broker-dealers.
Investor Class shares
No front-end, deferred or asset based sales charges are applicable to Investor
Class shares.
Additional Payments to Dealers
From time to time, PFD or its affiliates may elect to make payments to
broker-dealers in addition to the commissions described above. PFD may elect to
reallow the entire initial sales charge to participating dealers for all Class A
sales with respect to which orders are placed during a particular period.
Dealers to whom substantially the entire sales charge is reallowed may be deemed
to be underwriters under federal securities laws. Contingent upon the
achievement of certain sales objectives, PFD may pay to Mutual of Omaha Investor
Services, Inc. a fee of up to 0.20% on qualifying sales of the fund's Class A,
Class B or Class C shares through such dealer. In addition, PFD or its
affiliates may elect to pay broker-dealers an additional commission based on the
net asset value of all of the fund's Class B or Class C shares sold by a dealer
during a particular period. PFD may elect to pay, at its own expense, additional
cash or other incentives to dealers that sell or arrange for the sale of shares
of the fund. Such cash or other incentives may take the form of payment for
attendance at preapproved conferences or seminars, sales or training programs
for invited registered representatives and other employees, payment for travel
expenses, including lodging, incurred by registered representatives and other
employees for such seminars or training programs, seminars for the public,
advertising and preapproved sales campaigns or dealer-sponsored
-36-
events. PFD may also elect to make expense reimbursements for special training
of a dealer's registered representatives and other employees in group meetings
or to help pay the expenses of sales contests. PFD will offer such cash and
other incentives only to the extent permitted by applicable law or by a
self-regulatory agency such as the NASD.
REDEEMING SHARES
Redemptions may be suspended or payment postponed during any period in which any
of the following conditions exist: the New York Stock Exchange (the "Exchange")
is closed or trading on the Exchange is restricted; an emergency exists as a
result of which disposal by the fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the fund to fairly determine
the value of the net assets of its portfolio; or the SEC, by order, so permits.
Redemptions and repurchases are taxable transactions for shareholders that are
subject to U.S. federal income tax. The net asset value per share received upon
redemption or repurchase may be more or less than the cost of shares to an
investor, depending on the market value of the portfolio at the time of
redemption or repurchase.
Systematic Withdrawal Plan(s) ("SWP"). A SWP is designed to provide a convenient
method of receiving fixed payments at regular intervals from fund share accounts
having a total value of not less than $10,000. You must also be reinvesting all
dividends and capital gain distributions to use the SWP option.
Periodic payments of $50 or more will be deposited monthly, quarterly,
semiannually or annually directly into a bank account designated by the
applicant or will be sent by check to the applicant, or any person designated by
the applicant. Payments can be made either by check or electronic funds transfer
to a bank account designated by you. Withdrawals from Class B and Class C share
accounts are limited to 10% of the value of the account at the time the SWP is
established. See "Qualifying for a reduced sales charge" in the prospectus. If
you direct that withdrawal payments be paid to another person, want to change
the bank where payments are sent or designate an address that is different from
the account's address of record after you have opened your account, a medallion
signature guarantee must accompany your instructions. Withdrawals under the SWP
are redemptions that may have tax consequences for you.
While you are making systematic withdrawals from your account, you may pay
unnecessary initial sales charges on additional purchases of Class A shares or
contingent deferred sales charges. SWP redemptions reduce and may ultimately
exhaust the number of shares in your account. In addition, the amounts received
by a shareholder cannot be considered as yield or income on his or her
investment because part of such payments may be a return of his or her
investment.
A SWP may be terminated at any time (1) by written notice to PIMSS or from PIMSS
to the shareholder; (2) upon receipt by PIMSS of appropriate evidence of the
shareholder's death; or (3) when all shares in the shareholder's account have
been redeemed.
You may obtain additional information by calling PIMSS at 1-800-225-6292.
Reinstatement Privilege (Class A and Class B Shares). Subject to the provisions
outlined in the prospectus, you may reinvest all or part of your sale proceeds
from Class A or Class B shares without a sales charge into Class A shares of a
Pioneer mutual fund. However, the distributor will not pay your investment firm
a commission on any reinvested amount.
TELEPHONE AND ONLINE TRANSACTIONS
You may purchase, exchange or sell Class A, Class B or Class C shares by
telephone or online. See the prospectus for more information. For personal
assistance, call 1-800-225-6292 between 8:00 a.m. and 7:00 p.m. Eastern time on
weekdays. Computer-assisted telephone transactions may be available to
shareholders who have prerecorded certain bank information (see "FactFoneSM").
You are strongly urged to consult with your investment professional prior to
requesting any telephone or online transaction.
-37-
Telephone Transaction Privileges. To confirm that each transaction instruction
received by telephone is genuine, the fund will record each telephone
transaction, require the caller to provide validating information for the
account and send you a written confirmation of each telephone transaction.
Different procedures may apply to accounts that are registered to non-U.S.
citizens or that are held in the name of an institution or in the name of an
investment broker-dealer or other third party. If reasonable procedures, such as
those described above, are not followed, the fund may be liable for any loss due
to unauthorized or fraudulent instructions. The fund may implement other
procedures from time to time. In all other cases, neither the fund, PIMSS nor
PFD will be responsible for the authenticity of instructions received by
telephone; therefore, you bear the risk of loss for unauthorized or fraudulent
telephone transactions.
Online Transaction Privileges. If your account is registered in your name, you
may be able buy, exchange or sell fund shares online. Your investment firm may
also be able to buy, exchange or sell your fund shares online.
To establish online transaction privileges:
|X| For new accounts, complete the online section of the account application
|X| For existing accounts, complete an account options form, write to the
transfer agent or complete the online authorization screen on
www.pioneerfunds.com
--------------------
To use online transactions, you must read and agree to the terms of an online
transaction agreement available on the Pioneer website. When you or your
investment firm requests an online transaction the transfer agent electronically
records the transaction, requires an authorizing password and sends a written
confirmation. The fund may implement other 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.
You may not be able to use the online transaction privilege for certain types of
accounts, including most retirement accounts.
Telephone and Website Online Access. You may have difficulty contacting the fund
by telephone or accessing pioneerfunds.com during times of market volatility or
disruption in telephone or Internet services. On Exchange holidays or on days
when the Exchange closes early, Pioneer will adjust the hours for the telephone
center and for online transaction processing accordingly. If you are unable to
access pioneerfunds.com or to reach the fund by telephone, you should
communicate with the fund in writing.
FactFone(SM). FactFone(SM) is an automated inquiry and telephone transaction
system available to Pioneer mutual fund shareholders by dialing 1-800-225-4321.
FactFone(SM) allows shareholder access to current information on Pioneer mutual
fund accounts and to the prices and yields of all publicly available Pioneer
mutual funds. In addition, you may use FactFone(SM) to make computer-assisted
telephone purchases, exchanges or redemptions from your Pioneer mutual fund
accounts, access your account balances and last three transactions and order a
duplicate statement if you have activated your PIN. Telephone purchases or
redemptions require the establishment of a bank account of record. You are
strongly urged to consult with your investment professional prior to requesting
any telephone transaction. Shareholders whose accounts are registered in the
name of a broker-dealer or other third party may not be able to use
FactFone(SM). Call PIMSS for assistance.
FactFone(SM) allows shareholders to hear the following recorded fund
information:
o net asset value prices for all Pioneer mutual funds;
o annualized 30-day yields on Pioneer's fixed income funds;
o annualized 7-day yields and 7-day effective (compound) yields for Pioneer's
money market fund; and
o dividends and capital gain distributions on all Pioneer mutual funds.
-38-
Yields are calculated in accordance with SEC mandated standard formulas.
All performance numbers communicated through FactFone(SM) represent past
performance, and figures include the maximum applicable sales charge. A
shareholder's actual yield and total return will vary with changing market
conditions. The value of Class A, Class B, Class C and Investor Class shares
(except for Pioneer Cash Reserves Fund and Pioneer Tax Free money Market Fund,
which each seek to maintain a stable $1.00 share price) will also vary, and such
shares may be worth more or less at redemption than their original cost.
PRICING OF SHARES
The net asset value per share of each class of the fund is determined as of the
close of regular trading on the Exchange (normally 4:00 p.m. Eastern time) on
each day on which the Exchange is open for trading. As of the date of this
statement of additional information, the Exchange is open for trading every
weekday except for the following holidays: New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. The net asset value per share of each
class of the fund is also determined on any other day on which the level of
trading in its portfolio securities is sufficiently high that the current net
asset value per share might be materially affected by changes in the value of
its portfolio securities. The fund is not required to determine its net asset
value per share on any day on which no purchase orders in good order for fund
shares are received and no shares are tendered and accepted for redemption.
The fund generally values its portfolio securities using closing market prices
or readily available market quotations. Securities which have not traded on the
date of valuation or securities for which sales prices are not generally
reported are valued at the mean between the current bid and asked prices.
Securities quoted in foreign currencies are converted to U.S. dollars utilizing
foreign exchange rates employed by the fund's independent pricing services.
Generally, trading in non-U.S. securities is substantially completed each day at
various times prior to the close of regular trading on the Exchange. The values
of such securities used in computing the net asset value of the fund's shares
are determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of regular trading on the Exchange. When
closing market prices or market quotations are not available or are considered
by Pioneer to be unreliable, the fund uses a security's fair value. Fair value
is the valuation of a security determined on the basis of factors other than
market value in accordance with procedures approved by the fund's Trustees. The
fund also may use the fair value of a security, including a non-U.S. security,
when Pioneer determines that the closing market price on the primary exchange
where the security is traded no longer accurately reflects the value of the
security due to factors affecting one or more relevant securities markets or the
specific issuer. The use of fair value pricing by the fund may cause the net
asset value of its shares to differ from the net asset value that would be
calculated using closing market prices. International securities markets may be
open on days when the U.S. markets are closed. For this reason, the value of any
international securities owned by the fund could change on a day you cannot buy
or sell shares of the fund. In connection with making fair value determinations
of the value of fixed income securities, the fund's Trustees may use a pricing
matrix. Debt securities with remaining maturities of 60 days or less are valued
at amortized cost, which is a method of determining a security's fair value.
The net asset value per share of each class of the fund is computed by taking
the value of all of the fund's assets attributable to a class, less the fund's
liabilities attributable to that class, and dividing the result by the number of
outstanding shares of that class. For purposes of determining net asset value,
expenses of the classes of the fund are accrued daily and taken into account.
The fund's maximum offering price per Class A share is determined by adding the
maximum sales charge to the net asset value per Class A share. Class B, Class C
and Investor Class shares are offered at net asset value without the imposition
of an initial sales charge (Class B and Class C shares may be subject to a
CDSC).
-39-
TAXATION OF THE FUND
The fund has elected to be treated, has qualified and intends to qualify each
year as a "regulated investment company" under Subchapter M of the Code so that
it will not pay U.S. federal income tax on income and capital gains distributed
to shareholders (provided that the distribution requirements set forth below are
satisfied). In order to qualify as a regulated investment company under
Subchapter M of the Code, the fund must, among other things, derive at least 90%
of its gross income for each taxable year from dividends, interest, payments
with respect to securities loans, gains from the sale or other disposition of
stock, securities or foreign currencies, or other income (including gains from
options, futures and forward contracts) derived with respect to its business of
investing in such stock, securities or currencies (the "90% income test") and
satisfy certain quarterly asset diversification requirements. For purposes of
the 90% income test, the character of income earned by certain entities in which
the fund invests that are not treated as corporations for U.S. federal income
tax purposes (e.g., partnerships or trusts) will generally pass through to the
fund. Consequently, the fund may be required to limit its equity investments in
such entities that earn fee income, rental income or other nonqualifying income.
If the fund qualifies as a regulated investment company and properly distributes
to its shareholders each taxable year an amount equal to or exceeding the sum of
(i) 90% of its "investment company taxable income" as that term is defined in
the Code (which includes, among other things, dividends, taxable interest, and
the excess of any net short-term capital gains over net long-term capital
losses, as reduced by certain deductible expenses) without regard to the
deduction for dividends paid and (ii) 90% of the excess of its gross tax-exempt
interest, if any, over certain disallowed deductions, the fund generally will be
relieved of U.S. federal income tax on any income of the fund, including "net
capital gain" (the excess of net long-term capital gain over net short-term
capital loss), distributed to shareholders. However, if the fund meets such
distribution requirements, but chooses to retain some portion of investment
company taxable income or net capital gain, it generally will be subject to U.S.
federal income tax at regular corporate rates on the amount retained. The fund
intends to distribute at least annually all or substantially all of its
investment company taxable income, net tax-exempt interest, and net capital
gain. If the fund did not qualify as a regulated investment company for any
taxable year, it would be treated as a U.S. corporation subject to U.S. federal
income tax, thereby subjecting any income earned by the fund to tax at the
corporate level at a maximum 35% federal income tax rate, and when such income
is distributed, to a further tax at the shareholder level.
Under the Code, the fund will be subject to a nondeductible 4% federal excise
tax on a portion of its undistributed ordinary income and capital gain net
income if it fails to meet certain distribution requirements with respect to
each calendar year. The fund intends to make distributions in a timely manner
and accordingly does not expect to be subject to the excise tax.
The fund generally distributes any net short- and long-term capital gains in
November. The fund generally pays dividends from any net investment income in
December. Dividends from income and/or capital gains may also be paid at such
other times as may be necessary for the fund to avoid U.S. federal income or
excise tax.
Unless shareholders specify otherwise, all distributions from the fund will be
automatically reinvested in additional full and fractional shares of the fund.
For U.S. federal income tax purposes, all dividends generally are taxable
whether a shareholder takes them in cash or reinvests them in additional shares
of the fund. In general, assuming that the fund has sufficient earnings and
profits, dividends from investment company taxable income are taxable either as
ordinary income or, if so designated by the fund and certain other conditions
are met, as "qualified dividend income" taxable to individual shareholders at a
maximum 15% U.S. federal income tax rate.
Dividend income distributed to individual shareholders will qualify for the
maximum 15% U.S. federal income tax rate on dividends to the extent that such
dividends are attributable to "qualified dividend income" as that term is
defined in Section 1(h)(11)(B) of the Code from the fund's investments in common
and preferred stock of U.S. companies and stock of certain qualified foreign
corporations provided that certain holding period and other requirements are met
by both the fund and the shareholders. Dividends received by the fund from REITs
are qualified dividend income only in limited circumstances.
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A dividend that is attributable to qualified dividend income of the fund that is
paid by the fund to an individual shareholder will not be taxable as qualified
dividend income to such shareholder if (1) the dividend is received with respect
to any share of the fund held for fewer than 61 days during the 121-day period
beginning on the date which is 60 days before the date on which such share
became ex-dividend (that is, when the declared dividend belongs to the seller,
rather than the buyer on or after the ex-dividend date) with respect to such
dividend, (2) to the extent that the shareholder is under an obligation (whether
pursuant to a short sale or otherwise) to make related payments with respect to
positions in substantially similar or related property, or (3) the shareholder
elects to have the dividend treated as investment income for purposes of the
limitation on deductibility of investment interest.
Dividends from net capital gain, if any, that are designated as capital gain
dividends are taxable as long-term capital gains for U.S. federal income tax
purposes without regard to the length of time the shareholder has held shares of
the fund. Capital gain dividends distributed by the fund to individual
shareholders generally will qualify for the maximum 15% U.S. federal income tax
rate on long-term capital gains, subject to certain limited exceptions. A
shareholder should also be aware that the benefits of the favorable tax rate
applicable to long-term capital gains and qualified dividend income may be
impacted by the application of the alternative minimum tax to individual
shareholders. Under current law, the maximum 15% U.S. federal income tax rate on
qualified dividend income and long-term capital gains will cease to apply to
taxable years beginning after December 31, 2008. In connection with tax
reporting to shareholders, the fund will provide shareholders with information
as to the portion of the distributions which may qualify for treatment as
qualified dividend income.
Distributions by the fund in excess of the fund's current and accumulated
earnings and profits will be treated as a return of capital to the extent of
(and in reduction of) the shareholder's tax basis in its shares and any such
amount in excess of that basis will be treated as gain from the sale of shares,
as discussed below. The U.S. federal income tax status of all distributions will
be reported to shareholders annually.
Although dividends generally will be treated as distributed when paid, any
dividend declared by the fund as of a record date in October, November or
December and paid during the following January will be treated for U.S. federal
income tax purposes as received by shareholders on December 31 of the calendar
year in which it is declared. In addition, certain other distributions made
after the close of a taxable year of the fund may be "spilled back" and treated
as paid by the fund (except for purposes of the 4% excise tax) during such
taxable year. In such case, shareholders generally will be treated as having
received such dividends in the taxable year in which the distributions were
actually made.
Foreign exchange gains and losses realized by the fund in connection with
certain transactions involving foreign currency-denominated debt securities,
certain options and futures contracts relating to foreign currency, foreign
currency forward contracts, foreign currencies, or payables or receivables
denominated in a foreign currency are subject to Section 988 of the Code, which
generally causes such gains and losses to be treated as ordinary income and
losses and may affect the amount, timing and character of distributions to
shareholders. Under Treasury regulations that may be promulgated in the future,
any gains from such transactions that are not directly related to the fund's
principal business of investing in stock or securities (or its options contracts
or futures contracts with respect to stock or securities) may have to be limited
in order to enable the fund to satisfy the 90% income test. If the net foreign
exchange loss for a year were to exceed the fund's investment company taxable
income (computed without regard to such loss), the resulting ordinary loss for
such year would not be deductible by the fund or its shareholders in future
years.
If the fund acquires any equity interest (under Treasury regulations that may be
promulgated in the future, generally including not only stock but also an option
to acquire stock such as is inherent in a convertible bond) in certain foreign
corporations that receive at least 75% of their annual gross income from passive
sources (such as interest, dividends, certain rents and royalties, or capital
gains) or that hold at least 50% of their assets in investments producing such
passive income ("passive foreign investment companies"), the fund could be
subject to U.S. federal income tax and additional interest charges on "excess
distributions" received from such companies or on gain from the sale of stock in
such companies, even if all income or gain actually received by the fund is
timely distributed to its shareholders. The fund would not be able to pass
through to its shareholders any credit or deduction for such a tax. An election
may generally be
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available that would ameliorate these adverse tax consequences, but any such
election could require the fund to recognize taxable income or gain (subject to
tax distribution requirements) without the concurrent receipt of cash. These
investments could also result in the treatment of capital gains from the sale of
stock of passive foreign investment companies as ordinary income. The fund may
limit and/or manage its holdings in passive foreign investment companies to
limit its tax liability or maximize its return from these investments.
The fund may invest in debt obligations that are in the lowest rating categories
or are unrated, including debt obligations of issuers not currently paying
interest or who are in default. Investments in debt obligations that are at risk
of or in default present special tax issues for the fund. Tax rules are not
entirely clear about issues such as when the fund may cease to accrue interest,
original issue discount or market discount, when and to what extent deductions
may be taken for bad debts or worthless securities, how payments received on
obligations in default should be allocated between principal and income and
whether exchanges of debt obligations in a workout context are taxable. These
and other issues will be addressed by the fund, in the event it invests in such
securities, in order to seek to ensure that it distributes sufficient income to
preserve its status as a regulated investment company and does not become
subject to U.S. federal income or excise tax.
If the fund invests in certain pay-in-kind securities, zero coupon securities,
deferred interest securities or, in general, any other securities with original
issue discount (or with market discount if the fund elects to include market
discount in income currently), the fund generally must accrue income on such
investments for each taxable year, which generally will be prior to the receipt
of the corresponding cash payments. However, the fund must distribute, at least
annually, all or substantially all of its investment company taxable income,
including such accrued income, to shareholders to qualify as a regulated
investment company under the Code and avoid U.S. federal income and excise
taxes. Therefore, the fund may have to dispose of its portfolio securities under
disadvantageous circumstances to generate cash, or may have to borrow the cash,
to satisfy distribution requirements.
For U.S. federal income tax purposes, the fund is permitted to carry forward a
net capital loss for any year to offset its capital gains, if any, for up to
eight years following the year of the loss. To the extent subsequent capital
gains are offset by such losses, they would not result in U.S. federal income
tax liability to the fund and are not expected to be distributed as such to
shareholders. See Annual Fee, Expense and Other Information for the fund's
available capital loss carryforwards.
At the time of an investor's purchase of fund shares, a portion of the purchase
price may be attributable to realized or unrealized appreciation in the fund's
portfolio or undistributed taxable income of the fund. Consequently, subsequent
distributions by the fund with respect to these shares from such appreciation or
income may be taxable to such investor even if the net asset value of the
investor's shares is, as a result of the distributions, reduced below the
investor's cost for such shares and the distributions economically represent a
return of a portion of the investment.
Redemptions and exchanges generally are taxable events for shareholders that are
subject to tax. Shareholders should consult their own tax advisers with
reference to their individual circumstances to determine whether any particular
transaction in fund shares is properly treated as a sale for tax purposes, as
the following discussion assumes, and the tax treatment of any gains or losses
recognized in such transactions. In general, if fund shares are sold, the
shareholder will recognize gain or loss equal to the difference between the
amount realized on the sale and the shareholder's adjusted basis in the shares.
Such gain or loss generally will be treated as long-term capital gain or loss if
the shares were held for more than one year and otherwise generally will be
treated as short-term capital gain or loss. Any loss recognized by a shareholder
upon the redemption, exchange or other disposition of shares with a tax holding
period of six months or less will be treated as a long-term capital loss to the
extent of any amounts treated as distributions of long-term capital gain with
respect to such shares.
In addition, if Class A or Class B shares that have been held for less than 91
days are redeemed and the proceeds are reinvested in Class A shares of the fund
or in Class A shares of another mutual fund at net asset value pursuant to the
reinstatement privilege, or if Class A shares in the fund that have been held
for
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less than 91 days are exchanged for the same class of shares in another fund at
net asset value pursuant to the exchange privilege, all or a portion of the
sales charge paid on the shares that are redeemed or exchanged will not be
included in the tax basis of such shares under the Code to the extent a sales
charge that would otherwise apply to the shares received is reduced pursuant to
the reinstatement or exchange privilege. In either case, the portion of the
sales charge not included in the tax basis of the shares redeemed or surrendered
in an exchange is included in the tax basis of the shares acquired in the
reinvestment or exchange. Losses on redemptions or other dispositions of shares
may be disallowed under "wash sale" rules in the event of other investments in
the fund (including those made pursuant to reinvestment of dividends and/or
capital gain distributions) within a period of 61 days beginning 30 days before
and ending 30 days after a redemption or other disposition of shares. In such a
case, the disallowed portion of any loss generally would be included in the U.S.
federal tax basis of the shares acquired in the other investments.
Under Treasury regulations, if a shareholder recognizes a loss with respect to
shares of $2 million or more for an individual shareholder, or $10 million or
more for a corporate shareholder, in any single taxable year (or greater amounts
over a combination of years), the shareholder must file with the IRS a
disclosure statement on Form 8886. Shareholders who own portfolio securities
directly are in many cases excepted from this reporting requirement but, under
current guidance, shareholders of regulated investment companies are not
excepted. The fact that a loss is reportable under these regulations does not
affect the legal determination of whether or not the taxpayer's treatment of the
loss is proper. Shareholders should consult with their tax advisers to determine
the applicability of these regulations in light of their individual
circumstances.
Options written or purchased and futures contracts entered into by the fund on
certain securities, indices and foreign currencies, as well as certain forward
foreign currency contracts, may cause the fund to recognize gains or losses from
marking-to-market even though such options may not have lapsed, been closed out,
or exercised, or such futures or forward contracts may not have been performed
or closed out. The tax rules applicable to these contracts may affect the
characterization of some capital gains and losses realized by the fund as
long-term or short-term. Certain options, futures and forward contracts relating
to foreign currency may be subject to Section 988 of the Code, as described
above, and accordingly may produce ordinary income or loss. Additionally, the
fund may be required to recognize gain if an option, futures contract, forward
contract, short sale or other transaction that is not subject to the
mark-to-market rules is treated as a "constructive sale" of an "appreciated
financial position" held by the fund under Section 1259 of the Code. Any net
mark-to-market gains and/or gains from constructive sales may also have to be
distributed to satisfy the distribution requirements referred to above even
though the fund may receive no corresponding cash amounts, possibly requiring
the disposition of portfolio securities or borrowing to obtain the necessary
cash. Losses on certain options, futures or forward contracts and/or offsetting
positions (portfolio securities or other positions with respect to which the
fund's risk of loss is substantially diminished by one or more options, futures
or forward contracts) may also be deferred under the tax straddle rules of the
Code, which may also affect the characterization of capital gains or losses from
straddle positions and certain successor positions as long-term or short-term.
Certain tax elections may be available that would enable the fund to ameliorate
some adverse effects of the tax rules described in this paragraph. The tax rules
applicable to options, futures, forward contracts and straddles may affect the
amount, timing and character of the fund's income and gains or losses and hence
of its distributions to shareholders.
Dividends received by the fund from U.S. corporations in respect of any share of
stock with a tax holding period of at least 46 days (91 days in the case of
certain preferred stock) extending before and after each dividend held in an
unleveraged position and distributed and designated by the fund (except for
capital gain dividends received from a regulated investment company) may be
eligible for the 70% dividends-received deduction generally available to
corporations under the Code. Any corporate shareholder should consult its tax
adviser regarding the possibility that its tax basis in its shares may be
reduced, for U.S. federal income tax purposes, by reason of "extraordinary
dividends" received with respect to the shares and, to the extent such basis
would be reduced below zero, current recognition of income may be required. In
order to qualify for the deduction, corporate shareholders must meet the minimum
holding period requirement stated above with respect to their fund shares,
taking into account any holding period reductions from certain hedging or
-43-
other transactions or positions that diminish their risk of loss with respect to
their fund shares, and, if they borrow to acquire or otherwise incur debt
attributable to fund shares, they may be denied a portion of the
dividends-received deduction. The entire dividend, including the otherwise
deductible amount, will be included in determining the excess, if any, of a
corporation's adjusted current earnings over its alternative minimum taxable
income, which may increase a corporation's alternative minimum tax liability.
The fund may be subject to withholding and other taxes imposed by foreign
countries, including taxes on interest, dividends and capital gains with respect
to its investments in those countries, which would, if imposed, reduce the yield
on or return from those investments. Tax conventions between certain countries
and the U.S. may reduce or eliminate such taxes in some cases. The fund does not
expect to satisfy the requirements for passing through to its shareholders their
pro rata shares of qualified foreign taxes paid by the fund, with the result
that shareholders will not include such taxes in their gross incomes and will
not be entitled to a tax deduction or credit for such taxes on their own tax
returns.
Shareholders that are exempt from U.S. federal income tax, such as retirement
plans that are qualified under Section 401 of the Code, generally are not
subject to U.S. federal income tax on fund dividends or distributions or on
sales or exchanges of fund shares unless the acquisition of the fund shares was
debt-financed. However, in the case of fund shares held through a non-qualified
deferred compensation plan, fund dividends and distributions received by the
plan and sales and exchanges of fund shares by the plan generally are taxable to
the employer sponsoring such plan in accordance with the U.S. federal income tax
laws governing deferred compensation plans.
A plan participant whose retirement plan invests in the fund, whether such plan
is qualified or not, generally is not taxed on fund dividends or distributions
received by the plan or on sales or exchanges of fund shares by the plan for
U.S. federal income tax purposes. However, distributions to plan participants
from a retirement plan account generally are taxable as ordinary income and
different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
Federal law requires that the fund withhold (as "backup withholding") 28% of
reportable payments, including dividends, capital gain distributions and the
proceeds of redemptions and exchanges or repurchases of fund shares, paid to
shareholders who have not complied with IRS regulations. In order to avoid this
withholding requirement, shareholders, other than certain exempt entities, must
certify on their Account Applications, or on separate IRS Forms W-9, that the
Social Security Number or other Taxpayer Identification Number they provide is
their correct number and that they are not currently subject to backup
withholding, or that they are exempt from backup withholding. The fund may
nevertheless be required to backup withhold if it receives notice from the IRS
or a broker that the number provided is incorrect or backup withholding is
applicable as a result of previous underreporting of interest or dividend
income.
If, as anticipated, the fund continues to qualify as a regulated investment
company under the Code, it will not be required to pay any Massachusetts income,
corporate excise or franchise taxes.
The description of certain federal tax provisions above relates only to U.S.
federal income tax consequences for shareholders who are U.S. persons, i.e.,
U.S. citizens or residents or U.S. corporations, partnerships, trusts or
estates, and who are subject to U.S. federal income tax and hold their shares as
capital assets. Except as otherwise provided, this description does not address
the special tax rules that may be applicable to particular types of investors,
such as financial institutions, insurance companies, securities dealers, or
tax-exempt or tax-deferred plans, accounts or entities. Investors other than
U.S. persons may be subject to different U.S. federal income tax treatment,
including a non-resident alien U.S. withholding tax at the rate of 30% or at a
lower treaty rate on amounts treated as ordinary dividends from the fund and,
unless an effective IRS Form W-8BEN, or other authorized withholding certificate
is on file, to backup withholding at the rate of 28% on certain other payments
from the fund. Shareholders should consult their own tax advisers on these
matters and on state, local, foreign and other applicable tax laws.
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UNDERWRITERS
Principal Underwriter
PFD, 60 State Street, Boston, Massachusetts 02109, is the principal underwriter
for the fund in connection with the continuous offering of its shares. PFD is an
indirect wholly owned subsidiary of PIM-USA.
The fund entered into an underwriting agreement with PFD which provides that PFD
will bear expenses for the distribution of the fund's shares, except for
expenses incurred by PFD for which it is reimbursed or compensated by the fund
under the distribution plans (discussed below). PFD bears all expenses it incurs
in providing services under the underwriting agreement. Such expenses include
compensation to its employees and representatives and to securities dealers for
distribution-related services performed for the fund. PFD also pays certain
expenses in connection with the distribution of the fund's shares, including the
cost of preparing, printing and distributing advertising or promotional
materials, and the cost of printing and distributing prospectuses and
supplements to prospective shareholders. The fund bears the cost of registering
its shares under federal and state securities law and the laws of certain
non-U.S. countries. Under the underwriting agreement, PFD will use its best
efforts in rendering services to the fund.
See "Sales Charges" for the schedule of initial sales charge reallowed to
dealers as a percentage of the offering price of the fund's Class A shares.
See the tables in Annual Fee, Expense and Other Information for commissions
retained by PFD and reallowed to dealers in connection with PFD's offering of
the fund's Class A and Class C shares during recently completed fiscal years.
The fund will not generally issue fund shares for consideration other than cash.
At the fund's sole discretion, however, it may issue fund shares for
consideration other than cash in connection with a bona fide reorganization,
statutory merger or other acquisition of portfolio securities.
It is the fund's general practice to repurchase its shares of beneficial
interest for cash consideration in any amount; however, the redemption price of
shares of the fund may, at Pioneer's discretion, be paid in portfolio
securities. The fund has elected to be governed by Rule 18f-1 under the 1940 Act
pursuant to which the fund is obligated to redeem shares solely in cash up to
the lesser of $250,000 or 1% of the fund's net asset value during any 90-day
period for any one shareholder. Should the amount of redemptions by any
shareholder exceed such limitation, the fund will have the option of redeeming
the excess in cash or portfolio securities. In the latter case, the securities
are taken at their value employed in determining the fund's net asset value. You
may incur additional costs, such as brokerage fees and taxes, and risks,
including a decline in the value of the securities you receive, if the fund
makes an in-kind distribution. The selection of such securities will be made in
such manner as the Board of Trustees deems fair and reasonable; however, the
fund will not distribute illiquid securities in kind.
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Distribution Plans
The fund has adopted a plan of distribution pursuant to Rule 12b-1 under the
1940 Act with respect to its Class A shares (the "Class A Plan"), a plan of
distribution with respect to its Class B shares (the "Class B Plan") and a plan
of distribution with respect to its Class C shares (the "Class C Plan")
(together, the "Plans"), pursuant to which certain distribution and service fees
are paid to PFD. The fund has not adopted a plan of distribution with respect to
its Investor Class shares. Because of the Plans, long-term shareholders may pay
more than the economic equivalent of the maximum sales charge permitted by the
National Association of Securities Dealers, Inc. (the "NASD") regarding
investment companies. The Class A Plan is a reimbursement plan, and distribution
expenses of PFD are expected to substantially exceed the distribution fees paid
by the fund in a given year. The Class B Plan and Class C Plan are compensation
plans, which means that the amount of payments under the plans are not linked to
PFD's expenditures, and, consequently, PFD can make a profit under each of those
plans.
Class A Plan. Pursuant to the Class A Plan the fund reimburses PFD for its
actual expenditures to finance any activity primarily intended to result in the
sale of Class A shares or to provide services to holders of Class A shares,
provided the categories of expenses for which reimbursement is made are approved
by the Board of Trustees. The Board of Trustees has approved the following
categories of expenses that may be reimbursed under the Class A Plan: (i) a
service fee to be paid to qualified broker-dealers in an amount not to exceed
0.25% per annum of the fund's daily net assets attributable to Class A shares;
(ii) reimbursement to PFD for its expenditures for broker-dealer commissions and
employee compensation on certain sales of the fund's Class A shares with no
initial sales charge; and (iii) reimbursement to PFD for expenses incurred in
providing services to Class A shareholders and supporting broker-dealers and
other organizations (such as banks and trust companies) in their efforts to
provide such services. The expenses of the fund pursuant to the Class A Plan are
accrued daily at a rate which may not exceed the annual rate of 0.25% of the
fund's average daily net assets attributable to Class A shares.
The Class A Plan does not provide for the carryover of reimbursable expenses
beyond 12 months from the time the fund is first invoiced for an expense. The
limited carryover provision in the Class A Plan may result in an expense
invoiced to the 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, the 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 attributable to
Class A shares during such period. See Annual Fee, Expense and Other Information
for the amount, if any, of carryover of distribution expenses as of the end of
the most recent calendar year.
Class B Plan. PFD pays the selling broker-dealer a commission on the sale of
Class B shares equal to 3.75% of the amount invested. This commission is paid at
the time of sale of the Class B shares. In order to be entitled to a commission,
the selling broker-dealer must have entered into a sales agreements with PFD. At
the time of the sale of a Class B share, PFD may also advance to the
broker-dealer, from PFD's own assets, the first-year service fee payable under
the Class B Plan at a rate up to 0.25% of the purchase price of such shares. If
such an advance is made, the broker-dealer would not receive any further service
fee until the 13th month following the purchase of Class B shares. As
compensation for advancing the service fee, PFD may retain the service fee paid
by the fund with respect to such shares for the first year after purchase.
The Class B Plan provides that the fund shall pay to PFD, as the fund's
distributor for its Class B shares:
o a distribution fee equal on an annual basis to 0.75% of the fund's
average daily net assets attributable to Class B shares. The
distribution fee compensates PFD for its distribution services with
respect to Class B shares. PFD pays the commissions to broker-dealers
discussed above and also pays:
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the cost of printing prospectuses and reports used for sales purposes and the
preparation and printing of sales literature and
other distribution-related expenses, including, without limitation, the cost
necessary to provide distribution-related services, or personnel, travel, office
expenses and equipment.
o a service fee equal to 0.25% of the fund's average daily net assets
attributable to Class B shares. PFD in turn pays the service fee to
broker-dealers at a rate of up to 0.25% of the fund's average daily
net assets attributable to Class B shares owned by shareholder for
whom that broker-dealer is the holder or dealer of record. This
service fee compensates the broker-dealer for providing personal
services and/or account maintenance services rendered by the
broker-dealer with respect to Class B shares. PFD may from time to
time require that dealers, in addition to providing these services,
meet certain criteria in order to receive service fees. PFD is
entitled to retain all service fees with respect to Class B shares for
which there is no dealer of record or with respect to which a dealer
is not otherwise entitled to a service fee. Such service fees are paid
to PFD for personal services and/or account maintenance services that
PFD or its affiliates perform for shareholder accounts.
PFD also receives contingent deferred sales charges ("CDSCs") attributable to
Class B shares to compensate PFD for its distribution expenses. When a
broker-dealer sells Class B shares and elects, with PFD's approval, to waive its
right to receive the commission normally paid at the time of the sale, PFD may
cause all or a portion of the distribution fees described above to be paid to
the broker-dealer.
Since PFD pays commissions to broker-dealers at the time of the sale of Class B
shares but only receives compensation for such expenses over time through the
distribution fee and CDSC, the Class B Plan and underwriting agreement permit
PFD to finance the payment of commissions to broker-dealers. In order to
facilitate such financing, the fund has agreed that the distribution fee will
not be terminated or modified (including a modification in the rules relating to
the conversion of Class B shares into Class A shares) with respect to Class B
shares:
o issued prior to the date of any termination or modification;
o attributable to Class B shares issued through one or a series of
exchanges of shares of another investment company for which PFD acts
as principal underwriter which were initially issued prior to the date
of such termination or modification; or
o issued as a dividend or distribution upon Class B shares initially
issued or attributable to Class B shares issued prior to the date of
any such termination or modification.
The foregoing limitation does not apply to Class B shares issued after the
termination or modification. The foregoing limitation on terminating or
modifying the Class B Plan also does not apply to a termination or modification:
o if a change in the 1940 Act, the rules or regulations under the 1940
Act, the Conduct Rules of the NASD or an order of any court or
governmental agency requires such termination or modification (e.g. if
the Conduct Rules were amended to establish a lower limit on the
maximum aggregate sales charges that could be imposed on sales of fund
shares);
o if the fund (or any successor) terminates the Class B Plan and all
payments under the plan and neither the fund (nor any successor)
establishes another class of shares which has substantially similar
characteristics to the Class B Shares of the fund; or
o at any time by the Board of Trustees. However, the Board of Trustees
may terminate or modify the Class B Plan only if the fund and Pioneer
agree that none of the fund, PFD or any of their affiliates will pay,
after the date of termination or modification, a service fee with
respect to the fund's
-47-
Class B shares and the termination or modification of the distribution
fee applies equally to all Class B shares outstanding from time to
time.
In the underwriting agreement, the fund agrees that subsequent to the issuance
of a Class B share, the fund will not waive or change any CDSC (including a
change in the rules applicable to conversion of Class B shares into another
class) in respect of such Class B share, except:
o as provided in the fund's prospectus or statement of additional
information; or
o as required by a change in the 1940 Act and the rules and regulations
thereunder, the Conduct Rules of the NASD or any order of any court or
governmental agency.
Class C Plan. Commissions on the sale of Class C shares of up to 0.75% of the
amount invested in Class C shares are paid to broker-dealers who have sales
agreements with PFD. PFD may also advance to dealers the first-year service fee
payable under the Class C Plan at a rate up to 0.25% of the purchase price of
such shares. As compensation for such advance of the service fee, PFD may retain
the service fee paid by the fund with respect to such shares for the first year
after purchase.
