PIONEER BOND FUND
--------------------------------------------------------------------------------
60 State Street
Boston, Massachusetts 02109
CLASS A SHARES (PIOBX)
CLASS C SHARES (PCYBX)
CLASS K SHARES (PBFKX)
CLASS R SHARES (PBFRX)
CLASS Y SHARES (PICYX)
Statement of Additional Information
November 1, 2018
This statement of additional information is not a prospectus. It should be read
in conjunction with the fund's Class A, Class C, Class K, Class R and Class Y
shares prospectus dated November 1, 2018, as supplemented or revised from time
to time. A copy of the prospectus can be obtained free of charge by calling the
fund at 1-800-225-6292 or by written request to the fund at 60 State Street,
Boston, Massachusetts 02109. You can also obtain a copy of the prospectus from
our website at: us.amundipioneer.com. The fund's financial statements for the
fiscal year ended June 30, 2018, including the independent registered public
accounting firm's report thereon, are incorporated into this statement of
additional information by reference.
CONTENTS
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PAGE
1. Fund history............................................... 1
2. Investment policies, risks and restrictions................ 1
3. Trustees and officers...................................... 44
4. Investment adviser......................................... 53
5. Principal underwriter and distribution plan................ 56
6. Shareholder servicing/transfer agent....................... 59
7. Custodian and sub-administrator............................ 59
8. Independent registered public accounting firm.............. 59
9. Portfolio management....................................... 59
10. Portfolio transactions..................................... 62
11. Description of shares...................................... 64
12. Sales charges.............................................. 67
13. Redeeming shares........................................... 73
14. Telephone and online transactions.......................... 74
15. Pricing of shares.......................................... 75
16. Tax status................................................. 76
17. Financial statements....................................... 84
18. Annual fee, expense and other information.................. 85
19. Appendix A - Description of short-term debt, corporate bond
and preferred stock ratings//.............................. 90
20. Appendix B - Proxy voting policies and procedures.......... 94
[GRAPHIC APPEARS HERE]
1. FUND HISTORY
The fund is a diversified open-end management investment company. The fund is a
series of Pioneer Bond Fund (the "Trust"). The Trust was originally organized
as a Massachusetts corporation on August 16, 1978, reorganized as a
Massachusetts business trust on December 31, 1985 and reorganized as a Delaware
statutory trust on May 17, 1999. Amundi Pioneer Asset Management, Inc. ("Amundi
Pioneer") is the fund's investment adviser.
2. INVESTMENT POLICIES, RISKS AND RESTRICTIONS
The prospectus presents the investment objectives 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 in a percentage 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.
DEBT SECURITIES AND RELATED INVESTMENTS
DEBT SECURITIES RATING INFORMATION
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.
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 "D" or better, or
comparable unrated securities as determined by Amundi Pioneer.
Below investment grade debt securities or comparable unrated securities are
commonly referred to as high yield bonds or "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 issuers of high
yield securities also may be more adversely affected than issuers of higher
rated securities by specific corporate or governmental developments. Such
securities may also be impacted by the issuers' inability to meet specific
projected business forecasts. The amount of high yield securities outstanding
has proliferated as an increasing number of issuers have used high yield
securities for corporate financing. 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 or to take other steps to protect its investment in an
issuer.
The secondary market for high yield securities is not usually 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, such as those recently prevailing, 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
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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 and other 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
high yield debt securities of the type in which the fund may invest, 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.
High yield 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, high yield securities generally
involve greater risks of loss of income and principal than higher rated
securities.
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. The ratings of nationally
recognized statistical rating organizations represent their opinions as to the
quality of the securities that they undertake to rate and may not accurately
describe the risk of the security. If a rating organization changes the quality
rating assigned to one or more of the fund's portfolio securities, Amundi
Pioneer will consider if any action is appropriate in light of the fund's
investment objectives and policies.
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, authority or instrumentality of the U.S. government, including the
Federal Housing Administration, Federal Financing Bank, Farm Service Agency,
Export-Import Bank of the U.S., Small Business Administration, Government
National Mortgage Association ("GNMA"), General Services Administration,
National Bank for Cooperatives, Federal Farm Credit Banks, Federal Home Loan
Banks ("FHLBs"), Federal Home Loan Mortgage Corporation ("FHLMC"), Federal
National Mortgage Association ("FNMA"), Maritime Administration, Tennessee
Valley Authority 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 FHLBs; (ii) the discretionary
authority of the U.S. government to purchase the agency's obligations, such as
securities of FNMA; or (iii) only the credit of the issuer. Such debt
securities are subject to the risk of default on the payment of interest and/or
principal, similar to debt of private issuers. The maximum potential liability
of some U.S. government securities may greatly exceed their current resources,
including any legal right to support from the U.S. government. Although the
U.S. government provided financial support to FNMA and FHLMC in the past, no
assurance can be given that the U.S. government will provide financial support
in the future to these or other 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 loan participations described above is limited
and, therefore, the participations may be regarded as illiquid.
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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 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.
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. 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.
Depending on the relationship of the conversion price to the market value of
the underlying securities, convertible securities may trade more like equity
securities than debt securities.
A convertible security entitles the holder to receive interest that is
generally paid or accrued until the convertible security matures, or is
redeemed, converted, or exchanged. Convertible securities have unique
investment characteristics, in that they generally (i) have higher yields than
common stocks, but lower yields than comparable non-convertible securities,
(ii) are less subject to fluctuation in value than the underlying common stock
due to their fixed-income characteristics and (iii) provide the potential for
capital appreciation if the market price of the underlying common stock
increases. A convertible security may be subject to redemption at the option of
the issuer at a price established in the convertible security's governing
instruments. If a convertible security held by the fund is called for
redemption, the fund will be required to permit the issuer to redeem the
security, convert it into the underlying common stock or sell it to a third
party. Any of these actions could result in losses to the fund.
MUNICIPAL OBLIGATIONS
The fund may purchase municipal obligations. The term "municipal obligations"
generally is understood to include debt obligations issued by municipalities to
obtain funds for various public purposes, the income from 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 as ordinary income to shareholders that are
otherwise subject to tax.
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.
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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.
MORTGAGE-BACKED SECURITIES
The fund may invest in mortgage pass-through certificates and multiple-class
pass-through securities, such as real estate mortgage investment conduits
("REMIC") pass-through certificates, collateralized mortgage obligations
("CMOs") and stripped mortgage-backed securities ("SMBS"), and other types of
mortgage-backed securities ("MBS") 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 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.
Through its investments in mortgage-backed securities, including those that are
issued by private issuers, the fund may have exposure to subprime loans as well
as to the mortgage and credit markets generally. Private issuers include
commercial banks, savings associations, mortgage companies, investment banking
firms, finance companies and special purpose finance entities (called special
purpose vehicles or "SPVs") and other entities that acquire and package
mortgage loans for resale as MBS.
Unlike mortgage-backed securities issued or guaranteed by the U.S. government
or one of its sponsored entities, mortgage-backed securities issued by private
issuers do not have a government or government-sponsored entity guarantee, but
may have credit enhancement provided by external entities such as banks or
financial institutions or achieved through the structuring of the transaction
itself. Examples of such credit support arising out of the structure of the
transaction include the issue of senior and subordinated securities (e.g., the
issuance of securities by an SPV in multiple classes or "tranches," with one or
more classes being senior to other subordinated classes as to the payment of
principal and interest, with the result that defaults on the underlying
mortgage loans are borne first by the holders of the subordinated class);
creation of "reserve funds" (in which case cash or investments, sometimes
funded from a portion of the payments on the underlying mortgage loans, are
held in reserve against future losses); and "overcollateralization" (in which
case the scheduled payments on, or the principal amount of, the underlying
mortgage loans exceeds that required to make payment of the securities and pay
any servicing or other fees). However, there can be no guarantee that credit
enhancements, if any, will be sufficient to prevent losses in the event of
defaults on the underlying mortgage loans.
In addition, mortgage-backed securities that are issued by private issuers are
not subject to the underwriting requirements for the underlying mortgages that
are applicable to those mortgage-backed securities that have a government or
government-sponsored entity guarantee. As a result, the mortgage loans
underlying
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private mortgage-backed securities may, and frequently do, have less favorable
collateral, credit risk or other underwriting characteristics than government
or government-sponsored mortgage-backed securities and have wider variances in
a number of terms including interest rate, term, size, purpose and borrower
characteristics. Privately issued pools more frequently include second
mortgages, high loan-to-value mortgages and manufactured housing loans. The
coupon rates and maturities of the underlying mortgage loans in a private
mortgage-backed securities pool may vary to a greater extent than those
included in a government guaranteed pool, and the pool may include subprime
mortgage loans. Subprime loans refer to loans made to borrowers with weakened
credit histories or with a lower capacity to make timely payments on their
loans. For these reasons, the loans underlying these securities have had in
many cases higher default rates than those loans that meet government
underwriting requirements.
The risk of non-payment is greater for mortgage-backed securities that are
backed by mortgage pools that contain subprime loans, but a level of risk
exists for all loans. Market factors adversely affecting mortgage loan
repayments may include a general economic turndown, high unemployment, a
general slowdown in the real estate market, a drop in the market prices of real
estate, or an increase in interest rates resulting in higher mortgage payments
by holders of adjustable rate mortgages.
If the fund purchases subordinated mortgage-backed securities, the subordinated
mortgage-backed securities may serve as a credit support for the senior
securities purchased by other investors. In addition, the payments of principal
and interest on these subordinated securities generally will be made only after
payments are made to the holders of securities senior to the fund's securities.
Therefore, if there are defaults on the underlying mortgage loans, the fund
will be less likely to receive payments of principal and interest, and will be
more likely to suffer a loss.
Privately issued mortgage-backed securities are not traded on an exchange and
there may be a limited market for the securities, especially when there is a
perceived weakness in the mortgage and real estate market sectors. Without an
active trading market, mortgage-backed securities held in the portfolio may be
particularly difficult to value because of the complexities involved in
assessing the value of the underlying mortgage loans.
In the case of private issue mortgage-related securities whose underlying
assets are neither U.S. government securities nor U.S. government-insured
mortgages, to the extent that real properties securing such assets may be
located in the same geographical region, the security may be subject to a
greater risk of default than other comparable securities in the event of
adverse economic, political or business developments that may affect such
region and, ultimately, the ability of residential homeowners to make payments
of principal and interest on the underlying mortgages.
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
5
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
Amundi 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"). 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 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.
STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS"). SMBS are multiple-class
mortgage-backed securities that are created when a U.S. government agency or a
financial institution separates the interest and principal components of a
mortgage-backed security and sells them as individual securities. The fund may
invest in SMBS that are usually structured with two classes that receive
different proportions of interest and principal distributions on a pool of
mortgage assets. A typical SMBS will have one class receiving some of the
interest and most of the principal, while the other class will receive most of
the interest and the remaining principal. The holder of the "principal-only"
security ("PO") receives the principal payments made by the underlying
mortgage-backed security, while the holder of the "interest-only" security
("IO") receives interest payments from the same underlying security. The prices
of stripped mortgage-backed securities may be particularly affected by changes
in interest rates. As interest rates fall, prepayment rates tend to increase,
which tends to reduce prices of IOs and increase prices of POs. Rising interest
rates can have the opposite effect. Amundi Pioneer may determine that certain
stripped mortgage-backed securities issued by the U.S. government, its agencies
or instrumentalities are not readily marketable. If so, these securities,
together with privately-issued stripped mortgage-backed securities, will be
considered illiquid for purposes of the fund's limitation on investments in
illiquid securities. The yields and market risk of interest-only and
principal-only SMBS, respectively, may be more volatile than those of other
fixed income securities.
The fund also may invest in planned amortization class ("PAC") and target
amortization class ("TAC") CMO bonds which involve less exposure to prepayment,
extension and interest rate risks than other mortgage-backed securities,
provided that prepayment rates remain within expected prepayment ranges or
"collars." To the extent that the prepayment rates remain within these
prepayment ranges, the residual or support tranches of PAC and TAC CMOs assume
the extra prepayment, extension and interest rate risks associated with the
underlying mortgage assets.