The Class C Plan provides that the fund will pay PFD, as the fund's distributor
for its Class C shares, a distribution fee accrued daily and paid quarterly,
equal on an annual basis to 0.75% of the fund's average daily net assets
attributable to Class C shares and will pay PFD a service fee equal to 0.25% of
the fund's average daily net assets attributable to Class C shares. PFD will in
turn pay to securities dealers that enter into a sales agreement with PFD a
distribution fee and a service fee at rates of up to 0.75% and 0.25%,
respectively, of the fund's average daily net assets attributable to Class C
shares owned by investors for whom that securities dealer is the holder or
dealer of record. The service fee is intended to be in consideration of personal
services and/or account maintenance services rendered by the dealer with respect
to Class C shares. PFD will advance to dealers the first-year service fee at a
rate equal to 0.25% of the amount invested. As compensation therefor, PFD may
retain the service fee paid by the fund with respect to such shares for the
first year after purchase. Commencing in the 13th month following the purchase
of Class C shares, dealers will become eligible for additional annual
distribution fees and service fees of up to 0.75% and 0.25%, respectively, of
the net asset value of such shares. Dealers may from time to time be required to
meet certain other criteria in order to receive service fees. PFD or its
affiliates are entitled to retain all service fees payable under the Class C
Plan for which there is no dealer of record or for which qualification standards
have not been met as partial consideration for personal services and/or account
maintenance services performed by PFD or its affiliates for shareholder
accounts.
The purpose of distribution payments to PFD under the Class C Plan is to
compensate PFD for its distribution services with respect to Class C shares of
the fund. PFD pays commissions to dealers as well as expenses of printing
prospectuses and reports used for sales purposes, expenses with respect to the
preparation and printing of sales literature and other distribution-related
expenses, including, without limitation, the cost necessary to provide
distribution-related services, or personnel, travel, office expenses and
equipment. The Class C Plan also provides that PFD will receive all CDSCs
attributable to Class C shares. When a broker-dealer sells Class C shares and
elects, with PFD's approval, to waive its right to receive the commission
normally paid at the time of the sale, PFD may cause all or a portion of the
distribution fees described above to be paid to the broker-dealer.
General
In accordance with the terms of each Plan, PFD provides to the fund for review
by the Trustees a quarterly written report of the amounts expended under the
Plan and the purposes for which such expenditures were made. In the Trustees'
quarterly review of the Plans, they will consider the continued appropriateness
and the level of reimbursement or compensation the Plans provide.
No interested person of the fund, nor any Trustee of the fund who is not an
interested person of the fund, has any direct or indirect financial interest in
the operation of the Plans except to the extent that PFD and certain of its
employees may be deemed to have such an interest as a result of receiving a
portion of the
-48-
amounts expended under the Plans by the fund and except to the extent certain
officers may have an interest in PFD's ultimate parent, UniCredito Italiano, or
in UniCredito Italiano's subsidiaries.
Each Plan's adoption, terms, continuance and termination are governed by Rule
12b-1 under the 1940 Act. The Board of Trustees believes that there is a
reasonable likelihood that the Plans will benefit the fund and its current and
future shareholders. The Plans may not be amended to increase materially the
annual percentage limitation of average net assets which may be spent for the
services described therein without approval of the shareholders of the fund
affected thereby, and material amendments of the Plans must also be approved by
the Trustees as provided in Rule 12b-1.
See Annual Fee, Expense and Other Information for fund expenses under the Class
A Plan, Class B Plan and Class C Plan and CDSCs paid to PFD for the most
recently completed fiscal year.
Upon redemption, Class A shares may be subject to a 1% CDSC, Class B shares are
subject to a CDSC at a rate declining from a maximum 4% of the lower of the cost
or market value of the shares and Class C shares may be subject to a 1% CDSC.
Investor Class shares are not subject to a CDSC.
CALCULATION OF PERFORMANCE DATA
See Annual Fee, Expense and Other Information for performance information for
each class of fund shares as of the most recently completed fiscal year.
FINANCIAL STATEMENTS
Safeco California Tax-Free Income Fund's (the predecessor to Pioneer California
Tax Free Income Fund) financial statements and financial highlights for the
fiscal year ended December 31, 2003 appearing in the fund's annual report, as
filed with the SEC on February 26, 2004 (Accession No. 0001193125-04-072454) and
the fund's unaudited financial statements as of June 30, 2004, as filed with the
SEC on August 26, 2004 (Accession No. 0001193125-04-147286) are incorporated by
reference into this statement of additional information. The financial
statements and financial highlights for the fiscal year ended December 31, 2003
have been audited by Ernst & Young LLP, an independent registered public
accounting firm, as indicated in their report thereon, and are incorporated
herein by reference, in reliance upon such report, given on the authority of
Ernst & Young LLP as experts in accounting and auditing.
Safeco California Tax-Free Income Fund's annual and semi-annual reports include
the financial statements referenced above and are available without charge upon
request by calling Shareholder Services at 1-800-225-6292.
ANNUAL FEE, EXPENSE AND OTHER INFORMATION
Portfolio Turnover
Not applicable(1)
Share Ownership
Not applicable(1)
Trustee Ownership of Shares of the Fund and Other Pioneer Funds
The following table indicates the value of shares that each Trustee beneficially
owned in the fund and Pioneer Funds in the aggregate as of December 31, 2003.
Beneficial ownership is determined in accordance with SEC rules. The share value
of any closed-end fund is based on its closing market price on December 31,
2003. The share value of any open-end Pioneer Fund is based on the net asset
value of the
-49-
class of shares on December 31, 2003. The dollar ranges in this table are in
accordance with SEC requirements.
- ------------------------------------------------------------------------------------------------------------
Name of Trustee Aggregate Dollar Range of Equity
Dollar Range of Equity Securities in All Registered Investment
Securities in the Fund(1) Companies in the Pioneer Family of Funds
- ------------------------------------------------------------------------------------------------------------
Interested Trustees
- ------------------------------------------------------------------------------------------------------------
John F. Cogan, Jr. None Over $100,000
- ------------------------------------------------------------------------------------------------------------
Osbert M. Hood None Over $100,000
- ------------------------------------------------------------------------------------------------------------
Independent Trustees
- ------------------------------------------------------------------------------------------------------------
Mary K. Bush None $10,001-$50,000
- ------------------------------------------------------------------------------------------------------------
Richard H. Egdahl, M.D. None $50,001-$100,000
- ------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham None $10,001-$50,000
- ------------------------------------------------------------------------------------------------------------
Marguerite A. Piret None $50,001-$100,000
- ------------------------------------------------------------------------------------------------------------
Stephen K. West None Over $100,000
- ------------------------------------------------------------------------------------------------------------
John Winthrop None Over $100,000
- ------------------------------------------------------------------------------------------------------------
Compensation of Officers and Trustees
The following table sets forth certain information with respect to the
compensation of each Trustee of the fund.
- ------------------------------------------------------------------------------------------------------------
Pension or
Retirement Benefits Total Compensation from
Aggregate Accrued as Part of the Fund and Other Pioneer
Compensation from Fund Expenses Funds***
Name of Trustee Fund**
- ------------------------------------------------------------------------------------------------------------
Interested Trustees:
- ------------------------------------------------------------------------------------------------------------
John F. Cogan, Jr*. $500 $0.00 $19,200.00
- ------------------------------------------------------------------------------------------------------------
Osbert M. Hood*+ $500 11,520.00
- ------------------------------------------------------------------------------------------------------------
Independent Trustees:
- ------------------------------------------------------------------------------------------------------------
Mary K. Bush $1,000 0.00 104,000.00
- ------------------------------------------------------------------------------------------------------------
Richard H. Egdahl, M.D. $1,000 0.00 99,750.00
- ------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham $1,000 0.00 104,000.00
- ------------------------------------------------------------------------------------------------------------
Marguerite A. Piret $1,000 0.00 113,562.50
- ------------------------------------------------------------------------------------------------------------
Stephen K. West $1,000 0.00 99,750.00
- ------------------------------------------------------------------------------------------------------------
John Winthrop $1,000 0.00 99,750.00
---------
- ------------------------------------------------------------------------------------------------------------
Total: $7,000 $0.00 $651,532.50
- ------------------------------------------------------------------------------------------------------------
* Under the management contract, Pioneer reimburses the fund for any
Interested Trustee fees paid by the fund.
** Estimated for the fiscal year ended December 31, 2005.
*** For the calendar year ended December 31, 2003. There are 65 U.S. registered
investment portfolios in the Pioneer Family of Funds.
Approximate Management Fees the Fund Paid or Owed Pioneer
Not applicable(1)
Fees the Fund Paid to Pioneer under the Administration Agreement
Not applicable(1)
-50-
Carryovers of Distribution Expenses
Not applicable(1)
Approximate Net Underwriting Commissions Retained by PFD (Class A)
Not applicable(1)
Approximate Commissions Reallowed to Dealers (Class A)
Not applicable(1)
Fund Expenses under the Distribution Plans
Not applicable(1)
CDSCs
Not applicable(1)
Brokerage and Underwriting Commissions (Portfolio Transactions)
Not applicable(1)
Capital Loss Carryforwards as of December 31, 2003
Not applicable(1)
Average Annual Total Returns (December 31, 2003)
Not applicable(1)
(1) As of December 31, 2003, the fund had not yet commenced operations. As of
the date of this statement of additional information, the fund had not yet
completed a fiscal year.
-51-
PIONEER MUNICIPAL BOND FUND
(a series of Pioneer Series Trust II)
STATEMENT OF ADDITIONAL INFORMATION
October 25, 2004
This Statement of Additional Information is not a Prospectus. It should
be read in conjunction with the related Proxy Statement and Prospectus (also
dated October 25, 2004) which covers Investor Class shares of Pioneer Municipal
Bond Fund (the "fund"), a newly created series of Pioneer Series Trust II, to be
issued in exchange for shares of beneficial interest of Safeco Municipal Bond
Fund, a series of Safeco Tax-Exempt Bond Trust. Please retain this Statement of
Additional Information for further reference.
The Prospectus is available to you free of charge (please call
1-800-407-7298).
INTRODUCTION..................................................................2
EXHIBITS......................................................................2
ADDITIONAL INFORMATION ABOUT PIONEER MUNICIPAL BOND FUND......................2
FUND HISTORY.........................................................2
DESCRIPTION OF THE FUND AND ITS INVESTMENT RISKS.....................2
MANAGEMENT OF THE FUND..............................................13
CONTROL PERSONS AND PRINCIPAL HOLDERS OF
SECURITIES..........................................................21
INVESTMENT ADVISORY AND OTHER SERVICES..............................22
BROKERAGE ALLOCATION AND OTHER PRACTICES............................24
CAPITAL STOCK AND OTHER SECURITIES..................................25
PURCHASE, REDEMPTION AND PRICING OF SHARES..........................27
TAXATION OF THE FUND................................................33
UNDERWRITERS........................................................38
CALCULATION OF PERFORMANCE DATA.....................................42
FINANCIAL STATEMENTS................................................42
ANNUAL FEE, EXPENSE AND OTHER INFORMATION...........................43
INTRODUCTION
This Statement of Additional Information is intended to supplement the
information provided in a Proxy Statement and Prospectus dated October 25, 2004
(the "Proxy Statement and Prospectus") relating to the proposed reorganization
of Safeco Municipal Bond Fund, a series of Safeco Tax-Exempt Bond Trust, into
Pioneer Municipal Bond Fund, a newly created series of Pioneer Series Trust II,
and in connection with the solicitation by the management of Safeco Tax-Exempt
Bond Trust of proxies to be voted at the Meeting of Shareholders of Safeco
Municipal Bond Fund to be held on December 8, 2004.
EXHIBITS AND DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated herein by reference, unless otherwise
indicated. Shareholders will receive a copy of each document that is
incorporated by reference upon any request to receive a copy of this Statement
of Additional Information.
1. Safeco Tax-Exempt Bond Trust's statement of additional information, dated
April 30, 2004 (File No. 33-53532), as filed with the Securities and
Exchange Commission on April 29, 2004 (Accession No. 0001193125-04-072484)
is incorporated herein by reference.
3. Safeco Municipal Bond Fund's Annual Report for the fiscal year ended
December 31, 2003 (File No. 811-07300), as filed with the Securities and
Exchange Commission on February 26, 2004 (Accession No.
0001193125-04-030255) is incorporated herein by reference.
2. Safeco Municipal Bond Fund's Semi-Annual Report for the period ended June
30, 2004 (File No. 811-07300), as filed with the Securities and Exchange
Commission on August 26, 2004 (Accession No. 0001193125-04-147198) is
incorporated herein by reference.
ADDITIONAL INFORMATION ABOUT
PIONEER MUNICIPAL BOND FUND
FUND HISTORY
The fund is a diversified series of Pioneer Series Trust II, an open-end
management investment company. The fund originally was established as Safeco
Municipal Bond Fund, a series of Safeco Tax-Exempt Bond Trust, a Delaware
statutory trust, on May 13, 1993. Pursuant to an agreement and plan of
reorganization, the fund was reorganized as a series of Pioneer Series Trust II,
a Delaware statutory trust, on August 8, 2004.
DESCRIPTION OF THE FUND AND ITS INVESTMENT RISKS
The prospectus presents the investment objective and the principal investment
strategies and risks of the fund. This section supplements the disclosure in the
fund's prospectuses and provides additional information on the fund's investment
policies or restrictions. Restrictions or policies stated as a maximum
percentage of the fund's assets are only applied immediately after a portfolio
investment to which the policy or restriction is applicable (other than the
limitations on borrowing and illiquid securities). Accordingly, any later
increase or decrease resulting from a change in values, net assets or other
circumstances will not be considered in determining whether the investment
complies with the fund's restrictions and policies.
-2-
Debt Securities Rating Criteria
While ratings at the time of purchase will determine which securities may be
acquired, a subsequent reduction in rating will not require the fund to dispose
of the securities. Investment in lower-quality securities may provide higher
yields than higher-rated securities; however, the added risk of investing in
lower quality securities might not be consistent with preservation of capital.
The ratings of Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's
Ratings Group ("S&P") represent their opinions as to the quality of the bonds
issued by or on behalf of states, counties and municipalities of the U.S. and
their authorities and political subdivisions ("Tax-Exempt Bonds") which they
undertake to rate. It should be emphasized, however, that ratings are general
and are not absolute standards of quality. Consequently, Tax-Exempt Bonds with
the same maturity, coupon and rating may have different yields while bonds of
the same maturity and coupon with different ratings may have the same yield.
There is no assurance the fund will attain its investment objective. See
Appendix A for a description of rating categories.
Investment grade debt securities are those rated "BBB" or higher by S&P or the
equivalent rating of other nationally recognized statistical rating
organizations. Debt securities rated BBB are considered medium grade obligations
with speculative characteristics, and adverse economic conditions or changing
circumstances may weaken the issuer's ability to pay interest and repay
principal. If the rating of an investment grade debt security falls below
investment grade, Pioneer Investment Management, Inc. ("Pioneer"), the fund's
investment adviser, will consider if any action is appropriate in light of the
fund's investment objective and policies. Below investment grade debt securities
are those rated "BB" and below by S&P or the equivalent rating of other
nationally recognized statistical rating organizations.
Below investment grade debt securities or comparable unrated securities are
commonly referred to as "junk bonds" and are considered predominantly
speculative and may be questionable as to principal and interest payments.
Changes in economic conditions are more likely to lead to a weakened capacity to
make principal payments and interest payments. The amount of high yield
securities outstanding has proliferated as an increasing number of issuers have
used high yield securities for corporate financing. An economic downturn could
severely affect the ability of highly leveraged issuers to service their debt
obligations or to repay their obligations upon maturity. Factors having an
adverse impact on the market value of lower quality securities will have an
adverse effect on the fund's net asset value to the extent that it invests in
such securities. In addition, the fund may incur additional expenses to the
extent it is required to seek recovery upon a default in payment of principal or
interest on its portfolio holdings.
The secondary market for high yield securities may not be as liquid as the
secondary market for more highly rated securities, a factor which may have an
adverse effect on the fund's ability to dispose of a particular security when
necessary to meet its liquidity needs. Under adverse market or economic
conditions, the secondary market for high yield securities could contract
further, independent of any specific adverse changes in the condition of a
particular issuer. As a result, the fund could find it more difficult to sell
these securities or may be able to sell the securities only at prices lower than
if such securities were widely traded. Prices realized upon the sale of such
lower rated or unrated securities, under these circumstances, may be less than
the prices used in calculating the fund's net asset value.
Since investors generally perceive that there are greater risks associated with
lower quality debt securities of the type in which the fund may invest a portion
of its assets, the yields and prices of such securities may tend to fluctuate
more than those for higher rated securities. In the lower quality segments of
the debt securities market, changes in perceptions of issuers' creditworthiness
tend to occur more frequently and in a more pronounced manner than do changes in
higher quality segments of the debt securities market, resulting in greater
yield and price volatility.
Lower rated and comparable unrated debt securities tend to offer higher yields
than higher rated securities with the same maturities because the historical
financial condition of the issuers of such securities may not have been as
strong as that of other issuers. However, lower rated securities generally
involve greater risks of loss of income and principal than higher rated
securities. Accordingly, investing in lower quality securities might not be
consistent with preservation of capital. Pioneer will attempt to reduce these
risks
-3-
through portfolio diversification and by analysis of each issuer and its ability
to make timely payments of income and principal, as well as broad economic
trends and corporate developments.
The fund may invest up to 10% of its net assets in debt securities rated below
investment grade or, if unrated, of equivalent quality as determined by Pioneer.
At December 31, 2003, xx% of the fund's total assets were rated BB (or were of
equivalent quality), xxx% of the fund's total assets were rated B (or were of
equivalent quality) and xxx% of the fund's total assets were rated below B (or
were of equivalent quality).
For purposes of the fund's credit quality policies, if a security receives
different ratings from nationally recognized statistical rating organizations,
the fund will use the rating chosen by the portfolio manager as most
representative of the security's credit quality. If a rating organization
downgrades the quality rating assigned to one or more of the fund's portfolio
securities, Pioneer will consider what actions, if any, are appropriate
including selling the downgraded security or purchasing additional investment
grade securities of the appropriate credit quality as soon as it is prudent to
do so.
Municipal Obligations
The term "municipal obligations" generally is understood to include debt
obligations issued by municipalities to obtain funds for various public
purposes, the interest on which is, in the opinion of bond counsel to the
issuer, excluded from gross income for U.S. federal income tax purposes. In
addition, if the proceeds from private activity bonds are used for the
construction, repair or improvement of privately operated industrial or
commercial facilities, the interest paid on such bonds may be excluded from
gross income for U.S. federal income tax purposes, although current federal tax
laws place substantial limitations on the size of these issues.
The two principal classifications of municipal obligations are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its faith, credit, and taxing power for the payment of
principal and interest. Revenue bonds are payable from the revenues derived from
a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source, but not from the
general taxing power. Sizable investments in these obligations could involve an
increased risk to the fund should any of the related facilities experience
financial difficulties. Private activity bonds are in most cases revenue bonds
and do not generally carry the pledge of the credit of the issuing municipality.
There are, of course, variations in the security of municipal obligations, both
within a particular classification and between classifications.
The yields on Tax-Exempt Bonds are dependent on a variety of factors, including
general money market conditions, general conditions of the Tax-Exempt Bond
market, the size of a particular offering, the maturity of the obligation, and
the rating of the issue. The value of outstanding Tax-Exempt Bonds will vary as
a result of changing evaluations of the ability of their issuers to meet the
interest and principal payments. Such values will also change in response to
changes in the interest rates payable on new issues of Tax-Exempt Bonds. Should
such interest rates rise, the values of outstanding bonds, including those held
in the fund's portfolio, will decline and (if purchased at principal amount)
would sell at a discount, and, if such interest rates fall, the values of
outstanding bonds will increase and (if purchased at principal amount) would
sell at a premium. Changes in the value of the Tax-Exempt Bonds held in the
fund's portfolio arising from these or other factors will cause changes in the
net asset value per share of the fund.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the U.S. federal income tax exemption for
interest on Tax-Exempt Bonds. It can be expected that similar proposals may be
introduced in the future. If such a proposal were enacted, the availability of
Tax-Exempt Bonds for investment by the fund and the value of the fund's
portfolio would be affected. Additionally, the fund would reevaluate its
investment objective and policies and consider changes in the structure of the
fund.
-4-
Municipal Lease Obligations
Municipal lease obligations or installment purchase contract obligations
(collectively, "lease obligations") have special risks not ordinarily associated
with other Tax-Exempt Bonds. Although lease obligations do not constitute
general obligations of the municipality for which the municipality's taxing
power is pledged, a lease obligation ordinarily is backed by the municipality's
covenant to budget for, appropriate and make the payments due under the lease
obligations. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. In addition to the non-appropriation risk, these
securities represent a relatively new type of financing that has not yet
developed the depth of marketability associated with more conventional bonds.
Although non-appropriation lease obligations are secured by the leased property,
disposition of the property in the event of foreclosure might prove difficult.
The fund will seek to minimize these risks.
In determining the liquidity of municipal lease obligations, Pioneer, under
guidelines established by the fund's Board of Trustees, will consider: (1) the
essential nature of the leased property; and (2) the likelihood that the
municipality will discontinue appropriating funding for the leased property
because the property is no longer deemed essential to the operation of the
municipality.
If leased property is determined not to be essential in nature or if there is a
likelihood that the municipality will discontinue appropriating funding, then
the following factors will also be considered in determining liquidity:
(1) any relevant factors related to the general credit quality of the
municipality, which may include: (a) whether the lease can be canceled; (b) what
assurance there is that the assets represented by the lease can be sold; (c) the
strength of the lessee's general credit (e.g., its debt, administrative,
economic and financial characteristics); and (d) the legal recourse in the event
of failure to appropriate.
(2) any relevant factors related to the marketability of the municipal lease
obligation which may include: (a) the frequency of trades and quotes for the
obligation; (b) the number of dealers willing to purchase or sell the obligation
and the number of other potential purchasers; (c) the willingness of dealers to
undertake to make a market in the obligation; and (d) the nature of the
marketplace trades, including the time needed to dispose of the obligation, the
method of soliciting offers, and the mechanics of transfer.
Illiquid Securities
The fund will not invest more than 15% of its net assets in illiquid and other
securities that are not readily marketable. Repurchase agreements maturing in
more than seven days will be included for purposes of the foregoing limit.
Securities subject to restrictions on resale under the Securities Act of 1933,
as amended (the "1933 Act"), are considered illiquid unless they are eligible
for resale pursuant to Rule 144A or another exemption from the registration
requirements of the 1933 Act and are determined to be liquid by Pioneer, the
fund's investment adviser. Pioneer determines the liquidity of Rule 144A and
other restricted securities according to procedures adopted by the Board of
Trustees. Under the direction of the Board of Trustees, Pioneer monitors the
application of these guidelines and procedures. The inability of the fund to
dispose of illiquid investments readily or at reasonable prices could impair the
fund's ability to raise cash for redemptions or other purposes. If the fund sold
restricted securities other than pursuant to an exception from registration
under the 1933 Act such as Rule 144A, it may be deemed to be acting as an
underwriter and subject to liability under the 1933 Act.
Zero Coupon and Deferred Interest Bonds
Tax-Exempt Bonds in which the fund may invest also include zero coupon bonds and
deferred interest bonds. Zero coupon bonds and deferred interest bonds are debt
obligations which are issued at a significant discount from face value. While
zero coupon bonds do not require the periodic payment of interest, deferred
interest bonds provide for a period of delay before the regular payment of
interest begins. The discount approximates the total amount of interest the
bonds will accrue and compound over the period
-5-
until maturity or the first interest payment date at a rate of interest
reflecting the market rate of the security at the time of issuance. Zero coupon
bonds and deferred interest bonds benefit the issuer by mitigating its need for
cash to service its debt, but generally require a higher rate of return to
attract investors who are willing to defer receipt of such cash. Such
investments may experience greater volatility in value than debt obligations
which make regular payments of interest. The fund will accrue income on such
investments for tax and accounting purposes, which is distributable to
shareholders. Since no cash is received at the time of accrual, the fund may be
required to liquidate other portfolio securities to satisfy its distribution
obligations.
Residual Interests in Municipal Securities
Certain municipal securities are divided into short-term and long-term
components. The short-term component has a long-term maturity, but pays interest
at a short-term rate that is reset by means of a "dutch auction" or similar
method at specified intervals (typically 35 days). The long-term component or
"residual interest" pays interest at a rate that is determined by subtracting
the interest paid on the short-term component from the coupon rate on the
municipal securities themselves. Consequently, the interest rate paid on
residual interests will increase when short-term interest rates are declining
and will decrease when short-term interest rates are increasing. This interest
rate adjustment formula results in the market value of residual interests being
significantly more volatile than that of ordinary municipal securities. In a
declining interest rate environment, residual interests can provide the fund
with a means of increasing or maintaining the level of tax-exempt interest paid
to shareholders. However, because of the market volatility associated with
residual interests, the fund will not invest more than 10% of its total assets
in residual interests in municipal securities.
U.S. Government Securities
U.S. government securities in which the fund may invest include debt obligations
of varying maturities issued by the U.S. Treasury or issued or guaranteed by an
agency or instrumentality of the U.S. government, including the Federal Housing
Administration, Federal Financing Bank, Farmers Home Administration,
Export-Import Bank of the U.S., Small Business Administration, Government
National Mortgage Association ("GNMA"), General Services Administration, Central
Bank for Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation ("FHLMC"), Federal National Mortgage
Association ("FNMA"), Maritime Administration, Tennessee Valley Authority,
District of Columbia Armory Board, Student Loan Marketing Association,
Resolution Trust Corporation and various institutions that previously were or
currently are part of the Farm Credit System (which has been undergoing
reorganization since 1987). Some U.S. government securities, such as U.S.
Treasury bills, Treasury notes and Treasury bonds, which differ only in their
interest rates, maturities and times of issuance, are supported by the full
faith and credit of the United States. Others are supported by: (i) the right of
the issuer to borrow from the U.S. Treasury, such as securities of the Federal
Home Loan Banks; (ii) the discretionary authority of the U.S. government to
purchase the agency's obligations, such as securities of the FNMA; or (iii) only
the credit of the issuer. No assurance can be given that the U.S. government
will provide financial support in the future to U.S. government agencies,
authorities or instrumentalities that are not supported by the full faith and
credit of the United States. Securities guaranteed as to principal and interest
by the U.S. government, its agencies, authorities or instrumentalities include:
(i) securities for which the payment of principal and interest is backed by an
irrevocable letter of credit issued by the U.S. government or any of its
agencies, authorities or instrumentalities; and (ii) participations in loans
made to non-U.S. governments or other entities that are so guaranteed. The
secondary market for certain of these participations is limited and, therefore,
may be regarded as illiquid.
U.S. government securities may include zero coupon securities that may be
purchased when yields are attractive and/or to enhance portfolio liquidity. Zero
coupon U.S. government securities are debt obligations that are issued or
purchased at a significant discount from face value. The discount approximates
the total amount of interest the security will accrue and compound over the
period until maturity or the particular interest payment date at a rate of
interest reflecting the market rate of the security at the time of issuance.
Zero coupon U.S. government securities do not require the periodic payment of
interest. These investments benefit the issuer by mitigating its need for cash
to meet debt service, but generally require a higher rate of return to attract
investors who are willing to defer receipt of cash. These
-6-
investments may experience greater volatility in market value than U.S.
government securities that make regular payments of interest. The fund accrues
income on these investments for tax and accounting purposes, which is
distributable to shareholders and which, because no cash is received at the time
of accrual, may require the liquidation of other portfolio securities to satisfy
the fund's distribution obligations, in which case the fund will forgo the
purchase of additional income producing assets with these funds. Zero coupon
U.S. government securities include STRIPS and CUBES, which are issued by the
U.S. Treasury as component parts of U.S. Treasury bonds and represent scheduled
interest and principal payments on the bonds.
Debt Obligations of Non-U.S. Governments
An investment in debt obligations of non-U.S. governments and their political
subdivisions (sovereign debt) involves special risks that are not present in
corporate debt obligations. The non-U.S. issuer of the sovereign debt or the
non-U.S. governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or interest when due, and a fund may have
limited recourse in the event of a default. During periods of economic
uncertainty, the market prices of sovereign debt may be more volatile than
prices of debt obligations of U.S. issuers. In the past, certain non-U.S.
countries have encountered difficulties in servicing their debt obligations,
withheld payments of principal and interest and declared moratoria on the
payment of principal and interest on their sovereign debt.
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign currency reserves, the availability of
sufficient non-U.S. exchange, the relative size of the debt service burden, the
sovereign debtor's policy toward its principal international lenders and local
political constraints. Sovereign debtors may also be dependent on expected
disbursements from non-U.S. governments, multilateral agencies and other
entities to reduce principal and interest arrearages on their debt. The failure
of a sovereign debtor to implement economic reforms, achieve specified levels of
economic performance or repay principal or interest when due may result in the
cancellation of third-party commitments to lend funds to the sovereign debtor,
which may further impair such debtor's ability or willingness to service its
debts.
Risks of Non-U.S. Investments
Investing in securities of non-U.S. issuers involves considerations and risks
not typically associated with investing in the securities of issuers in the U.S.
The risks of investing in securities of non-U.S. issuers generally or in issuers
with significant exposure to non-U.S. markets may be related, among other
things, to (i) differences in size, liquidity and volatility of, and the degree
and manner of regulation of, the securities markets of certain non-U.S. markets
compared to the securities markets in the U.S.; and (ii) economic, political and
social factors. The political and economic structures in certain countries are
expected to undergo significant evolution and rapid development, and such
countries may lack the social, political and economic stability characteristic
of more developed countries. Unanticipated political or social developments may
affect the values of the fund's investments in such countries. In the past, the
economies and securities and currency markets of many emerging markets have
experienced significant disruption and declines. There can be no assurances that
these economic and market disruptions might not occur again.
When-Issued and Delayed Delivery Securities
The fund may purchase securities, including U.S. government securities, on a
when-issued basis or may purchase or sell securities for delayed delivery. In
such transactions, delivery of the securities occurs beyond the normal
settlement period, but no payment or delivery is made by the fund prior to the
actual delivery or payment by the other party to the transaction. The fund will
not earn income on these securities until delivered. The purchase of securities
on a when-issued or delayed delivery basis involves the risk that the value of
the securities purchased will decline prior to the settlement date. The sale of
securities for delayed delivery involves the risk that the prices available in
the market on the delivery date may be greater than those obtained in the sale
transaction. The fund's obligations with respect to when-issued and delayed
delivery transactions will be fully collateralized by segregating liquid assets
with a value equal to the fund's obligations. See "Asset Segregation."
-7-
Other Investment Companies
The fund may invest in the securities of other investment companies to the
extent that such investments are consistent with the fund's investment objective
and policies and permissible under the Investment Company Act of 1940, as
amended (the "1940 Act"). Under the 1940 Act, the fund may not acquire the
securities of other domestic or non-U.S. investment companies if, as a result,
(i) more than 10% of the fund's total assets would be invested in securities of
other investment companies, (ii) such purchase would result in more than 3% of
the total outstanding voting securities of any one investment company being held
by the fund, or (iii) more than 5% of the fund's total assets would be invested
in any one investment company. These limitations do not apply to the purchase of
shares of any investment company in connection with a merger, consolidation,
reorganization or acquisition of substantially all the assets of another
investment company. The fund may invest in money market funds managed by Pioneer
in reliance on an exemptive order granted by the Securities and Exchange
Commission (the "SEC").
The fund, as a holder of the securities of other investment companies, will bear
its pro rata portion of the other investment companies' expenses, including
advisory fees. These expenses are in addition to the direct expenses of the
fund's own operations.
Subject to the limitations on investment in other investment companies, the fund
may invest in exchange traded funds (ETFs). ETFs, such as SPDRs, NASDAQ 100
Index Trading Stock (QQQs), iShares and various country index funds, are funds
whose shares are traded on a national exchange or the National Association of
Securities Dealers' Automatic Quotation System (NASDAQ). ETFs may be based on
underlying equity or fixed income securities. SPDRs, for example, seek to
provide investment results that generally correspond to the performance of the
component common stocks of the S&P 500. ETFs do not sell individual shares
directly to investors and only issue their shares in large blocks known as
"creation units." The investor purchasing a creation unit then sells the
individual shares on a secondary market. Therefore, the liquidity of ETFs
depends on the adequacy of the secondary market. There can be no assurance that
an ETF's investment objective will be achieved. ETFs based on an index may not
replicate and maintain exactly the composition and relative weightings of
securities in the index. ETFs are subject to the risks of investing in the
underlying securities. The fund, as a holder of the securities of the ETF, will
bear its pro rata portion of the ETF's expenses, including advisory fees. These
expenses are in addition to the direct expenses of the fund's own operations.
Repurchase Agreements
The fund may enter into repurchase agreements with broker-dealers, member banks
of the Federal Reserve System and other financial institutions. Repurchase
agreements are arrangements under which the fund purchases securities and the
seller agrees to repurchase the securities within a specific time and at a
specific price. The repurchase price is generally higher than the fund's
purchase price, with the difference being income to the fund. Under the
direction of the Board of Trustees, Pioneer reviews and monitors the
creditworthiness of any institution which enters into a repurchase agreement
with the fund. The counterparty's obligations under the repurchase agreement are
collateralized with U.S. Treasury and/or agency obligations with a market value
of not less than 100% of the obligations, valued daily. Collateral is held by
the fund's custodian in a segregated, safekeeping account for the benefit of the
fund. Repurchase agreements afford the fund an opportunity to earn income on
temporarily available cash at low risk. In the event of commencement of
bankruptcy or insolvency proceedings with respect to the seller of the security
before repurchase of the security under a repurchase agreement, the fund may
encounter delay and incur costs before being able to sell the security. Such a
delay may involve loss of interest or a decline in price of the security. If the
court characterizes the transaction as a loan and the fund has not perfected a
security interest in the security, the fund may be required to return the
security to the seller's estate and be treated as an unsecured creditor of the
seller. As an unsecured creditor, the fund would be at risk of losing some or
all of the principal and interest involved in the transaction.
-8-
Other Eligible Investments
For temporary defensive or cash management purposes, the fund may invest in all
types of short-term investments including, but not limited to, (a) commercial
paper and other short-term commercial obligations; (b) obligations (including
certificates of deposit and bankers' acceptances) of banks; (c) obligations
issued or guaranteed by a governmental issuer, including governmental agencies
or instrumentalities; and (d) fixed income securities of corporate issuers.
These securities may be denominated in any currency and, excluding the fund's
permissible investments in below investment grade debt and convertible debt
securities, will be rated, at the time of investment, Prime-1, Baa or better by
Moody's Investors Service, Inc. ("Moody's"), or A-1, BBB or better by Standard &
Poor's or determined by Pioneer to be of equivalent credit quality. During
normal market conditions, the fund will only invest in the foregoing short-term
investments for cash management purposes to an extent consistent with the fund's
investment objective. When the fund adopts a defensive strategy due to adverse
market, economic or other such conditions, the fund may not be able to achieve
its investment objective.
Asset Segregation
The 1940 Act requires that the fund segregate assets in connection with certain
types of transactions that may have the effect of leveraging the fund's
portfolio. If the fund enters into a transaction requiring segregation, such as
a forward commitment, the custodian or Pioneer will segregate liquid assets in
an amount required to comply with the 1940 Act. Such segregated assets will be
valued at market daily. If the aggregate value of such segregated assets
declines below the aggregate value required to satisfy the 1940 Act, additional
liquid assets will be segregated.
Portfolio Turnover
The fund will limit portfolio turnover to the extent practicable and consistent
with its investment objective and policies. While it does not intend to engage
in short-term trading, the fund will not preclude itself from taking advantage
of short-term trends and yield disparities that might occur from time to time. A
higher portfolio turnover rate will result in correspondingly higher transaction
costs. See Annual Fee, Expense and Other Information for the fund's annual
portfolio turnover rate.
Futures Contracts
To hedge against changes in securities prices or interest rates or to seek to
increase total return, the fund may purchase and sell various kinds of futures
contracts. The fund may also enter into closing purchase and sale transactions
with respect to any of such contracts. The futures contracts may be based on
various securities (such as U.S. government securities), securities indices and
other financial instruments and indices. All futures contracts entered into by
the fund are traded on U.S. exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission (the "CFTC").
Futures Contracts. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments for an
agreed price during a designated month (or to deliver the final cash settlement
price, in the case of a contract relating to an index or otherwise not calling
for physical delivery at the end of trading in the contract).
When interest rates are rising or securities prices are falling, the fund can
seek to offset a decline in the value of its current portfolio securities
through the sale of futures contracts. When interest rates are falling or
securities prices are rising, the fund, through the purchase of futures
contracts, can attempt to secure better rates or prices than might later be
available in the market when it effects anticipated purchases.
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities will usually be liquidated in
this manner, the fund may instead make, or take, delivery of the underlying
securities whenever it appears economically advantageous to do so. A clearing
corporation associated with
-9-
the exchange on which futures on securities are traded guarantees that, if still
open, the sale or purchase will be performed on the settlement date.
Hedging Strategies. Hedging, by use of futures contracts, seeks to establish
with more certainty the effective price and rate of return on portfolio
securities and securities that the fund owns or proposes to acquire. The fund
may, for example, take a "short" position in the futures market by selling
futures contracts in order to hedge against an anticipated rise in interest
rates or a decline in market prices that would adversely affect the value of the
fund's portfolio securities. Such futures contracts may include contracts for
the future delivery of securities held by the fund or securities with
characteristics similar to those of the fund's portfolio securities. If, in the
opinion of Pioneer, there is a sufficient degree of correlation between price
trends for the fund's portfolio securities and futures contracts based on other
financial instruments, securities indices or other indices, the fund may also
enter into such futures contracts as part of its hedging strategies. Although
under some circumstances prices of securities in the fund's portfolio may be
more or less volatile than prices of such futures contracts, Pioneer will
attempt to estimate the extent of this volatility difference based on historical
patterns and compensate for any such differential by having the fund enter into
a greater or lesser number of futures contracts or by attempting to achieve only
a partial hedge against price changes affecting the fund's portfolio securities.
When hedging of this character is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of the fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, the fund may take a "long" position by purchasing futures
contracts. This may be done, for example, when the fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices then available in the applicable market to be less favorable
than prices or rates that are currently available.
Other Considerations. The fund will engage in futures transactions in accordance
with CFTC regulations which permit principals of an investment company
registered under the 1940 Act to engage in such transactions without registering
as commodity pool operators.
The fund will engage in transactions in futures contracts only to the extent
such transactions are consistent with the requirements of the Code for
maintaining its qualification as a regulated investment company for U.S. federal
income tax purposes.