OTHER 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
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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. There may be no perfected security interest in
the collateral that relates to the financial assets that support asset-backed
securities. Asset backed securities have many of the same characteristics and
risks as mortgage-backed securities.
The fund may purchase commercial paper, including asset-backed commercial paper
("ABCP") that is issued by structured investment vehicles or other conduits.
These conduits may be sponsored by mortgage companies, investment banking
firms, finance companies, hedge funds, private equity firms and special purpose
finance entities. ABCP typically refers to a debt security with an original
term to maturity of up to 270 days, the payment of which is supported by cash
flows from underlying assets, or one or more liquidity or credit support
providers, or both. Assets backing ABCP include credit card, car loan and other
consumer receivables and home or commercial mortgages, including subprime
mortgages. The repayment of ABCP issued by a conduit depends primarily on the
cash collections received from the conduit's underlying asset portfolio and the
conduit's ability to issue new ABCP. Therefore, there could be losses to a fund
investing in ABCP in the event of credit or market value deterioration in the
conduit's underlying portfolio, mismatches in the timing of the cash flows of
the underlying asset interests and the repayment obligations of maturing ABCP,
or the conduit's inability to issue new ABCP. To protect investors from these
risks, ABCP programs may be structured with various protections, such as credit
enhancement, liquidity support, and commercial paper stop-issuance and
wind-down triggers. However there can be no guarantee that these protections
will be sufficient to prevent losses to investors in ABCP.
Some ABCP programs provide for an extension of the maturity date of the ABCP
if, on the related maturity date, the conduit is unable to access sufficient
liquidity through the issue of additional ABCP. This may delay the sale of the
underlying collateral and a fund may incur a loss if the value of the
collateral deteriorates during the extension period. Alternatively, if
collateral for ABCP deteriorates in value, the collateral may be required to be
sold at inopportune times or at prices insufficient to repay the principal and
interest on the
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ABCP. ABCP programs may provide for the issuance of subordinated notes as an
additional form of credit enhancement. The subordinated notes are typically of
a lower credit quality and have a higher risk of default. A fund purchasing
these subordinated notes will therefore have a higher likelihood of loss than
investors in the senior notes.
Asset-backed securities include collateralized debt obligations ("CDOs"), such
as collateralized bond obligations ("CBOs"), collateralized loan obligations
("CLOs") and other similarly structured securities. A CBO is a trust backed by
a pool of fixed income securities. A CLO is a trust typically collateralized by
a pool of loans, which may include, among others, domestic and foreign senior
secured loans, senior unsecured loans, and subordinate corporate loans,
including loans that may be rated below investment grade or equivalent unrated
loans. CDOs may charge management fees and administrative expenses. Certain
CDOs may use derivatives, such as credit default swaps, to create synthetic
exposure to assets rather than holding such assets directly.
The trust is typically split into two or more portions, called tranches,
varying in credit quality and yield. The riskiest portion is the "equity"
tranche which bears the bulk of defaults from the bonds or loans in the trust
and helps protect the other, more senior tranches from default. Since it is
partially protected from defaults, a senior tranche from a CBO trust or CLO
trust typically has higher ratings and lower yields than its underlying
securities, and can be rated investment grade. Despite the protection from the
equity tranche, CBO or CLO tranches can experience substantial losses due to
actual defaults, increased sensitivity to defaults due to collateral default
and the disappearance of protecting tranches, market anticipation of defaults,
as well as aversion to CBO or CLO securities as a class.
The risks of an investment in a CDO depend largely on the type of the
collateral securities and the class of the CDO in which the fund invests.
Normally, CBOs, CLOs and other CDOs are privately offered and sold, and thus
are not registered under the securities laws. As a result, investments in CDOs
may be characterized by the fund as illiquid securities. However, an active
dealer market may exist under some market conditions for some CDOs. In addition
to the normal risks associated with fixed income securities (e.g., interest
rate risk and default risk), CDOs carry additional risks including, but not
limited to: (i) the possibility that distributions from collateral securities
will not be adequate to make interest or other payments; (ii) the quality of
the collateral may decline in value or default; (iii) the fund may invest in
CDOs that are subordinate to other classes; and (iv) the complex structure of
the security may not be fully understood at the time of investment and may
produce disputes with the issuer or unexpected investment results.
SUBORDINATED SECURITIES
The fund may also invest in other types of fixed income securities which are
subordinated or "junior" to more senior securities of the issuer, or which
represent interests in pools of such subordinated or junior securities. Such
securities may include so-called "high yield" or "junk" bonds (i.e., bonds that
are rated below investment grade by a rating agency or that are of equivalent
quality) and preferred stock. Under the terms of subordinated securities,
payments that would otherwise be made to their holders may be required to be
made to the holders of more senior securities, and/or the subordinated or
junior securities may have junior liens, if they have any rights at all, in any
collateral (meaning proceeds of the collateral are required to be paid first to
the holders of more senior securities). As a result, subordinated or junior
securities will be disproportionately adversely affected by a default or even a
perceived decline in creditworthiness of the issuer.
STRUCTURED SECURITIES
The fund may invest in structured securities. The value of the principal and/or
interest on such securities is determined by reference to changes in the value
of specific currencies, interest rates, commodities, indices or other financial
indicators (the "Reference") or the relative change in two or more References.
The interest rate or the principal amount payable upon maturity or redemption
may be increased or decreased depending upon changes in the Reference. The
terms of the structured securities may provide in certain circumstances that no
principal is due at maturity and therefore may result in a loss of the fund's
investment.
8
Changes in the interest rate or principal payable at maturity may be a multiple
of the changes in the value of the Reference. Structured securities are a type
of derivative instrument and the payment and credit qualities from these
securities derive from the assets embedded in the structure from which they are
issued. Structured securities may entail a greater degree of risk than other
types of fixed income securities.
FLOATING RATE LOANS
A floating rate loan is typically originated, negotiated and structured by a
U.S. or foreign commercial bank, insurance company, finance company or other
financial institution for a group of investors. The financial institution
typically acts as an agent for the investors, administering and enforcing the
loan on their behalf. In addition, an institution, typically but not always the
agent, holds any collateral on behalf of the investors.
The interest rates are adjusted based on a base rate plus a premium or spread
or minus a discount. The base rate usually is the London Interbank Offered Rate
("LIBOR"), the Federal Reserve federal funds rate, the prime rate or other base
lending rates used by commercial lenders. LIBOR usually is an average of the
interest rates quoted by several designated banks as the rates at which they
pay interest to major depositors in the London interbank market on U.S.
dollar-denominated deposits.
Floating rate loans include loans to corporations and institutionally traded
floating rate debt obligations issued by an asset-backed pool, and interests
therein. The fund may invest in loans in different ways. The fund may: (i) make
a direct investment in a loan by participating as one of the lenders; (ii)
purchase an assignment of a loan; or (iii) purchase a participation interest in
a loan.
DIRECT INVESTMENT IN LOANS. It can be advantageous to the fund to make a direct
investment in a loan as one of the lenders. When a new issue is purchased, such
an investment is typically made at par. This means that the fund receives a
return at the full interest rate for the loan. Secondary purchases of loans may
be made at par, at a premium from par or at a discount from par. When the fund
invests in an assignment of, or a participation interest in, a loan, the fund
may pay a fee or forgo a portion of the interest payment. Consequently, the
fund's return on such an investment may be lower than it would have been if the
fund had made a direct investment in the underlying corporate loan. The fund
may be able, however, to invest in corporate loans only through assignments or
participation interests at certain times when reduced direct investment
opportunities in corporate loans may exist. At other times, however, such as
recently, assignments or participation interests may trade at significant
discounts from par.
ASSIGNMENTS. An assignment represents a portion of a loan previously
attributable to a different lender. The purchaser of an assignment typically
succeeds to all the rights and obligations under the loan agreement of the
assigning investor and becomes an investor under the loan agreement with the
same rights and obligations as the assigning investor. Assignments may,
however, be arranged through private negotiations between potential assignees
and potential assignors, and the rights and obligations acquired by the
purchaser of an assignment may differ from, and be more limited than, those
held by the assigning investor.
PARTICIPATION INTERESTS. Participation interests are interests issued by a
lender or other financial institution, which represent a fractional interest in
a corporate loan. The fund may acquire participation interests from the
financial institution or from another investor. The fund typically will have a
contractual relationship only with the financial institution that issued the
participation interest. As a result, the fund may have the right to receive
payments of principal, interest and any fees to which it is entitled only from
the financial institution and only upon receipt by such entity of such payments
from the borrower. In connection with purchasing a participation interest, the
fund generally will have no right to enforce compliance by the borrower with
the terms of the loan agreement, nor any rights with respect to any funds
acquired by other investors through set-off against the borrower and the fund
may not directly benefit from the collateral supporting the loan in which it
has purchased the participation interest. As a result, the fund may assume the
credit risk of both the borrower and the financial institution issuing the
participation interest. In the event of the insolvency of the financial
institution issuing a participation interest, the fund may be treated as a
general creditor of such entity.
9
OTHER INFORMATION ABOUT FLOATING RATE LOANS. Loans typically have a senior
position in a borrower's capital structure. The capital structure of a borrower
may include loans, senior unsecured loans, senior and junior subordinated debt,
preferred stock and common stock, typically in descending order of seniority
with respect to claims on the borrower's assets. Although loans typically have
the most senior position in a borrower's capital structure, they remain subject
to the risk of non-payment of scheduled interest or principal. Such non-payment
would result in a reduction of income to the fund, a reduction in the value of
the investment and a potential decrease in the net asset value of the fund.
There can be no assurance that the liquidation of any collateral securing a
loan would satisfy a borrower's obligation in the event of non-payment of
scheduled interest or principal payments, or that such collateral could be
readily liquidated. In the event of bankruptcy of a borrower, the fund could
experience delays or limitations with respect to its ability to realize the
benefits of the collateral securing a loan. Although a loan may be senior to
equity and other debt securities in an issuer's capital structure, such
obligations may be structurally subordinated to obligations of the issuer's
subsidiaries. For example, if a holding company were to issue a loan, even if
that issuer pledges the capital stock of its subsidiaries to secure the
obligations under the loan, the assets of the operating companies are available
to the direct creditors of an operating company before they would be available
to the holders of the loan issued by the holding company.
In order to borrow money pursuant to a loan, a borrower will frequently, for
the term of the loan, pledge collateral, including but not limited to, (i)
working capital assets, such as accounts receivable and inventory; (ii)
tangible fixed assets, such as real property, buildings and equipment; (iii)
intangible assets, such as trademarks and patent rights (but excluding
goodwill); and (iv) security interests in shares of stock of subsidiaries or
affiliates. In the case of loans made to non-public companies, the company's
shareholders or owners may provide collateral in the form of secured guarantees
and/or security interests in assets that they own. In many instances, a loan
may be secured only by stock in the borrower or its subsidiaries. Collateral
may consist of assets that may not be readily liquidated, and there is no
assurance that the liquidation of such assets would satisfy fully a borrower's
obligations under a loan.
In the process of buying, selling and holding loans, the fund may receive
and/or pay certain fees. Any fees received are in addition to interest payments
received and may include facility fees, commitment fees, commissions and
prepayment penalty fees. When the fund buys a loan it may receive a facility
fee and when it sells a loan it may pay a facility fee. On an ongoing basis,
the fund may receive a commitment fee based on the undrawn portion of the
underlying line of credit portion of a loan. In certain circumstances, the fund
may receive a prepayment penalty fee upon the prepayment of a loan by a
borrower. Other fees received by the fund may include covenant waiver fees and
covenant modification fees.
A borrower must comply with various restrictive covenants contained in a loan
agreement or note purchase agreement between the borrower and the holders of
the loan. Such covenants, in addition to requiring the scheduled payment of
interest and principal, may include restrictions on dividend payments and other
distributions to stockholders, provisions requiring the borrower to maintain
specific minimum financial ratios, and limits on total debt.