Futures contracts involve brokerage costs, require margin deposits and, in the
case of contracts obligating the fund to purchase securities, require the fund
to segregate assets to cover such contracts.
While transactions in futures contracts may reduce certain risks, such
transactions themselves entail certain other risks. Thus, while the fund may
benefit from the use of futures, unanticipated changes in interest rates or
securities prices may result in a poorer overall performance for the fund than
if it had not entered into any futures contracts. In the event of an imperfect
correlation between a futures position and a portfolio position which is
intended to be protected, the desired protection may not be obtained and the
fund may be exposed to risk of loss.
Inverse Floating Rate Securities
The interest on an inverse floater resets in the opposite direction from the
market rate of interest to which the inverse floater is indexed. An inverse
floater may be considered to be leveraged to the extent that its interest rate
varies by a magnitude that exceeds the magnitude of the change in the index rate
of interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values.
-10-
Lending of Portfolio Securities
The fund may lend portfolio securities to registered broker-dealers or other
institutional investors deemed by Pioneer to be of good standing under
agreements which require that the loans be secured continuously by collateral in
cash, cash equivalents or U.S. Treasury bills maintained on a current basis at
an amount at least equal to the market value of the securities loaned. The fund
continues to receive the equivalent of the interest or dividends paid by the
issuer on the securities loaned as well as the benefit of an increase and the
detriment of any decrease in the market value of the securities loaned and would
also receive compensation based on investment of the collateral. The fund may
pay administrative and custodial fees in connection with loans of securities and
may pay a portion of the income or fee earned thereon to the borrower, lending
agent or other intermediary. The fund would not, however, have the right to vote
any securities having voting rights during the existence of the loan, but would
call the loan in anticipation of an important vote to be taken among holders of
the securities or of the giving or withholding of consent on a material matter
affecting the investment.
As with other extensions of credit, there are risks of delay in recovery or even
loss of rights in the collateral should the borrower of the securities fail
financially. The fund will lend portfolio securities only to firms that have
been approved in advance by the Board of Trustees, which will monitor the
creditworthiness of any such firms. At no time would the value of the securities
loaned exceed 33 1/3% of the value of the fund's total assets.
Money Market Instruments
The fund may invest in short term money market instruments including commercial
bank obligations and commercial paper. These instruments may be denominated in
both U.S. and, to a limited extent, foreign currency. The fund's investment in
commercial bank obligations includes certificates of deposit ("CDs"), time
deposits ("TDs") and bankers' acceptances. Obligations of foreign branches of
U.S. banks and of foreign banks may be general obligations of the parent bank in
addition to the issuing bank, or may be limited by the terms of a specific
obligation and by government regulation. As with investment in non-U.S.
securities in general, investments in the obligations of foreign branches of
U.S. banks and of foreign banks may subject the fund to investment risks that
are different in some respects from those of investments in obligations of
domestic issuers.
The fund's investments in commercial paper consist of short-term (usually from 1
to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations.
Fundamental investment restrictions
The fund has adopted certain fundamental investment restrictions which, along
with the fund's investment objective, may not be changed without the affirmative
vote of the holders of a "majority of the outstanding voting securities" (as
defined in the 1940 Act) of the fund. Statements in italics are not part of the
restriction. For this purpose, a majority of the outstanding shares of the fund
means the vote of the lesser of:
(i) 67% or more of the shares represented at a meeting, if the holders of more
than 50% of the outstanding shares are present in person or by proxy, or
(ii) more than 50% of the outstanding shares of the fund.
The fund may not:
(1) Issue senior securities, except to the extent permitted by applicable law,
as amended and interpreted or modified from time to time by any regulatory
authority having jurisdiction. Senior securities that a fund may issue in
accordance with the 1940 Act include borrowing, futures, when-issued and delayed
delivery securities and forward foreign currency exchange transactions.
-11-
(2) Borrow money, except on a temporary basis and to the extent permitted by
applicable law, as amended and interpreted or modified from time to time by any
regulatory authority having jurisdiction. Under current regulatory requirements,
a fund may: (a) borrow from banks or through reverse repurchase agreements in an
amount up to 33 1/3% of the fund's total assets (including the amount borrowed);
(b) borrow up to an additional 5% of the fund's assets for temporary purposes;
(c) obtain such short-term credits as are necessary for the clearance of
portfolio transactions; (d) purchase securities on margin to the extent
permitted by applicable law; and (e) engage in transactions in mortgage dollar
rolls that are accounted for as financings.
(3) Invest in real estate, except (a) that the fund may invest in securities of
issuers that invest in real estate or interests therein, securities that are
secured by real estate or interests therein, securities of real estate
investment trusts, mortgage-backed securities and other securities that
represent a similar indirect interest in real estate; and (b) the fund may
acquire real estate or interests therein through exercising rights or remedies
with regard to an instrument or security.
(4) Make loans, except that the fund may (i) lend portfolio securities in
accordance with the fund's investment policies, (ii) enter into repurchase
agreements, (iii) purchase all or a portion of an issue of publicly distributed
debt securities, bank loan participation interests, bank certificates of
deposit, bankers' acceptances, debentures or other securities, whether or not
the purchase is made upon the original issuance of the securities, (iv)
participate in a credit facility whereby the fund may directly lend to and
borrow money from other affiliated funds to the extent permitted under the 1940
Act or an exemption therefrom, and (v) make loans in any other manner consistent
with applicable law, as amended and interpreted or modified from time to time by
any regulatory authority having jurisdiction.
(5) Invest in commodities or commodity contracts, except that the fund may
invest in currency instruments and currency contracts and financial instruments
and financial contracts that might be deemed to be commodities and commodity
contracts in accordance with applicable law. A futures contract, for example,
may be deemed to be a commodity contract.
(6) Make any investment inconsistent with its classification as a diversified
open-end investment company (or series thereof) under the 1940 Act. Currently,
diversification means that, with respect to 75% of its total assets, the fund
may not purchase securities of an issuer (other than the U.S. government, its
agencies or instrumentalities and securities of investment companies), if
(a) such purchase would cause more than 5% of the fund's total assets,
taken at market value, to be invested in the securities of such issuer, or
(b) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the fund.
(7) Act as an underwriter, except insofar as the fund technically may be deemed
to be an underwriter in connection with the purchase or sale of its portfolio
securities.
(8) Invest 25% or more of the value of its total assets in any one industry,
provided that this limitation does not apply to municipal securities other than
those municipal securities backed only by assets and revenues of
non-governmental issuers. For purposes of applying the limitation set forth in
this restriction, securities of the U.S. government, its agencies, or
instrumentalities, and securities backed by the credit of a governmental entity
are not considered to represent industries. However, obligations backed only by
the assets and revenues of non-governmental issuers may for this purpose be
deemed to be issued by such non-governmental issuers. Thus, the 25% limitation
would apply to such obligations. It is nonetheless possible that the fund may
invest more than 25% of its total assets in a broader economic sector of the
market for municipal obligations, such as revenue obligations of hospitals and
other health care facilities or electrical utility revenue obligations. In
addition, for the purpose of applying the limitation set forth this restriction,
a non-governmental issuer shall be deemed the sole issuer of a security when its
assets and revenues are separate from other governmental entities and its
securities are backed only by its assets and revenues. Similarly, in the case of
a non-governmental issuer, such as an industrial corporation or a privately
owned
-12-
or operated hospital, if the security is backed only by the assets and revenues
of the non-governmental issuer, then such non-governmental issuer would be
deemed to be the sole issuer. Where a security is also backed by the enforceable
obligation of a superior or unrelated governmental or other entity (other than a
bond insurer), it shall also be included in the computation of securities owned
that are issued by such governmental or other entity. Where a security is
guaranteed by a governmental entity or some other facility, such as a bank
guarantee or letter of credit, such a guarantee or letter of credit would be
considered a separate security and would be treated as an issue of such
government, other entity or bank. When a municipal bond is insured by bond
insurance, it shall not be considered a security that is issued or guaranteed by
the insurer; instead, the issuer of such municipal bond will be determined in
accordance with the principles set forth above. The foregoing restrictions do
not limit the percentage of th efund's assets that may be invested in municipal
bonds insured by any given insurer. Governmental issuers of municipal securities
are not considered part of any "industry." In the opinion of the SEC,
investments are concentrated in a particular industry if such investments
aggregate 25% or more of the fund's total assets. When identifying industries
for purposes of its concentration policy, the fund may rely upon available
industry classifications. The fund's policy does not apply to investments in
U.S. government securities.
(9) Normally, the fund will invest at least 80% of its net assets in investments
the income from which will be exempt from regular federal income tax.
Non-Fundamental Investment Restrictions
The following restrictions have been designated as non-fundamental and may be
changed by a vote of the fund's Board of Trustees without approval of
shareholders.
(1) The fund will not purchase securities during the current fiscal year at any
time that outstanding borrowings exceed 5% of the fund's total assets.
(2) The fund may not engage in short sales, except short sales against the box.
(3) The fund will not invest in any investment company in reliance on Section
12(d)(1)(F) of the 1940 Act, which would allow the fund to invest in other
Pioneer Funds, or Section 12(d)(1)(G) of the 1940 Act, which would allow the
fund to invest in other investment companies, , in each case without being
subject to the limitations discussed above under "Other Investment Companies" so
long as another investment company invests in the fund in reliance on Section
12(d)(1)(G), such as one of the series of Pioneer Asset Allocation Trust.
(4) The fund does not invest in companies for the purposes of exercising control
or management.
MANAGEMENT OF THE FUND
The fund's Board of Trustees provides broad supervision over the fund's affairs.
The officers of the fund are responsible for the fund's operations. The fund's
Trustees and officers are listed below, together with their principal
occupations during the past five years. Trustees who are interested persons of
the fund within the meaning of the 1940 Act are referred to as Interested
Trustees. Trustees who are not interested persons of the fund are referred to as
Independent Trustees. Each of the Trustees serves as a trustee of each of the 65
U.S. registered investment portfolios for which Pioneer serves as investment
adviser (the "Pioneer Funds"). The address for all Interested Trustees and all
officers of the fund is 60 State Street, Boston, Massachusetts 02109.
-13-
- --------------------------------------------------------------------------------------------------------------------------
Term of Office
Name, Age and Position Held and Length of Principal Occupation During Past Other Directorships Held by
Address With the Fund Service Five Years this Trustee
- --------------------------------------------------------------------------------------------------------------------------
Interested Trustees:
- --------------------------------------------------------------------------------------------------------------------------
John F. Cogan, Chairman of the Trustee since Deputy Chairman and a Director Director of Harbor Global
Jr. (78)* Board, Trustee 2004. Serves of Pioneer Global Asset Company, Ltd.
and President until retirement Management S.p.A. ("PGAM");
or removal. Non-Executive Chairman and a
Director of Pioneer
Investment Management
USA Inc. ("PIM-USA");
Chairman and a
Director of Pioneer;
Director of Pioneer
Alternative Investment
Management Limited
(Dublin); President
and a Director of
Pioneer Alternative
Investment Management
(Bermuda) Limited and
affiliated funds;
President and Director
of Pioneer Funds
Distributor, Inc.
("PFD"); President of
all of the Pioneer
Funds; and Of Counsel
(since 2000, partner
prior to 2000), Wilmer
Cutler Pickering Hale
and Dorr LLP (counsel
to PIM-USA and the
Pioneer Funds)
- --------------------------------------------------------------------------------------------------------------------------
Osbert M. Hood Trustee and Trustee since President and Chief Executive None
(52)* Executive Vice 2004. Serves Officer, PIM-USA since May, 2003
President until a (Director since January, 2001);
successor President and Director of
trustee is Pioneer since May, 2003;
elected or Chairman and Director of Pioneer
earlier Investment Management
retirement or Shareholder Services, Inc.
removal. ("PIMSS") since May, 2003;
Executive Vice
President of all of
the Pioneer Funds
since June 3, 2003;
Executive Vice
President and Chief
Operating Officer of
PIM-USA, November
2000-May 2003;
Executive Vice
President, Chief
Financial Officer and
Treasurer, John
Hancock Advisers, LLC,
Boston, MA, November
1999-November 2000;
Senior Vice President
and Chief Financial
Officer, John Hancock
Advisers, LLC, April
1997-November 1999
- --------------------------------------------------------------------------------------------------------------------------
Independent Trustees:
- --------------------------------------------------------------------------------------------------------------------------
-14-
- --------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (56) Trustee Trustee since President, Bush International Director of Brady
3509 Woodbine Street, 2004. Serves (international financial Corporation (industrial
Chevy Chase, MD 20815 until a advisory firm) identification and
successor specialty coated material
trustee is products manufacturer),
elected or Millenium Chemicals, Inc.
earlier (commodity chemicals),
retirement or Mortgage Guaranty Insurance
removal. Corporation, and R.J.
Reynolds Tobacco Holdings,
Inc. (tobacco)
- --------------------------------------------------------------------------------------------------------------------------
Richard H. Egdahl, Trustee Trustee since Alexander Graham Bell Professor None
M.D. (77) 2004. Serves of Health Care Entrepreneurship,
Boston University until a Boston University; Professor of
Healthcare successor Management, Boston University
Entrepreneurship trustee is School of Management; Professor
Program, 53 Bay State elected or of Public Health, Boston
Road, Boston, MA 02215 earlier University School of Public
retirement or Health; Professor of Surgery,
removal. Boston University School of
Medicine; and University
Professor, Boston University
- --------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham Trustee Trustee since Founding Director, The Winthrop None
(57) 2004. Serves Group, Inc.(consulting firm);
1001 Sherbrooke Street until a Professor of Management, Faculty
West, Montreal, successor of Management, McGill University
Quebec, Canada trustee is
elected or
earlier
retirement or
removal.
- --------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret Trustee Trustee since President and Chief Executive None
(56) 2004. Serves Officer, Newbury, Piret &
One Boston Place, 28th until a Company, Inc. (investment
Floor, Boston, MA 02108 successor banking firm)
trustee is
elected or
earlier
retirement or
removal.
- --------------------------------------------------------------------------------------------------------------------------
Stephen K. West (75) Trustee Trustee since Senior Counsel, Sullivan & Director, The Swiss
125 Broad Street, New 2004. Serves Cromwell (law firm) Helvetia Fund, Inc.
York, NY 10004 until a (closed-end investment
successor company) and AMVESCAP PLC
trustee is (investment managers)
elected or
earlier
retirement or
removal.
- --------------------------------------------------------------------------------------------------------------------------
-15-
- --------------------------------------------------------------------------------------------------------------------------
John Winthrop (68) Trustee Trustee since President, John Winthrop & Co., None
One North Adgers 2004. Serves Inc. (private investment firm)
Wharf, Charleston, SC until a
29401 successor
trustee is
elected or
earlier
retirement or
removal.
- --------------------------------------------------------------------------------------------------------------------------
Other Directorships Held by
Fund Officers: this Officer
- --------------------------------------------------------------------------------------------------------------------------
Dorothy E. Secretary Since September, Secretary of PIM-USA; Senior None
Bourassa (56) 2004. Serves at Vice President- Legal of
the discretion Pioneer; and Secretary/Clerk of
of Board most of PIM-USA's subsidiaries
since October 2000;
Secretary of all of
the Pioneer Funds
since September 2003
(Assistant Secretary
from November 2000 to
September 2003); and
Senior Counsel,
Assistant Vice
President and Director
of Compliance of
PIM-USA from April
1998 through October
2000
- --------------------------------------------------------------------------------------------------------------------------
Christopher J. Assistant Since September, Assistant Vice President and None
Kelley (39) Secretary 2004. Serves at Senior Counsel of Pioneer since
the discretion July 2002; Vice President and
of Board Senior Counsel of BISYS Fund
Services, Inc. (April 2001 to
June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor,
Inc. (July 2000 to April 2001;
Vice President and Associate
General Counsel from July 1996
to July 2000); Assistant
Secretary of all Pioneer Funds
since September 2003
- --------------------------------------------------------------------------------------------------------------------------
David C. Phelan Assistant Since September, Partner, Wilmer Cutler Pickering None
(47) Secretary 2004. Serves at Hale and Dorr LLP; Assistant
the discretion Secretary of all Pioneer Funds
of Board since September 2003
- --------------------------------------------------------------------------------------------------------------------------
Vincent Nave (59) Treasurer Since 2004. Vice President-Fund Accounting, None
Serves at the Administration and Custody
discretion of Services of Pioneer (Manager
Board from September 1996 to
February 1999); and
Treasurer of all of
the Pioneer Funds
(Assistant Treasurer
from June 1999 to
November 2000)
- --------------------------------------------------------------------------------------------------------------------------
-16-
- --------------------------------------------------------------------------------------------------------------------------
Luis I. Presutti Assistant Since 2004. Assistant Vice President-Fund None
(39) Treasurer Serves at the Accounting, Administration and
discretion of Custody Services of Pioneer
Board (Fund Accounting Manager from
1994 to 1999); and Assistant
Treasurer of all of the Pioneer
Funds since November 2000
- --------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (46) Assistant Since 2004. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of Custody Services of Pioneer; and
Board Assistant Treasurer of all of
the Pioneer Funds since May 2002
- --------------------------------------------------------------------------------------------------------------------------
Katharine Kim Assistant Since 2004. Fund Administration Manager - None
Sullivan (30) Treasurer Serves at the Fund Accounting, Administration
discretion of and Custody Services since June
Board 2003; Assistant Vice President -
Mutual Fund Operations of State
Street Corporation from June
2002 to June 2003 (formerly
Deutsche Bank Asset Management);
Pioneer Fund Accounting,
Administration and Custody
Services (Fund Accounting
Manager from August 1999 to May
2002, Fund Accounting Services
Supervisor from 1997 to July
1999); Assistant Treasurer of
all Pioneer Funds since
September 2003
- --------------------------------------------------------------------------------------------------------------------------
*Mr. Cogan and Mr. Hood are Interested Trustees because each is an officer or
director of the fund's investment adviser and certain of its affiliates.
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly
owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. Pioneer, the fund's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
Board Committees
Because the Trust is newly organized the Board of Trustees of Pioneer Series
Trust II attended one meeting during the most recent fiscal year.
The Board of Trustees has an Audit Committee, an Independent Trustees Committee,
a Nominating Committee, a Valuation Committee and a Policy Administration
Committee. Committee members are as follows:
Audit
Marguerite A. Piret (Chair), Margaret B.W. Graham and John Winthrop
-17-
Independent Trustees
Mary K. Bush, Richard H. Egdahl, Margaret B.W. Graham (Chair), Marguerite A.
Piret, Stephen K. West and John Winthrop
Nominating
Mary K. Bush, Richard H. Egdahl (Chair) and Marguerite A. Piret
Valuation
Marguerite A. Piret (Chair), Stephen K. West and John Winthrop
Policy Administration
Mary K. Bush (Chair), Richard H. Egdahl and Margaret B.W. Graham
During the most recent fiscal year, the Audit, Nominating, Valuation,
Independent Trustees and Policy Administration Committees did not hold any
meetings, because the Trust is newly organized.
The Board of Trustees has adopted a charter for the Audit Committee. In
accordance with its charter, the purposes of the Audit Committee are to:
|X| act as a liaison between the fund's independent auditors and the full Board
of Trustees of the fund;
|X| discuss with the fund's independent auditors their judgments about the
quality of the fund's accounting principles and underlying estimates as
applied in the fund's financial reporting;
|X| review and assess the renewal materials of all related party contracts and
agreements, including management advisory agreements, underwriting
contracts, administration agreements, distribution contracts, and transfer
agency contracts, among any other instruments and agreements that may be
appropriate from time to time;
|X| review and approve insurance coverage and allocations of premiums between
the management and the fund and among the Pioneer Funds;
|X| review and approve expenses under the administration agreement between
Pioneer and the fund and allocations of such expenses among the Pioneer
Funds; and
|X| receive on a periodic basis a formal written statement delineating all
relationships between the auditors and the fund or Pioneer; to actively
engage in a dialogue with the independent auditors with respect to any
disclosed relationships or services that may impact the objectivity and
independence of the independent auditors; and to recommend that the
Trustees take appropriate action in response to the independent auditors'
report to satisfy itself of the independent auditors' independence.
The Nominating Committee reviews the qualifications of any candidate recommended
by the Independent Trustees to serve as an Independent Trustee and makes a
recommendation regarding that person's qualifications. The Committee does not
accept nominations from shareholders.
The Valuation Committee reviews the valuation assigned to certain securities by
Pioneer in accordance with the fund's valuation procedures.
The Policy Administration Committee reviews the implementation of certain of the
fund's administrative policies and procedures.
The Independent Trustees Committee reviews the fund's management contract and
other related party contracts annually and is also responsible for any other
action required to be taken, under the 1940 Act, by the Independent Trustees
acting alone.
-18-
The fund's Declaration of Trust provides that the fund will indemnify the
Trustees and officers against liabilities and expenses incurred in connection
with any litigation in which they may be involved because of their offices with
the fund, unless it is determined in the manner specified in the Declaration of
Trust that they have not acted in good faith in the reasonable belief that their
actions were in the best interests of the fund or that such indemnification
would relieve any officer or Trustee of any liability to the fund or its
shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his or her duties.
Compensation of Officers and Trustees
The fund pays no salaries or compensation to any of its officers. The Pioneer
Funds, including the fund, compensate their trustees. The Independent Trustees
review and set their compensation annually, taking into consideration the
committee and other responsibilities assigned to specific trustees. The table
under "Annual Fees, Expense and Other Information-Compensation of Officers and
Trustees" sets forth the compensation paid to each of the Trustees. The
compensation paid to the Trustees is then allocated among the funds as follows:
o each fund with assets less than $250 million pays each Trustee who is not
affiliated with PIM-USA, Pioneer, PFD, PIMSS or UniCredito Italiano (i.e.,
Independent Trustees) an annual fee of $1,000.
o the remaining compensation of the Independent Trustees is allocated to each
fund with assets greater than $250 million based on the fund's net assets.
o the Interested Trustees receive an annual fee of $500 from each fund,
except in the case of funds with net assets of $50 million or less, which
pay each Interested Trustee an annual fee of $200. Pioneer reimburses the
funds for the fees aid to the Interested Trustees.
See "Compensation of Officers and Trustees" in Annual Fee, Expense and Other
Information.
Sales Loads. The fund offers its shares to Trustees and officers of the fund and
employees of Pioneer and its affiliates without a sales charge in order to
encourage investment in the fund by individuals who are responsible for its
management and because the sales to such persons do not entail any sales effort
by the fund, brokers or other intermediaries.
Other Information
Material Relationships of the Independent Trustees. For purposes of the
statements below:
o the immediate family members of any person are their spouse, children in
the person's household (including step and adoptive children) and any
dependent of the person.
o an entity in a control relationship means any person who controls, is
controlled by or is under common control with the named person. For
example, UniCredito Italiano is an entity that is in a control relationship
with Pioneer.
o a related fund is a registered investment company or an entity exempt from
the definition of an investment company pursuant to Sections 3(c)(1) or
3(c)(7) of the 1940 Act, for which Pioneer or any of its affiliates act as
investment adviser or for which PFD or any of its affiliates act as
principal underwriter. For example, the Fund's related funds include all of
the Pioneer Funds and any non-U.S. funds managed by Pioneer or its
affiliates.
As of December 31, 2003, none of the Independent Trustees, nor any of their
immediate family members, beneficially owned any securities issued by Pioneer,
UniCredito Italiano or any other entity in a control relationship to Pioneer or
PFD. During the calendar years 2002 and 2003, none of the Independent Trustees,
nor any of their immediate family members, had any direct or indirect interest
(the value of which exceeded $60,000), whether by contract, arrangement or
otherwise, in Pioneer, UniCredito Italiano, or any other entity in a control
relationship to Pioneer or PFD. During the calendar years 2002 and 2003, none of
-19-
the Independent Trustees, nor any of their immediate family members, had an
interest in a transaction or a series of transactions in which the aggregate
amount involved exceeded $60,000 and to which any of the following were a party
(each a "fund related party"):
o the fund
o an officer of the fund
o a related fund
o an officer of any related fund
o Pioneer
o PFD
o an officer of Pioneer or PFD
o any affiliate of Pioneer or PFD
o an officer of any such affiliate
During the calendar years 2002 and 2003, none of the Independent Trustees, nor
any of their immediate family members, had any relationship (the value of which
exceeded $60,000) with any fund related party, including, but not limited to,
relationships arising out of (i) the payment for property and services, (ii) the
provision of legal services, (iii) the provision of investment banking services
(other than as a member of the underwriting syndicate) or (iv) the provision of
consulting services, except that Mr. West, an Independent Trustee, is Senior
Counsel to Sullivan & Cromwell and acts as counsel to the Independent Trustees
and the Independent Trustees of the other Pioneer Funds. The aggregate
compensation paid to Sullivan & Cromwell by the fund and the other Pioneer Funds
was approximately $53,000 and $126,603 in each of 2002 and 2003.
During the calendar years 2002 and 2003, none of the Independent Trustees, nor
any of their immediate family members, served as a member of a board of
directors on which an officer of any of the following entities also serves as a
director:
o Pioneer
o PFD
o UniCredito Italiano
o any other entity in a control relationship with Pioneer or PFD
None of the fund's Trustees or officers has any arrangement with any other
person pursuant to which that Trustee or officer serves on the Board of
Trustees. During the calendar years 2002 and 2003, none of the Independent
Trustees, nor any of their immediate family members, had any position, including
as an officer, employee, director or partner, with any of the following:
o the fund
o any related fund
o Pioneer
o PFD
o any affiliated person of the fund, Pioneer or PFD
o UniCredito Italiano
o any other entity in a control relationship to the fund, Pioneer or PFD
Factors Considered by the Independent Trustees in Approving the Management
Contract. The 1940 Act requires that the fund's management contract be approved
annually by both the Board of Trustees and a majority of the Independent
Trustees voting separately. The Independent Trustees have determined that the
terms of the fund's management contract are fair and reasonable and that the
contract is in the fund's best interest. The Independent Trustees believe that
the management contract will enable the fund to enjoy high quality investment
advisory services at a cost they deem appropriate, reasonable and in the best
interests of the fund and its shareholders. In making such determinations, the
Independent Trustees met independently from the Interested Trustees of the fund
and any officers of Pioneer or its affiliates. The Independent Trustees also
relied upon the assistance of counsel to the Independent Trustees and counsel to
the fund.
-20-
In evaluating the management contract, the Independent Trustees reviewed
materials furnished by Pioneer, including information regarding Pioneer,
UniCredito Italiano, their respective affiliates and their personnel, operations
and financial condition. The Independent Trustees discussed with representatives
of Pioneer the fund's operations and Pioneer's ability to provide advisory and
other services to the fund. The Independent Trustees also reviewed:
o the investment performance of the fund and other Pioneer Funds with
similar investment strategies;
o the fee charged by Pioneer for investment advisory and administrative
services, as well as other compensation received by PFD and PIMSS;
o the fund's projected total operating expenses;
o the investment performance, fees and total expenses of investment
companies with similar objectives and strategies managed by other
investment advisers;
o the experience of the investment advisory and other personnel
providing services to the fund and the historical quality of the
services provided by Pioneer; and
o the profitability to Pioneer of managing the fund.
The Independent Trustees considered the following as relevant to their
recommendations: (1) the favorable history, reputation, qualification and
background of Pioneer and UniCredito Italiano, as well as the qualifications of
their personnel and their respective financial conditions; (2) that the fee and
expense ratios of the fund are reasonable given the quality of services expected
to be provided and are comparable to the fee and expense ratios of similar
investment companies; and (3) the relative performance of similar funds advised
by Pioneer since commencement of operations to comparable investment companies
and unmanaged indices. The Independent Trustees deemed each of these factors to
be relevant to their consideration of the fund's management contract.
Share Ownership. See Annual Fee, Expense and Other Information for annual
information on the ownership of fund shares by the Trustees, the fund's officers
and owners in excess of 5% of any class of shares of the fund and a table
indicating the value of shares that each Trustee beneficially owns in the fund
and in all the Pioneer Funds.
Code of Ethics. The fund's Board of Trustees approved a code of ethics under
Rule 17j-1 under the 1940 Act that covers the fund, Pioneer and certain of
Pioneer's affiliates. The code of ethics establishes procedures for personal
investing and restricts certain transactions. Employees subject to the code of
ethics may invest in securities for their personal investment accounts,
including securities that may be purchased or held by the fund.
Proxy Voting Policies. Effective August 31, 2004, information regarding how the
fund voted proxies relating to portfolio securities during the most recent
12-month period ended June 30 will be publicly available to shareowners at
www.pioneerfunds.com and on the SEC's website at http://www.sec.gov.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Not Applicable.
-21-
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Adviser
The fund has contracted with Pioneer to act as its investment adviser. Pioneer
is an indirect, wholly owned subsidiary of UniCredito Italiano. Certain Trustees
or officers of the fund are also directors and/or officers of certain of
UniCredito Italiano's subsidiaries (see management biographies above). Pioneer
has entered into an agreement with its affiliate, Pioneer Investment Management
Limited ("PIML"), pursuant to which PIML provides certain services and personnel
to Pioneer.
As the fund's investment adviser, Pioneer provides the fund with investment
research, advice and supervision and furnishes an investment program for the
fund consistent with the fund's investment objective and policies, subject to
the supervision of the fund's Trustees. Pioneer determines what portfolio
securities will be purchased or sold, arranges for the placing of orders for the
purchase or sale of portfolio securities, selects brokers or dealers to place
those orders, maintains books and records with respect to the fund's securities
transactions, and reports to the Trustees on the fund's investments and
performance.
Under the terms of its management contract with the fund, Pioneer pays all the
operating expenses, including executive salaries and the rental of office space,
relating to its services for the fund, with the exception of the following,
which are to be paid by the fund: (a) charges and expenses for fund accounting,
pricing and appraisal services and related overhead, including, to the extent
such services are performed by personnel of Pioneer, or its affiliates, office
space and facilities and personnel compensation, training and benefits; (b) the
charges and expenses of auditors; (c) the charges and expenses of any custodian,
transfer agent, plan agent, dividend disbursing agent and registrar appointed by
the fund; (d) issue and transfer taxes chargeable to the fund in connection with
securities transactions to which the fund is a party; (e) insurance premiums,
interest charges, dues and fees for membership in trade associations and all
taxes and corporate fees payable by the fund to federal, state or other
governmental agencies; (f) fees and expenses involved in registering and
maintaining registrations of the fund and/or its shares with the federal
regulatory agencies, state or blue sky securities agencies and foreign
jurisdictions, including the preparation of prospectuses and statements of
additional information for filing with such regulatory authorities; (g) all
expenses of shareholders' and Trustees' meetings and of preparing, printing and
distributing prospectuses, notices, proxy statements and all reports to
shareholders and to governmental agencies; (h) charges and expenses of legal
counsel to the fund and the Trustees; (i) distribution fees paid by the fund in
accordance with Rule 12b-1 promulgated by the SEC pursuant to the 1940 Act; (j)
compensation of those Trustees of the fund who are not affiliated with or
interested persons of Pioneer, the fund (other than as Trustees), PIM-USA or
PFD; (k) the cost of preparing and printing share certificates; (l) interest on
borrowed money, if any and (m) any other expense that the fund, Pioneer or any
other agent of the fund may incur (A) as a result of a change in the laws or
regulations, (B) as a result of a mandate from the Board of Trustees with
associated costs of a character generally assumed by similarly structured
investment companies or (C) that is similar to the expenses listed above, and
that is approved by the Board of Trustees (including a majority of the
Independent Trustees) as being an appropriate expense of the fund. In addition,
the fund shall pay all brokers' and underwriting commissions chargeable to the
fund in connection with securities transactions to which the fund is a party.
The Trustees' approval of and the terms, continuance and termination of the
management contract are governed by the 1940 Act and the Investment Advisers Act
of 1940, as applicable. Pursuant to the management contract, Pioneer will not be
liable for any error of judgment or mistake of law or for any loss sustained by
reason of the adoption of any investment policy or the purchase, sale or
retention of any securities on the recommendation of Pioneer. Pioneer, however,
is not protected against liability by reason of willful misfeasance, bad faith
or gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties under the management contract.
Advisory Fee. As compensation for its management services and expenses incurred,
the fund pays Pioneer a fee at the annual rate of 0.50% of the fund's average
daily net assets up to $250 million, 0.45% of the next $500 million and 0.40% on
assets over $750 million. This fee is computed and accrued daily and paid
monthly.
-22-
Prior to August 2, 2004, Safeco Asset Management Company ("SAM") was the fund's
investment adviser. The investment advisory services of SAM were performed under
an investment advisory agreement, pursuant to which the fund paid SAM an annual
fee equal to 0.45% of the average daily net assets of the fund.
See the table in Annual Fee, Expense and Other Information for management fees
paid to Pioneer during recently completed fiscal years.
Expense Limit. Pioneer has agreed to waive all or part of its management fee or
to reimburse the fund for other expenses (other than extraordinary expenses) to
the extent the expenses of the fund's Class A shares exceed 0.87% of average
daily net assets. The portion of fund expenses (including the amount of the
management fee waived) attributable to other share class will be reduced only to
the extent such expenses were reduced for the fund's Class A shares. If Pioneer
waives any fee or reimburses any expenses, and the expenses of the fund's Class
A shares are subsequently less than 0.87% of average daily net assets, the fund
will reimburse Pioneer for such waived fees or reimbursed expenses provided that
such reimbursement does not cause the fund's Class A expenses to exceed 0.87% of
average daily net assets. Pioneer shall also be entitled to reimbursement of the
amount of expenses that it waived or reimbursed with regard to any other
authorized class of shares if the expense ratio of such other class is less than
the expense ratio for that class in effect at the time the expense was incurred.
In addition, the fund will not reimburse Pioneer for such waived fees or
reimbursed expenses more than three years after such fees were waived or such
expenses were incurred. Each class will reimburse Pioneer by no more than the
dollar amount by which that class' expenses were reduced. Any differences in the
fee waiver and limitation among classes result from rounding in the daily
calculation of a class' net assets and expense limit, which may exceed 0.01%
annually. Pioneer expects to continue its limitation of expenses and subsequent
reimbursement from the fund unless the expense limit and reimbursement agreement
with the fund is terminated pursuant to the terms of the expense limit and
reimbursement agreement. However, there can be no assurance that Pioneer will
extend the expense limitation beyond May 1, 2006. The fund may terminate the
expense limit and reimbursement agreement, including its obligation to reimburse
prior expenses, at any time.
Investor Class Shares Only. Through the second anniversary of the closing of the
reorganization of the predecessor Safeco fund into the fund, Pioneer has
contractually agreed not to impose all or a portion of its management fee and,
if necessary, to limit other ordinary operating expenses (excluding taxes,
commissions, interest and extraordinary expenses) to the extent required to
reduce Investor Class expenses to 0.62% of the average daily net assets
attributable to Investor Class shares. There can be no assurance that Pioneer
will extend the expense limitation beyond the two-year period.]
Administration Agreement. The fund has entered into an administration agreement
with Pioneer pursuant to which certain accounting, administration and legal
services which are expenses payable by the fund under the management contract
are performed by Pioneer and pursuant to which Pioneer is reimbursed for its
costs of providing such services. The costs of these services is based on direct
costs and costs of overhead, subject to annual approval by the Board. See Annual
Fee, Expense and Other Information for fees the fund paid to Pioneer for
administration and related services.
Potential Conflict of Interest. The fund is managed by Pioneer which also serves
as investment adviser to other Pioneer mutual funds and other accounts with
investment objectives identical or similar to those of the fund. Securities
frequently meet the investment objectives of the fund, the other Pioneer mutual
funds and such other accounts. In such cases, the decision to recommend a
purchase to one fund or account rather than another is based on a number of
factors. The determining factors in most cases are the amount of securities of
the issuer then outstanding, the value of those securities and the market for
them. Other factors considered in the investment recommendations include other
investments which each fund or account presently has in a particular industry
and the availability of investment funds in each fund or account.
It is possible that at times identical securities will be held by more than one
fund and/or account. However, positions in the same issue may vary and the
length of time that any fund or account may choose to hold its investment in the
same issue may likewise vary. To the extent that more than one of the Pioneer
mutual funds or a private account managed by Pioneer seeks to acquire the same
security at about the same time,
-23-
the fund may not be able to acquire as large a position in such security as it
desires or it may have to pay a higher price for the security. Similarly, the
fund may not be able to obtain as large an execution of an order to sell or as
high a price for any particular portfolio security if Pioneer decides to sell on
behalf of another account the same portfolio security at the same time. On the
other hand, if the same securities are bought or sold at the same time by more
than one fund or account, the resulting participation in volume transactions
could produce better executions for the fund. In the event more than one account
purchases or sells the same security on a given date, the purchases and sales
will normally be made as nearly as practicable on a pro rata basis in proportion
to the amounts desired to be purchased or sold by each account. Although the
other Pioneer mutual funds may have the same or similar investment objectives
and policies as the fund, their portfolios do not generally consist of the same
investments as the fund or each other, and their performance results are likely
to differ from those of the fund.
Personal Securities Transactions. The fund, Pioneer and PFD have adopted a code
of ethics under Rule 17j-1 under the 1940 Act which is applicable to officers,
trustees/directors and designated employees of Pioneer and PIML. The code
permits such persons to engage in personal securities transactions for their own
accounts, including securities that may be purchased or held by the fund, and is
designed to prescribe means reasonably necessary to prevent conflicts of
interest from arising in connection with personal securities transactions. The
code is on public file with and available from the SEC.
Shareholder Servicing / Transfer Agent
The fund has contracted with PIMSS, 60 State Street, Boston, Massachusetts
02109, to act as shareholder servicing and transfer agent for the fund.
Under the terms of its contract with the fund, PIMSS services shareholder
accounts, and its duties include: (i) processing sales, redemptions and
exchanges of shares of the fund; (ii) distributing dividends and capital gains
associated with the fund's portfolio; and (iii) maintaining account records and
responding to shareholder inquiries.
PIMSS receives an annual fee of $33.00 for each Class A, Class B, Class C and
Investor Class shareholder account from the fund as compensation for the
services described above. PIMSS is also reimbursed by the fund for its cash
out-of-pocket expenditures. The fund may compensate entities which have agreed
to provide certain sub-accounting services such as specific transaction
processing and recordkeeping services. Any such payments by the fund would be in
lieu of the per account fee which would otherwise be paid by the fund to PIMSS.
Custodian
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109, is
the custodian of the fund's assets. The custodian's responsibilities include
safekeeping and controlling the fund's cash and securities, handling the receipt
and delivery of securities, and collecting interest and dividends on the fund's
investments.
Independent Registered Public Accounting Firm
Ernst & Young LLP, the fund's independent registered public accounting firm,
provides audit services, tax return review, and assistance and consultation with
respect to the preparation of filings with the SEC.
BROKERAGE ALLOCATION AND OTHER PRACTICES
All orders for the purchase or sale of portfolio securities are placed on behalf
of the fund by Pioneer pursuant to authority contained in the fund's management
contract. Securities purchased and sold on behalf of the fund normally will be
traded in the over-the counter market on a net basis (i.e. without commission)
through dealers acting for their own account and not as brokers or otherwise
through transactions directly with the issuer of the instrument. The cost of
securities purchased from underwriters includes an
-24-
underwriter's commission or concession, and the prices at which securities are
purchased and sold from and to dealers include a dealer's markup or markdown.
Pioneer normally seeks to deal directly with the primary market makers unless,
in its opinion, better prices are available elsewhere. Some securities are
purchased and sold on an exchange or in over-the-counter transactions conducted
on an agency basis involving a commission. Pioneer seeks to obtain the best
execution on portfolio trades. The price of securities and any commission rate
paid are always factors, but frequently not the only factors, in judging best
execution. In selecting brokers or dealers, Pioneer considers various relevant
factors, including, but not limited to, the size and type of the transaction;
the nature and character of the markets for the security to be purchased or
sold; the execution efficiency, settlement capability and financial condition of
the dealer; the dealer's execution services rendered on a continuing basis; and
the reasonableness of any dealer spreads.
Pioneer may select broker-dealers that provide brokerage and/or research
services to the fund and/or other investment companies or other accounts managed
by Pioneer over which it or its affiliates exercise investment discretion. In
addition, consistent with Section 28(e) of the Securities Exchange Act of 1934,
as amended, if Pioneer determines in good faith that the amount of commissions
charged by a broker-dealer is reasonable in relation to the value of the
brokerage and research services provided by such broker, the fund may pay
commissions to such broker-dealer in an amount greater than the amount another
firm may charge. Such services may include advice concerning the value of
securities; the advisability of investing in, purchasing or selling securities;
the availability of securities or the purchasers or sellers of securities;
providing stock quotation services, credit rating service information and
comparative fund statistics; furnishing analyses, electronic information
services, manuals and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and performance of accounts and
particular investment decisions; and effecting securities transactions and
performing functions incidental thereto (such as clearance and settlement).
Pioneer maintains a listing of broker-dealers who provide such services on a
regular basis. However, because many transactions on behalf of the fund and
other investment companies or accounts managed by Pioneer are placed with
broker-dealers (including broker-dealers on the listing) without regard to the
furnishing of such services, it is not possible to estimate the proportion of
such transactions directed to such dealers solely because such services were
provided. Pioneer believes that no exact dollar value can be calculated for such
services.
The research received from broker-dealers may be useful to Pioneer in rendering
investment management services to the fund as well as other investment companies
or other accounts managed by Pioneer, although not all such research may be
useful to the fund. Conversely, such information provided by brokers or dealers
who have executed transaction orders on behalf of such other accounts may be
useful to Pioneer in carrying out its obligations to the fund. The receipt of
such research has not reduced Pioneer's normal independent research activities;
however, it enables Pioneer to avoid the additional expenses which might
otherwise be incurred if it were to attempt to develop comparable information
through its own staff.
The Pioneer funds have entered into third-party brokerage and/or expense offset
arrangements to reduce the funds' total operating expenses. Pursuant to
third-party brokerage arrangements, certain of the funds that invest primarily
in U.S. equity securities may incur lower custody fees by directing brokerage to
third-party broker-dealers. Pursuant to expense offset arrangements, the funds
incur lower transfer agency expenses by maintaining their cash balances with the
custodian. See "Financial highlights" in the prospectus.
See the table in Annual Fee, Expense and Other Information for aggregate
brokerage and underwriting commissions paid by the fund in connection with its
portfolio transactions during recently completed fiscal years. The Board of
Trustees periodically reviews Pioneer's performance of its responsibilities in
connection with the placement of portfolio transactions on behalf of the fund.
CAPITAL STOCK AND OTHER SECURITIES
As an open-end management investment company, the fund continuously offers its
shares to the public and under normal conditions must redeem its shares upon the
demand of any shareholder at the next determined net asset value per share less
any applicable CDSC. See "Sales Charges." When issued and paid for in accordance
with the terms of the prospectus and statement of additional information, shares
of the fund are
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fully paid and non-assessable. Shares will remain on deposit with the fund's
transfer agent and certificates will not normally be issued.
The trust's Agreement and Declaration of Trust, dated as of September 2, 2003
(the "Declaration"), as amended from time to time, permits the Board of Trustees
to authorize the issuance of an unlimited number of full and fractional shares
of beneficial interest which may be divided into such separate series as the
Trustees may establish. Currently, the trust consists of eight series. The
Trustees may, however, establish additional series of shares and may divide or
combine the shares into a greater or lesser number of shares without thereby
changing the proportionate beneficial interests in the fund. The Declaration
further authorizes the Trustees to classify or reclassify any series of the
shares into one or more classes. Pursuant thereto, the Trustees have authorized
the issuance of four classes of shares of the fund, designated as Class A
shares, Class B shares, Class C shares and Investor Class shares. Each share of
a class of the fund represents an equal proportionate interest in the assets of
the fund allocable to that class. Upon liquidation of the fund, shareholders of
each class of the fund are entitled to share pro rata in the fund's net assets
allocable to such class available for distribution to shareholders. The trust
reserves the right to create and issue additional series or classes of shares,
in which case the shares of each class of a series would participate equally in
the earnings, dividends and assets allocable to that class of the particular
series.
The shares of each class represent an interest in the same portfolio of
investments of the fund. Each class has equal rights as to voting, redemption,
dividends and liquidation, except that each class bears different distribution
and transfer agent fees and may bear other expenses properly attributable to the
particular class. Class A, Class B and Class C shareholders have exclusive
voting rights with respect to the Rule 12b-1 Plans adopted by holders of those
shares in connection with the distribution of shares.
Shareholders are entitled to one vote for each share held and may vote in the
election of Trustees and on other matters submitted to a meeting of
shareholders. Although Trustees are not elected annually by the shareholders,
shareholders have, under certain circumstances, the right to remove one or more
Trustees. The fund is not required, and does not intend, to hold annual
shareholder meetings although special meetings may be called for the purpose of
electing or removing Trustees, changing fundamental investment restrictions or
approving a management contract.
The shares of each series of the fund are entitled to vote separately to approve
investment advisory agreements or changes in investment restrictions, but
shareholders of all series vote together in the election and selection of
Trustees and accountants. Shares of all series of the fund vote together as a
class on matters that affect all series of the fund in substantially the same
manner. As to matters affecting a single series or class, shares of such series
or class will vote separately. No amendment adversely affecting the rights of
shareholders may be made to the Declaration without the affirmative vote of a
majority of the fund's shares. Shares have no preemptive or conversion rights,
except that under certain circumstances Class B shares may convert to Class A
shares. All Investor Class shares of the Fund, convert to Class A shares of the
fund on December 31, 2006, as described in the fund's Investor Class prospectus.
As a Delaware business trust, the fund's operations are governed by the
Declaration. Generally, Delaware statutory trust shareholders are not personally
liable for obligations of the Delaware statutory trust under Delaware law. The
Delaware Statutory Business Trust Act (the "Delaware Act") provides that a
shareholder of a Delaware statutory trust shall be entitled to the same
limitation of liability extended to shareholders of private for-profit
corporations. The Declaration expressly provides that the fund is organized
under the Delaware Act and that the Declaration is to be governed by Delaware
law. There is nevertheless a possibility that a Delaware statutory trust, such
as the fund, might become a party to an action in another state whose courts
refused to apply Delaware law, in which case the fund's shareholders could
become subject to personal liability.
To guard against this risk, the Declaration (i) contains an express disclaimer
of shareholder liability for acts or obligations of the fund and provides that
notice of such disclaimer may be given in each agreement, obligation or
instrument entered into or executed by the fund or its Trustees, (ii) provides
for the indemnification out of fund property of any shareholders held personally
liable for any obligations of the fund or any series of the fund and (iii)
provides that the fund shall, upon request, assume the defense of any
-26-
claim made against any shareholder for any act or obligation of the fund and
satisfy any judgment thereon. Thus, the risk of a shareholder incurring
financial loss beyond his or her investment because of shareholder liability is
limited to circumstances in which all of the following factors are present: (1)
a court refused to apply Delaware law; (2) the liability arose under tort law
or, if not, no contractual limitation of liability was in effect; and (3) the
fund itself would be unable to meet its obligations. In light of Delaware law,
the nature of the fund's business and the nature of its assets, the risk of
personal liability to a fund shareholder is remote.
In addition to the requirements under Delaware law, the Declaration provides
that a shareholder of the fund may bring a derivative action on behalf of the
fund only if the following conditions are met: (a) shareholders eligible to
bring such derivative action under Delaware law who hold at least 10% of the
outstanding shares of the fund, or 10% of the outstanding shares of the series
or class to which such action relates, shall join in the request for the
Trustees to commence such action; and (b) the Trustees must be afforded a
reasonable amount of time to consider such shareholder request and investigate
the basis of such claim. The Trustees shall be entitled to retain counsel or
other advisers in considering the merits of the request and shall require an
undertaking by the shareholders making such request to reimburse the fund for
the expense of any such advisers in the event that the Trustees determine not to
bring such action.
The Declaration further provides that the fund shall indemnify each of its
Trustees and officers against liabilities and expenses reasonably incurred by
them in connection with, or arising out of, any action, suit or proceeding,
threatened against or otherwise involving such Trustee or officer, directly or
indirectly, by reason of being or having been a Trustee or officer of the fund.
The Declaration does not authorize the fund to indemnify any Trustee or officer
against any liability to which he or she would otherwise be subject by reason of
or for willful misfeasance, bad faith, gross negligence or reckless disregard of
such person's duties.
The Declaration provides that any Trustee who is not an "interested person" of
Pioneer shall be considered to be independent for purposes of Delaware law
notwithstanding the fact that such Trustee receives compensation for serving as
a trustee of the fund or other investment companies for which Pioneer acts as
investment adviser.
PURCHASE, REDEMPTION AND PRICING OF SHARES
SALES CHARGES
The fund continuously offers four classes of shares designated as Class A, Class
B, Class C and Investor Class as described in the prospectuses. The fund offers
its shares at a reduced sales charge to investors who meet certain criteria that
permit the fund's shares to be sold with low distribution costs. These criteria
are described below or in the prospectus.
Class A Share Sales Charges
You may buy Class A shares at the public offering price, including a sales
charge, as follows:
Sales Charge as a % of
----------------------
Offering Net Amount Dealer
Amount of Purchase Price Invested Reallowance
Less than $100,000 4.50 4.71 4.00
$100,000 but less than $250,000 3.50 3.63 3.00
$250,000 but less than $500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 2.00 2.04 1.75
$1,000,000 or more 0.00 0.00 see below
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The schedule of sales charges above is applicable to purchases of Class A shares
of the fund by (i) an individual, (ii) an individual and his or her spouse and
children under the age of 21 and (iii) a trustee or other fiduciary of a trust
estate or fiduciary account or related trusts or accounts including pension,
profit-sharing and other employee benefit trusts qualified under Sections 401 or
408 of the Code although more than one beneficiary is involved; however,
pension, profit-sharing and other employee benefit trusts qualified under
Sections 401 or 408 of the Code which are eligible to purchase Class R shares
may aggregate purchases by beneficiaries of such plans only if the pension,
profit-sharing or other employee benefit trust has determined that it does not
require the services provided under the Class R Service Plan. The sales charges
applicable to a current purchase of Class A shares of the fund by a person
listed above is determined by adding the value of shares to be purchased to the
aggregate value (at the then current offering price) of shares of any of the
other Pioneer mutual funds previously purchased and then owned, provided PFD is
notified by such person or his or her broker-dealer each time a purchase is made
which would qualify. Pioneer mutual funds include all mutual funds for which PFD
serves as principal underwriter. At the sole discretion of PFD, holdings of
funds domiciled outside the U.S., but which are managed by affiliates of
Pioneer, may be included for this purpose.
No sales charge is payable at the time of purchase on investments of $1 million
or more, or for purchases by participants in employer-sponsored retirement plans
described below subject to a CDSC of 1% which may be imposed in the event of a
redemption of Class A shares within 18 months of purchase (one year of purchase
for shares purchased prior to February 1, 2004). PFD may, in its discretion, pay
a commission to broker-dealers who initiate and are responsible for such
purchases as follows:
Accounts Other than Employer-Sponsored Retirement Plans
1.00% Up to $4 million
0.50% Next $46 million
0.25% Over $50 million
Employer-Sponsored Retirement Plans
0.50% Up to $50 million
0.25% Over $50 million
These commissions shall not be payable if the purchaser is affiliated with the
broker-dealer or if the purchase represents the reinvestment of a redemption
made during the previous 12 calendar months. Broker-dealers who receive a
commission in connection with Class A share purchases at net asset value by
employer-sponsored retirement plans with at least $10 million in total plan
assets (or that has 1,000 or more eligible participants for employer-sponsored
retirement plans with accounts established with Pioneer on or before March 31,
2004) will be required to return any commissions paid or a pro rata portion
thereof if the retirement plan redeems its shares within 18 months of purchase.
Letter of Intent ("LOI"). Reduced sales charges are available for purchases of
$100,000 or more of Class A shares (excluding any reinvestments of dividends and
capital gain distributions) made within a 13-month period pursuant to an LOI
which may be established by completing the Letter of Intent section of the
Account Application. The reduced sales charge will be the charge that would be
applicable to the purchase of the specified amount of Class A shares as if the
shares had all been purchased at the same time. A purchase not made pursuant to
an LOI may be included if the LOI is submitted to PIMSS within 90 days of such
purchase. You may also obtain the reduced sales charge by including the value
(at current offering price) of all your Class A shares in the fund and all other
Pioneer mutual funds held of record as of the date of your LOI in the amount
used to determine the applicable sales charge for the Class A shares to be
purchased under the LOI. Five percent of your total intended purchase amount
will be held in escrow by PIMSS, registered in your name, until the terms of the
LOI are fulfilled. When you sign the Account Application, you agree to
irrevocably appoint PIMSS your attorney-in-fact to surrender for redemption any
or all shares held in escrow with full power of substitution. An LOI is not a
binding obligation upon the investor to purchase, or the fund to sell, the
amount specified in the LOI.
If the total purchases, less redemptions, exceed the amount specified under the
LOI and are in an amount which would qualify for a further quantity discount,
all transactions will be recomputed on the expiration
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date of the LOI to effect the lower sales charge. Any difference in the sales
charge resulting from such recomputation will be either delivered to you in cash
or invested in additional shares at the lower sales charge. The dealer, by
signing the Account Application, agrees to return to PFD, as part of such
retroactive adjustment, the excess of the commission previously reallowed or
paid to the dealer over that which is applicable to the actual amount of the
total purchases under the LOI.
If the total purchases, less redemptions, are less than the amount specified
under the LOI, you must remit to PFD any difference between the sales charge on
the amount actually purchased and the amount originally specified in the LOI.
When the difference is paid, the shares held in escrow will be deposited to your
account. If you do not pay the difference in sales charge within 20 days after
written request from PFD or your dealer, PIMSS, after receiving instructions
from PFD, will redeem the appropriate number of shares held in escrow to realize
the difference and release any excess.
Class B Shares
You may buy Class B shares at the net asset value per share next computed after
receipt of a purchase order without the imposition of an initial sales charge;
however, Class B shares redeemed within six years of purchase will be subject to
a CDSC at the rates shown in the table below. The charge will be assessed on the
amount equal to the lesser of the current market value or the original purchase
cost of the shares being redeemed. No CDSC will be imposed on increases in
account value above the initial purchase price, including shares derived from
the reinvestment of dividends or capital gain distributions.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of purchase until the time of redemption of Class B shares. In
processing redemptions of Class B shares, the fund will first redeem shares not
subject to any CDSC and then shares held longest during the six-year period. As
a result, you will pay the lowest possible CDSC.
The CDSC for Class B shares subject to a CDSC upon redemption will be determined
as follows:
CDSC as a % of Dollar
Year Since Purchase Amount Subject to CDSC
First 4.0
Second 4.0
Third 3.0
Fourth 3.0
Fifth 2.0
Sixth 1.0
Seventh and thereafter 0.0
Proceeds from the CDSC are paid to PFD and are used in whole or in part to
defray PFD's expenses related to providing distribution-related services to the
fund in connection with the sale of Class B shares, including the payment of
compensation to broker-dealers.
Class B shares will automatically convert into Class A shares eight years (five
years in the case of Class B shares issued to former shareowners of Pioneer
Intermediate Tax-Free Fund in connection with the reorganization described
above) after the purchase date, except as noted below. Class B shares acquired
by exchange from Class B shares of another Pioneer mutual fund will convert into
Class A shares based on the date of the initial purchase and the applicable
CDSC. Class B shares acquired through reinvestment of distributions will convert
into Class A shares over time in the same proportion as other shares held in the
account. For this purpose, Class B shares acquired through reinvestment of
distributions will be attributed to particular purchases of Class B shares in
accordance with such procedures as the Trustees may determine from time to time.
The conversion of Class B shares to Class A shares is subject to the continuing
availability of a ruling from the Internal Revenue Service (the "IRS") or an
opinion of counsel that such conversions will not constitute taxable events for
U.S. federal income tax purposes. The conversion of Class B shares to Class A
shares will not occur if such ruling or opinion is not available and, therefore,
-29-
Class B shares would continue to be subject to higher expenses than Class A
shares for an indeterminate period.
Class C Shares
You may buy Class C shares at net asset value per share next computed after
receipt of a purchase order without the imposition of an initial sales charge;
however, Class C shares redeemed within one year of purchase will be subject to
a CDSC of 1%. The charge will be assessed on the amount equal to the lesser of
the current market value or the original purchase cost of the shares being
redeemed. No CDSC will be imposed on increases in account value above the
initial purchase price, including shares derived from the reinvestment of
dividends or capital gain distributions. Class C shares do not convert to any
other class of fund shares. In processing redemptions of Class C shares, the
fund will first redeem shares not subject to any CDSC and then shares held for
the longest period of time during the one-year period. As a result, you will pay
the lowest possible CDSC.
Proceeds from the CDSC are paid to PFD and are used in whole or in part to
defray PFD's expenses related to providing distribution-related services to the
fund in connection with the sale of Class C shares, including the payment of
compensation to broker-dealers.
Investor Class Shares
No front-end, deferred or asset based sales charges are applicable to Investor
Class shares.
Additional Payments to Dealers
From time to time, PFD or its affiliates may elect to make payments to
broker-dealers in addition to the commissions described above. PFD may elect to
reallow the entire initial sales charge to participating dealers for all Class A
sales with respect to which orders are placed during a particular period.
Dealers to whom substantially the entire sales charge is reallowed may be deemed
to be underwriters under federal securities laws. Contingent upon the
achievement of certain sales objectives, PFD may pay to Mutual of Omaha Investor
Services, Inc. a fee of up to 0.20% on qualifying sales of the fund's Class A,
Class B or Class C shares through such dealer. In addition, PFD or its
affiliates may elect to pay broker-dealers an additional commission based on the
net asset value of all of the fund's Class B or Class C shares sold by a dealer
during a particular period.
PFD may elect to pay, at its own expense, additional cash or other incentives to
dealers that sell or arrange for the sale of shares of the fund. Such cash or
other incentives may take the form of payment for attendance at preapproved
conferences or seminars, sales or training programs for invited registered
representatives and other employees, payment for travel expenses, including
lodging, incurred by registered representatives and other employees for such
seminars or training programs, seminars for the public, advertising and
preapproved sales campaigns or dealer-sponsored events. PFD may also elect to
make expense reimbursements for special training of a dealer's registered
representatives and other employees in group meetings or to help pay the
expenses of sales contests. PFD will offer such cash and other incentives only
to the extent permitted by applicable law or by a self-regulatory agency such as
the NASD.
REDEEMING SHARES
Redemptions may be suspended or payment postponed during any period in which any
of the following conditions exist: the New York Stock Exchange (the "Exchange")
is closed or trading on the Exchange is restricted; an emergency exists as a
result of which disposal by the fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the fund to fairly determine
the value of the net assets of its portfolio; or the SEC, by order, so permits.
Redemptions and repurchases are taxable transactions for shareholders that are
subject to U.S. federal income tax. The net asset value per share received upon
redemption or repurchase may be more or less than
-30-
the cost of shares to an investor, depending on the market value of the
portfolio at the time of redemption or repurchase.
Systematic Withdrawal Plan(s) ("SWP") (Class A, Class B and Class C Shares) . A
SWP is designed to provide a convenient method of receiving fixed payments at
regular intervals from fund share accounts having a total value of not less than
$10,000. You must also be reinvesting all dividends and capital gain
distributions to use the SWP option.
Periodic payments of $50 or more will be deposited monthly, quarterly,
semiannually or annually directly into a bank account designated by the
applicant or will be sent by check to the applicant, or any person designated by
the applicant. Payments can be made either by check or electronic funds transfer
to a bank account designated by you. Withdrawals from Class B and Class C share
accounts are limited to 10% of the value of the account at the time the SWP is
established. See "Qualifying for a reduced sales charge" in the prospectus. If
you direct that withdrawal payments be paid to another person, want to change
the bank where payments are sent or designate an address that is different from
the account's address of record after you have opened your account, a medallion
signature guarantee must accompany your instructions. Withdrawals under the SWP
are redemptions that may have tax consequences for you.
While you are making systematic withdrawals from your account, you may pay
unnecessary initial sales charges on additional purchases of Class A shares or
contingent deferred sales charges. SWP redemptions reduce and may ultimately
exhaust the number of shares in your account. In addition, the amounts received
by a shareholder cannot be considered as yield or income on his or her
investment because part of such payments may be a return of his or her
investment.
A SWP may be terminated at any time (1) by written notice to PIMSS or from PIMSS
to the shareholder; (2) upon receipt by PIMSS of appropriate evidence of the
shareholder's death; or (3) when all shares in the shareholder's account have
been redeemed.
You may obtain additional information by calling PIMSS at 1-800-225-6292.
Reinstatement Privilege (Class A and Class B Shares). Subject to the provisions
outlined in the prospectus, you may reinvest all or part of your sale proceeds
from Class A or Class B shares without a sales charge into Class A shares of a
Pioneer mutual fund. However, the distributor will not pay your investment firm
a commission on any reinvested amount.
TELEPHONE AND ONLINE TRANSACTIONS
You may purchase, exchange or sell Class A, Class B or Class C shares by
telephone or online. For personal assistance, call 1-800-225-6292 between 8:00
a.m. and 7:00 p.m. Eastern time on weekdays. Computer-assisted telephone
transactions may be available to shareholders who have prerecorded certain bank
information (see "FactFone(SM)"). You are strongly urged to consult with your
investment professional prior to requesting any telephone or online transaction.
Telephone Transaction Privileges. To confirm that each transaction instruction
received by telephone is genuine, the fund will record each telephone
transaction, require the caller to provide validating information for the
account and send you a written confirmation of each telephone transaction.
Different procedures may apply to accounts that are registered to non-U.S.
citizens or that are held in the name of an institution or in the name of an
investment broker-dealer or other third party. If reasonable procedures, such as
those described above, are not followed, the fund may be liable for any loss due
to unauthorized or fraudulent instructions. The fund may implement other
procedures from time to time. In all other cases, neither the fund, PIMSS nor
PFD will be responsible for the authenticity of instructions received by
telephone; therefore, you bear the risk of loss for unauthorized or fraudulent
telephone transactions.
Online Transaction Privileges. If your account is registered in your name, you
may be able buy, exchange or sell fund shares online. Your investment firm may
also be able to buy, exchange or sell your fund shares online.
-31-
To establish online transaction privileges:
|X| For new accounts, complete the online section of the account application
|X| For existing accounts, complete an account options form, write to the
transfer agent or complete the online authorization screen on
www.pioneerfunds.com
To use online transactions, you must read and agree to the terms of an online
transaction agreement available on the Pioneer website. When you or your
investment firm requests an online transaction the transfer agent electronically
records the transaction, requires an authorizing password and sends a written
confirmation. The fund may implement other 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.
You may not be able to use the online transaction privilege for certain types of
accounts, including most retirement accounts.
Telephone and Website Online Access. You may have difficulty contacting the fund
by telephone or accessing www.pioneerfunds.com during times of market volatility
or disruption in telephone or Internet services. On Exchange holidays or on days
when the Exchange closes early, Pioneer will adjust the hours for the telephone
center and for online transaction processing accordingly. If you are unable to
access pioneerfunds.com or to reach the fund by telephone, you should
communicate with the fund in writing.
FactFone(SM). FactFone(SM) is an automated inquiry and telephone transaction
system available to Pioneer mutual fund shareholders by dialing 1-800-225-4321.
FactFone(SM) allows shareholder access to current information on Pioneer mutual
fund accounts and to the prices and yields of all publicly available Pioneer
mutual funds. In addition, you may use FactFone(SM) to make computer-assisted
telephone purchases, exchanges or redemptions from your Pioneer mutual fund
accounts, access your account balances and last three transactions and order a
duplicate statement if you have activated your PIN. Telephone purchases or
redemptions require the establishment of a bank account of record. You are
strongly urged to consult with your investment professional prior to requesting
any telephone transaction. Shareholders whose accounts are registered in the
name of a broker-dealer or other third party may not be able to use
FactFone(SM). Call PIMSS for assistance.
FactFone(SM) allows shareholders to hear the following recorded fund
information:
o net asset value prices for all Pioneer mutual funds;
o annualized 30-day yields on Pioneer's fixed income funds;
o annualized 7-day yields and 7-day effective (compound) yields for Pioneer's
money market fund; and
o dividends and capital gain distributions on all Pioneer mutual funds.
Yields are calculated in accordance with SEC mandated standard formulas.
All performance numbers communicated through FactFone(SM) represent past
performance, and figures include the maximum applicable sales charge. A
shareholder's actual yield and total return will vary with changing market
conditions. The value of each class of shares (except for Pioneer Cash Reserves
Fund and Pioneer Tax Free Money Market Fund, which each seek to maintain a
stable $1.00 share price) will also vary, and such shares may be worth more or
less at redemption than their original cost.
-32-
PRICING OF SHARES
The net asset value per share of each class of the fund is determined as of the
close of regular trading on the Exchange (normally 4:00 p.m. Eastern time) on
each day on which the Exchange is open for trading. As of the date of this
statement of additional information, the Exchange is open for trading every
weekday except for the following holidays: New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. The net asset value per share of each
class of the fund is also determined on any other day on which the level of
trading in its portfolio securities is sufficiently high that the current net
asset value per share might be materially affected by changes in the value of
its portfolio securities. The fund is not required to determine its net asset
value per share on any day on which no purchase orders in good order for fund
shares are received and no shares are tendered and accepted for redemption.
Ordinarily, investments in debt securities are valued on the basis of
information furnished by a pricing service which utilizes primarily a matrix
system (which reflects such factors as security prices, yields, maturities and
ratings), supplemented by dealer and exchange quotations. Other securities are
valued at the last sale price on the principal exchange or market where they are
traded. Debt securities with remaining maturities of 60 days or less are valued
at amortized cost, which is a method of determining a security's fairvalue.
Securities which have not traded on the date of valuation or securities for
which sales prices are not generally reported are valued at the mean between the
current bid and asked prices.
Securities quoted in foreign currencies are converted to U.S. dollars utilizing
foreign exchange rates employed by the fund's independent pricing services.
Generally, trading in non U.S. securities is substantially completed each day at
various times prior to the close of regular trading on the Exchange. The values
of such securities used in computing the net asset value of the fund's shares
are determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of regular trading on the Exchange.
Occasionally, events which affect the values of such securities and such
exchange rates may occur between the times at which they are determined and the
close of regular trading on the Exchange and will therefore not be reflected in
the computation of the fund's net asset value. International securities markets
may be open on days when the U.S. markets are closed. For this reason, the value
of any international securities owned by the fund could change on a day you
cannot buy or sell shares of the fund.
When prices determined using the foregoing methods are not available or are
considered by Pioneer to be unreliable, the fund uses a security's fair value.
Fair value is the valuation of a security determined on the basis of factors
other than market value in accordance with procedures approved by the fund's
trustees. The fund also may use the fair value of a security, including a
non-U.S. security, when Pioneer determines that prices determined using the
foregoing methods no longer accurately reflect the value of the security due to
factors affecting one or more relevant securities markets or the specific
issuer. The use of fair value pricing by the fund may cause the net asset value
of its shares to differ from the net asset value that would be calculated using
closing market prices. In connection with making fair value determinations of
the value of fixed income securities, the fund's Trustees may use a pricing
matrix.
The net asset value per share of each class of the fund is computed by taking
the value of all of the fund's assets attributable to a class, less the fund's
liabilities attributable to that class, and dividing the result by the number of
outstanding shares of that class. For purposes of determining net asset value,
expenses of the classes of the fund are accrued daily and taken into account.
The fund's maximum offering price per Class A share is determined by adding the
maximum sales charge to the net asset value per Class A share. Class B, Class C
and Investor Class shares are offered at net asset value without the imposition
of an initial sales charge (Class B and Class C shares may be subject to a
CDSC).
TAXATION OF THE FUND
The fund has elected to be treated, has qualified and intends to qualify each
year as a "regulated investment company" under Subchapter M of the Code so that
it will not pay U.S. federal income tax on income and capital gains distributed
to shareholders (provided that the distribution requirements set forth below are
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satisfied). In order to qualify as a regulated investment company under
Subchapter M of the Code, the fund must, among other things, derive at least 90%
of its gross income for each taxable year from dividends, interest, payments
with respect to securities loans, gains from the sale or other disposition of
securities or other income (including gains from options and futures contracts)
derived with respect to its business of investing in such securities (the "90%
income test") and satisfy certain quarterly asset diversification requirements.
For purposes of the 90% income test, the character of income earned by certain
entities in which the fund invests that are not treated as corporations for U.S.
federal income tax purposes (e.g., partnerships or trusts) will generally pass
through to the fund. Consequently, the fund may be required to limit its equity
investments in such entities that earn fee income, rental income or other
nonqualifying income.
If the fund qualifies as a regulated investment company and properly distributes
to its shareholders each taxable year an amount equal to or exceeding the sum of
(i) 90% of its "investment company taxable income" as that term is defined in
the Code (which includes, among other things, dividends, taxable interest, and
the excess of any net short-term capital gains over net long-term capital
losses, as reduced by certain deductible expenses) without regard to the
deduction for dividends paid and (ii) 90% of the excess of its gross tax-exempt
interest, if any, over certain disallowed deductions, the fund generally will be
relieved of U.S. federal income tax on any income of the fund, including "net
capital gain" (the excess of net long-term capital gain over net short-term
capital loss), distributed to shareholders. However, if the fund meets such
distribution requirements, but chooses to retain some portion of investment
company taxable income or net capital gain, it generally will be subject to U.S.
federal income tax at regular corporate rates on the amount retained. The fund
intends to distribute at least annually all or substantially all of its
investment company taxable income, net tax-exempt interest, and net capital
gain.If the fund did not qualify as a regulated investment company for any
taxable year, it would be treated as a U.S. corporation subject to U.S. federal
income tax, thereby subjecting any income earned by the fund to tax at the
corporate level at a maximum 35% federal income tax rate, and when such income
is distributed, to a further tax at the shareholder level.
Under the Code, the fund will be subject to a nondeductible 4% U.S. federal
excise tax on a portion of its undistributed taxable ordinary income and capital
gain net income if it fails to meet certain distribution requirements with
respect to each calendar year. The fund intends to make distributions in a
timely manner and accordingly does not expect to be subject to the excise tax.
The fund declares a dividend from any net investment income each business day.
The fund generally pays dividends from any net investment income on the last
business day of the month or shortly thereafter. The fund distributes any net
short- and long-term capital gains in November. Dividends from income and/or
capital gains may also be paid at such other times as may be necessary for the
fund to avoid U.S. federal income or excise tax.
In accordance with its investment objective, the fund invests its assets in a
manner which will provide as large a portion of tax-exempt income as is
consistent with the protection of shareholders' capital. The fund may from time
to time invest a portion of its portfolio in short-term taxable obligations and
may engage in transactions generating gains or income which is not tax-exempt,
e.g., purchase non-municipal securities, sell or lend portfolio securities,
enter into repurchase agreements, dispose of rights to when-issued securities
prior to issuance, acquire any debt obligation at a market discount, acquire
certain stripped tax-exempt obligations or their coupons or enter into options
and futures transactions. The fund's distributions from such gains or income
will not be "exempt-interest dividends", as described below, and accordingly
will be taxable.
The Code permits tax-exempt interest received by the fund to flow through as
tax-exempt "exempt-interest dividends" to the fund's shareholders, provided that
the fund qualifies as a regulated investment company and at least 50% of the
value of the fund's total assets at the close of each quarter of its taxable
year consists of tax-exempt obligations, i.e., obligations described in Section
103(a) of the Code. That part of the fund's net investment income which is
attributable to interest from tax-exempt obligations and which is distributed to
shareholders will be designated by the fund as an "exempt-interest dividend"
under the Code. Exempt-interest dividends are excluded from a shareholder's
gross income under the Code but are nevertheless
-34-
required to be reported on the shareholder's U.S. federal income tax return. The
percentage of income designated as tax-exempt is applied uniformly to all
distributions made during each taxable year and may differ from the actual
tax-exempt percentage earned by the fund during any particular month. That
portion of the fund's dividends and distributions not designated as tax-exempt
will be taxable as described below.
The fund will not invest in certain "private activity bonds" that generate
interest that constitute items of tax preference that are subject to U.S.
federal alternative minimum tax for individuals or entities that are subject to
such tax. However, all exempt-interest dividends may result in or increase a
corporate shareholder's liability for the federal alternative minimum tax.
Interest on indebtedness incurred (directly or indirectly) by a shareholder to
purchase or carry shares of the fund will not be deductible for U.S. federal
income tax purposes to the extent it is deemed under the Code and applicable
regulations to relate to exempt-interest dividends received from the fund. The
fund may not be an appropriate investment for persons who are "substantial
users" of facilities financed by industrial revenue or private activity bonds or
persons related to substantial users. Shareholders receiving social security or
certain railroad retirement benefits may be subject to U.S. federal income tax
on a portion of such benefits as a result of receiving investment income,
including exempt-interest dividends and other distributions paid by the fund.
Unless shareholders specify otherwise, all distributions from the fund will be
automatically reinvested in additional full and fractional shares of the fund.
For U.S. federal income tax purposes, all dividends from the fund, other than
exempt-interest dividends, are taxed as described below whether a shareholder
takes them in cash or reinvests them in additional shares of the fund. In
general, assuming that the fund has sufficient earnings and profits, dividends
from investment company taxable income are taxable as ordinary income. Since the
fund's income is derived primarily from sources that do not pay qualified
dividend income, dividends from the fund generally will not qualify for taxation
at the maximum 15% U.S. federal income tax rate available to individuals on
qualified dividend income
Dividends from net capital gain, if any, that are designated as capital gain
dividends are taxable as long-term capital gains for U.S. federal income tax
purposes without regard to the length of time the shareholder has held shares of
the fund.
Capital gain dividends distributed by the fund to individual shareholders
generally will qualify for the maximum 15% U.S. federal income tax rate on
long-term capital gains, subject to certain limited exceptions. A shareholder
should also be aware that the benefits of the favorable tax rate applicable to
long-term capital gains may be impacted by the application of the alternative
minimum tax to individual shareholders. Under current law, the maximum 15% U.S.
federal income tax rate on long-term capital gains will cease to apply to
taxable years beginning after December 31, 2008.
Distributions by the fund in excess of the fund's current and accumulated
earnings and profits will be treated as a return of capital to the extent of
(and in reduction of) the shareholder's tax basis in its shares and any such
amount in excess of that basis will be treated as gain from the sale of shares,
as discussed below. The U.S. federal income tax status of all distributions will
be reported to shareholders annually.
Although dividends generally will be treated as distributed when paid, any
dividend declared by the fund as of a record date in October, November or
December and paid during the following January will be treated for U.S. federal
income tax purposes as received by shareholders on December 31 of the calendar
year in which it is declared. In addition, certain other distributions made
after the close of a taxable year of the fund may be "spilled back" and treated
as paid by the fund (except for purposes of the 4% excise tax) during such
taxable year. In such case, shareholders generally will be treated as having
received such dividends in the taxable year in which the distributions were
actually made.
If the fund invests in certain pay-in-kind securities, zero coupon securities,
deferred interest securities or, in general, any other securities with original
issue discount (or with market discount if the fund elects to include market
discount in income currently), the fund generally must accrue income on such
investments for each taxable year, which generally will be prior to the receipt
of the corresponding cash payments.
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However, the fund must distribute, at least annually, all or substantially all
of its taxable and tax-exempt income, including such accrued income, to
shareholders to qualify as a regulated investment company under the Code and
avoid U.S. federal income and excise taxes. Therefore, the fund may have to
dispose of its portfolio securities under disadvantageous circumstances to
generate cash, or may have to borrow the cash, to satisfy distribution
requirements.
The fund may invest to a limited extent in debt obligations that are in the
lowest rating categories or are unrated, including debt obligations of issuers
not currently paying interest or who are in default. Investments in debt
obligations that are at risk of or in default present special tax issues for the
fund. Tax rules are not entirely clear about issues such as when the fund may
cease to accrue interest, original issue discount or market discount, when and
to what extent deductions may be taken for bad debts or worthless securities,
how payments received on obligations in default should be allocated between
principal and income and whether exchanges of debt obligations in a workout
context are taxable. These and other issues will be addressed by the fund, in
the event it invests in such securities, in order to seek to ensure that it
distributes sufficient income to preserve its status as a regulated investment
company and does not become subject to U.S. federal income or excise tax.
For U.S. federal income tax purposes, the fund is permitted to carry forward a
net capital loss for any year to offset its capital gains, if any, for up to the
eight years following the year of the loss. To the extent subsequent capital
gains are offset by such losses, they would not result in U.S. federal income
tax liability to the fund and are not expected to be distributed as such to
shareholders. See Annual Fee, Expense and Other Information for the fund's
available capital loss carryforwards.
At the time of an investor's purchase of fund shares, a portion of the purchase
price may be attributable to realized or unrealized appreciation in the fund's
portfolio or undistributed taxable income of the fund. Consequently, subsequent
distributions by the fund with respect to these shares from such appreciation or
income may be taxable to such investor even if the net asset value of the
investor's shares is, as a result of the distributions, reduced below the
investor's cost for such shares and the distributions economically represent a
return of a portion of the investment.
Redemptions and exchanges generally are taxable events for shareholders that are
subject to tax. Shareholders should consult their own tax advisers with
reference to their individual circumstances to determine whether any particular
transaction in fund shares is properly treated as a sale for tax purposes, as
the following discussion assumes, and the tax treatment of any gains or losses
recognized in such transactions. In general, if fund shares are sold, the
shareholder will recognize gain or loss equal to the difference between the
amount realized on the sale and the shareholder's adjusted basis in the shares.