In a typical loan, the agent administers the terms of the loan agreement. In
such cases, the agent is normally responsible for the collection of principal
and interest payments from the borrower and the apportionment of these payments
to the credit of all institutions that are parties to the loan agreement. The
fund will generally rely upon the agent or an intermediate participant to
receive and forward to the fund its portion of the principal and interest
payments on the loan. Furthermore, unless the fund has direct recourse against
the borrower, the fund will rely on the agent and the other investors to use
appropriate credit remedies against the borrower.
For some loans, such as revolving credit facility loans ("revolvers"), an
investor may have certain obligations pursuant to the loan agreement that may
include the obligation to make additional loans in certain circumstances. The
fund generally will reserve against these contingent obligations by segregating
or otherwise designating a sufficient amount of permissible liquid assets.
Delayed draw term loans are similar to revolvers, except
10
that once drawn upon by the borrower during the commitment period, they remain
permanently drawn and become term loans. A prefunded L/C term loan is a
facility created by the borrower in conjunction with an agent, with the loan
proceeds acting as collateral for the borrower's obligations in respect of the
letters of credit. Each participant in a prefunded L/C term loan fully funds
its commitment amount to the agent for the facility.
The fund may acquire interests in loans that are designed to provide temporary
or "bridge" financing to a borrower pending the sale of identified assets or
the arrangement of longer-term loans or the issuance and sale of debt
obligations. Bridge loans often are unrated. The fund may also invest in loans
of borrowers that have obtained bridge loans from other parties. A borrower's
use of bridge loans involves a risk that the borrower may be unable to locate
permanent financing to replace the bridge loan, which may impair the borrower's
perceived creditworthiness.
From time to time, Amundi Pioneer and its affiliates may borrow money from
various banks in connection with their business activities. Such banks may also
sell interests in loans to or acquire them from the fund or may be intermediate
participants with respect to loans in which the fund owns interests. Such banks
may also act as agents for loans held by the fund.
INVERSE FLOATING RATE SECURITIES
The fund may invest in inverse floating rate obligations. 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.
AUCTION RATE SECURITIES
The fund may invest in auction rate securities. Auction rate securities consist
of auction rate debt securities and auction rate preferred securities issued by
closed-end investment companies. Provided that the auction mechanism is
successful, auction rate securities usually permit the holder to sell the
securities in an auction at par value at specified intervals. The dividend is
reset by "Dutch" auction in which bids are made by broker-dealers and other
institutions for a certain amount of securities at a specified minimum yield.
The dividend rate set by the auction is the lowest interest or dividend rate
that covers all securities offered for sale. While this process is designed to
permit auction rate securities to be traded at par value, there is the risk
that an auction will fail due to insufficient demand for the securities. If an
auction fails, the dividend rate of the securities generally adjusts to a
maximum rate specified in the issuer's offering or charter documents. Security
holders that submit sell orders in a failed auction may not be able to sell any
or all of the shares for which they have submitted sell orders. Broker-dealers
may try to facilitate secondary trading in auction rate securities, although
such secondary trading may be limited and may only be available for
shareholders willing to sell at a discount. Since February 2008, nearly all
such auctions have failed, significantly affecting the liquidity of auction
rate securities. Holders of such securities have generally continued to receive
dividends at the above-mentioned maximum rate. There is no assurance that
auctions will resume or that any market will develop for auction rate
securities. Valuations of such securities are highly speculative. With respect
to auction rate securities issued by a closed-end fund, the fund will
indirectly bear its proportionate share of any management fees paid by the
closed-end fund in addition to the advisory fee payable directly by the fund.
EVENT-LINKED BONDS AND OTHER INSURANCE-LINKED SECURITIES
The fund may invest in "event-linked" bonds, which sometimes are referred to as
"insurance-linked" or "catastrophe" bonds. Event-linked bonds are debt
obligations for which the return of principal and the payment of interest are
contingent on the non-occurrence of a pre-defined "trigger" event, such as a
hurricane or an earthquake of a specific magnitude. For some event-linked
bonds, the trigger event's magnitude may be based on losses to a company or
industry, index-portfolio losses, industry indexes or readings of scientific
instruments rather than specified actual losses. If a trigger event, as defined
within the terms of an event-linked
11
bond, involves losses or other metrics exceeding a specific magnitude in the
geographic region and time period specified therein, the fund may lose a
portion or all of its accrued interest and/or principal invested in such
event-linked bond. The fund is entitled to receive principal and interest
payments so long as no trigger event occurs of the description and magnitude
specified by the instrument.
Event-linked bonds may be issued by government agencies, insurance companies,
reinsurers, special purpose corporations or other on-shore or off-shore
entities. In addition to the specified trigger events, event-linked bonds may
also expose the fund to other risks, including but not limited to issuer
(credit) default, adverse regulatory or jurisdictional interpretations and
adverse tax consequences. Event-linked bonds are subject to the risk that the
model used to calculate the probability of a trigger event was not accurate and
underestimated the likelihood of a trigger event. This may result in more
frequent and greater than expected loss of principal and/or interest, which
would adversely impact the fund's total returns. Further, to the extent there
are events that involve losses or other metrics, as applicable, that are at, or
near, the threshold for a trigger event, there may be some delay in the return
of principal and/or interest until it is determined whether a trigger event has
occurred. Finally, to the extent there is a dispute concerning the definition
of the trigger event relative to the specific manifestation of a catastrophe,
there may be losses or delays in the payment of principal and/or interest on
the event-linked bond. Lack of a liquid market for these instruments may impose
the risk of higher transactions costs and the possibility that the fund may be
forced to liquidate positions when it would not be advantageous to do so.
Event-linked bonds are typically rated below investment grade or may be
unrated. Securities rated BB or lower are considered to be below investment
grade. The rating for an event-linked bond primarily reflects the rating
agency's calculated probability that a pre-defined trigger event will occur,
which will cause a loss of principal. This rating may also assess the credit
risk of the bond's collateral pool, if any, and the reliability of the model
used to calculate the probability of a trigger event.