Such gain or loss generally will be treated as long-term capital gain or loss if
the shares were held for more than one year and otherwise generally will be
treated as short-term capital gain or loss. Any loss recognized by a shareholder
upon the redemption, exchange or other disposition of shares with a tax holding
period of six months or less will be disallowed to the extent of any
exempt-interest dividends paid with respect to such shares, and any portion of
such loss that exceeds the amount disallowed will be treated as a long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gain with respect to such shares.
In addition, if Class A or Class B shares that have been held for less than 91
days are redeemed and the proceeds are reinvested in Class A shares of the fund
or in Class A shares of another mutual fund at net asset value pursuant to the
reinstatement privilege, or if Class A shares in the fund that have been held
for less than 91 days are exchanged for the same class of shares in another fund
at net asset value pursuant to the exchange privilege, all or a portion of the
sales charge paid on the shares that are redeemed or exchanged will not be
included in the tax basis of such shares under the Code to the extent a sales
charge that would otherwise apply to the shares received is reduced pursuant to
the reinstatement or exchange privilege. In either case, the portion of the
sales charge not included in the tax basis of the shares redeemed or surrendered
in an exchange is included in the tax basis of the shares acquired in the
reinvestment or exchange. Losses on redemptions or other dispositions of shares
may be disallowed under "wash sale" rules in the event of other investments in
the fund (including those made pursuant to reinvestment of dividends and/or
capital gain distributions) within a period of 61 days beginning 30 days before
and ending 30 days
-36-
after a redemption or other disposition of shares. In such a case, the
disallowed portion of any loss generally would be included in the U.S. federal
tax basis of the shares acquired in the other investments.
Under Treasury regulations, if a shareholder recognizes a loss with respect to
shares of $2 million or more for an individual shareholder, or $10 million or
more for a corporate shareholder, in any single taxable year (or greater amounts
over a combination of years), the shareholder must file with the IRS a
disclosure statement on Form 8886. Shareholders who own portfolio securities
directly are in many cases excepted from this reporting requirement but, under
current guidance, shareholders of regulated investment companies are not
excepted. The fact that a loss is reportable under these regulations does not
affect the legal determination of whether or not the taxpayer's treatment of the
loss is proper. Shareholders should consult with their tax advisers to determine
the applicability of these regulations in light of their individual
circumstances.
Options written or purchased and futures contracts entered into by the fund on
certain securities or indices may cause the fund to recognize gains or losses
from marking-to-market even though such options may not have lapsed, been closed
out, or exercised, or such futures contracts may not have been performed or
closed out. The tax rules applicable to these contracts may affect the
characterization of some capital gains and losses realized by the fund as
long-term or short-term. Additionally, the fund may be required to recognize
gain if an option, futures contract, short sale or other transaction that is not
subject to the mark-to-market rules is treated as a "constructive sale" of an
"appreciated financial position" held by the fund under Section 1259 of the
Code. Any net mark-to-market gains and/or gains from constructive sales may also
have to be distributed to satisfy the distribution requirements referred to
above even though the fund may receive no corresponding cash amounts, possibly
requiring the disposition of portfolio securities or borrowing to obtain the
necessary cash. Losses on certain options or futures contracts and/or offsetting
positions (portfolio securities or other positions with respect to which the
fund's risk of loss is substantially diminished by one or more options or
futures contracts) may also be deferred under the tax straddle rules of the
Code, which may also affect the characterization of capital gains or losses from
straddle positions and certain successor positions as long-term or short-term.
Certain tax elections may be available that would enable the fund to ameliorate
some adverse effects of the tax rules described in this paragraph. The tax rules
applicable to options, futures and straddles may affect the amount, timing and
character of the fund's income and gains or losses and hence of its
distributions to shareholders.
The fund's dividends and distributions will generally not qualify to any
material extent for any dividends-received deduction that might otherwise be
available for certain dividends received by shareholders that are corporations.
In addition, no portion of the fund's distributions from net capital gain will
qualify for this deduction.
The fund may be subject to withholding and other taxes imposed by foreign
countries, including taxes on interest, dividends and capital gains with respect
to its investments in those countries, which would, if imposed, reduce the yield
on or return from those investments. Tax conventions between certain countries
and the U.S. may reduce or eliminate such taxes in some cases. The fund does not
expect to satisfy the requirements for passing through to its shareholders their
pro rata shares of qualified foreign taxes paid by the fund, with the results
that shareholders will not include such taxes in their gross incomes and will
not be entitled to a tax deduction or credit for such taxes on their own tax
returns.
The exemption of exempt-interest dividends for U.S. federal income tax purposes
does not necessarily result in exemption under the tax laws of any state or
local taxing authority, which vary with respect to the taxation of such income.
Many states will exempt from tax that portion of an exempt-interest dividend
which represents interest received by the fund on that state's securities,
subject in some cases to compliance with concentration and/or reporting
requirements, which the fund makes no commitment to seek to satisfy. However,
the fund will report annually to its shareholders the percentage of interest
income received by the fund during the preceding year on federally tax-exempt
obligations indicating, on a state-by-state basis only, the source of such
income. Each shareholder is advised to consult his own tax adviser regarding the
exemption, if any, of exempt-interest dividends under the state and local tax
laws applicable to the shareholder.
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A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent the fund's distributions are
derived from interest on (or, in the case of intangible property taxes, the
value of its assets is attributable to) certain U.S. government obligations,
provided in some states that certain thresholds for holdings of such obligations
and/or reporting requirements are satisfied. The fund will not seek to satisfy
any threshold or reporting requirements that may apply in particular taxing
jurisdictions, although the fund may in its sole discretion provide relevant
information to shareholders.
Federal law requires that the fund withhold (as "backup withholding") 28% of
reportable payments, including dividends (other than exempt-interest dividends),
capital gain distributions and the proceeds of redemptions and exchanges or
repurchases of fund shares, paid to shareholders who have not complied with IRS
regulations. In order to avoid this withholding requirement, shareholders must
certify on their Account Applications, or on separate IRS Forms W-9, that the
Social Security Number or other Taxpayer Identification Number they provide is
their correct number and that they are not currently subject to backup
withholding, or that they are exempt from backup withholding. The fund may
nevertheless be required to backup withhold if it receives notice from the IRS
or a broker that the number provided is incorrect or backup withholding is
applicable as a result of previous underreporting of interest or dividend
income. Backup withholding may be inapplicable for any year in which the fund
reasonably estimates that at least 95% of its dividends paid with respect to
such year are exempt-interest dividends.
If, as anticipated, the fund continues to qualify as a regulated investment
company under the Code, it will not be required to pay any Massachusetts income,
corporate excise or franchise taxes or any Delaware corporation income tax.
The description of certain U.S. federal tax provisions above relates only to
U.S. federal income tax consequences for shareholders who are U.S. persons,
i.e., U.S. citizens or residents or U.S. corporations, partnerships, trusts or
estates, and who are subject to U.S. federal income tax and hold their shares as
capital assets. This description does not address the special tax rules that may
be applicable to particular types of investors, such as financial institutions,
insurance companies, securities dealers, or tax-exempt or tax-deferred plans,
accounts or entities. Investors other than U.S. persons may be subject to
different U.S. federal income tax treatment, including a non-resident alien U.S.
withholding tax at the rate of 30% or at a lower treaty rate on amounts treated
as ordinary dividends from the fund and, unless an effective IRS Form W-8BEN, or
other authorized withholding certificate is on file, to backup withholding at
the rate of 28% on certain other payments from the fund. Shareholders should
consult their own tax advisers on these matters and on state, local, foreign and
other applicable tax laws.
UNDERWRITERS
Principal Underwriter
PFD, 60 State Street, Boston, Massachusetts 02109, is the principal underwriter
for the fund in connection with the continuous offering of its shares. PFD is an
indirect wholly owned subsidiary of PIM-USA.
The fund entered into an underwriting agreement with PFD which provides that PFD
will bear expenses for the distribution of the fund's shares, except for
expenses incurred by PFD for which it is reimbursed or compensated by the fund
under the distribution plans (discussed below). PFD bears all expenses it incurs
in providing services under the underwriting agreement. Such expenses include
compensation to its employees and representatives and to securities dealers for
distribution-related services performed for the fund. PFD also pays certain
expenses in connection with the distribution of the fund's shares, including the
cost of preparing, printing and distributing advertising or promotional
materials, and the cost of printing and distributing prospectuses and
supplements to prospective shareholders. The fund bears the cost of registering
its shares under federal and state securities law and the laws of certain
non-U.S. countries. Under the underwriting agreement, PFD will use its best
efforts in rendering services to the fund.
See "Sales Charges" for the schedule of initial sales charge reallowed to
dealers as a percentage of the offering price of the fund's Class A shares.
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See the tables in Annual Fee, Expense and Other Information for commissions
retained by PFD and reallowed to dealers in connection with PFD's offering of
the fund's Class A and Class C shares during recently completed fiscal years.
The fund will not generally issue fund shares for consideration other than cash.
At the fund's sole discretion, however, it may issue fund shares for
consideration other than cash in connection with a bona fide reorganization,
statutory merger or other acquisition of portfolio securities.
It is the fund's general practice to repurchase its shares of beneficial
interest for cash consideration in any amount; however, the redemption price of
shares of the fund may, at Pioneer's discretion, be paid in portfolio
securities. The fund has elected to be governed by Rule 18f-1 under the 1940 Act
pursuant to which the fund is obligated to redeem shares solely in cash up to
the lesser of $250,000 or 1% of the fund's net asset value during any 90-day
period for any one shareholder. Should the amount of redemptions by any
shareholder exceed such limitation, the fund will have the option of redeeming
the excess in cash or portfolio securities. In the latter case, the securities
are taken at their value employed in determining the fund's net asset value. You
may incur additional costs, such as brokerage fees and taxes, and risks,
including a decline in the value of the securities you receive, if the fund
makes an in-kind distribution. The selection of such securities will be made in
such manner as the Board of Trustees deems fair and reasonable; however, the
fund will not distribute illiquid securities in kind.
Distribution Plans
The fund has adopted a plan of distribution pursuant to Rule 12b-1 under the
1940 Act with respect to its Class A shares (the "Class A Plan"), a plan of
distribution with respect to its Class B shares (the "Class B Plan") and a plan
of distribution with respect to its Class C shares (the "Class C Plan")
(together, the "Plans"), pursuant to which certain distribution and service fees
are paid to PFD. The fund has not adopted a plan of distribution with respect to
its Investor Class shares. Because of the Plans, long-term shareholders may pay
more than the economic equivalent of the maximum sales charge permitted by the
National Association of Securities Dealers, Inc. (the "NASD") regarding
investment companies. The Class A Plan is a reimbursement plan, and distribution
expenses of PFD are expected to substantially exceed the distribution fees paid
by the fund in a given year. The Class B Plan and Class C Plan are compensation
plans, which means that the amount of payments under the plans are not linked to
PFD's expenditures, and, consequently, PFD can make a profit under each of those
plans.]
Class A Plan. Pursuant to the Class A Plan the fund reimburses PFD for its
actual expenditures to finance any activity primarily intended to result in the
sale of Class A shares or to provide services to holders of Class A shares,
provided the categories of expenses for which reimbursement is made are approved
by the Board of Trustees. The Board of Trustees has approved the following
categories of expenses that may be reimbursed under the Class A Plan: (i) a
service fee to be paid to qualified broker-dealers in an amount not to exceed
0.25% per annum of the fund's daily net assets attributable to Class A shares;
(ii) reimbursement to PFD for its expenditures for broker-dealer commissions and
employee compensation on certain sales of the fund's Class A shares with no
initial sales charge; and (iii) reimbursement to PFD for expenses incurred in
providing services to Class A shareholders and supporting broker-dealers and
other organizations (such as banks and trust companies) in their efforts to
provide such services. The expenses of the fund pursuant to the Class A Plan are
accrued daily at a rate which may not exceed the annual rate of 0.25% of the
fund's average daily net assets attributable to Class A shares.
The Class A Plan does not provide for the carryover of reimbursable expenses
beyond 12 months from the time the fund is first invoiced for an expense. The
limited carryover provision in the Class A Plan may result in an expense
invoiced to the 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, the 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 attributable to
Class A shares during such period. See Annual Fee, Expense and Other
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Information for the amount, if any, of carryover of distribution expenses as of
the end of the most recent calendar year.
Class B Plan. PFD pays the selling broker-dealer a commission on the sale of
Class B shares equal to 3.75% of the amount invested. This commission is paid at
the time of sale of the Class B Shares. In order to be entitled to a commission,
the selling broker-dealer must have entered into a sales agreements with PFD. At
the time of the sale of a Class B share, PFD may also advance to the
broker-dealer, from PFD's own assets, the first-year service fee payable under
the Class B Plan at a rate up to 0.25% of the purchase price of such shares. If
such an advance is made, the broker-dealer would not receive any further service
fee until the 13th month following the purchase of Class B shares. As
compensation for advancing the service fee, PFD may retain the service fee paid
by the fund with respect to such shares for the first year after purchase.
The Class B Plan provides that the fund shall pay to PFD, as the fund's
distributor for its Class B shares:
o a distribution fee equal on an annual basis to 0.75% of the fund's
average daily net assets attributable to Class B shares. The
distribution fee compensates PFD for its distribution services with
respect to Class B shares. PFD pays the commissions to broker-dealers
discussed above and also pays:
o the cost of printing prospectuses and reports used for sales
purposes and the preparation and printing of sales literature and
o other distribution-related expenses, including, without
limitation, the cost necessary to provide distribution-related
services, or personnel, travel, office expenses and equipment.
o a service fee equal to 0.25% of the fund's average daily net assets
attributable to Class B shares. PFD in turn pays the service fee to
broker-dealers at a rate of up to 0.25% of the fund's average daily
net assets attributable to Class B shares owned by shareholder for
whom that broker-dealer is the holder or dealer of record. This
service fee compensates the broker-dealer for providing personal
services and/or account maintenance services rendered by the
broker-dealer with respect to Class B shares. PFD may from time to
time require that dealers, in addition to providing these services,
meet certain criteria in order to receive service fees. PFD is
entitled to retain all service fees with respect to Class B shares for
which there is no dealer of record or with respect to which a dealer
is not otherwise entitled to a service fee. Such service fees are paid
to PFD for personal services and/or account maintenance services that
PFD or its affiliates perform for shareholder accounts.
PFD also receives contingent deferred sales charges ("CDSCs") attributable to
Class B shares to compensate PFD for its distribution expenses. When a
broker-dealer sells Class B shares and elects, with PFD's approval, to waive its
right to receive the commission normally paid at the time of the sale, PFD may
cause all or a portion of the distribution fees described above to be paid to
the broker-dealer.
Since PFD pays commissions to broker-dealers at the time of the sale of Class B
shares but only receives compensation for such expenses over time through the
distribution fee and CDSC, the Class B Plan and underwriting agreement permit
PFD to finance the payment of commissions to broker-dealers. In order to
facilitate such financing, the fund has agreed that the distribution fee will
not be terminated or modified (including a modification in the rules relating to
the conversion of Class B shares into Class A shares) with respect to Class B
shares:
o issued prior to the date of any termination or modification;
o attributable to Class B shares issued through one or a series of
exchanges of shares of another investment company for which PFD acts
as principal underwriter which were initially issued prior to the date
of such termination or modification; or
-40-
o issued as a dividend or distribution upon Class B shares initially
issued or attributable to Class B shares issued prior to the date of
any such termination or modification.
The foregoing limitation does not apply to Class B shares issued after the
termination or modification. The foregoing limitation on terminating or
modifying the Class B Plan also does not apply to a termination or modification:
o if a change in the 1940 Act, the rules or regulations under the 1940
Act, the Conduct Rules of the NASD or an order of any court or
governmental agency requires such termination or modification (e.g. if
the Conduct Rules were amended to establish a lower limit on the
maximum aggregate sales charges that could be imposed on sales of fund
shares);
o if the fund (or any successor) terminates the Class B Plan and all
payments under the plan and neither the fund (nor any successor)
establishes another class of shares which has substantially similar
characteristics to the Class B Shares of the fund; or
o at any time by the Board of Trustees. However, the Board of Trustees
may terminate or modify the Class B Plan only if the fund and Pioneer
agree that none of the fund, PFD or any of their affiliates will pay,
after the date of termination or modification, a service fee with
respect to the fund's Class B shares and the termination or
modification of the distribution fee applies equally to all Class B
shares outstanding from time to time.
In the underwriting agreement, the fund agrees that subsequent to the issuance
of a Class B share, the fund will not waive or change any CDSC (including a
change in the rules applicable to conversion of Class B shares into another
class) in respect of such Class B share, except:
o as provided in the fund's prospectus or statement of additional
information; or
o as required by a change in the 1940 Act and the rules and regulations
thereunder, the Conduct Rules of the NASD or any order of any court or
governmental agency.
Class C Plan. Commissions on the sale of Class C shares of up to 0.75% of the
amount invested in Class C shares are paid to broker-dealers who have sales
agreements with PFD. PFD may also advance to dealers the first-year service fee
payable under the Class C Plan at a rate up to 0.25% of the purchase price of
such shares. As compensation for such advance of the service fee, PFD may retain
the service fee paid by the fund with respect to such shares for the first year
after purchase.
The Class C Plan provides that the fund will pay PFD, as the fund's distributor
for its Class C shares, a distribution fee accrued daily and paid quarterly,
equal on an annual basis to 0.75% of the fund's average daily net assets
attributable to Class C shares and will pay PFD a service fee equal to 0.25% of
the fund's average daily net assets attributable to Class C shares. PFD will in
turn pay to securities dealers that enter into a sales agreement with PFD a
distribution fee and a service fee at rates of up to 0.75% and 0.25%,
respectively, of the fund's average daily net assets attributable to Class C
shares owned by investors for whom that securities dealer is the holder or
dealer of record. The service fee is intended to be in consideration of personal
services and/or account maintenance services rendered by the dealer with respect
to Class C shares. PFD will advance to dealers the first-year service fee at a
rate equal to 0.25% of the amount invested. As compensation therefor, PFD may
retain the service fee paid by the fund with respect to such shares for the
first year after purchase. Commencing in the 13th month following the purchase
of Class C shares, dealers will become eligible for additional annual
distribution fees and service fees of up to 0.75% and 0.25%, respectively, of
the net asset value of such shares. Dealers may from time to time be required to
meet certain other criteria in order to receive service fees. PFD or its
affiliates are entitled to retain all service fees payable under the Class C
Plan for which there is no dealer of record or for which qualification standards
have not been met as partial consideration for personal services and/or account
maintenance services performed by PFD or its affiliates for shareholder
accounts.
-41-
The purpose of distribution payments to PFD under the Class C Plan is to
compensate PFD for its distribution services with respect to Class C shares of
the fund. PFD pays commissions to dealers as well as expenses of printing
prospectuses and reports used for sales purposes, expenses with respect to the
preparation and printing of sales literature and other distribution-related
expenses, including, without limitation, the cost necessary to provide
distribution-related services, or personnel, travel, office expenses and
equipment. The Class C Plan also provides that PFD will receive all CDSCs
attributable to Class C shares. When a broker-dealer sells Class C shares and
elects, with PFD's approval, to waive its right to receive the commission
normally paid at the time of the sale, PFD may cause all or a portion of the
distribution fees described above to be paid to the broker-dealer.
General
In accordance with the terms of each Plan, PFD provides to the fund for review
by the Trustees a quarterly written report of the amounts expended under the
Plan and the purposes for which such expenditures were made. In the Trustees'
quarterly review of the Plans, they will consider the continued appropriateness
and the level of reimbursement or compensation the Plans provide.
No interested person of the fund, nor any Trustee of the fund who is not an
interested person of the fund, has any direct or indirect financial interest in
the operation of the Plans except to the extent that PFD and certain of its
employees may be deemed to have such an interest as a result of receiving a
portion of the amounts expended under the Plans by the fund and except to the
extent certain officers may have an interest in PFD's ultimate parent,
UniCredito Italiano, or in UniCredito Italiano's subsidiaries.
Each Plan's adoption, terms, continuance and termination are governed by Rule
12b-1 under the 1940 Act. The Board of Trustees believes that there is a
reasonable likelihood that the Plans will benefit the fund and its current and
future shareholders. The Plans may not be amended to increase materially the
annual percentage limitation of average net assets which may be spent for the
services described therein without approval of the shareholders of the fund
affected thereby, and material amendments of the Plans must also be approved by
the Trustees as provided in Rule 12b-1.
See Annual Fee, Expense and Other Information for fund expenses under the Class
A Plan, Class B Plan and Class C Plan and CDSCs paid to PFD for the most
recently completed fiscal year.
Upon redemption, Class A shares may be subject to a 1% CDSC, Class B shares are
subject to a CDSC at a rate declining from a maximum 4% of the lower of the cost
or market value of the shares and Class C shares may be subject to a 1% CDSC.
Investor Class shares are not subject to a CDSC.
CALCULATION OF PERFORMANCE DATA
See Annual Fee, Expense and Other Information for performance information for
each class of fund shares as of the most recently completed fiscal year
FINANCIAL STATEMENTS
Safeco Municipal Bond Fund's (the predecessor to Pioneer Municipal Bond Fund)
financial statements and financial highlights for the fiscal year ended December
31, 2003 appearing in the fund's annual report, as filed with the SEC on
February 26, 2004 (Accession No. 0001193125-04-030255), and the fund's unaudited
financial statements as of June 30, 2004 filed, as filed with the SEC on August
26, 2004 (Accession No. 0001193125-04-147198), are incorporated by reference
into this statement of additional information. The financial statements and
financial highlights for the fiscal year ended December 31, 2003 have been
audited by Ernst & Young LLP, an independent registered public accounting firm,
as indicated in their report thereon, and are incorporated herein by reference,
in reliance upon such report, given on the authority of Ernst & Young LLP as
experts in accounting and auditing.
-42-
Safeco Municipal Bond Fund's annual and semi-annual reports include the
financial statements referenced above and are available without charge upon
request by calling Shareholder Services at 1-800-225-6292.
ANNUAL FEE, EXPENSE AND OTHER INFORMATION
Portfolio Turnover
Not applicable(1)
Share Ownership
Not applicable(1)
Trustee Ownership of Shares of the Fund and Other Pioneer Funds
The following table indicates the value of shares that each Trustee beneficially
owned in the fund and Pioneer Funds in the aggregate as of December 31, 2003.
Beneficial ownership is determined in accordance with SEC rules. The share value
of any closed-end fund is based on its closing market price on December 31,
2003. The share value of any open-end Pioneer Fund is based on the net asset
value of the class of shares on December 31, 2003. The dollar ranges in this
table are in accordance with SEC requirements.
- ------------------------------------------------------------------------------------------------------------
Name of Trustee Aggregate Dollar Range of Equity
Dollar Range of Equity Securities in All Registered Investment
Securities in the Fund(1) Companies in the Pioneer Family of Funds
- ------------------------------------------------------------------------------------------------------------
Interested Trustees
- ------------------------------------------------------------------------------------------------------------
John F. Cogan, Jr. None Over $100,000
- ------------------------------------------------------------------------------------------------------------
Osbert M. Hood None Over $100,000
- ------------------------------------------------------------------------------------------------------------
Independent Trustees
- ------------------------------------------------------------------------------------------------------------
Mary K. Bush None $10,001-$50,000
- ------------------------------------------------------------------------------------------------------------
Richard H. Egdahl, M.D. None $50,001-$100,000
- ------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham None $10,001-$50,000
- ------------------------------------------------------------------------------------------------------------
Marguerite A. Piret None $50,001-$100,000
- ------------------------------------------------------------------------------------------------------------
Stephen K. West None Over $100,000
- ------------------------------------------------------------------------------------------------------------
John Winthrop None Over $100,000
- ------------------------------------------------------------------------------------------------------------
Compensation of Officers and Trustees
The following table sets forth certain information with respect to the
compensation of each Trustee of the fund.
- ------------------------------------------------------------------------------------------------------------
Pension or
Aggregate Retirement Benefits Total Compensation from
Compensation from Accrued as Part of the Fund and Other Pioneer
Name of Trustee Fund** Fund Expenses Funds***
- ------------------------------------------------------------------------------------------------------------
Interested Trustees:
- ------------------------------------------------------------------------------------------------------------
John F. Cogan, Jr*. $500.00 $0.00 $19,200.00
- ------------------------------------------------------------------------------------------------------------
Osbert M. Hood*+ $500.00 11,520.00
- ------------------------------------------------------------------------------------------------------------
Independent Trustees:
- ------------------------------------------------------------------------------------------------------------
Mary K. Bush $1,840.00 0.00 104,000.00
- ------------------------------------------------------------------------------------------------------------
Richard H. Egdahl, M.D. $1,780.00 0.00 99,750.00
- ------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham $1,960.00 0.00 104,000.00
- ------------------------------------------------------------------------------------------------------------
Marguerite A. Piret $1,960.00 0.00 113,562.50
- ------------------------------------------------------------------------------------------------------------
Stephen K. West $1,660.00 0.00 99,750.00
- ------------------------------------------------------------------------------------------------------------
John Winthrop $1,780.00 0.00 99,750.00
- ------------------------------------------------------------------------------------------------------------
Total: $11,980.00 $0.00 $651,532.50
- ------------------------------------------------------------------------------------------------------------
-43-
* Under the management contract, Pioneer reimburses the fund for any
Interested Trustee fees paid by the fund.
** Estimated for the fiscal year ended December 31, 2005.
*** For the calendar year ended December 31, 2003. There are 65 U.S. registered
investment portfolios in the Pioneer Family of Funds.
Approximate Management Fees the Fund Paid or Owed Pioneer
Not applicable(1)
Fees the Fund Paid to Pioneer under the Administration Agreement
Not applicable(1)
Carryovers of Distribution Expenses
Not applicable(1)
Approximate Net Underwriting Commissions Retained by PFD (Class A)
Not applicable(1)
Approximate Commissions Reallowed to Dealers (Class A)
Not applicable(1)
Fund Expenses under the Distribution Plans
Not applicable(1)
CDSCs
Not applicable(1)
Brokerage and Underwriting Commissions (Portfolio Transactions)
Not applicable(1)
Capital Loss Carryforwards as of December 31, 2003
Not applicable(1)
Average Annual Total Returns (December 31, 2003)
Not applicable(1)
(1) As of December 31, 2003, the fund had not yet commenced operations.
As of the date of this statement of additional information, the fund had not yet
completed a fiscal year.
-44-
PIONEER TAX FREE MONEY MARKET FUND
(a series of Pioneer Series Trust II)
STATEMENT OF ADDITIONAL INFORMATION
October 25, 2004
This Statement of Additional Information is not a Prospectus. It should be read
in conjunction with the related Proxy Statement and Prospectus (also dated
October 25, 2004) which covers Investor Class shares of Pioneer Tax Free Money
Market Fund (the "fund"), a newly created series of Pioneer Series Trust II, to
be issued in exchange for shares of Safeco Tax-Free Money Market Fund, a series
of Safeco Money Market Trust. Please retain this Statement of Additional
Information for further reference.
The Prospectus is available to you free of charge (please call
1-800-407-7298).
INTRODUCTION...................................................................2
EXHIBITS.......................................................................2
ADDITIONAL INFORMATION ABOUT PIONEER TAX FREE MONEY MARKET FUND................2
FUND HISTORY..........................................................2
DESCRIPTION OF THE FUND AND ITS INVESTMENT RISKS......................2
MANAGEMENT OF THE FUND...............................................13
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES..................21
INVESTMENT ADVISORY AND OTHER SERVICES...............................21
BROKERAGE ALLOCATION AND OTHER PRACTICES.............................23
CAPITAL STOCK AND OTHER SECURITIES...................................24
PURCHASE, REDEMPTION AND PRICING OF SHARES...........................26
TAXATION OF THE FUND.................................................31
UNDERWRITERS.........................................................34
CALCULATION OF PERFORMANCE DATA......................................38
FINANCIAL STATEMENTS.................................................38
ANNUAL FEE, EXPENSE AND OTHER INFORMATION............................39
INTRODUCTION
This Statement of Additional Information is intended to supplement the
information provided in a Proxy Statement and Prospectus dated October 25, 2004
(the "Proxy Statement and Prospectus") relating to the proposed reorganization
of Safeco Tax-Free Money Market Fund, a series of Safeco Money Market Trust,
into Pioneer Tax Free Money Market Fund, a newly created series of Pioneer
Series Trust II, and in connection with the solicitation by the management of
Safeco Money Market Trust of proxies to be voted at the Meeting of Shareholders
of Safeco Tax-Free Money Market Fund to be held on December 8, 2004.
EXHIBITS AND DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated herein by reference, unless otherwise
indicated. Shareholders will receive a copy of each document that is
incorporated by reference upon any request to receive a copy of this Statement
of Additional Information.
1. Safeco Money Market Trust's statement of additional information, dated
April 30, 2004 (File No. 2-25272), as filed with the Securities and
Exchange Commission on April 29, 2004 (Accession No. 0001193125-04-072480)
is incorporated herein by reference.
2. Safeco Tax- Free Money Market Fund's Annual Report for the fiscal year
ended December 31, 2003 (File No. 811-03347), as filed with the Securities
and Exchange Commission on February 26, 2004 (Accession No.
0001193125-04-030238) is incorporated herein by reference.
3. Safeco Tax-Free Money Market Fund's Semi-Annual Report for the period ended
June 30, 2004 (File No. 811-03347), as filed with the Securities and
Exchange Commission on August 26, 2004 (Accession No. 0001193125-04-147223)
is incorporated herein by reference.
ADDITIONAL INFORMATION ABOUT
PIONEER TAX FREE MONEY MARKET FUND
FUND HISTORY
The fund is a diversified series of Pioneer Series Trust II, an open-end
management investment company. The fund originally was established as Safeco Tax
Free Money Market Fund, as series of Safeco Money Market Trust, a Delaware
statutory trust, on May 13, 1993. Pursuant to an agreement and plan of
reorganization, the fund was reorganized as a series of Pioneer Series Trust II,
a Delaware statutory trust, on August 8, 2004.
DESCRIPTION OF THE FUND AND ITS INVESTMENT RISKS
The prospectus presents the investment objective and the principal investment
strategies and risks of the fund. This section supplements the disclosure in the
fund's prospectuses and provides additional information on the fund's investment
policies or restrictions. Restrictions or policies stated as a maximum
percentage of the fund's assets are only applied immediately after a portfolio
investment to which the policy or restriction is applicable (other than the
limitations on borrowing and illiquid securities). Accordingly, any later
increase or decrease resulting from a change in values, net assets or other
circumstances will not be considered in determining whether the investment
complies with the fund's restrictions and policies.
-2-
High Quality Securities
High quality securities are divided into "first tier" and "second tier"
securities. The fund primarily invests in first tier securities. These include
U.S. government securities, a security that has received the highest short-term
rating (e.g., Standard & Poor's A-1 rating) by at least two rating agencies (or
if rated by only one rating agency, by that rating agency) or, a security that
is unrated but is determined to be of equivalent credit quality by Pioneer
Investment Management, Inc. ("Pioneer"), the fund's investment adviser. However,
the fund may invest up to 5% of its total assets in second tier securities,
which are eligible securities that received ratings within the two highest
categories (e.g., Standard & Poor's A-1 or A-2) from at least two rating
services (or one, if only one has rated the security), but do not qualify as
first tier securities. If a security has been assigned different ratings by
different rating services, at least two rating services must have assigned the
higher rating in order for Pioneer to determine eligibility on the basis of that
higher rating. Based on procedures adopted by the fund's Board of Trustees,
Pioneer may determine that an unrated security is of equivalent quality to a
rated first tier or second tier security.
The fund may not invest more than 5% of its total assets in securities issued by
or subject to demand features from any one issuer (except U.S. government
securities and securities subject to a guarantee by a person that does not
control the issuer of the security or the sponsor of an asset backed security);
provided that the fund may invest up to 25% of its total assets in first tier
Securities of a single issuer for a period of up to three business days.
As a tax-exempt money market fund, the fund must limit investment in second tier
"conduit securities" (as defined in Rule 2a-7) to 5% of its total assets and,
with respect to second tier conduit securities issued by a single issuer, the
greater of $1 million or 1% of the fund's total assets. Generally, conduit
securities are securities issued to finance non-governmental private projects,
such as retirement homes, private hospitals, local housing projects, and
industrial development projects, with respect to which the ultimate obligor is
not a government entity.
U.S. Government Securities
U.S. government securities in which the fund may invest include debt obligations
issued by the U.S. Treasury or issued or guaranteed by an agency or
instrumentality of the U.S. government, including the Federal Housing
Administration, Federal Financing Bank, Farmers Home Administration,
Export-Import Bank of the U.S., Small Business Administration, Government
National Mortgage Association ("GNMA"), General Services Administration, Central
Bank for Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation ("FHLMC"), Federal National Mortgage
Association ("FNMA"), Maritime Administration, Tennessee Valley Authority,
District of Columbia Armory Board, Student Loan Marketing Association,
Resolution Trust Corporation and various institutions that previously were or
currently are part of the Farm Credit System (which has been undergoing
reorganization since 1987). Some U.S. government securities, such as U.S.
Treasury bills, Treasury notes and Treasury bonds, which differ only in their
interest rates, maturities and times of issuance, are supported by the full
faith and credit of the United States. Others are supported by: (i) the right of
the issuer to borrow from the U.S. Treasury, such as securities of the Federal
Home Loan Banks; (ii) the discretionary authority of the U.S. government to
purchase the agency's obligations, such as securities of the FNMA; or (iii) only
the credit of the issuer. No assurance can be given that the U.S. government
will provide financial support in the future to U.S. government agencies,
authorities or instrumentalities that are not supported by the full faith and
credit of the United States. Securities guaranteed as to principal and interest
by the U.S. government, its agencies, authorities or instrumentalities include:
(i) securities for which the payment of principal and interest is backed by an
irrevocable letter of credit issued by the U.S. government or any of its
agencies, authorities or instrumentalities; and (ii) participations in loans
made to non-U.S. governments or other entities that are so guaranteed. The
secondary market for certain of these participations is limited and, therefore,
may be regarded as illiquid.
U.S. government securities may include zero coupon securities that may be
purchased when yields are attractive and/or to enhance portfolio liquidity. Zero
coupon U.S. government securities are debt obligations that are issued or
purchased at a significant discount from face value. The discount
-3-
approximates the total amount of interest the security will accrue and compound
over the period until maturity or the particular interest payment date at a rate
of interest reflecting the market rate of the security at the time of issuance.
Zero coupon U.S. government securities do not require the periodic payment of
interest. These investments benefit the issuer by mitigating its need for cash
to meet debt service, but also generally require a higher rate of return to
attract investors who are willing to defer receipt of cash. These investments
may experience greater volatility in market value than U.S. government
securities that make regular payments of interest. The fund accrues income on
these investments for tax and accounting purposes, which is distributable to
shareholders and which, because no cash is received at the time of accrual, may
require the liquidation of other portfolio securities to satisfy the fund's
distribution obligations, in which case the fund will forgo the purchase of
additional income producing assets with these funds. Zero coupon U.S. government
securities include STRIPS and CUBES, which are issued by the U.S. Treasury as
component parts of U.S. Treasury bonds and represent scheduled interest and
principal payments on the bonds.
Debt Obligations of Non-U.S. Governments
An investment in debt obligations of non-U.S. governments and their political
subdivisions (sovereign debt) involves special risks that are not present in
corporate debt obligations. The non-U.S. issuer of the sovereign debt or the
non-U.S. governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or interest when due, and a fund may have
limited recourse in the event of a default. During periods of economic
uncertainty, the market prices of sovereign debt may be more volatile than
prices of debt obligations of U.S. issuers. In the past, certain non-U.S.
countries have encountered difficulties in servicing their debt obligations,
withheld payments of principal and interest and declared moratoria on the
payment of principal and interest on their sovereign debt.
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign currency reserves, the availability of
sufficient non-U.S. exchange, the relative size of the debt service burden, the
sovereign debtor's policy toward its principal international lenders and local
political constraints. Sovereign debtors may also be dependent on expected
disbursements from non-U.S. governments, multilateral agencies and other
entities to reduce principal and interest arrearages on their debt. The failure
of a sovereign debtor to implement economic reforms, achieve specified levels of
economic performance or repay principal or interest when due may result in the
cancellation of third-party commitments to lend funds to the sovereign debtor,
which may further impair such debtor's ability or willingness to service its
debts.
Risks of Non-U.S. Investments
Investing in securities of non-U.S. issuers involves considerations and risks
not typically associated with investing in the securities of issuers in the U.S.
The risks of investing in securities of non-U.S. issuers generally or in issuers
with significant exposure to non-U.S. markets may be related, among other
things, to (i) differences in size, liquidity and volatility of, and the degree
and manner of regulation of, the securities markets of certain non-U.S. markets
compared to the securities markets in the U.S.; and (ii) economic, political and
social factors. The political and economic structures in certain countries are
expected to undergo significant evolution and rapid development, and such
countries may lack the social, political and economic stability characteristic
of more developed countries. Unanticipated political or social developments may
affect the values of the fund's investments in such countries. In the past, the
economies and securities and currency markets of many emerging markets have
experienced significant disruption and declines. There can be no assurances that
these economic and market disruptions might not occur again.
Other Investment Companies
The fund may invest in the securities of other investment companies to the
extent that such investments are consistent with the fund's investment objective
and policies and permissible under the Investment Company Act of 1940, as
amended (the "1940 Act"). Under the 1940 Act, the fund may not acquire the
securities of other domestic or non-U.S. investment companies if, as a result,
(i) more than 10% of the fund's total assets would be invested in securities of
other investment companies, (ii) such purchase would
-4-
result in more than 3% of the total outstanding voting securities of any one
investment company being held by the fund, or (iii) more than 5% of the fund's
total assets would be invested in any one investment company. These limitations
do not apply to the purchase of shares of any investment company in connection
with a merger, consolidation, reorganization or acquisition of substantially all
the assets of another investment company. The fund may invest in money market
funds managed by Pioneer in reliance on an exemptive order granted by the
Securities and Exchange Commission (the "SEC").
The fund, as a holder of the securities of other investment companies, will bear
its pro rata portion of the other investment companies' expenses, including
advisory fees. These expenses are in addition to the direct expenses of the
fund's own operations.
Bank Obligations
The fund may invest in certificates of deposit, time deposits and bankers
acceptances of domestic banks and savings and loan associations with total
assets in excess of $10 billion and non-U.S. banks, including foreign branches
of such domestic banks. Although Pioneer recognizes that the size of a bank is
important, this fact alone is not necessarily indicative of its
creditworthiness.
Bankers' Acceptances are obligations of a bank to pay a draft which has been
drawn on it by a customer. These obligations are backed by large banks and
usually backed by goods in international trade.