In addition to event-linked bonds, the fund also may invest in other
insurance-linked securities, including notes or preferred shares issued by
special purpose vehicles structured to comprise a portion of an reinsurer's or
insurer's catastrophe-oriented business, known as sidecars, or to provide
reinsurance to reinsurers or insurers, known as collateralized reinsurance
("Reinsurance Notes"). An investor in Reinsurance Notes participates in the
premiums and losses associated with underlying reinsurance contracts.
Reinsurance Notes are subject to the same risks discussed herein for
event-linked bonds. In addition, because Reinsurance Notes represent an
interest in underlying reinsurance contracts, the fund has limited transparency
into the underlying insurance policies and therefore must rely upon the risk
assessment and sound underwriting practices of the reinsurer and/or insurer.
Accordingly, it may be more difficult for the investment adviser to fully
evaluate the underlying risk profile of the fund's investment in Reinsurance
Notes and therefore place the fund's assets at greater risk of loss than if the
adviser had more complete information. The lack of transparency may also make
the valuation of Reinsurance Notes more difficult and potentially result in
mispricing that could result in losses to the fund. Reinsurance Notes are also
subject to extension risk. The sponsor of such an investment might have the
right to extend the maturity of the notes to verify that the trigger event did
occur or to process and audit insurance claims. In certain circumstances, the
extension may exceed two years.
Event-linked bonds and other insurance-linked securities typically are
restricted to qualified institutional buyers and, therefore, are not subject to
registration with the Securities and Exchange Commission or any state
securities commission and are not listed on any national securities exchange.
The amount of public information available with respect to event-linked bonds
and other insurance-linked securities is generally less extensive than that
available for issuers of registered or exchange listed securities. Event-linked
bonds may be subject to the risks of adverse regulatory or jurisdictional
determinations. There can be no assurance that future regulatory determinations
will not adversely affect the overall market for event-linked bonds.
12
EVENT-LINKED SWAPS
The fund may obtain event-linked exposure by investing in event-linked swaps,
which typically are contingent, or formulaically related to defined trigger
events, or by pursuing similar event-linked derivative strategies. Trigger
events include hurricanes, earthquakes and weather-related phenomena. If a
trigger event occurs, the fund may lose the swap's notional amount. As
derivative instruments, event-linked swaps are subject to risks in addition to
the risks of investing in event-linked bonds, including counterparty risk and
leverage risk.
ZERO COUPON, PAY-IN-KIND, DEFERRED AND CONTINGENT PAYMENT SECURITIES
The fund may invest in zero coupon securities, which are securities that are
sold at a discount to par value and on which interest payments are not made
during the life of the security. Upon maturity, the holder is entitled to
receive the par value of the security. Pay-in-kind securities are securities
that have interest payable by delivery of additional securities. Upon maturity,
the holder is entitled to receive the aggregate par value of the securities. A
fund accrues income with respect to zero coupon and pay-in-kind securities
prior to the receipt of cash payments. Deferred payment securities are
securities that remain zero coupon securities until a predetermined date, at
which time the stated coupon rate becomes effective and interest becomes
payable at regular intervals. The interest rate on contingent payment
securities is determined by the outcome of an event, such as the performance of
a financial index. If the financial index does not increase by a prescribed
amount, the fund may receive no interest.
EQUITY SECURITIES AND RELATED INVESTMENTS
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 prices 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.
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. 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.
13
Preferred stocks may differ in many of their provisions. Among the features
that differentiate preferred stocks from one another are the dividend rights,
which may be cumulative or noncumulative and participating or
non-participating, redemption provisions, and voting rights. Such features will
establish the income return and may affect the prospects for capital
appreciation or risks of capital loss.
The market prices of preferred stocks are subject to changes in interest rates
and are more sensitive to changes in an issuer's creditworthiness than are the
prices of debt securities. Shareholders of preferred stock may suffer a loss of
value if dividends are not paid. Under ordinary circumstances, preferred stock
does not carry voting rights.
NON-U.S. INVESTMENTS
EQUITY SECURITIES OF NON-U.S. ISSUERS
The fund may invest in equity securities of non-U.S. issuers, including
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs") and other similar instruments.
DEBT OBLIGATIONS OF NON-U.S. GOVERNMENTS
The fund may invest in all types of 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 the fund may
have limited recourse in the event of a default. As a sovereign entity, the
issuing government may be immune from lawsuits in the event of its failure or
refusal to pay the obligations when due. During periods of economic uncertainty
(such as the financial crisis that began in 2008), the values of sovereign debt
and of securities of issuers that purchase 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, declared moratoria on the payment
of principal and interest on their sovereign debt, or restructured their debt
to effectively eliminate portions of it, and similar occurrences may happen in
the future. There is no bankruptcy proceeding by which sovereign debt on which
governmental entities have defaulted may be collected in whole or in part.
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 its principal international lenders and local
political constraints. Sovereign debtors may also be dependent on disbursements
or assistance from non-U.S. governments, multinational agencies and other
entities to reduce principal and interest arrearages on their debt. Assistance
may be dependent on a country's implementation of austerity measures and
reforms, which measures may limit or be perceived to limit economic growth and
recovery. 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.
EURODOLLAR INSTRUMENTS AND SAMURAI AND YANKEE BONDS. The fund may invest in
Eurodollar instruments and Samurai and Yankee bonds. Eurodollar instruments are
bonds of corporate and government issuers that pay interest and principal in
U.S. dollars but are issued in markets outside the United States, primarily in
Europe. Samurai bonds are yen-denominated bonds sold in Japan by non-Japanese
issuers. Yankee bonds are U.S. dollar denominated bonds typically issued in the
U.S. by non-U.S. governments and their agencies and non-U.S. banks and
corporations. The fund may also invest in Eurodollar Certificates of Deposit
("ECDs"), Eurodollar Time Deposits ("ETDs") and Yankee Certificates of Deposit
("Yankee CDs"). ECDs are U.S. dollar-denominated certificates of deposit issued
by non-U.S. branches of domestic banks; ETDs are U.S. dollar-denominated
deposits in a non-U.S. branch of a U.S. bank or in a non-U.S. bank; and Yankee
CDs are U.S. dollar-denominated certificates of deposit issued by a U.S. branch
of a non-U.S. bank
14
and held in the U.S. These investments involve risks that are different from
investments in securities issued by U.S. issuers, including potential
unfavorable political and economic developments, non-U.S. withholding or other
taxes, seizure of non-U.S. deposits, currency controls, interest limitations or
other governmental restrictions which might affect payment of principal or
interest.