Certificates of Deposit represent a commercial bank's obligations to repay funds
deposited with it, earning specified rates of interest over given periods.
Investments in Non-U.S. bank obligations
Investment in obligations of foreign branches of domestic banks and of non-U.S.
banks involves investment risks that are different in some respects from those
associated with investment in obligations issued by domestic banks, including
the possible imposition of withholding taxes on interest income, the possible
adoption of foreign governmental restrictions which might adversely affect the
payment of principal and interest on such obligations, or other adverse
political or economic developments. In addition, it might be more difficult to
obtain and enforce a judgment against a foreign branch of a domestic bank or a
non-U.S. bank.
Commercial Paper and other Short Term Debt Securities
The fund's invests in short-term debt securities, including commercial paper,
which is a short-term unsecured promissory note issued by a U.S. or foreign
corporation in order to finance its current operations. The fund may also invest
in variable amount master demand notes (which is a type of commercial paper)
which represents a direct borrowing arrangement involving periodically
fluctuating rates of interest under a letter agreement between a commercial
paper issuer and an institutional lender, pursuant to which the lender may
determine to invest varying amounts. Transfer of such notes is usually
restricted by the issuer, and there is no secondary trading market for such
notes. To the extent the fund invests in master demand notes, these investments
will be included in the fund's limitation on illiquid securities.
Tax-Exempt Commercial Paper
These are short-term securities issued by states, municipalities and their
agencies. Tax-exempt commercial paper may be structured similarly to put bonds
with credit enhancements, long nominal maturities, and mandatory put dates,
which are agreed upon by the buyer and the seller at the time of purchase. The
put date acts as a maturity date for the security, and generally will be shorter
than the maturities of Project Notes, BANs, RANs or TANs. There is a limited
secondary market for issues of tax-exempt commercial paper.
-5-
Mortgage-Backed Securities
The fund may invest in mortgage pass-through certificates and multiple-class
pass-through securities, and mortgage derivative securities such as real estate
mortgage investment conduits ("REMIC") pass-through certificates, collateralized
mortgage obligations ("CMOs"), interest only mortgage-backed securities and
principal only mortgage-backed securities and other types of "mortgage-backed
securities" that may be available in the future. A mortgage-backed security is
an obligation of the issuer backed by a mortgage or pool of mortgages or a
direct interest in an underlying pool of mortgages. Some mortgage-backed
securities, such as CMOs, make payments of both principal and interest at a
variety of intervals; others make semiannual interest payments at a
predetermined rate and repay principal at maturity (like a typical bond).
Mortgage-backed securities are based on different types of mortgages including
those on commercial real estate or residential properties. Mortgage-backed
securities often have stated maturities of up to thirty years when they are
issued, depending upon the length of the mortgages underlying the securities. In
practice, however, unscheduled or early payments of principal and interest on
the underlying mortgages may make the securities' effective maturity shorter
than this, and the prevailing interest rates may be higher or lower than the
current yield of the fund's portfolio at the time the fund receives the payments
for reinvestment. Mortgage-backed securities may have less potential for capital
appreciation than comparable fixed income securities, due to the likelihood of
increased prepayments of mortgages as interest rates decline. If the fund buys
mortgage-backed securities at a premium, mortgage foreclosures and prepayments
of principal by mortgagors (which may be made at any time without penalty) may
result in some loss of the fund's principal investment to the extent of the
premium paid.
The value of mortgage-backed securities may also change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities markets as a whole. Non-governmental
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
governmental issues.
Guaranteed Mortgage Pass-Through Securities. Guaranteed mortgage pass-through
securities represent participation interests in pools of residential mortgage
loans and are issued by U.S. governmental or private lenders and guaranteed by
the U.S. government or one of its agencies or instrumentalities, including but
not limited to GNMA, FNMA and FHLMC. GNMA certificates are guaranteed by the
full faith and credit of the U.S. government for timely payment of principal and
interest on the certificates. FNMA certificates are guaranteed by FNMA, a
federally chartered and privately owned corporation, for full and timely payment
of principal and interest on the certificates. FHLMC certificates are guaranteed
by FHLMC, a corporate instrumentality of the U.S. government, for timely payment
of interest and the ultimate collection of all principal of the related mortgage
loans.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers may,
in addition, be the originators and/or servicers of the underlying mortgage
loans as well as the guarantors of the mortgage-related securities. Because
there are no direct or indirect government or agency guarantees of payments in
pools created by such non-governmental issuers, they generally offer a higher
rate of interest than government and government-related pools. Timely payment of
interest and principal of these pools may be supported by insurance or
guarantees, including individual loan, title, pool and hazard insurance and
letters of credit. The insurance and guarantees are issued by governmental
entities, private insurers and the mortgage poolers. There can be no assurance
that the private insurers or guarantors can meet their obligations under the
insurance policies or guarantee arrangements.
Mortgage-related securities without insurance or guarantees may be purchased if
Pioneer determines that the securities meet the fund's quality standards.
Mortgage-related securities issued by certain private organizations may not be
readily marketable.
Multiple-Class Pass-Through Securities and Collateralized Mortgage Obligations.
CMOs and REMIC pass-through or participation certificates may be issued by,
among others, U.S. government agencies and instrumentalities as well as private
issuers. REMICs are CMO vehicles that qualify for special tax treatment under
the Internal Revenue Code of 1986, as amended (the "Code") and invest in
mortgages principally
-6-
secured by interests in real property and other investments permitted by the
Code. CMOs and REMIC certificates are issued in multiple classes and the
principal of and interest on the mortgage assets may be allocated among the
several classes of CMOs or REMIC certificates in various ways. Each class of CMO
or REMIC certificate, often referred to as a "tranche," is issued at a specific
adjustable or fixed interest rate and must be fully retired no later than its
final distribution date. Generally, interest is paid or accrues on all classes
of CMOs or REMIC certificates on a monthly basis.
Typically, CMOs are collateralized by GNMA, FNMA or FHLMC certificates but also
may be collateralized by other mortgage assets such as whole loans or private
mortgage pass-through securities. Debt service on CMOs is provided from payments
of principal and interest on collateral of mortgaged assets and any reinvestment
income thereon.
Risk Factors Associated with Mortgage-Backed Securities. Investing in
mortgage-backed securities involves certain risks, including the failure of a
counterparty to meet its commitments, adverse interest rate changes and the
effects of prepayments on mortgage cash flows. In addition, investing in the
lowest tranche of CMOs and REMIC certificates involves risks similar to those
associated with investing in equity securities. However, due to adverse tax
consequences under current tax laws, the fund does not intend to acquire
"residual" interests in REMICs. Further, the yield characteristics of
mortgage-backed securities differ from those of traditional fixed income
securities. The major differences typically include more frequent interest and
principal payments (usually monthly), the adjustability of interest rates of the
underlying instrument, and the possibility that prepayments of principal may be
made substantially earlier than their final distribution dates.
Prepayment rates are influenced by changes in current interest rates and a
variety of economic, geographic, social and other factors and cannot be
predicted with certainty. Both adjustable rate mortgage loans and fixed rate
mortgage loans may be subject to a greater rate of principal prepayments in a
declining interest rate environment and to a lesser rate of principal
prepayments in an increasing interest rate environment. Under certain interest
rate and prepayment rate scenarios, the fund may fail to recoup fully its
investment in mortgage-backed securities notwithstanding any direct or indirect
governmental, agency or other guarantee. When the fund reinvests amounts
representing payments and unscheduled prepayments of principal, it may obtain a
rate of interest that is lower than the rate on existing adjustable rate
mortgage pass-through securities. Thus, mortgage-backed securities, and
adjustable rate mortgage pass-through securities in particular, may be less
effective than other types of U.S. government securities as a means of "locking
in" interest rates.
Asset-Backed Securities
The fund may invest in asset-backed securities, which are securities that
represent a participation in, or are secured by and payable from, a stream of
payments generated by particular assets, most often a pool or pools of similar
assets (e.g., trade receivables). The credit quality of these securities depends
primarily upon the quality of the underlying assets and the level of credit
support and/or enhancement provided.
The underlying assets (e.g., loans) are subject to prepayments which shorten the
securities' weighted average maturity and may lower their return. If the credit
support or enhancement is exhausted, losses or delays in payment may result if
the required payments of principal and interest are not made. The value of these
securities also may change because of changes in the market's perception of the
creditworthiness of the servicing agent for the pool, the originator of the
pool, or the financial institution or trust providing the credit support or
enhancement.
Loan Participations.
The fund may invest a portion of its assets in loan participations
("Participations") and other direct claims against a borrower. By purchasing a
Participation, the fund acquires some or all of the interest of a bank or other
lending institution in a loan to a corporate or government borrower. The
Participations typically will result in the fund having a contractual
relationship only with the lender not the borrower. The fund will have the right
to receive payments of principal, interest and any fees to which it is entitled
only from the
-7-
lender selling the Participation and only upon receipt by the lender of the
payments from the borrower. Many such loans are secured, although some may be
unsecured. Loans that are fully secured offer a fund more protection than an
unsecured loan in the event of non-payment of scheduled interest or principal.
However, there is no assurance that the liquidation of collateral from a secured
loan would satisfy the corporate borrower's obligation, or that the collateral
can be liquidated.
Municipal Obligations
The term "municipal obligations" generally is understood to include debt
obligations issued by municipalities to obtain funds for various public
purposes, the interest on which is, in the opinion of bond counsel to the
issuer, excluded from gross income for U.S. federal income tax purposes. In
addition, if the proceeds from private activity bonds are used for the
construction, repair or improvement of privately operated industrial or
commercial facilities, the interest paid on such bonds may be excluded from
gross income for U.S federal income tax purposes, although current federal tax
laws place substantial limitations on the size of these issues. The fund's
distributions of any interest it earns on municipal obligations will be taxable
to shareholders as ordinary income.
The two principal classifications of municipal obligations are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its faith, credit, and taxing power for the payment of
principal and interest. Revenue bonds are payable from the revenues derived from
a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source, but not from the
general taxing power. Sizable investments in these obligations could involve an
increased risk to a fund should any of the related facilities experience
financial difficulties. Private activity bonds are in most cases revenue bonds
and do not generally carry the pledge of the credit of the issuing municipality.
There are, of course, variations in the security of municipal obligations, both
within a particular classification and between classifications.
Municipal Lease Obligations
Municipal lease obligations or installment purchase contract obligations
(collectively, "lease obligations") have special risks not ordinarily associated
with other Tax-Exempt Bonds. Although lease obligations do not constitute
general obligations of the municipality for which the municipality's taxing
power is pledged, a lease obligation ordinarily is backed by the municipality's
covenant to budget for, appropriate and make the payments due under the lease
obligations. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. In addition to the non-appropriation risk, these
securities represent a relatively new type of financing that has not yet
developed the depth of marketability associated with more conventional bonds.
Although non-appropriation lease obligations are secured by the leased property,
disposition of the property in the event of foreclosure might prove difficult.
The fund will seek to minimize these risks.
In determining the liquidity of municipal lease obligations, Pioneer, under
guidelines established by the fund's Board of Trustees, will consider: (1) the
essential nature of the leased property; and (2) the likelihood that the
municipality will discontinue appropriating funding for the leased property
because the property is no longer deemed essential to the operation of the
municipality.
If leased property is determined not to be essential in nature or if there is a
likelihood that the municipality will discontinue appropriating funding, then
the following factors will also be considered in determining liquidity:
(1) any relevant factors related to the general credit quality of the
municipality, which may include: (a) whether the lease can be canceled; (b) what
assurance there is that the assets represented by the lease can be sold; (c) the
strength of the lessee's general credit (e.g., its debt, administrative,
economic and financial characteristics); and (d) the legal recourse in the event
of failure to appropriate.
-8-
(2) any relevant factors related to the marketability of the municipal lease
obligation which may include: (a) the frequency of trades and quotes for the
obligation; (b) the number of dealers willing to purchase or sell the obligation
and the number of other potential purchasers; (c) the willingness of dealers to
undertake to make a market in the obligation; and (d) the nature of the
marketplace trades, including the time needed to dispose of the obligation, the
method of soliciting offers, and the mechanics of transfer.
Bond Anticipation Notes (BANs)
These notes are usually general obligations of state and local governmental
issuers which are sold to obtain interim financing for projects that will
eventually be funded through the sale of long-term debt obligations or bonds.
The ability of an issuer to meet the obligations on its BANs is primarily
dependent on the issuer's access to the long-term municipal bond market and the
likelihood that the proceeds of such bond sales will be used to pay the
principal and interest on the BANs.
Tax Anticipation Notes (TANs)
These notes are issued by state and local governments to finance their current
operations. Repayment is generally to be derived from specific future tax
revenues. TANs are usually general obligations of the issuer. A weakness in an
issuer's capacity to raise taxes due to, among other things, a decline in its
tax base or a rise in delinquencies, could adversely affect the issuer's ability
to meet its obligations on outstanding TANs.
Revenue Anticipation Notes (RANs)
These notes are issued by governments or governmental bodies with the
expectation that future revenues from a designated source will be used to repay
the notes. In general, they also constitute general obligations of the issuer. A
decline in the receipt of project revenues, such as anticipated revenues from
another level of government, could adversely affect an issuer's ability to meet
its obligations on outstanding RANs. In addition, the possibility that the
revenues would, when received, be used to meet other obligations could affect
the ability of the issuer to pay the principal and interest on RANs.
Term Put Bonds
Term put bonds are variable rate obligations which have a maturity in excess of
one year with the option to put back (sell back) the bonds on a specified put
date. On the put date, the interest rate of the bond is reset according to
current market conditions and accrues at the reset rate until the next put date.
The Fund may also hold mandatory put bonds. Mandatory put bonds require the
holder to take certain action to retain the bonds. Put bonds are generally
credit-enhanced by collateral, guaranteed investment contracts, surety bonds, a
letter of credit or insurance which guarantees the payment of principal and
interest.
Illiquid Securities
The fund will not invest more than 10% of its net assets in illiquid and other
securities that are not readily marketable. Repurchase agreements maturing in
more than seven days will be included for purposes of the foregoing limit.
Securities subject to restrictions on resale under the Securities Act of 1933,
as amended (the "1933 Act"), are considered illiquid unless they are eligible
for resale pursuant to Rule 144A or another exemption from the registration
requirements of the 1933 Act and are determined to be liquid by Pioneer. Pioneer
determines the liquidity of Rule 144A and other restricted securities according
to procedures adopted by the Board of Trustees. Under the direction of the Board
of Trustees, Pioneer monitors the application of these guidelines and
procedures. The inability of the fund to dispose of illiquid investments readily
or at reasonable prices could impair the fund's ability to raise cash for
redemptions or other purposes. If the fund sold restricted securities other than
pursuant to an exception from registration under the 1933 Act such as Rule 144A,
it may be deemed to be acting as an underwriter and subject to liability under
the 1933 Act.
-9-
Variable Rate and Floating Rate Demand Instruments
The fund may purchase variable and floating rate demand instruments that are tax
exempt municipal obligations or other debt securities that possess a floating or
variable interest rate adjustment formula. These instruments permit the fund to
demand payment of the principal balance plus unpaid accrued interest upon a
specified number of days' notice to the issuer or its agent. The demand feature
may be backed by a bank letter of credit or guarantee issued with respect to
such instrument.
The terms of the variable or floating rate demand instruments that the fund may
purchase provide that interest rates are adjustable at intervals ranging from
daily up to six months, and the adjustments are based upon current market
levels, the prime rate of a bank or other appropriate interest rate adjustment
index has provided in the respective instruments. Some of these instruments are
payable on demand on a daily basis or on not more than seven days' notice.
Others, such as instruments with quarterly or semiannual interest rate
adjustments, may be put back to the issuer on designated days on not more than
thirty days' notice. Still others are automatically called by the issuer unless
the fund instructs otherwise.
The fund may invest in participation interests in variable or floating rate
tax-exempt obligations held by financial institutions (usually commercial
banks). These participation interests provide the fund with a specific undivided
interest (up to 100%) in the underlying obligation and the right to demand
payment of its proportional interest in the unpaid principal balance plus
accrued interest from the financial institution upon a specific number of days'
notice. In addition, the participation interest generally is backed by an
irrevocable letter of credit or guarantee from the institution. The financial
institution usually is entitled to a fee for servicing the obligation and
providing the letter of credit.
When-Issued and Delayed Delivery Securities
The fund may purchase securities, including U.S. government securities, on a
when-issued basis or may purchase or sell securities for delayed delivery. In
such transactions, delivery of the securities occurs beyond the normal
settlement period, but no payment or delivery is made by the fund prior to the
actual delivery or payment by the other party to the transaction. A fund will
not earn income on these securities until delivered. The purchase of securities
on a when-issued or delayed delivery basis involves the risk that the value of
the securities purchased will decline prior to the settlement date. The sale of
securities for delayed delivery involves the risk that the prices available in
the market on the delivery date may be greater than those obtained in the sale
transaction. The fund's obligations with respect to when-issued and delayed
delivery transactions will be fully collateralized by segregating liquid assets
with a value equal to the fund's obligations. See "Asset Segregation."
Repurchase Agreements
The fund may enter into repurchase agreements with broker-dealers, member banks
of the Federal Reserve System and other financial institutions. Repurchase
agreements are arrangements under which the fund purchases securities and the
seller agrees to repurchase the securities within a specific time and at a
specific price. The repurchase price is generally higher than the fund's
purchase price, with the difference being income to the fund. Under the
direction of the Board of Trustees, Pioneer reviews and monitors the
creditworthiness of any institution which enters into a repurchase agreement
with the fund. The counterparty's obligations under the repurchase agreement are
collateralized with U.S. Treasury and/or agency obligations with a market value
of not less than 100% of the obligations, valued daily. Collateral is held by
the fund's custodian in a segregated, safekeeping account for the benefit of the
fund. Repurchase agreements afford the fund an opportunity to earn income on
temporarily available cash at low risk. In the event of commencement of
bankruptcy or insolvency proceedings with respect to the seller of the security
before repurchase of the security under a repurchase agreement, the fund may
encounter delay and incur costs before being able to sell the security. Such a
delay may involve loss of interest or a decline in price of the security. If the
court characterizes the transaction as a loan and the fund has not perfected a
security interest in the security, the fund may be required to return the
security to the seller's estate and be treated as an unsecured creditor of the
seller. As an unsecured creditor, the fund would be at risk of losing some or
all of the principal and interest involved in the transaction.
-10-
Asset Segregation
The 1940 Act requires that the fund segregate assets in connection with certain
types of transactions that may have the effect of leveraging the fund's
portfolio. If the fund enters into a transaction requiring segregation, such as
a forward commitment, the custodian or Pioneer will segregate liquid assets in
an amount required to comply with the 1940 Act. Such segregated assets will be
valued at market daily. If the aggregate value of such segregated assets
declines below the aggregate value required to satisfy the 1940 Act, additional
liquid assets will be segregated.
Fundamental investment restrictions
The fund has adopted certain fundamental investment restrictions which, along
with the fund's investment objective, may not be changed without the affirmative
vote of the holders of a "majority of the outstanding voting securities" (as
defined in the 1940 Act) of the fund. Statements in italics are not part of the
restriction. For this purpose, a majority of the outstanding shares of the fund
means the vote of the lesser of:
(i) 67% or more of the shares represented at a meeting, if the holders of more
than 50% of the outstanding shares are present in person or by proxy, or
(ii) more than 50% of the outstanding shares of the fund.
The fund may not:
(1) Issue senior securities, except to the extent permitted by applicable law,
as amended and interpreted or modified from time to time by any regulatory
authority having jurisdiction. Senior securities that a fund may issue in
accordance with the 1940 Act include borrowing, futures, when-issued and delayed
delivery securities and forward foreign currency exchange transactions.
(2) Borrow money, except on a temporary basis and to the extent permitted by
applicable law, as amended and interpreted or modified from time to time by any
regulatory authority having jurisdiction. Under current regulatory requirements,
a fund may: (a) borrow from banks or through reverse repurchase agreements in an
amount up to 33 1/3% of the fund's total assets (including the amount borrowed);
(b) borrow up to an additional 5% of the fund's assets for temporary purposes;
(c) obtain such short-term credits as are necessary for the clearance of
portfolio transactions; (d) purchase securities on margin to the extent
permitted by applicable law; and (e) engage in transactions in mortgage dollar
rolls that are accounted for as financings.
(3) Invest in real estate, except (a) that the fund may invest in securities of
issuers that invest in real estate or interests therein, securities that are
secured by real estate or interests therein, securities of real estate
investment trusts, mortgage-backed securities and other securities that
represent a similar indirect interest in real estate; and (b) the fund may
acquire real estate or interests therein through exercising rights or remedies
with regard to an instrument or security.
(4) Make loans, except that the fund may (i) lend portfolio securities in
accordance with the fund's investment policies, (ii) enter into repurchase
agreements, (iii) purchase all or a portion of an issue of publicly distributed
debt securities, bank loan participation interests, bank certificates of
deposit, bankers' acceptances, debentures or other securities, whether or not
the purchase is made upon the original issuance of the securities, (iv)
participate in a credit facility whereby the fund may directly lend to and
borrow money from other affiliated funds to the extent permitted under the 1940
Act or an exemption therefrom, and (v) make loans in any other manner consistent
with applicable law, as amended and interpreted or modified from time to time by
any regulatory authority having jurisdiction.
(5) Invest in commodities or commodity contracts, except that the fund may
invest in currency instruments and currency contracts and financial instruments
and financial contracts that might be deemed to be
-11-
commodities and commodity contracts in accordance with applicable law. A futures
contract, for example, may be deemed to be a commodity contract.
(6) Make any investment inconsistent with its classification as a diversified
open-end investment company (or series thereof) under the 1940 Act. Currently,
diversification means that, with respect to 75% of its total assets, the fund
may not purchase securities of an issuer (other than the U.S. government, its
agencies or instrumentalities and securities of investment companies), if
(a) such purchase would cause more than 5% of the fund's total
assets, taken at market value, to be invested in the securities of such issuer,
or
(b) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the fund.
(7) Act as an underwriter, except insofar as the fund technically may be deemed
to be an underwriter in connection with the purchase or sale of its portfolio
securities.
(8) Invest 25% or more of the value of its total assets in any one industry,
provided that this limitation does not apply to municipal securities other than
those municipal securities backed only by assets and revenues of
non-governmental issuers. For purposes of applying the limitation set forth in
this restriction, securities of the U.S. government, its agencies, or
instrumentalities, and securities backed by the credit of a governmental entity
are not considered to represent industries. However, obligations backed only by
the assets and revenues of non-governmental issuers may for this purpose be
deemed to be issued by such non-governmental issuers. Thus, the 25% limitation
would apply to such obligations. It is nonetheless possible that the fund may
invest more than 25% of its total assets in a broader economic sector of the
market for municipal obligations, such as revenue obligations of hospitals and
other health care facilities or electrical utility revenue obligations. In
addition, for the purpose of applying the limitation set forth this restriction,
a non-governmental issuer shall be deemed the sole issuer of a security when its
assets and revenues are separate from other governmental entities and its
securities are backed only by its assets and revenues. Similarly, in the case of
a non-governmental issuer, such as an industrial corporation or a privately
owned or operated hospital, if the security is backed only by the assets and
revenues of the non-governmental issuer, then such non-governmental issuer would
be deemed to be the sole issuer. Where a security is also backed by the
enforceable obligation of a superior or unrelated governmental or other entity
(other than a bond insurer), it shall also be included in the computation of
securities owned that are issued by such governmental or other entity. Where a
security is guaranteed by a governmental entity or some other facility, such as
a bank guarantee or letter of credit, such a guarantee or letter of credit would
be considered a separate security and would be treated as an issue of such
government, other entity or bank. When a municipal bond is insured by bond
insurance, it shall not be considered a security that is issued or guaranteed by
the insurer; instead, the issuer of such municipal bond will be determined in
accordance with the principles set forth above. The foregoing restrictions do
not limit the percentage of the fund's assets that may be invested in municipal
bonds insured by any given insurer. Governmental issuers of municipal securities
are not considered part of any "industry."
In the opinion of the SEC, investments are concentrated in a particular industry
if such investments aggregate 25% or more of the fund's total assets. When
identifying industries for purposes of its concentration policy, the fund may
rely upon available industry classifications. The fund's policy does not apply
to investments in U.S. government securities.
(9) Normally, the fund will invest at least 80% of its net assets in high
quality, money market securities that pay interest that is exempt from federal
income tax.
Non-Fundamental Investment Restrictions.
The following restrictions have been designated as non-fundamental and may be
changed by a vote of the fund's Board of Trustees without approval of
shareholders.
-12-
(1) The fund will not purchase securities during the current fiscal year at any
time that outstanding borrowings exceed 5% of the fund's total assets.
(2) The fund may not engage in short sales, except short sales against the box.
(3) The fund will not invest in any investment company in reliance on Section
12(d)(1)(F) of the 1940 Act, which would allow the fund to invest in other
Pioneer Funds, or Section 12(d)(1)(G) of the 1940 Act, which would allow the
fund to invest in other investment companies, , in each case without being
subject to the limitations discussed above under "Other Investment Companies" so
long as another investment company invests in the fund in reliance on Section
12(d)(1)(G), such as one of the series of Pioneer Asset Allocation Trust.
(4) The fund does not invest in companies for the purposes of exercising control
or management.
(5) The fund will not invest more than 10% of its net assets in illiquid and
other securities that are not readily marketable.
MANAGEMENT OF THE FUND
The fund's Board of Trustees provides broad supervision over the fund's affairs.
The officers of the fund are responsible for the fund's operations. The fund's
Trustees and officers are listed below, together with their principal
occupations during the past five years. Trustees who are interested persons of
the fund within the meaning of the 1940 Act are referred to as Interested
Trustees. Trustees who are not interested persons of the fund are referred to as
Independent Trustees. Each of the Trustees serves as a trustee of each of the 65
U.S. registered investment portfolios for which Pioneer serves as investment
adviser (the "Pioneer Funds"). The address for all Interested Trustees and all
officers of the fund is 60 State Street, Boston, Massachusetts 02109.
- --------------------------------------------------------------------------------------------------------------------------
Term of Office
Name, Age and Position Held and Length of Principal Occupation During Past Other Directorships Held by
Address With the Fund Service Five Years this Trustee
- --------------------------------------------------------------------------------------------------------------------------
Interested Trustees:
- --------------------------------------------------------------------------------------------------------------------------
John F. Cogan, Chairman of the Trustee since Deputy Chairman and a Director Director of Harbor Global
Jr. (78)* Board, Trustee 2004. Serves of Pioneer Global Asset Company, Ltd.
and President until a Management S.p.A. ("PGAM");
successor Non-Executive Chairman and a
trustee is Director of Pioneer Investment
elected or Management USA Inc. ("PIM-USA");
earlier Chairman and a Director of
retirement or Pioneer; Director of Pioneer
removal. Alternative Investment
Management Limited
(Dublin); President
and a Director of
Pioneer Alternative
Investment Management
(Bermuda) Limited and
affiliated funds;
President and Director
of Pioneer Funds
Distributor, Inc.
("PFD"); President of
all of the Pioneer
Funds; and Of Counsel
(since 2000, partner
prior to 2000), Wilmer
Cutler Pickering Hale
and Dorr LLP (counsel
to PIM-USA and the
Pioneer Funds)
- --------------------------------------------------------------------------------------------------------------------------
-13-
- --------------------------------------------------------------------------------------------------------------------------
Osbert M. Hood Trustee and Trustee since President and Chief Executive None
(52)* Executive Vice 2004. Serves Officer, PIM-USA since May, 2003
President until a (Director since January, 2001);
successor President and Director of
trustee is Pioneer since May, 2003;
elected or Chairman and Director of Pioneer
earlier Investment Management
retirement or Shareholder Services, Inc.
removal. ("PIMSS") since May, 2003;
Executive Vice
President of all of
the Pioneer Funds
since June 3, 2003;
Executive Vice
President and Chief
Operating Officer of
PIM-USA, November
2000-May 2003;
Executive Vice
President, Chief
Financial Officer and
Treasurer, John
Hancock Advisers, LLC,
Boston, MA, November
1999-November 2000;
Senior Vice President
and Chief Financial
Officer, John Hancock
Advisers, LLC, April
1997-November 1999
- --------------------------------------------------------------------------------------------------------------------------
Independent Trustees:
- --------------------------------------------------------------------------------------------------------------------------
Mary K. Bush (56) Trustee Trustee since President, Bush International Director of Brady
3509 Woodbine Street, 2004. Serves (international financial Corporation (industrial
Chevy Chase, MD 20815 until a advisory firm) identification and
successor specialty coated material
trustee is products manufacturer),
elected or Millenium Chemicals, Inc.
earlier (commodity chemicals),
retirement or Mortgage Guaranty Insurance
removal. Corporation, and R.J.
Reynolds Tobacco Holdings,
Inc. (tobacco)
- --------------------------------------------------------------------------------------------------------------------------
Richard H. Egdahl, Trustee Trustee since Alexander Graham Bell Professor None
M.D. (77) 2004. Serves of Health Care Entrepreneurship,
Boston University until a Boston University; Professor of
Healthcare successor Management, Boston University
Entrepreneurship trustee is School of Management; Professor
Program, 53 Bay State elected or of Public Health, Boston
Road, Boston, MA 02215 earlier University School of Public
retirement or Health; Professor of Surgery,
removal. Boston University School of
Medicine; and University
Professor, Boston University
- --------------------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham Trustee Trustee since Founding Director, The Winthrop None
(57) 2004. Serves Group, Inc.(consulting firm);
1001 Sherbrooke Street until a Professor of Management, Faculty
West, Montreal, successor of Management, McGill University
Quebec, Canada trustee is
elected or
earlier
retirement or
removal.
- --------------------------------------------------------------------------------------------------------------------------
-14-
- --------------------------------------------------------------------------------------------------------------------------
Marguerite A. Piret Trustee Trustee since President and Chief Executive None
(56) 2004. Serves Officer, Newbury, Piret &
One Boston Place, 28th until a Company, Inc. (investment
Floor, Boston, MA 02108 successor banking firm)
trustee is
elected or
earlier
retirement or
removal.
- --------------------------------------------------------------------------------------------------------------------------
Stephen K. West (75) Trustee Trustee since Senior Counsel, Sullivan & Director, The Swiss
125 Broad Street, New 2004. Serves Cromwell (law firm) Helvetia Fund, Inc.
York, NY 10004 until a (closed-end investment
successor company) and AMVESCAP PLC
trustee is (investment managers)
elected or
earlier
retirement or
removal.
- --------------------------------------------------------------------------------------------------------------------------
John Winthrop (68) Trustee Trustee since President, John Winthrop & Co., None
One North Adgers 2004. Serves Inc. (private investment firm)
Wharf, Charleston, SC until a
29401 successor
trustee is
elected or
earlier
retirement or
removal.
- --------------------------------------------------------------------------------------------------------------------------
Fund Officers:
- --------------------------------------------------------------------------------------------------------------------------
Other Directorships Held by
this Officer
- --------------------------------------------------------------------------------------------------------------------------
Dorothy E. Secretary Since 2004. Secretary of PIM-USA; Senior None
Bourassa (56) Serves at the Vice President- Legal of
discretion of Pioneer; and Secretary/Clerk of
Board most of PIM-USA's subsidiaries
since October 2000;
Secretary of all of
the Pioneer Funds
since September 2003
(Assistant Secretary
from November 2000 to
September 2003); and
Senior Counsel,
Assistant Vice
President and Director
of Compliance of
PIM-USA from April
1998 through October
2000
- --------------------------------------------------------------------------------------------------------------------------
Christopher J. Assistant Since 2004. Assistant Vice President and None
Kelley (39) Secretary Serves at the Senior Counsel of Pioneer since
discretion of July 2002; Vice President and
Board Senior Counsel of BISYS Fund
Services, Inc. (April 2001 to
June 2002); Senior Vice
President and Deputy General
Counsel of Funds Distributor,
Inc. (July 2000 to April 2001;
Vice President and Associate
General Counsel from July 1996
to July 2000); Assistant
Secretary of all Pioneer Funds
since September 2003
- --------------------------------------------------------------------------------------------------------------------------
-15-
- --------------------------------------------------------------------------------------------------------------------------
David C. Phelan Assistant Since 2004. Partner, Wilmer Cutler Pickering None
(47) Secretary Serves at the Hale and Dorr LLP; Assistant
discretion of Secretary of all Pioneer Funds
Board since September 2003
- --------------------------------------------------------------------------------------------------------------------------
Vincent Nave (59) Treasurer Since 2004. Vice President-Fund Accounting, None
Serves at the Administration and Custody
discretion of Services of Pioneer (Manager
Board from September 1996 to
February 1999); and
Treasurer of all of
the Pioneer Funds
(Assistant Treasurer
from June 1999 to
November 2000)
- --------------------------------------------------------------------------------------------------------------------------
Luis I. Presutti Assistant Since 2004. Assistant Vice President-Fund None
(39) Treasurer Serves at the Accounting, Administration and
discretion of Custody Services of Pioneer
Board (Fund Accounting Manager from
1994 to 1999); and Assistant
Treasurer of all of the Pioneer
Funds since November 2000
- --------------------------------------------------------------------------------------------------------------------------
Gary Sullivan (46) Assistant Since 2004. Fund Accounting Manager - Fund None
Treasurer Serves at the Accounting, Administration and
discretion of Custody Services of Pioneer; and
Board Assistant Treasurer of all of
the Pioneer Funds since May 2002
- --------------------------------------------------------------------------------------------------------------------------
Katharine Kim Assistant Since 2004. Fund Administration Manager - None
Sullivan (30) Treasurer Serves at the Fund Accounting, Administration
discretion of and Custody Services since June
Board 2003; Assistant Vice President -
Mutual Fund Operations of State
Street Corporation from June
2002 to June 2003 (formerly
Deutsche Bank Asset Management);
Pioneer Fund Accounting,
Administration and Custody
Services (Fund Accounting
Manager from August 1999 to May
2002, Fund Accounting Services
Supervisor from 1997 to July
1999); Assistant Treasurer of
all Pioneer Funds since
September 2003
- --------------------------------------------------------------------------------------------------------------------------
-16-
*Mr. Cogan and Mr. Hood are Interested Trustees because each is an officer or
director of the fund's investment adviser and certain of its affiliates.
The outstanding capital stock of PFD, Pioneer and PIMSS is indirectly wholly
owned by UniCredito Italiano S.p.A. ("UniCredito Italiano"), one of the largest
banking groups in Italy. Pioneer, the fund's investment adviser, provides
investment management and financial services to mutual funds, institutional and
other clients.
Board Committees
Because the Trust is newly organized the Board of Trustees of Pioneer Series
Trust II attended one meeting during the most recent fiscal year.
The Board of Trustees has an Audit Committee, an Independent Trustees Committee,
a Nominating Committee, a Valuation Committee and a Policy Administration
Committee. Committee members are as follows:
Audit
Marguerite A. Piret (Chair), Margaret B.W. Graham and John Winthrop
Independent Trustees
Mary K. Bush, Richard H. Egdahl, Margaret B.W. Graham (Chair), Marguerite A.
Piret, Stephen K. West and John Winthrop
Nominating
Mary K. Bush, Richard H. Egdahl (Chair) and Marguerite A. Piret
Valuation
Marguerite A. Piret (Chair), Stephen K. West and John Winthrop
Policy Administration
Mary K. Bush (Chair), Richard H. Egdahl and Margaret B.W. Graham
During the most recent fiscal year, the Audit, Nominating, Valuation,
Independent Trustees and Policy Administration Committees did not hold any
meetings, because the Trust is newly organized.
The Board of Trustees has adopted a charter for the Audit Committee. In
accordance with its charter, the purposes of the Audit Committee are to:
|X| act as a liaison between the fund's independent auditors and the full Board
of Trustees of the fund;
|X| discuss with the fund's independent auditors their judgments about the
quality of the fund's accounting principles and underlying estimates as
applied in the fund's financial reporting;
|X| review and assess the renewal materials of all related party contracts and
agreements, including management advisory agreements, underwriting
contracts, administration agreements, distribution
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contracts, and transfer agency contracts, among any other instruments and
agreements that may be appropriate from time to time;
|X| review and approve insurance coverage and allocations of premiums between
the management and the fund and among the Pioneer Funds;
|X| review and approve expenses under the administration agreement between
Pioneer and the fund and allocations of such expenses among the Pioneer
Funds; and
|X| receive on a periodic basis a formal written statement delineating all
relationships between the auditors and the fund or Pioneer; to actively
engage in a dialogue with the independent auditors with respect to any
disclosed relationships or services that may impact the objectivity and
independence of the independent auditors; and to recommend that the
Trustees take appropriate action in response to the independent auditors'
report to satisfy itself of the independent auditors' independence.
The Nominating Committee reviews the qualifications of any candidate recommended
by the Independent Trustees to serve as an Independent Trustee and makes a
recommendation regarding that person's qualifications. The Committee does not
accept nominations from shareholders.
The Valuation Committee reviews the valuation assigned to certain securities by
Pioneer in accordance with the fund's valuation procedures.
The Policy Administration Committee reviews the implementation of certain of the
fund's administrative policies and procedures.
The Independent Trustees Committee reviews the fund's management contract and
other related party contracts annually and is also responsible for any other
action required to be taken, under the 1940 Act, by the Independent Trustees
acting alone.
The fund's Declaration of Trust provides that the fund will indemnify the
Trustees and officers against liabilities and expenses incurred in connection
with any litigation in which they may be involved because of their offices with
the fund, unless it is determined in the manner specified in the Declaration of
Trust that they have not acted in good faith in the reasonable belief that their
actions were in the best interests of the fund or that such indemnification
would relieve any officer or Trustee of any liability to the fund or its
shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his or her duties.
Compensation of Officers and Trustees
The fund pays no salaries or compensation to any of its officers. The Pioneer
Funds, including the fund, compensate their trustees. The Independent Trustees
review and set their compensation annually, taking into consideration the
committee and other responsibilities assigned to specific trustees. The table
under "Annual Fees, Expense and Other Information-Compensation of Officers and
Trustees" sets forth the compensation paid to each of the Trustees. The
compensation paid to the Trustees is then allocated among the funds as follows:
o each fund with assets less than $250 million pays each Trustee who is not
affiliated with PIM-USA, Pioneer, PFD, PIMSS or UniCredito Italiano (i.e.,
Independent Trustees) an annual fee of $1,000.
o the remaining compensation of the Independent Trustees is allocated to each
fund with assets greater than $250 million based on the fund's net assets.
o the Interested Trustees receive an annual fee of $500 from each fund,
except in the case of funds with net assets of $50 million or less, which
pay each Interested Trustee an annual fee of $200. Pioneer reimburses the
funds for the fees aid to the Interested Trustees.