INVESTMENTS IN EMERGING MARKETS. The fund may invest in securities of issuers
in countries with emerging economies or securities markets. The fund considers
emerging market issuers to include issuers organized under the laws of an
emerging market country, issuers with a principal officer in an emerging market
country, issuers that derive at least 50% of their gross revenues or profits
from goods or services produced in emerging markets or sales made in emerging
markets, and emerging market governmental issuers. Emerging economies or
securities markets will generally include, but not be limited to, countries
included in the Morgan Stanley Capital International (MSCI) Emerging + Frontier
Markets 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 of
emerging market issuers.
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 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, may undergo significant evolution and rapid development, and such
countries may lack the social, political and economic stability characteristic
of more developed countries.
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 accurately price its portfolio securities or to
dispose of such securities at the times determined by Amundi Pioneer to be
appropriate. The risks associated with reduced liquidity may be particularly
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 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 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. In addition, it may be difficult for the fund to pursue claims
against a foreign issuer in the courts of a foreign country. Investing in
emerging market countries also involves the
15
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.
Investments that have exposure to Russian or Ukrainian issuers or markets may
be significantly affected by events involving Ukraine and the Russian
Federation and economic sanctions against Russia and other responses to these
events by the United States and other nations.
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 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 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, securities and currency markets
of many emerging markets have experienced significant disruption and declines.
There can be no assurance 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 and significantly by economic conditions in
the countries with which they trade.
A number of countries in Europe have experienced severe economic and financial
difficulties. Many non-governmental issuers, and even certain governments, have
defaulted on, or been forced to restructure, their debts; many other issuers
have faced difficulties obtaining credit or refinancing existing obligations;
financial institutions have in many cases required government or central bank
support, have needed to raise capital, and/or have been impaired in their
ability to extend credit; and financial markets in Europe and elsewhere have
experienced extreme volatility and declines in asset values and liquidity.
These difficulties may continue, worsen or spread within and beyond Europe.
Responses to the financial problems by European governments, central banks and
others, including austerity measures and reforms, may not work, may result in
social unrest and may limit future growth and economic recovery or have other
unintended consequences. Further defaults or restructurings by governments and
others of their debt could have additional adverse effects on economies,
financial markets and asset valuations around the world. In addition, on June
23, 2016, voters in the United Kingdom approved withdrawal from the European
Union. On March 29, 2017, the United Kingdom formally notified the European
Council of its intention to leave the European Union; as a result, the United
Kingdom will remain a member state, subject to European Union law with
privileges to provide services under the single market directives, for at least
two years from that date. Given the size and importance of the United Kingdom's
economy, uncertainty about its legal, political, and economic relationship with
the remaining member states of the European Union may continue to be a source
of instability. Moreover, other countries may seek to withdraw from the
European Union and/or abandon the euro, the common currency of the European
Union. A number of countries in Europe have suffered terror attacks, and
additional attacks may occur in the future. The Ukraine has experienced ongoing
military conflict; this conflict may expand and military conflicts could
potentially occur elsewhere in Europe. Europe
16
has also been struggling with mass migration from the Middle East and Africa.
The ultimate effects of these events and other socio-political or geopolitical
issues are not known but could profoundly affect global economies and markets.
Whether or not the fund invests in securities of issuers located in Europe or
with significant exposure to European issuers or countries, these events could
negatively affect the value and liquidity of the fund's investments due to the
interconnected nature of the global economy and capital markets.
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 fund. In
addition, 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 may 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 may 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 ADRs, EDRs,
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, EDRs, 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.
17
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 may enter into forward foreign currency
exchange contracts, which are contractual agreements to purchase or sell a
specified currency at a specified future date and price set at the time of the
contract.
The fund may 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. 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 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 or that its hedging activities will be successful. 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 Amundi
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 fund may also engage in cross-hedging by using forward contracts in one
currency to hedge against fluctuations in the value of securities denominated
in a different currency, if Amundi Pioneer determines that there is a pattern
of correlation between the two currencies. Cross-hedging may also include
entering into a forward transaction involving two foreign currencies, using one
foreign currency as a proxy for the U.S. dollar to hedge against variations in
the other foreign currency.
The fund may use forward currency exchange contracts to reduce or gain exposure
to a currency. To the extent the fund gains exposure to a currency through
these instruments, the resulting exposure may exceed the value of securities
denominated in that currency held by the fund. For example, where the fund's
security selection has resulted in an overweight or underweight exposure to a
particular currency relative to the fund's benchmark, the fund may seek to
adjust currency exposure using forward currency exchange contracts.
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 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 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 may benefit from foreign currency 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 portfolio holdings of securities quoted or
denominated
18
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 Amundi Pioneer will segregate liquid assets. See "Asset
Segregation."
OPTIONS ON FOREIGN CURRENCIES
The fund may purchase 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.
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, and 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.
19
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 also use options on currencies to cross-hedge, which involves
writing or purchasing options on one currency to hedge against changes in
exchange rates of a different currency with a pattern of correlation.
Cross-hedging may also include using a foreign currency as a proxy for the U.S.
dollar, if Amundi Pioneer determines that there is a pattern of correlation
between that currency and the U.S. dollar.
The fund may purchase and write over-the-counter options. 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.
NATURAL DISASTERS
Certain areas of the world, including areas within the United States,
historically have been prone to natural disasters, such as hurricanes,
earthquakes, typhoons, flooding, tidal waves, tsunamis, erupting volcanoes,
wildfires or droughts. Such disasters, and the resulting damage, could have a
significant adverse impact on the economies of those areas and on the ability
of issuers in which the fund invests to conduct their businesses, and thus on
the investments made by the fund in such geographic areas and/or issuers.
Adverse weather conditions could have a significant adverse impact on issuers
in the agricultural sector and on insurance companies that insure against the
impact of natural disasters.