See "Compensation of Officers and Trustees" in Annual Fee, Expense and Other
Information.
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Sales Loads. The fund offers its shares to Trustees and officers of the fund and
employees of Pioneer and its affiliates without a sales charge in order to
encourage investment in the fund by individuals who are responsible for its
management and because the sales to such persons do not entail any sales effort
by the fund, brokers or other intermediaries.
Other Information
Material Relationships of the Independent Trustees. For purposes of the
statements below:
o the immediate family members of any person are their spouse, children
in the person's household (including step and adoptive children) and
any dependent of the person.
o an entity in a control relationship means any person who controls, is
controlled by or is under common control with the named person. For
example, UniCredito Italiano is an entity that is in a control
relationship with Pioneer.
o a related fund is a registered investment company or an entity exempt
from the definition of an investment company pursuant to Sections
3(c)(1) or 3(c)(7) of the 1940 Act, for which Pioneer or any of its
affiliates act as investment adviser or for which PFD or any of its
affiliates act as principal underwriter. For example, the fund's
related funds include all of the Pioneer Funds and any non-U.S. funds
managed by Pioneer or its affiliates.
As of December 31, 2003, none of the Independent Trustees, nor any of their
immediate family members, beneficially owned any securities issued by Pioneer,
UniCredito Italiano or any other entity in a control relationship to Pioneer or
PFD. During the calendar years 2002 and 2003, none of the Independent Trustees,
nor any of their immediate family members, had any direct or indirect interest
(the value of which exceeded $60,000), whether by contract, arrangement or
otherwise, in Pioneer, UniCredito Italiano, or any other entity in a control
relationship to Pioneer or PFD. During the calendar years 2002 and 2003, none of
the Independent Trustees, nor any of their immediate family members, had an
interest in a transaction or a series of transactions in which the aggregate
amount involved exceeded $60,000 and to which any of the following were a party
(each a "fund related party"):
o the fund
o an officer of the fund
o a related fund
o an officer of any related fund
o Pioneer
o PFD
o an officer of Pioneer or PFD
o any affiliate of Pioneer or PFD
o an officer of any such affiliate
During the calendar years 2002 and 2003, none of the Independent Trustees, nor
any of their immediate family members, had any relationship (the value of which
exceeded $60,000) with any fund related party, including, but not limited to,
relationships arising out of (i) the payment for property and services, (ii) the
provision of legal services, (iii) the provision of investment banking services
(other than as a member of the underwriting syndicate) or (iv) the provision of
consulting services, except that Mr. West, an Independent Trustee, is Senior
Counsel to Sullivan & Cromwell and acts as counsel to the Independent Trustees
and the Independent Trustees of the other Pioneer Funds. The aggregate
compensation paid to Sullivan & Cromwell by the fund and the other Pioneer Funds
was approximately $53,000 and $126,603 in each of 2002 and 2003.
During the calendar years 2002 and 2003, none of the Independent Trustees, nor
any of their immediate family members, served as a member of a board of
directors on which an officer of any of the following entities also serves as a
director:
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o Pioneer
o PFD
o UniCredito Italiano
o any other entity in a control relationship with Pioneer or PFD
None of the fund's Trustees or officers has any arrangement with any other
person pursuant to which that Trustee or officer serves on the Board of
Trustees. During the calendar years 2002 and 20032, none of the Independent
Trustees, nor any of their immediate family members, had any position, including
as an officer, employee, director or partner, with any of the following:
o the fund
o any related fund
o Pioneer
o PFD
o any affiliated person of the fund, Pioneer or PFD
o UniCredito Italiano
o any other entity in a control relationship to the fund, Pioneer or PFD
Factors Considered by the Independent Trustees in Approving the Management
Contract. The 1940 Act requires that the fund's management contract be approved
annually by both the Board of Trustees and a majority of the Independent
Trustees voting separately. The Independent Trustees have determined that the
terms of the fund's management contract are fair and reasonable and that the
contract is in the fund's best interest. The Independent Trustees believe that
the management contract will enable the fund to enjoy high quality investment
advisory services at a cost they deem appropriate, reasonable and in the best
interests of the fund and its shareholders. In making such determinations, the
Independent Trustees met independently from the Interested Trustees of the fund
and any officers of Pioneer or its affiliates. The Independent Trustees also
relied upon the assistance of counsel to the Independent Trustees and counsel to
the fund.
In evaluating the management contract, the Independent Trustees reviewed
materials furnished by Pioneer, including information regarding Pioneer,
UniCredito Italiano, their respective affiliates and their personnel, operations
and financial condition. The Independent Trustees discussed with representatives
of Pioneer the fund's operations and Pioneer's ability to provide advisory and
other services to the fund. The Independent Trustees also reviewed:
o the investment performance of the fund and other Pioneer Funds with
similar investment strategies;
o the fee charged by Pioneer for investment advisory and administrative
services, as well as other compensation received by PFD and PIMSS;
o the fund's projected total operating expenses;
o the investment performance, fees and total expenses of investment
companies with similar objectives and strategies managed by other
investment advisers;
o the experience of the investment advisory and other personnel
providing services to the fund and the historical quality of the
services provided by Pioneer; and
o the profitability to Pioneer of managing the fund.
The Independent Trustees considered the following as relevant to their
recommendations: (1) the favorable history, reputation, qualification and
background of Pioneer and UniCredito Italiano, as well as the qualifications of
their personnel and their respective financial conditions; (2) that the fee and
expense ratios of the fund are reasonable given the quality of services expected
to be provided and are comparable to the
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fee and expense ratios of similar investment companies; and (3) the relative
performance of similar funds managed by Pioneer since commencement of operations
to comparable investment companies and unmanaged indices. The Independent
Trustees deemed each of these factors to be relevant to their consideration of
the fund's management contract.
Share Ownership. See Annual Fee, Expense and Other Information for annual
information on the ownership of fund shares by the Trustees, the fund's officers
and owners in excess of 5% of any class of shares of the fund and a table
indicating the value of shares that each Trustee beneficially owns in the fund
and in all the Pioneer Funds.
Code of Ethics. The fund's Board of Trustees approved a code of ethics under
Rule 17j-1 under the 1940 Act that covers the fund, Pioneer and certain of
Pioneer's affiliates. The code of ethics establishes procedures for personal
investing and restricts certain transactions. Employees subject to the code of
ethics may invest in securities for their personal investment accounts,
including securities that may be purchased or held by the fund.
Proxy Voting Policies. Effective August 31, 2004, information regarding how the
fund voted proxies relating to portfolio securities during the most recent
12-month period ended June 30 will be publicly available to shareowners at
www.pioneerfunds.com and on the SEC's website at http://www.sec.gov.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Not Applicable.
INVESTMENT ADVISORY AND OTHER SERVICES
The trust has contracted with Pioneer to act as the fund's investment adviser.
Pioneer is an indirect, wholly owned subsidiary of UniCredito Italiano. Certain
Trustees or officers of the fund are also directors and/or officers of certain
of UniCredito Italiano's subsidiaries (see management biographies above).
Pioneer has entered into an agreement with its affiliate, Pioneer Investment
Management Limited ("PIML"), pursuant to which PIML provides certain services
and personnel to Pioneer.
As the fund's investment adviser, Pioneer provides the fund with investment
research, advice and supervision and furnishes an investment program for the
fund consistent with the fund's investment objective and policies, subject to
the supervision of the fund's Trustees. Pioneer determines what portfolio
securities will be purchased or sold, arranges for the placing of orders for the
purchase or sale of portfolio securities, selects brokers or dealers to place
those orders, maintains books and records with respect to the fund's securities
transactions, and reports to the Trustees on the fund's investments and
performance.
Under the terms of its management contract with the trust, Pioneer pays all the
operating expenses, including executive salaries and the rental of office space,
relating to its services for the fund, with the exception of the following,
which are to be paid by the fund: (a) charges and expenses for fund accounting,
pricing and appraisal services and related overhead, including, to the extent
such services are performed by personnel of Pioneer or its affiliates, office
space and facilities and personnel compensation, training and benefits; (b) the
charges and expenses of auditors; (c) the charges and expenses of any custodian,
transfer agent, plan agent, dividend disbursing agent and registrar appointed by
the trust with respect to the fund; (d) issue and transfer taxes chargeable to
the trust in connection with securities transactions to which the fund is a
party; (e) insurance premiums, interest charges, dues and fees for membership in
trade associations and all taxes and corporate fees payable by the trust to
federal, state or other governmental agencies; (f) fees and expenses involved in
registering and maintaining registrations of the trust and/or its shares with
the federal regulatory agencies, state or blue sky securities agencies and
foreign jurisdictions, including the preparation of prospectuses and statements
of additional information for filing with such regulatory authorities; (g) all
expenses of shareholders' and Trustees' meetings and of preparing, printing and
distributing prospectuses, notices, proxy statements and all reports to
shareholders and to governmental
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agencies; (h) charges and expenses of legal counsel to the trust and the
Trustees; (i) any distribution fees paid by the trust in accordance with Rule
12b-1 promulgated by the SEC pursuant to the 1940 Act; (j) compensation of those
Trustees of the trust who are not affiliated with or interested persons of
Pioneer, the fund (other than as Trustees), PIM-USA or PFD; (k) the cost of
preparing and printing share certificates; and (l) interest on borrowed money,
if any and (m) any other expense that the fund, Pioneer or any other agent of
the fund may incur (A) as a result of a change in the laws or regulations, (B)
as a result of a mandate from the Board of Trustees with associated costs of a
character generally assumed by similarly structured investment companies or (C)
that is similar to the expenses listed above, and that is approved by the Board
of Trustees (including a majority of the Independent Trustees) as being an
appropriate expense of the fund. In addition, the fund shall pay all brokers'
and underwriting commissions chargeable to the fund in connection with
securities transactions to which the fund is a party. The Trustees' approval of
and the terms, continuance and termination of the management contract are
governed by the 1940 Act and the Investment Advisers Act of 1940, as applicable.
Pursuant to the management contract, Pioneer will not be liable for any error of
judgment or mistake of law or for any loss sustained by reason of the adoption
of any investment policy or the purchase, sale or retention of any securities on
the recommendation of Pioneer. Pioneer, however, is not protected against
liability by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties under the management contract.
Advisory Fee. As compensation for its management services and expenses incurred,
the fund pays Pioneer a fee at the annual rate of 0.50% of the fund's average
daily net assets up to $250 million, 0.45% of the next $500 million, 0.40% on
the next $500 million and 0.35% on assets over $1.25 billion. This fee is
computed and accrued daily and paid monthly.
Prior to August 2, 2004, Safeco Asset Management Company ("SAM") was the fund's
investment adviser. The investment advisory services of SAM were performed under
an investment advisory agreement, pursuant to which the fund paid SAM an annual
fee equal to 0.65% of the average daily net assets of the fund.
See the table in "Annual Fee, Expense and Other Information" for the management
fee paid to Pioneer during the recently completed fiscal years.
Expense Limit for Investor Class Shares Only. Through the second anniversary of
the closing of the reorganization of the predecessor Safeco fund into the fund,
Pioneer has contractually agreed not to impose all or a portion of its
management fee and, if necessary, to limit other ordinary operating expenses
(excluding taxes, commissions, interest and extraordinary expenses) to the
extent required to reduce Investor Class expenses to 0.60% of the average daily
net assets attributable to Investor Class shares. There can be no assurance that
Pioneer will extend the expense limitation beyond the two-year period.
Administration Agreement. The fund has entered into an administration agreement
with Pioneer pursuant to which certain accounting, administration and legal
services which are expenses payable by the fund under the management contract
are performed by Pioneer and pursuant to which Pioneer is reimbursed for its
costs of providing such services. See "Annual Fee, Expense and Other
Information" for fees the fund paid to Pioneer for administration and related
services.
Potential Conflict of Interest. The fund is managed by Pioneer which also serves
as investment adviser to other Pioneer mutual funds and other accounts with
investment objectives identical or similar to those of the fund. Securities
frequently meet the investment objectives of the fund, the other Pioneer mutual
funds and such other accounts. In such cases, the decision to recommend a
purchase to one fund or account rather than another is based on a number of
factors. The determining factors in most cases are the amount of securities of
the issuer then outstanding, the value of those securities and the market for
them. Other factors considered in the investment recommendations include other
investments which each fund or account presently has in a particular industry
and the availability of investment funds in each fund or account.
It is possible that at times identical securities will be held by more than one
fund and/or account. However, positions in the same issue may vary and the
length of time that any fund or account may choose to hold its
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investment in the same issue may likewise vary. To the extent that more than one
of the Pioneer mutual funds or a private account managed by Pioneer seeks to
acquire the same security at about the same time, the fund may not be able to
acquire as large a position in such security as it desires or it may have to pay
a higher price for the security. Similarly, the fund may not be able to obtain
as large an execution of an order to sell or as high a price for any particular
portfolio security if Pioneer decides to sell on behalf of another account the
same portfolio security at the same time. On the other hand, if the same
securities are bought or sold at the same time by more than one fund or account,
the resulting participation in volume transactions could produce better
executions for the fund. In the event more than one account purchases or sells
the same security on a given date, the purchases and sales will normally be made
as nearly as practicable on a pro rata basis in proportion to the amounts
desired to be purchased or sold by each account. Although the other Pioneer
mutual funds may have the same or similar investment objectives and policies as
the fund, their portfolios do not generally consist of the same investments as
the fund or each other, and their performance results are likely to differ from
those of the fund.
Personal Securities Transactions. The fund, Pioneer, and PFD have adopted a code
of ethics under Rule 17j-1 under the 1940 Act which is applicable to officers,
trustees/directors and designated employees of Pioneer and PIML. The code
permits such persons to engage in personal securities transactions for their own
accounts, including securities that may be purchased or held by the fund, and is
designed to prescribe means reasonably necessary to prevent conflicts of
interest from arising in connection with personal securities transactions. The
code is on public file with and available from the SEC.
Shareholder Servicing / Transfer Agent
The fund has contracted with PIMSS, 60 State Street, Boston, Massachusetts
02109, to act as shareholder servicing and transfer agent for the fund.
Under the terms of its contract with the fund, PIMSS services shareholder
accounts, and its duties include: (i) processing sales, redemptions and
exchanges of shares of the fund; (ii) distributing dividends and capital gains
associated with the fund's portfolio; and (iii) maintaining account records and
responding to shareholder inquiries.
PIMSS receives an annual fee of $33.00 for each Class A, Class B, Class C and
Investor Class shares shareholder account from the fund as compensation for the
services described above. PIMSS is also reimbursed by the fund for its cash
out-of-pocket expenditures. The fund may compensate entities which have agreed
to provide certain sub-accounting services such as specific transaction
processing and recordkeeping services. Any such payments by the fund would be in
lieu of the per account fee which would otherwise be paid by the fund to PIMSS.
Custodian
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109, is
the custodian of the fund's assets. The custodian's responsibilities include
safekeeping and controlling the fund's cash and securities, handling the receipt
and delivery of securities, and collecting interest and dividends on the fund's
investments.
Independent Registered Public Accounting Firm
Ernst & Young LLP, the fund's independent registered public accounting firm,
provides audit services, tax return review, and assistance and consultation with
respect to the preparation of filings with the SEC.
BROKERAGE ALLOCATION AND OTHER PRACTICES
All orders for the purchase or sale of portfolio securities are placed on behalf
of the fund by Pioneer pursuant to authority contained in the fund's management
contract. Pioneer seeks to obtain the best execution on portfolio trades. The
price of securities and any commission rate paid are always factors, but
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frequently not the only factors, in judging best execution. In selecting brokers
or dealers, Pioneer considers various relevant factors, including, but not
limited to, the size and type of the transaction; the nature and character of
the markets for the security to be purchased or sold; the execution efficiency,
settlement capability and financial condition of the dealer; the dealer's
execution services rendered on a continuing basis; and the reasonableness of any
dealer spreads.
Pioneer may select broker-dealers that provide brokerage and/or research
services to the fund and/or other investment companies or other accounts managed
by Pioneer. In addition, consistent with Section 28(e) of the Securities
Exchange Act of 1934, as amended, if Pioneer determines in good faith that the
amount of commissions charged by a broker-dealer is reasonable in relation to
the value of the brokerage and research services provided by such broker, the
fund may pay commissions to such broker-dealer in an amount greater than the
amount another firm may charge. Such services may include advice concerning the
value of securities; the advisability of investing in, purchasing or selling
securities; the availability of securities or the purchasers or sellers of
securities; providing stock quotation services, credit rating service
information and comparative fund statistics; furnishing analyses, electronic
information services, manuals and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy, and performance of
accounts and particular investment decisions; and effecting securities
transactions and performing functions incidental thereto (such as clearance and
settlement). Pioneer maintains a listing of broker-dealers who provide such
services on a regular basis. However, because many transactions on behalf of the
fund and other investment companies or accounts managed by Pioneer are placed
with broker-dealers (including broker-dealers on the listing) without regard to
the furnishing of such services, it is not possible to estimate the proportion
of such transactions directed to such dealers solely because such services were
provided. Pioneer believes that no exact dollar value can be calculated for such
services.
The research received from broker-dealers may be useful to Pioneer in rendering
investment management services to the fund as well as other investment companies
or other accounts managed by Pioneer, although not all such research may be
useful to the fund. Conversely, such information provided by brokers or dealers
who have executed transaction orders on behalf of such other accounts may be
useful to Pioneer in carrying out its obligations to the fund. The receipt of
such research has not reduced Pioneer's normal independent research activities;
however, it enables Pioneer to avoid the additional expenses which might
otherwise be incurred if it were to attempt to develop comparable information
through its own staff.
The Pioneer funds have entered into third-party brokerage and/or expense offset
arrangements to reduce the funds' total operating expenses. Pursuant to
third-party brokerage arrangements, certain of the funds that invest primarily
in U.S. equity securities may incur lower custody fees by directing brokerage to
third-party broker-dealers. Pursuant to expense offset arrangements, the funds
incur lower transfer agency expenses by maintaining their cash balances with the
custodian. See "Financial highlights" in the prospectus.
See the table in "Annual Fee, Expense and Other Information" for aggregate
brokerage and underwriting commissions paid by the fund in connection with its
portfolio transactions during recently completed fiscal years. The Board of
Trustees periodically reviews Pioneer's performance of its responsibilities in
connection with the placement of portfolio transactions on behalf of the fund.
CAPITAL STOCK AND OTHER SECURITIES
As an open-end management investment company, the fund continuously offers its
shares to the public and under normal conditions must redeem its shares upon the
demand of any shareholder at the next determined net asset value per share less
any applicable CDSC. See "Sales Charges." When issued and paid for in accordance
with the terms of the prospectus and statement of additional information, shares
of the fund are fully paid and non-assessable. Shares will remain on deposit
with the fund's transfer agent and certificates will not normally be issued.
The trust's Agreement and Declaration of Trust, dated as of September 2, 2003
(the "Declaration"), as amended from time to time, permits the Board of Trustees
to authorize the issuance of an unlimited number of full and fractional shares
of beneficial interest which may be divided into such separate series as the
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Trustees may establish. Currently, the trust consists of eight series. The
Trustees may, however, establish additional series of shares and may divide or
combine the shares into a greater or lesser number of shares without thereby
changing the proportionate beneficial interests in the fund. The Declaration
further authorizes the Trustees to classify or reclassify any series of the
shares into one or more classes. Pursuant thereto, the Trustees have authorized
the issuance of four classes of shares of the fund, designated as Class A
shares, Class B shares, Class C shares and Investor Class shares. Each share of
a class of the fund represents an equal proportionate interest in the assets of
the fund allocable to that class. Upon liquidation of the fund, shareholders of
each class of the fund are entitled to share pro rata in the fund's net assets
allocable to such class available for distribution to shareholders. The trust
reserves the right to create and issue additional series or classes of shares,
in which case the shares of each class of a series would participate equally in
the earnings, dividends and assets allocable to that class of the particular
series.
The shares of each class represent an interest in the same portfolio of
investments of the fund. Each class has equal rights as to voting, redemption,
dividends and liquidation, except that each class bears different distribution
and transfer agent fees and may bear other expenses properly attributable to the
particular class. Class A, Class B and Class C shareholders have exclusive
voting rights with respect to the Rule 12b-1 Plans adopted by holders of those
shares in connection with the distribution of shares.
Shareholders are entitled to one vote for each share held and may vote in the
election of Trustees and on other matters submitted to a meeting of
shareholders. Although Trustees are not elected annually by the shareholders,
shareholders have, under certain circumstances, the right to remove one or more
Trustees. The fund is not required, and does not intend, to hold annual
shareholder meetings although special meetings may be called for the purpose of
electing or removing Trustees, changing fundamental investment restrictions or
approving a management contract.
The shares of each series of the fund are entitled to vote separately to approve
investment advisory agreements or changes in investment restrictions, but
shareholders of all series vote together in the election and selection of
Trustees and accountants. Shares of all series of the fund vote together as a
class on matters that affect all series of the fund in substantially the same
manner. As to matters affecting a single series or class, shares of such series
or class will vote separately. No amendment adversely affecting the rights of
shareholders may be made to the Declaration without the affirmative vote of a
majority of the fund's shares. Shares have no preemptive or conversion rights,
except that under certain circumstances Class B shares may convert to Class A
shares. All Investor Class shares of the fund, convert to Class A shares of the
fund on December 31, 2006, as described in the fund's Investor Class prospectus.
As a Delaware statutory trust, the fund's operations are governed by the
Declaration. Generally, Delaware statutory trust shareholders are not personally
liable for obligations of the Delaware statutory trust under Delaware law. The
Delaware Statutory Trust Act (the "Delaware Act") provides that a shareholder of
a Delaware statutory trust shall be entitled to the same limitation of liability
extended to shareholders of private for-profit corporations. The Declaration
expressly provides that the fund is organized under the Delaware Act and that
the Declaration is to be governed by Delaware law. There is nevertheless a
possibility that a Delaware statutory trust, such as the fund, might become a
party to an action in another state whose courts refused to apply Delaware law,
in which case the fund's shareholders could become subject to personal
liability.
To guard against this risk, the Declaration (i) contains an express disclaimer
of shareholder liability for acts or obligations of the fund and provides that
notice of such disclaimer may be given in each agreement, obligation or
instrument entered into or executed by the fund or its Trustees, (ii) provides
for the indemnification out of fund property of any shareholders held personally
liable for any obligations of the fund or any series of the fund and (iii)
provides that the fund shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of the fund and satisfy any
judgment thereon. Thus, the risk of a shareholder incurring financial loss
beyond his or her investment because of shareholder liability is limited to
circumstances in which all of the following factors are present: (1) a court
refused to apply Delaware law; (2) the liability arose under tort law or, if
not, no contractual limitation of liability was in effect; and (3) the fund
itself would be unable to meet its obligations. In light of Delaware law, the
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nature of the fund's business and the nature of its assets, the risk of personal
liability to a fund shareholder is remote.
In addition to the requirements under Delaware law, the Declaration provides
that a shareholder of the fund may bring a derivative action on behalf of the
fund only if the following conditions are met: (a) shareholders eligible to
bring such derivative action under Delaware law who hold at least 10% of the
outstanding shares of the fund, or 10% of the outstanding shares of the series
or class to which such action relates, shall join in the request for the
Trustees to commence such action; and (b) the Trustees must be afforded a
reasonable amount of time to consider such shareholder request and investigate
the basis of such claim. The Trustees shall be entitled to retain counsel or
other advisers in considering the merits of the request and shall require an
undertaking by the shareholders making such request to reimburse the fund for
the expense of any such advisers in the event that the Trustees determine not to
bring such action.
The Declaration further provides that the fund shall indemnify each of its
Trustees and officers against liabilities and expenses reasonably incurred by
them in connection with, or arising out of, any action, suit or proceeding,
threatened against or otherwise involving such Trustee or officer, directly or
indirectly, by reason of being or having been a Trustee or officer of the fund.
The Declaration does not authorize the fund to indemnify any Trustee or officer
against any liability to which he or she would otherwise be subject by reason of
or for willful misfeasance, bad faith, gross negligence or reckless disregard of
such person's duties.
The Declaration provides that any Trustee who is not an "interested person" of
Pioneer shall be considered to be independent for purposes of Delaware law
notwithstanding the fact that such Trustee receives compensation for serving as
a trustee of the fund or other investment companies for which Pioneer acts as
investment adviser.
PURCHASE, REDEMPTION AND PRICING OF SHARES
The fund continuously offers four classes of shares designated as Class A, Class
B, Class C and Investor Class shares as described in the prospectuses. The fund
offers its shares at a reduced sales charge to investors who meet certain
criteria that permit the fund's shares to be sold with low distribution costs.
These criteria are described below or in the prospectus.
Class A Share Sales Charges
You may buy Class A shares at the net asset value per share next computed after
receipt of a purchase order without the imposition of an initial sales charge.
Class B Shares
You may buy Class B shares at the net asset value per share next computed after
receipt of a purchase order without the imposition of an initial sales charge;
however, Class B shares redeemed within six years of purchase will be subject to
a CDSC at the rates shown in the table below. The charge will be assessed on the
amount equal to the lesser of the current market value or the original purchase
cost of the shares being redeemed. No CDSC will be imposed on increases in
account value above the initial purchase price, including shares derived from
the reinvestment of dividends or capital gain distributions.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of purchase until the time of redemption of Class B shares. In
processing redemptions of Class B shares, the fund will first redeem shares not
subject to any CDSC and then shares held longest during the six-year period. As
a result, you will pay the lowest possible CDSC.
The CDSC for Class B shares subject to a CDSC upon redemption will be determined
as follows:
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CDSC as a % of Dollar
Year Since Purchase Amount Subject to CDSC
First 4.0
Second 4.0
Third 3.0
Fourth 3.0
Fifth 2.0
Sixth 1.0
Seventh and thereafter 0.0
Proceeds from the CDSC are paid to PFD and are used in whole or in part to
defray PFD's expenses related to providing distribution-related services to the
fund in connection with the sale of Class B shares, including the payment of
compensation to broker-dealers.
Class B shares will automatically convert into Class A shares eight years after
the purchase date, except as noted below. Class B shares acquired by exchange
from Class B shares of another Pioneer mutual fund will convert into Class A
shares based on the date of the initial purchase and the applicable CDSC. Class
B shares acquired through reinvestment of distributions will convert into Class
A shares over time in the same proportion as other shares held in the account.
For this purpose, Class B shares acquired through reinvestment of distributions
will be attributed to particular purchases of Class B shares in accordance with
such procedures as the Trustees may determine from time to time. The conversion
of Class B shares to Class A shares is subject to the continuing availability of
a ruling from the Internal Revenue Service (the "IRS") or an opinion of counsel
that such conversions will not constitute taxable events for U.S. federal income
tax purposes. The conversion of Class B shares to Class A shares will not occur
if such ruling or opinion is not available and, therefore, Class B shares would
continue to be subject to higher expenses than Class A shares for an
indeterminate period.
Class C Shares
You may buy Class C shares at net asset value per share next computed after
receipt of a purchase order without the imposition of an initial sales charge;
however, Class C shares redeemed within one year of purchase will be subject to
a CDSC of 1%. The charge will be assessed on the amount equal to the lesser of
the current market value or the original purchase cost of the shares being
redeemed. No CDSC will be imposed on increases in account value above the
initial purchase price, including shares derived from the reinvestment of
dividends or capital gain distributions. Class C shares do not convert to any
other class of fund shares.
In processing redemptions of Class C shares, the fund will first redeem shares
not subject to any CDSC and then shares held for the shortest period of time
during the one-year period. As a result, you will pay the lowest possible CDSC.
Proceeds from the CDSC are paid to PFD and are used in whole or in part to
defray PFD's expenses related to providing distribution-related services to the
fund in connection with the sale of Class C shares, including the payment of
compensation to broker-dealers.
Investor Class shares
No front-end, deferred or asset based sales charges are applicable to Investor
Class shares.
Additional Payments to Dealers
From time to time, PFD or its affiliates may elect to make payments to
broker-dealers in addition to the commissions described above. PFD may elect to
reallow the entire initial sales charge to participating dealers for all Class A
sales with respect to which orders are placed during a particular period.
Dealers to
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whom substantially the entire sales charge is reallowed may be deemed to be
underwriters under federal securities laws. Contingent upon the achievement of
certain sales objectives, PFD may pay to Mutual of Omaha Investor Services, Inc.
a fee of up to 0.20% on qualifying sales of the fund's Class A, Class B or Class
C shares through such dealer. In addition, PFD or its affiliates may elect to
pay broker-dealers an additional commission based on the net asset value of all
of the fund's Class B or Class C shares sold by a dealer during a particular
period.
PFD may elect to pay, at its own expense, additional cash or other incentives to
dealers that sell or arrange for the sale of shares of the fund. Such cash or
other incentives may take the form of payment for attendance at preapproved
conferences or seminars, sales or training programs for invited registered
representatives and other employees, payment for travel expenses, including
lodging, incurred by registered representatives and other employees for such
seminars or training programs, seminars for the public, advertising and
preapproved sales campaigns or dealer-sponsored events. PFD may also elect to
make expense reimbursements for special training of a dealer's registered
representatives and other employees in group meetings or to help pay the
expenses of sales contests. PFD will offer such cash and other incentives only
to the extent permitted by applicable law or by a self-regulatory agency such as
the NASD.
REDEEMING SHARES
Redemptions may be suspended or payment postponed during any period in which any
of the following conditions exist: the New York Stock Exchange (the"Exchange")
is closed or trading on the Exchange is restricted; an emergency exists as a
result of which disposal by the fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the fund to fairly determine
the value of the net assets of its portfolio; or the SEC, by order, so permits.
Systematic Withdrawal Plan(s) ("SWP")(Class A, B, C and R Shares). A SWP is
designed to provide a convenient method of receiving fixed payments at regular
intervals from fund share accounts having a total value of not less than
$10,000. You must also be reinvesting all dividends and capital gain
distributions, if any, to use the SWP option.
Periodic payments of $50 or more will be deposited monthly, quarterly,
semiannually or annually directly into a bank account designated by the
applicant or will be sent by check to the applicant, or any person designated by
the applicant. Payments can be made either by check or electronic funds transfer
to a bank account designated by you. Withdrawals from Class B and Class C share
accounts are limited to 10% of the value of the account at the time the SWP is
established. See "Qualifying for a reduced sales charge" in the prospectus. If
you direct that withdrawal payments be paid to another person, want to change
the bank where payments are sent or designate an address that is different from
the account's address of record after you have opened your account, a signature
guarantee must accompany your instructions. Withdrawals under the SWP are
redemptions that may have tax consequences for you.
While you are making systematic withdrawals from your account, you may pay
contingent deferred sales charges.
SWP redemptions reduce and may ultimately exhaust the number of shares in your
account. In addition, the amounts received by a shareholder cannot be considered
as yield or income on his or her investment because part of such payments may be
a return of his or her investment.
A SWP may be terminated at any time (1) by written notice to PIMSS or from PIMSS
to the shareholder; (2) upon receipt by PIMSS of appropriate evidence of the
shareholder's death; or (3) when all shares in the shareholder's account have
been redeemed.
You may obtain additional information by calling PIMSS at 1-800-225-6292.
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TELEPHONE AND ONLINE TRANSACTIONS
You may purchase, exchange or sell Class A, Class B or Class C shares by
telephone or online. For personal assistance, call 1-800-225-6292 between 8:00
a.m. and 7:00 p.m. Eastern time on weekdays. Computer-assisted telephone
transactions may be available to shareholders who have prerecorded certain bank
information (see "FactFone(SM)"). You are strongly urged to consult with your
investment professional prior to requesting any telephone or online transaction.
Telephone Transaction Privileges. To confirm that each transaction instruction
received by telephone is genuine, the fund will record each telephone
transaction, require the caller to provide the personal identification number
("PIN") for the account and send you a written confirmation of each telephone
transaction. Different procedures may apply to accounts that are registered to
non-U.S. citizens or that are held in the name of an institution or in the name
of an investment broker-dealer or other third party. If reasonable procedures,
such as those described above, are not followed, the fund may be liable for any
loss due to unauthorized or fraudulent instructions. The fund may implement
other procedures from time to time. In all other cases, neither the fund, PIMSS
nor PFD will be responsible for the authenticity of instructions received by
telephone; therefore, you bear the risk of loss for unauthorized or fraudulent
telephone transactions.
Online Transaction Privileges. If your account is registered in your name, you
may be able buy, exchange or sell fund shares online. Your investment firm may
also be able to buy, exchange or sell your fund shares online.
To establish online transaction privileges:
|X| For new accounts, complete the online section of the account application
|X| For existing accounts, complete an account options form, write to the
transfer agent or complete the online authorization screen on
www.pioneerfunds.com
To use online transactions, you must read and agree to the terms of an online
transaction agreement available on the Pioneer website. When you or your
investment firm requests an online transaction the transfer agent electronically
records the transaction, requires an authorizing password and sends a written
confirmation. The fund may implement other 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.
You may not be able to use the online transaction privilege for certain types of
accounts, including most retirement accounts.
Telephone and Website Online Access. You may have difficulty contacting the fund
by telephone or accessing pioneerfunds.com during times of market volatility or
disruption in telephone or Internet services. On Exchange holidays or on days
when the New York Stock Exchange closes early, Pioneer will adjust the hours for
the telephone center and for online transaction processing accordingly. If you
are unable to access pioneerfunds.com or to reach the fund by telephone, you
should communicate with the fund in writing.
FactFone(SM). FactFone(SM) is an automated inquiry and telephone transaction
system available to Pioneer mutual fund shareholders by dialing 1-800-225-4321.
FactFone(SM) allows shareholder access to current information on Pioneer mutual
fund accounts and to the prices and yields of all publicly available Pioneer
mutual funds. In addition, you may use FactFone(SM) to make computer-assisted
telephone purchases, exchanges or redemptions from your Pioneer mutual fund
accounts, access your account balances and last three transactions and order a
duplicate statement if you have activated your PIN. Telephone purchases or
redemptions require the establishment of a bank account of record. You are
strongly urged to consult with your investment professional prior to requesting
any telephone transaction. Shareholders whose accounts are registered in the
name of a broker-dealer or other third party may not be able to use
FactFone(SM). Call PIMSS for assistance.
FactFone(SM) allows shareholders to hear the following recorded fund
information:
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o net asset value prices for all Pioneer mutual funds;
o annualized 30-day yields on Pioneer's fixed income funds;
o annualized 7-day yields and 7-day effective (compound) yields for Pioneer's
money market fund; and
o dividends and capital gain distributions on all Pioneer mutual funds.
Yields are calculated in accordance with SEC mandated standard formulas.
All performance numbers communicated through FactFone(SM) represent past
performance, and figures include the maximum applicable sales charge. A
shareholder's actual yield and total return will vary with changing market
conditions. Because the fund seeks to maintain a stable $1.00 share price, the
value of its shares generally will not vary.
PRICING OF SHARES
The net asset value per share of each class of the fund is determined every day
the Exchange is open, when regular trading closes (normally 4:00 p.m. Eastern
time). As of the date of this statement of additional information, the Exchange
is open for trading every weekday except for the following holidays: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset
value per share of each class of the fund is also determined on any other day on
which the level of trading in its portfolio securities is sufficiently high that
the current net asset value per share might be materially affected by changes in
the value of its portfolio securities. The fund is not required to determine its
net asset value per share on any day on which no purchase orders in good order
for fund shares are received and no shares are tendered and accepted for
redemption.
The net asset value per share of each class of the fund is computed by taking
the value of all of the fund's assets attributable to a class, less the fund's
liabilities attributable to that class, and dividing the result by the number of
outstanding shares of that class. For purposes of determining net asset value,
expenses of the classes of the fund are accrued daily and taken into account.
Each class of shares is offered at net asset value without the imposition of an
initial sales charge (Class B and Class C may be subject to a CDSC).
Except as set forth in the following paragraph, the fund's portfolio investments
are valued on each business day on the basis of amortized cost, if the Board of
Trustees determines in good faith that such method approximates fair value. This
technique involves valuing an instrument at its cost and, thereafter, assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price the fund would receive if it sold the investment. During periods of
declining interest rates, the yield on shares of the fund computed as described
below may tend to be higher than a like computation made by a fund with
identical investments utilizing a method of valuation based upon market prices
and estimates of market prices for all of its portfolio investments. Thus, if
the use of amortized cost by the fund resulted in a lower aggregate portfolio
value on a particular day, a prospective investor in the fund would be able to
obtain a somewhat higher yield than would result from investment in a fund
utilizing solely market values. The converse would apply in a period of rising
interest rates.
Standby commitments will be valued at zero in determining net asset value.
"When-issued" securities will be valued at the value of the security at the time
the commitment to purchase is entered into.
The valuation of the fund's portfolio investments based upon their amortized
cost and the concomitant expectation to maintain the fund's per share net asset
value of $1.00 is permitted in accordance with Rule 2a-7 under the 1940 Act
pursuant to which the fund must adhere to certain conditions. The fund must
maintain a dollar-weighted average portfolio maturity of 90 days or less. The
maturities of variable rate
-30-
demand instruments held in the fund's portfolio will be deemed to be the longer
of the demand period or the period remaining until the next interest rate
adjustment, although stated maturities may be in excess of one year. The
Trustees have established procedures designed to stabilize, to the extent
reasonably possible, the price per share of each class of the fund for the
purpose of maintaining sales and redemptions at a single value. It is the
intention of the fund to maintain each class' per share net asset value of $1.00
but there can be no assurance of this. Such procedures will include review of
the fund's portfolio holdings by the Trustees, at such intervals as they may
deem appropriate, to determine whether the fund's net asset value per class
calculated by using available market quotations deviates from $1.00 per share
and, if so, whether such deviation may result in material dilution or is
otherwise unfair to existing shareholders. In the event the Trustees determine
that such a deviation exists, they have agreed to take such corrective action as
they regard as necessary and appropriate, including: (i) the sale of portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity; (ii) withholding dividends; (iii) redeeming shares
in kind; or (iv) establishing a net asset value per share by using available
market quotations.
TAXATION OF THE FUND
The fund has elected to be treated, has qualified and intends to qualify each
year as a "regulated investment company" under Subchapter M of the Code so that
it will not pay U.S. federal income tax on income and capital gains distributed
to shareholders (provided that the distribution requirements set forth below are
satisfied). In order to qualify as a regulated investment company under
Subchapter M of the Code, the fund must, among other things, derive at least 90%
of its gross income for each taxable year from interest, gains from the sale or
other disposition of securities and certain other income (the "90% income
test"), and satisfy certain quarterly asset diversification requirements.
If the fund qualifies as a regulated investment company and properly distributes
to its shareholders each taxable year an amount equal to or exceeding the sum of
(i) 90% of its "investment company taxable income" as that term is defined in
the Code (which includes, among other things, dividends, taxable interest, and
the excess of any net short-term capital gains over net long-term capital
losses, as reduced by certain deductible expenses) without regard to the
deduction for dividends paid and (ii) 90% of the excess of its gross tax-exempt
interest, if any, over certain disallowed deductions, the fund generally will be
relieved of U.S. federal income tax on any income of the fund, including "net
capital gain" (the excess of net long-term capital gain over net short-term
capital loss), distributed to shareholders. However, if the fund meets such
distribution requirements, but chooses to retain some portion of investment
company taxable income or net capital gain, it generally will be subject to U.S.
federal income tax at regular corporate rates on the amount retained. The fund
intends to distribute at least annually all or substantially all of its
investment company taxable income, net tax-exempt interest, and net capital gain
if the fund did not qualify as a regulated investment company for any taxable
year, it would be treated as a U.S. corporation subject to U.S. federal income
tax, thereby subjecting any income earned by the fund to tax at the corporate
level at a maximum 35% federal income tax rate, and when such income is
distributed, to a further tax at the shareholder level.
Under the Code, the fund will be subject to a nondeductible 4% federal excise
tax on a portion of its undistributed ordinary income and capital gain net
income if it fails to meet certain distribution requirements with respect to
each calendar year. The fund intends to make distributions in a timely manner
and accordingly does not expect to be subject to the excise tax.
The fund declares a dividend from net investment income each business day.
Dividends are normally paid on the last business day of the month or shortly
thereafter. The fund distributes any net short-term capital gains in November.
The fund does not anticipate making any distributions of net long-term capital
gains.
In accordance with its investment objective, the fund invests its assets in a
manner which will provide as high a level of current income exempt from federal
income tax as is consistent with preservation of capital, maintenance of
liquidity and stability of principal. The fund may from time to time invest a
portion of its portfolio in short-term taxable obligations and may engage in
transactions generating gains or income
-31-
which is not tax-exempt, e.g., purchase non-municipal securities, sell or lend
portfolio securities, enter into repurchase agreements, dispose of rights to
when-issued securities prior to issuance, acquire any debt obligation at a
market discount, acquire certain stripped tax-exempt obligations or their
coupons or enter into options and futures transactions. The fund's distributions
from such gains or income will not be "exempt-interest dividends", as described
below, and accordingly will be taxable.
The Code permits tax-exempt interest received by the fund to flow through as
tax-exempt "exempt-interest dividends" to the fund's shareholders, provided that
the fund qualifies as a regulated investment company and at least 50% of the
value of the fund's total assets at the close of each quarter of its taxable
year consists of tax-exempt obligations, i.e., obligations described in Section
103(a) of the Code. That part of the fund's net investment income which is
attributable to interest from tax-exempt obligations and which is distributed to
shareholders will be designated by the fund as an "exempt-interest dividend"
under the Code. Exempt-interest dividends are excluded from a shareholder's
gross income under the Code but are nevertheless required to be reported on the
shareholder's U.S. federal income tax return. The percentage of income
designated as tax-exempt is applied uniformly to all distributions made during
each taxable year and may differ from the actual tax-exempt percentage earned by
the fund during any particular month. That portion of the fund's dividends and
distributions not designated as tax-exempt will be taxable as described below.
The fund will not invest in certain "private activity bonds" that generate
interest that constitute items of tax preference that are subject to U.S.
federal alternative minimum tax for individuals or entities that are subject to
such tax. However, all exempt-interest dividends may result in or increase a
corporate shareholder's liability for the federal alternative minimum tax.
Interest on indebtedness incurred (directly or indirectly) by a shareholder to
purchase or carry shares of the fund will not be deductible for U.S. federal
income tax purposes to the extent it is deemed under the Code and applicable
regulations to relate to exempt-interest dividends received from the fund. The
fund may not be an appropriate investment for persons who are "substantial
users" of facilities financed by industrial revenue or private activity bonds or
persons related to substantial users. Shareholders receiving social security or
certain railroad benefits may be subject to U.S. federal income tax on a portion
of such benefits as a result of receiving investment income, including
exempt-interest dividends and other distributions paid by the fund.
Unless shareholders specify otherwise, all distributions from the fund will be
automatically reinvested in additional shares of the fund. For U.S. federal
income tax purposes, all dividends from the fund, other than exempt-interest
dividends, are taxed as described below whether a shareholder takes them in cash
or reinvests them in additional shares of the fund. In general, assuming the
fund has sufficient earnings and profits, dividends from investment company
taxable income are taxable as ordinary income. Since the fund's income is
derived primarily from sources that do not pay qualified dividend income,
dividends from the fund generally will not qualify for taxation at the maximum
15% U.S. federal income tax rate available to individuals on qualified dividend
income. Dividends from net capital gain, if any, that are designated as capital
gain dividends are taxable to the fund's shareholders as long-term capital gains
for U.S. federal income tax purposes without regard to the length of time the
shareholder has held shares of the fund. The fund does not anticipate that it
will earn or distribute any net capital gain. Distributions by the fund in
excess of the fund's current and accumulated earnings and profits will be
treated as a return of capital to the extent of (and in reduction of) the
shareholder's tax basis in its shares and any such amount in excess of that
basis will be treated as gain from the sale of shares, as discussed below. The
U.S. federal income tax status of all distributions will be reported to
shareholders annually.
Although dividends generally will be treated as distributed when paid, any
dividend declared by the fund as of a record date in October, November or
December and paid during the following January will be treated for U.S. federal
income tax purposes as received by shareholders on December 31 of the calendar
year in which it is declared. In addition, certain other distributions made
after the close of a taxable year of the fund may be "spilled back" and treated
as paid by the fund (except for purposes of the 4% excise tax) during such
taxable year. In such case, shareholders generally will be treated as having
received such dividends in the taxable year in which the distributions were
actually made.
-32-
If the fund invests in zero coupon securities or, in general, any other
securities with original issue discount (or with market discount if the fund
elects to include market discount in income currently), the fund generally must
accrue income on such investments for each taxable year, which generally will be
prior to the receipt of the corresponding cash payments. However, the fund must
distribute, at least annually, all or substantially all of its investment
company taxable income, including such accrued income, to shareholders to
qualify as a regulated investment company under the Code and avoid U.S. federal
income and excise taxes. Therefore, the fund may have to dispose of its
portfolio securities under disadvantageous circumstances to generate cash, or
may have to borrow the cash, to satisfy distribution requirements.
For U.S. federal income tax purposes, the fund is permitted to carry forward a
net capital loss for any year to offset its capital gains, if any, for up to
eight years following the year of the loss. To the extent subsequent capital
gains are offset by such losses, they would not result in U.S. federal income
tax liability to the fund and are not expected to be distributed as such to
shareholders. See "Annual Fee, Expense and Other Information" for the fund's
available capital loss carryforwards, if any.
Redemptions and exchanges of shares generally are taxable events for
shareholders that are subject to tax but generally will not result in taxable
gain or loss if the fund successfully maintains a constant net asset value per
share. A loss may occur to the extent that a CDSC is imposed in connection with
a redemption or exchange. In general, if fund shares are sold, the shareholder
will recognize gain or loss equal to the difference, if any, between the amount
realized on the sale and the shareholder's adjusted basis in the shares. Such
gain or loss generally will be treated as long-term capital gain or loss if the
shares were held for more than one year and otherwise generally will be treated
as short-term capital gain or loss. Any loss recognized by a shareholder upon
the redemption, exchange or other disposition of shares with a tax holding
period of six months or less will be disallowed to the extent of any
exempt-interest dividends paid with respect to such shares and any portion of
such loss that exceeds the amount disallowed will be treated as a long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gain with respect to such shares.
Losses on redemptions or other dispositions of shares may be disallowed under
"wash sale" rules in the event of other investments in the fund (including those
made pursuant to reinvestment of dividends and/or capital gain distributions)
within a period of 61 days beginning 30 days before and ending 30 days after a
redemption or other disposition of shares. In such a case, the disallowed
portion of any loss generally would be included in the U.S. federal tax basis of
the shares acquired in the other investments. Shareholders should consult their
tax advisers with reference to their individual circumstances to determine
whether any particular transaction in fund shares is properly treated as a sale
for tax purposes, as this discussion assumes, and the tax treatment of any gains
or loses recognized in such transactions.
The fund's dividends and distributions will not qualify for any
dividends-received deduction that might otherwise be available for certain
dividends received by shareholders that are corporations.
The fund may be subject to withholding and other taxes imposed by foreign
countries, including taxes on interest and capital gain (if any), with respect
to its investments in those countries which would, if imposed, reduce the yield
on or return from those investments. Tax conventions between certain countries
and the U.S. may reduce or eliminate such taxes in some cases. The fund does not
expect to satisfy the requirements for passing through to its shareholders their
pro rata shares of qualified foreign taxes paid by the fund, with the result
that shareholders will not include such taxes in their gross incomes and will
not be entitled to a tax deduction or credit for such taxes on their own tax
returns.
Shareholders that are exempt from U.S. federal income tax, such as retirement
plans that are qualified under Section 401 of the Code, generally are not
subject to U.S. federal income tax on fund dividends or distributions or on
sales or exchanges of fund shares unless the acquisition of the fund shares was
debt-financed. However, in the case of fund shares held through a non-qualified
deferred compensation plan, fund dividends and distributions received by the
plan and sales and exchanges of fund shares by the plan generally are taxable to
the employer sponsoring such plan in accordance with the U.S. federal income tax
laws governing deferred compensation plans.
-33-
A plan participant whose retirement plan invests in the fund, whether such plan
is qualified or not, generally is not taxed on fund dividends or distributions
received by the plan or on sales or exchanges of fund shares by the plan for
U.S. federal income tax purposes. However, distributions to plan participants
from a retirement plan account generally are taxable as ordinary income and
different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent the fund's distributions are
derived from interest on (or, in the case of intangible property taxes, the
value of its assets is attributable to) certain U.S. government obligations,
provided in some states that certain thresholds for holdings of such obligations
and/or reporting requirements are satisfied. The fund will not seek to satisfy
any threshold or reporting requirements that may apply in particular taxing
jurisdictions, although the fund may in its sole discretion provide relevant
information to shareholders.
Federal law requires that the fund withhold (as "backup withholding") 28% of
reportable payments, including dividends and capital gain distributions, if any,
to shareholders who have not complied with IRS regulations. In order to avoid
this withholding requirement, shareholders, other than certain exempt entities,
must certify on their Account Applications, or on separate IRS Forms W-9, that
the Social Security Number or other Taxpayer Identification Number they provide
is their correct number and that they are not currently subject to backup
withholding, or that they are exempt from backup withholding. The fund may
nevertheless be required to backup withhold if it receives notice from the IRS
or a broker that the number provided is incorrect or backup withholding is
applicable as a result of previous underreporting of interest or dividend
income. Backup withholding may be inapplicable for any year in which the fund
reasonably estimates that at least 95% of its dividends paid with respect to
such year are exempt-interest dividends.
The description of certain federal tax provisions above relates only to U.S.
federal income tax consequences for shareholders who are U.S. persons, i.e.,
U.S. citizens or residents or U.S. corporations, partnerships, trusts or
estates, and who are subject to U.S. federal income tax and hold their shares as
capital assets. Except as otherwise provided, this description does not address
the special tax rules that may be applicable to particular types of investors,
such as financial institutions, insurance companies, securities dealers, or
tax-exempt or tax-deferred plans, accounts or entities. Investors other than
U.S. persons may be subject to different U.S. federal income tax treatment,
including a non-resident alien U.S. withholding tax at the rate of 30% or at a
lower treaty rate on amounts treated as ordinary dividends from the fund and,
unless an effective IRS Form W-8BEN, or other authorized withholding certificate
is on file, to backup withholding at the rate of 28% on certain other payments
from the fund. Shareholders should consult their own tax advisers on these
matters and on state, local, foreign and other applicable tax laws.
UNDERWRITERS
Principal Underwriter
PFD, 60 State Street, Boston, Massachusetts 02109, is the principal underwriter
for the fund in connection with the continuous offering of its shares. PFD is an
indirect wholly owned subsidiary of PIM-USA.
See the tables in Annual Fee, Expense and Other Information for commissions
retained by PFD and reallowed to dealers in connection with PFD's offering of
the fund's Class C shares during recently completed fiscal years.
The fund entered into an underwriting agreement with PFD which provides that PFD
will bear expenses for the distribution of the fund's shares, except for
expenses incurred by PFD for which it is reimbursed or compensated by the fund
under the distribution plans (discussed below). PFD bears all expenses it incurs
in providing services under the underwriting agreement. Such expenses include
compensation to its employees and representatives and to securities dealers for
distribution-related services performed for the fund. PFD also pays certain
expenses in connection with the distribution of the fund's shares, including the
-34-
cost of preparing, printing and distributing advertising or promotional
materials, and the cost of printing and distributing prospectuses and
supplements to prospective shareholders. The fund bears the cost of registering
its shares under federal and state securities law and the laws of certain
non-U.S. countries. Under the underwriting agreement, PFD will use its best
efforts in rendering services to the fund.
The fund will not generally issue fund shares for consideration other than cash.
At the fund's sole discretion, however, it may issue fund shares for
consideration other than cash in connection with a bona fide reorganization,
statutory merger or other acquisition of portfolio securities.
It is the fund's general practice to repurchase its shares of beneficial
interest for cash consideration in any amount; however, the redemption price of
shares of the fund may, at Pioneer's discretion, be paid in portfolio
securities. The fund has, elected to be governed by Rule 18f-1 under the 1940
Act pursuant to which the fund is obligated to redeem shares solely in cash up
to the lesser of $250,000 or 1% of the fund's net asset value during any 90-day
period for any one shareholder. Should the amount of redemptions by any
shareholder exceed such limitation, the fund will have the option of redeeming
the excess in cash or portfolio securities. In the latter case, the securities
are taken at their value employed in determining the fund's net asset value. You
may incur additional costs, such as brokerage fees and taxes, and risks,
including a decline in the value of the securities you receive, if the fund
makes an in-kind distribution. The selection of such securities will be made in
such manner as the Board of Trustees deems fair and reasonable; however, the
fund will not distribute illiquid securities in kind.
Distribution and Service Plans
The fund has adopted a plan of distribution pursuant to Rule 12b-1 under the
1940 Act with respect to its Class A shares (the "Class A Plan"), a plan of
distribution with respect to its Class B shares (the "Class B Plan") and a plan
of distribution with respect to its Class C shares (the "Class C Plan")
(together, the "Plans"), pursuant to which certain distribution and service fees
are paid to PFD. The fund has not adopted a plan of distribution with respect to
its Investor Class shares. Because of the Plans, long-term shareholders may pay
more than the economic equivalent of the maximum sales charge permitted by the
National Association of Securities Dealers, Inc. (the "NASD") regarding
investment companies. The Class A Plan is a reimbursement plan, and distribution
expenses of PFD are expected to substantially exceed the distribution fees paid
by the fund in a given year. The Class B Plan and Class C Plan are compensation
plans, which means that the amount of payments under the plans are not linked to
PFD's expenditures, and, consequently, PFD can make a profit under each of those
plans.
Class A Plan. Pursuant to the Class A Plan the fund reimburses PFD for its
actual expenditures to finance any activity primarily intended to result in the
sale of Class A shares or to provide services to holders of Class A shares,
provided the categories of expenses for which reimbursement is made are approved
by the Board of Trustees. The Board of Trustees has approved the following
categories of expenses that may be reimbursed under the Class A Plan: (i) a
service fee to be paid to qualified broker-dealers in an amount not to exceed
0.15% per annum of the fund's daily net assets attributable to Class A shares;
(ii) reimbursement to PFD for its expenditures for broker-dealer commissions;
and (iii) reimbursement to PFD for expenses incurred in providing services to
Class A shareholders and supporting broker-dealers and other organizations (such
as banks and trust companies) in their efforts to provide such services. The
expenses of the fund pursuant to the Class A Plan are accrued daily at a rate
which may not exceed the annual rate of 0.15% of the fund's average daily net
assets attributable to Class A shares.
The Class A Plan does not provide for the carryover of reimbursable expenses
beyond 12 months from the time the fund is first invoiced for an expense. The
limited carryover provision in the Class A Plan may result in an expense
invoiced to the 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, the 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 0.15% of the fund's average daily net assets attributable to
Class A shares during such period. See Annual Fee, Expense and Other
-35-
Information" for the amount, if any, of carryover of distribution expenses as of
the end of the most recent calendar year.
Class B Plan. PFD pays the selling broker-dealer a commission on the sale of
Class B shares equal to 3.75% of the amount invested. This commission is paid at
the time of sale of the Class B Shares. In order to be entitled to a commission,
the selling broker-dealer must have entered into a sales agreements with PFD. At
the time of the sale of a Class B share, PFD may also advance to the
broker-dealer, from PFD's own assets, the first-year service fee payable under
the Class B Plan at a rate up to 0.25% of the purchase price of such shares. If
such an advance is made, the broker-dealer would not receive any further service
fee until the 13th month following the purchase of Class B shares. As
compensation for advancing the service fee, PFD may retain the service fee paid
by the fund with respect to such shares for the first year after purchase.
The Class B Plan provides that the fund shall pay to PFD, as the fund's
distributor for its Class B shares:
o a distribution fee equal on an annual basis to 0.75% of the fund's
average daily net assets attributable to Class B shares. The
distribution fee compensates PFD for its distribution services with
respect to Class B shares. PFD pays the commissions to broker-dealers
discussed above and also pays:
o the cost of printing prospectuses and reports used for sales
purposes and the preparation and printing of sales literature and
o other distribution-related expenses, including, without
limitation, the cost necessary to provide distribution-related
services, or personnel, travel, office expenses and equipment.
o a service fee equal to 0.25% of the fund's average daily net assets
attributable to Class B shares. PFD in turn pays the service fee to
broker-dealers at a rate of up to 0.25% of the fund's average daily
net assets attributable to Class B shares owned by shareholder for
whom that broker-dealer is the holder or dealer of record. This
service fee compensates the broker-dealer for providing personal
services and/or account maintenance services rendered by the
broker-dealer with respect to Class B shares. PFD may from time to
time require that dealers, in addition to providing these services,
meet certain criteria in order to receive service fees. PFD is
entitled to retain all service fees with respect to Class B shares for
which there is no dealer of record or with respect to which a dealer
is not otherwise entitled to a service fee. Such service fees are paid
to PFD for personal services and/or account maintenance services that
PFD or its affiliates perform for shareholder accounts.
PFD also receives contingent deferred sales charges ("CDSCs") attributable to
Class B shares to compensate PFD for its distribution expenses. When a
broker-dealer sells Class B shares and elects, with PFD's approval, to waive its
right to receive the commission normally paid at the time of the sale, PFD may
cause all or a portion of the distribution fees described above to be paid to
the broker-dealer.
Since PFD pays commissions to broker-dealers at the time of the sale of Class B
shares but only receives compensation for such expenses over time through the
distribution fee and CDSC, the Class B Plan and underwriting agreement permit
PFD to finance the payment of commissions to broker-dealers. In order to
facilitate such financing, the fund has agreed that the distribution fee will
not be terminated or modified (including a modification in the rules relating to
the conversion of Class B shares into Class A shares) with respect to Class B
shares:
o issued prior to the date of any termination or modification;
o attributable to Class B shares issued through one or a series of
exchanges of shares of another investment company for which PFD acts
as principal underwriter which were initially issued prior to the date
of such termination or modification; or
-36-
o issued as a dividend or distribution upon Class B shares initially
issued or attributable to Class B shares issued prior to the date of
any such termination or modification.
The foregoing limitation does not apply to Class B shares issued after the
termination or modification. The foregoing limitation on terminating or
modifying the Class B Plan also does not apply to a termination or modification:
o if a change in the 1940 Act, the rules or regulations under the 1940
Act, the Conduct Rules of the NASD or an order of any court or
governmental agency requires such termination or modification (e.g. if
the Conduct Rules were amended to establish a lower limit on the
maximum aggregate sales charges that could be imposed on sales of fund
shares);
o if the fund (or any successor) terminates the Class B Plan and all
payments under the plan and neither the fund (nor any successor)
establishes another class of shares which has substantially similar
characteristics to the Class B Shares of the fund; or
o at any time by the Board of Trustees. However, the Board of Trustees
may terminate or modify the Class B Plan only if the fund and Pioneer
agree that none of the fund, PFD or any of their affiliates will pay,
after the date of termination or modification, a service fee with
respect to the fund's Class B shares and the termination or
modification of the distribution fee applies equally to all Class B
shares outstanding from time to time.
In the underwriting agreement, the fund agrees that subsequent to the issuance
of a Class B share, the fund will not waive or change any CDSC (including a
change in the rules applicable to conversion of Class B shares into another
class) in respect of such Class B share, except:
o as provided in the fund's prospectus or statement of additional
information; or
o as required by a change in the 1940 Act and the rules and regulations
thereunder, the Conduct Rules of the NASD or any order of any court or
governmental agency.
Class C Plan. Commissions on the sale of Class C shares of up to 0.75% of the
amount invested in Class C shares are paid to broker-dealers who have sales
agreements with PFD. PFD may also advance to dealers the first-year service fee
payable under the Class C Plan at a rate up to 0.25% of the purchase price of
such shares. As compensation for such advance of the service fee, PFD may retain
the service fee paid by the fund with respect to such shares for the first year
after purchase.
The Class C Plan provides that the fund will pay PFD, as the fund's distributor
for its Class C shares, a distribution fee accrued daily and paid quarterly,
equal on an annual basis to 0.75% of the fund's average daily net assets
attributable to Class C shares and will pay PFD a service fee equal to 0.25% of
the fund's average daily net assets attributable to Class C shares. PFD will in
turn pay to securities dealers that enter into a sales agreement with PFD a
distribution fee and a service fee at rates of up to 0.75% and 0.25%,
respectively, of the fund's average daily net assets attributable to Class C
shares owned by investors for whom that securities dealer is the holder or
dealer of record. The service fee is intended to be in consideration of personal
services and/or account maintenance services rendered by the dealer with respect
to Class C shares. PFD will advance to dealers the first-year service fee at a
rate equal to 0.25% of the amount invested. As compensation therefor, PFD may
retain the service fee paid by the fund with respect to such shares for the
first year after purchase. Commencing in the 13th month following the purchase
of Class C shares, dealers will become eligible for additional annual
distribution fees and service fees of up to 0.75% and 0.25%, respectively, of
the net asset value of such shares. Dealers may from time to time be required to
meet certain other criteria in order to receive service fees. PFD or its
affiliates are entitled to retain all service fees payable under the Class C
Plan for which there is no dealer of record or for which qualification standards
have not been met as partial consideration for personal services and/or account
maintenance services performed by PFD or its affiliates for shareholder
accounts.
-37-
The purpose of distribution payments to PFD under the Class C Plan is to
compensate PFD for its distribution services with respect to Class C shares of
the fund. PFD pays commissions to dealers as well as expenses of printing
prospectuses and reports used for sales purposes, expenses with respect to the
preparation and printing of sales literature and other distribution-related
expenses, including, without limitation, the cost necessary to provide
distribution-related services, or personnel, travel, office expenses and
equipment. The Class C Plan also provides that PFD will receive all CDSCs
attributable to Class C shares. When a broker-dealer sells Class C shares and
elects, with PFD's approval, to waive its right to receive the commission
normally paid at the time of the sale, PFD may cause all or a portion of the
distribution fees described above to be paid to the broker-dealer.
General
In accordance with the terms of each Plan, PFD provides to the fund for review
by the Trustees a quarterly written report of the amounts expended under the
Plan and the purposes for which such expenditures were made. In the Trustees'
quarterly review of the Plans, they will consider the continued appropriateness
and the level of reimbursement or compensation the Plans provide.
No interested person of the fund, nor any Trustee of the fund who is not an
interested person of the fund, has any direct or indirect financial interest in
the operation of the Plans except to the extent that PFD and certain of its
employees may be deemed to have such an interest as a result of receiving a
portion of the amounts expended under the Plans by the fund and except to the
extent certain officers may have an interest in PFD's ultimate parent,
UniCredito Italiano, or in UniCredito Italiano's subsidiaries.
Each Plan's adoption, terms, continuance and termination are governed by Rule
12b-1 under the 1940 Act. The Board of Trustees believes that there is a
reasonable likelihood that the Plans will benefit the fund and its current and
future shareholders. The Plans may not be amended to increase materially the
annual percentage limitation of average net assets which may be spent for the
services described therein without approval of the shareholders of the fund
affected thereby, and material amendments of the Plans must also be approved by
the Trustees as provided in Rule 12b-1.
See "Annual Fee, Expense and Other Information" for fund expenses under the
Class A Plan, Class B Plan and Class C Plan and CDSCs paid to PFD for the most
recently completed fiscal year.
Upon redemption, Class A shares may be subject to a 1% CDSC, Class B shares are
subject to a CDSC at a rate declining from a maximum 4% of the lower of the cost
or market value of the shares and Class C shares may be subject to a 1% CDSC.
Investor Class shares are not subject to a CDSC.
CALCULATION OF PERFORMANCE DATA
See Annual Fee, Expense and Other Information for performance information for
each class of fund shares as of the most recently completed fiscal year.
FINANCIAL STATEMENTS
Safeco Tax-Free Money Market Fund's (the predecessor to Pioneer Tax Free Money
Market Fund) financial statements and financial highlights for the fiscal year
ended December 31, 2003 appearing in the fund's annual report, as filed with the
SEC on February 26, 2004 (Accession No. 0001193125-04-030238), and the fund's
unaudited financial statements as of June 30, 2004, as filed with the SEC on
August 26, 2004 (Accession No. 0001193125-04-147223), are incorporated by
reference into this statement of additional information. The financial
statements and financial highlights for the fiscal year ended December 31, 2003
have been audited by Ernst & Young LLP, an independent registered public
accounting firm, as indicated in their report thereon, and are incorporated
herein by reference, in reliance upon such report, given on the authority of
Ernst & Young LLP as experts in accounting and auditing.
-38-
Safeco Tax-Free Money Market Fund's annual and semi-annual reports include the
financial statements referenced above and are available without charge upon
request by calling Shareholder Services at 1-800-225-6292.
ANNUAL FEE, EXPENSE AND OTHER INFORMATION
Share Ownership
Not applicable(1)
Trustee Ownership of Shares of the Fund and Other Pioneer Funds
The following table indicates the value of shares that each Trustee beneficially
owned in the fund and Pioneer Funds in the aggregate as of December 31, 2003.
Beneficial ownership is determined in accordance with SEC rules. The share value
of any closed-end fund is based on its closing market price on December 31,
2003. The share value of any open-end Pioneer Fund is based on the net asset
value of the class of shares on December 31, 2003. The dollar ranges in this
table are in accordance with SEC requirements.
- ------------------------------------------------------------------------------------------------------------
Name of Trustee Aggregate Dollar Range of Equity
Dollar Range of Equity Securities in All Registered Investment
Securities in the Fund(1) Companies in the Pioneer Family of Funds
- ------------------------------------------------------------------------------------------------------------
Interested Trustees
- ------------------------------------------------------------------------------------------------------------
John F. Cogan, Jr. None Over $100,000
- ------------------------------------------------------------------------------------------------------------
Osbert M. Hood None Over $100,000
- ------------------------------------------------------------------------------------------------------------
Independent Trustees
- ------------------------------------------------------------------------------------------------------------
Mary K. Bush None $10,001-$50,000
- ------------------------------------------------------------------------------------------------------------
Richard H. Egdahl, M.D. None $50,001-$100,000
- ------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham None $10,001-$50,000
- ------------------------------------------------------------------------------------------------------------
Marguerite A. Piret None $50,001-$100,000
- ------------------------------------------------------------------------------------------------------------
Stephen K. West None Over $100,000
- ------------------------------------------------------------------------------------------------------------
John Winthrop None Over $100,000
- ------------------------------------------------------------------------------------------------------------
Compensation of Officers and Trustees
The following table sets forth certain information with respect to the
compensation of each Trustee of the fund.
- ------------------------------------------------------------------------------------------------------------
Pension or
Aggregate Retirement Benefits Total Compensation from
Compensation from Accrued as Part of the Fund and Other Pioneer
Name of Trustee Fund** Fund Expenses Funds***
- ------------------------------------------------------------------------------------------------------------
Interested Trustees:
- ------------------------------------------------------------------------------------------------------------
John F. Cogan, Jr*. $500 $0.00 $19,200.00
- ------------------------------------------------------------------------------------------------------------
Osbert M. Hood*+ $500 11,520.00
- ------------------------------------------------------------------------------------------------------------
Independent Trustees:
- ------------------------------------------------------------------------------------------------------------
Mary K. Bush $1,000 0.00 104,000.00
- ------------------------------------------------------------------------------------------------------------
Richard H. Egdahl, M.D. $1,000 0.00 99,750.00
- ------------------------------------------------------------------------------------------------------------
Margaret B.W. Graham $1,000 0.00 104,000.00
- ------------------------------------------------------------------------------------------------------------
Marguerite A. Piret $1,000 0.00 113,562.50
- ------------------------------------------------------------------------------------------------------------
Stephen K. West $1,000 0.00 99,750.00
- ------------------------------------------------------------------------------------------------------------
John Winthrop $1,000 0.00 99,750.00
- ------------------------------------------------------------------------------------------------------------
Total: $7,000 $0.00 $651,532.50
- ------------------------------------------------------------------------------------------------------------
-39-
* Under the management contract, Pioneer reimburses the fund for any
Interested Trustee fees paid by the fund.
** Estimated for the fiscal year ended December 31, 2005.
*** For the calendar year ended December 31, 2003. There are 65 U.S. registered
investment portfolios in the Pioneer Family of Funds.
Approximate Management Fees the Fund Paid or Owed Pioneer
Not applicable(1)
Fees the Fund Paid to Pioneer under the Administration Agreement
Not applicable(1)
Carryovers of Distribution Expenses
Not applicable(1)
Approximate Net Underwriting Commissions Retained by PFD (Class A)
Not applicable(1)
Approximate Commissions Reallowed to Dealers (Class A)
Not applicable(1)
Fund Expenses under the Distribution Plans
Not applicable(1)
CDSCs
Not applicable(1)
Brokerage and Underwriting Commissions (Portfolio Transactions)
Not applicable(1)
Capital Loss Carryforwards as of December 31, 2003
Not applicable(1)
Average Annual Total Returns (December 31, 2003)
Not applicable(1)
(1) As of December 31, 2003, the fund had not yet commenced operations. As of
the date of this statement of additional information, the fund had not yet
completed a fiscal year.
-40-
PART C
OTHER INFORMATION
PIONEER SERIES TRUST II
(on behalf of its series,
Pioneer California Tax Free Income Fund
Pioneer Growth Opportunities Fund
Pioneer Municipal Bond Fund
Pioneer Tax Free Money Market Fund)
ITEM 15. INDEMNIFICATION
No change from the information set forth in Item 25 of the most recently filed
Registration Statement of Pioneer Series Trust II (the "Registrant") on Form
N-1A under the Securities Act of 1933 and the Investment company Act of 1940
(File Nos. 333-110037 and 811-21460) as filed with the Securities and Exchange
Commission on August 6, 2004 (Accession No. 0001016964-04-000341), which
information is incorporated herein by reference.
(1)(a) Agreement and Declaration of Trust (1)
(1)(b) Amendment to Agreement and Declaration of Trust to establish additional (5)
series
(2) By-Laws (2)
(3) Not applicable
(4) Form of Agreement and Plan of Reorganization (4)
(5) Reference is made to Exhibits (1) and (2) hereof
(6)(a) Form of Management Contract for Pioneer California Tax Free Income Fund (5)
(6)(b) Form of Management Contract for Pioneer Municipal Bond Fund (5)
(6)(c) Form of Management Contract for Pioneer Tax Free Money Market Fund (5)
(6)(d) Form of Management Contract for Pioneer Growth Opportunities Fund (5)
(6)(e) Form of Expense Limitation Agreement for Pioneer California Tax Free Income (5)
Fund
(6)(f) Form of Expense Limitation Agreement for Pioneer Municipal Bond Fund (5)
(6)(g) Form of Expense Limitation Agreement for Pioneer Tax Free Money Market Fund (5)
(6)(h) Form of Expense Limitation Agreement for Pioneer Growth Opportunities Fund (5)
(7)(a) Form of Underwriting Agreement with Pioneer Funds Distributor, Inc. (5)
(7)(b) Form of Dealer Sales Agreement (5)
(8) Not applicable
(9) Custodian Agreement with Brown Brothers Harriman & Co. (5)
(10)(a) Form of Class A 12b-1 Distribution Plan for Pioneer California Tax Free (5)
Income Fund
(10)(b) Form of Class A 12b-1 Distribution Plan for Pioneer Municipal Bond Fund (5)
(10)(c) Form of Class A 12b-1 Distribution Plan for Pioneer Tax Free Money Market (5)
Fund
(10)(d) Form of Class A 12b-1 Distribution Plan for Pioneer Growth Opportunities
Fund (5)
(10)(e) Form of Class B 12b-1 Distribution Plan for Pioneer California Tax Free (5)
Income Fund
(10)(f) Form of Class B 12b-1 Distribution Plan for Pioneer Municipal Bond Fund (5)
(10)(g) Form of Class B 12b-1 Distribution Plan for Pioneer Tax Free Money Market (5)
Fund
(10)(h) Form of Class B 12b-1 Distribution Plan for Pioneer Growth Opportunities Fund (5)
(10)(i) Form of Class C 12b-1 Distribution Plan for Pioneer California Tax Free (5)
Income Fund
(10)(j) Form of Class C 12b-1 Distribution Plan for Pioneer Municipal Bond Fund (5)
(10)(k) Form of Class C 12b-1 Distribution Plan for Pioneer Tax Free Money Market (5)
Fund
(10)(l) Form of Class C 12b-1 Distribution Plan for Pioneer Growth Opportunities
Fund (5)
(10)(m) Form of Class R 12b-1 Distribution Plan for Pioneer California Tax Free (5)
Income Fund
(10)(n) Form of Class R 12b-1 Distribution Plan for Pioneer Municipal Bond Fund (5)
(10)(o) Form of Class R 12b-1 Distribution Plan for Pioneer Tax Free Money Market (5)
Fund
(10)(p) Fund of Class R 12b-1 Distribution Plan for Pioneer Growth Opportunities Fund (5)
(10)(q) Form of Class R Service Plan for Pioneer California Tax Free Income Fund (5)
(10)(r) Form of Class R Service Plan for Pioneer Municipal Bond Fund (5)
(10)(s) Form of Class R Service Plan for Pioneer Tax Free Money Market Fund (5)
(10)(t) Form of Class R Service Plan for Pioneer Growth Opportunities Fund (5)
(10)(u) Form of Multiple Class Plan Pursuant to Rule 18f-3 for Pioneer California (5)
Tax Free Income Fund
(10)(v) Form of Multiple Class Plan Pursuant to Rule 18f-3 for Pioneer Municipal (5)
Bond Fund
(10)(w) Form of Multiple Class Plan Pursuant to Rule 18f-3 for Pioneer Tax Free (5)
Money Market Fund
(10)(x) Form of Multiple Class Plan Pursuant to Rule 18f-3 for Pioneer Growth
Opportunities Fund (5)
(11) Opinion of Counsel (legality of securities being offered) (*)
(12) Form of opinion as to tax matters and consent (5)
(13)(a) Investment Company Service Agreement with Pioneering Services Corporation (5)
(13)(b) Administration Agreement with Pioneer Investment Management, Inc. (5)
(14) Consents of Independent Registered Public Accounting Firm (*)
(15) Not applicable
(16) Powers of Attorney (1)
(17)(a) Code of Ethics (3)
(17)(b) Form of Proxy Cards (*)
(1) Previously filed. Incorporated herein by reference from the exhibits filed
with the Registrant's Initial Registration Statement on Form N-1A (File Nos.
333-110037; 811-21460), as filed with the Securities and Exchange Commission on
October 28, 2003 (Accession no. 0001265389-03-000007).
(2) Previously filed. Incorporated herein by reference from the exhibits filed
with the Registrant's Registration Statement on Form N-14 (File Nos.
333-110171), as filed with the Securities and Exchange Commission on October 31,
2003 (Accession no. 0001265389-03-000010).
(3) Previously filed. Incorporated herein by reference from the exhibits filed
with Pre-Effective Amendment No. 1 to the Registrant's Registration Statement on
Form N-1A (File Nos. 333-110037; 811-21460), as filed with the Securities and
Exchange Commission on June 8, 2004 (Accession no. 0001016964-04-000245).
(4) Filed herewith as Exhibit A to the Proxy Statement and Prospectus included
as Part A of this Registration Statement.
(5) Previously filed. Incorporated herein by reference from the exhibits filed
with Registrant's Initial Registration Statement on Form N-14 (File No.
333-118444), as filed with the Securities and Exchange Commission on August 20,
2004 (Accession no. 0001145443-04-001274).
(*) Filed herewith.
ITEM 17. UNDERTAKINGS.
(1) The undersigned Registrant agrees that prior to any public reoffering of the
securities registered through the use of a prospectus which is part of this
Registration Statement by any person or party which is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, the
reoffering prospectus will contain the information called for by the applicable
registration form for the reofferings by persons who may be deemed underwriters,
in addition to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is filed under
paragraph (1) above will be filed as part of an amendment to the Registration
Statement and will not be used until the amendment is effective, and that, in
determining any liability under the Securities Act of 1933, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form N-14 has been signed on behalf of the
Registrant, in the City of Boston and the Commonwealth of Massachusetts, on the
25th day of October, 2004.
Pioneer Series Trust II,
on behalf of its series,
Pioneer California Tax Free Income Fund
Pioneer Growth Opportunities Fund
Pioneer Municipal Bond Fund
Pioneer Tax Free Money Market Fund
By: /s/ Osbert M. Hood
----------------------
Osbert M. Hood
Executive Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
October 25, 2004
* Chairman of the Board, Trustee,
- ---------------------------- and President
John F. Cogan, Jr.
October 25, 2004
* Chief Financial Officer and
- ---------------------------- Treasurer
Vincent Nave
*
- ----------------------------
Mary K. Bush Trustee
*
- ---------------------------
Richard H. Egdahl Trustee
*
- ----------------------------
Margaret B.W. Graham Trustee
/s/ Osbert M. Hood
- ----------------------------
Osbert M. Hood Trustee
*
- ----------------------------
Marguerite A. Piret Trustee
*
- ----------------------------
Steven K. West Trustee
*
- ----------------------------
John Winthrop Trustee
* By: /s/ Osbert M. Hood October 25, 2004
--------------------------------
Osbert M. Hood, Attorney-in-Fact
EXHIBIT INDEX
The following exhibits are filed as part of this Registration Statement:
Exhibit No. Description
(11) Opinion of Counsel (legality of securities being offered)
(14) Consents of Independent Registered Public Accounting Firm
(17)(b) Form of Proxy Card