CYBERSECURITY ISSUES
With the increased use of technologies such as the Internet to conduct
business, the fund is susceptible to operational, information security and
related risks. In general, cyber incidents can result from deliberate attacks
or unintentional events. Cyber attacks include, but are not limited to,
attempts to gain unauthorized access to digital systems (e.g., through
"hacking" or malicious software coding) for purposes of misappropriating assets
or sensitive information, corrupting data, denying access, or causing other
operational disruption. Cyber attacks may also be carried out in a manner that
does not require gaining unauthorized access, such as causing denial-of-service
attacks on websites (i.e., efforts to make network services unavailable to
intended users). The fund's service providers regularly experience such
attempts, and expect they will continue to do so. The fund is unable to predict
how any such attempt, if successful, may affect the fund and its shareholders.
While the fund's adviser has established business continuity plans in the event
of, and risk management systems to prevent, limit or mitigate, such cyber
attacks, there are inherent limitations in such plans and systems including the
possibility that certain risks have not been identified. Furthermore, the fund
cannot control the cybersecurity plans and systems put in place by service
providers to the fund such as Brown Brothers Harriman, the fund's custodian and
accounting agent, and DST Asset Manager
20
Solutions, Inc., the fund's transfer agent. In addition, many beneficial owners
of fund shares hold them through accounts at broker-dealers, retirement
platforms and other financial market participants over which neither the fund
nor Amundi Pioneer exercises control. Each of these may in turn rely on service
providers to them, which are also subject to the risk of cyber attacks.
Cybersecurity failures or breaches at Amundi Pioneer or the fund's service
providers or intermediaries have the ability to cause disruptions and impact
business operations potentially resulting in financial losses, interference
with the fund's ability to calculate its NAV, impediments to trading, the
inability of fund shareholders to effect share purchases, redemptions or
exchanges or receive distributions, loss of or unauthorized access to private
shareholder information and violations of applicable privacy and other laws,
regulatory fines, penalties, reputational damage, or additional compliance
costs. Such costs and losses may not be covered under any insurance. In
addition, maintaining vigilance against cyber attacks may involve substantial
costs over time, and system enhancements may themselves be subject to cyber
attacks.
INVESTMENT COMPANY SECURITIES AND REAL ESTATE INVESTMENT TRUSTS
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
objectives and policies and permissible under the Investment Company Act of
1940, as amended (the "1940 Act") and the rules thereunder. Investing in other
investment companies subjects the fund to the risks of investing in the
underlying securities held by those investment companies. 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.
EXCHANGE TRADED FUNDS
The fund may invest in exchange traded funds ("ETFs"). ETFs, such as SPDRs,
iShares and various country index funds, are funds whose shares are traded on a
national exchange or the National Association of Securities Dealers' Automated
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
Standard & Poor's 500 Stock Index (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.
Many ETFs have received exemptive orders issued by the Securities and Exchange
Commission that would permit the fund to invest in those ETFs beyond the
limitations applicable to other investment companies, subject to certain terms
and conditions. Some ETFs are not structured as investment companies and thus
are not regulated under the 1940 Act.
Certain ETFs, including leveraged ETFs and inverse ETFs, may have embedded
leverage. Leveraged ETFs seek to multiply the return of the tracked index
(e.g., twice the return) by using various forms of derivative transactions.
Inverse ETFs seek to negatively correlate with the performance of a particular
index by using various forms of derivative transactions, including by
short-selling the underlying index. An investment in an inverse ETF will
decrease in value when the value of the underlying index rises. By investing in
leveraged ETFs or inverse ETFs, the fund can commit fewer assets to the
investment in the securities represented on the index than would otherwise be
required.
21
Leveraged ETFs and inverse ETFs present all of the risks that regular ETFs
present. In addition, leveraged ETFs and inverse ETFs determine their return
over a specific, pre-set time period, typically daily, and, as a result, there
is no guarantee that the ETF's actual long term returns will be equal to the
daily return that the fund seeks to achieve. For example, on a long-term basis
(e.g., a period of 6 months or a year), the return of a leveraged ETF may in
fact be considerably less than two times the long-term return of the tracked
index. Furthermore, because leveraged ETFs and inverse ETFs achieve their
results by using derivative instruments, they are subject to the risks
associated with derivative transactions, including the risk that the value of
the derivatives may rise or fall more rapidly than other investments, thereby
causing the ETF to lose money and, consequently, the value of the fund's
investment to decrease. Investing in derivative instruments also involves the
risk that other parties to the derivative contract may fail to meet their
obligations, which could cause losses to the ETF. Short sales in particular are
subject to the risk that, if the price of the security sold short increases,
the inverse ETF may have to cover its short position at a higher price than the
short sale price, resulting in a loss to the inverse ETF and, indirectly, to
the fund. An ETF's use of these techniques will make the fund's investment in
the ETF more volatile than if the fund were to invest directly in the
securities underlying the tracked index, or in an ETF that does not use
leverage or derivative instruments. However, by investing in a leveraged ETF or
an inverse ETF rather than directly purchasing and/or selling derivative
instruments, the fund will limit its potential loss solely to the amount
actually invested in the ETF (that is, the fund will not lose more than the
principal amount invested in the ETF).
REAL ESTATE INVESTMENT TRUSTS ("REITS")
The fund may invest in REITs. REITs are companies that invest primarily in
income producing real estate or real estate-related loans or interests. Risks
associated with investments in REITs and other equity securities of real estate
industry issuers may include:
o The U.S. or a local real estate market declines due to adverse economic
conditions, foreclosures, overbuilding and high vacancy rates, reduced or
regulated rents or other causes
o Interest rates go up. Rising interest rates can adversely affect the
availability and cost of financing for property acquisitions and other
purposes and reduce the value of a REIT's fixed income investments
o The values of properties owned by a REIT or the prospects of other real
estate industry issuers may be hurt by property tax increases, zoning
changes, other governmental actions, environmental liabilities, natural
disasters or increased operating expenses
o A REIT in the fund's portfolio is, or is perceived by the market to be,
poorly managed
o If the fund's real estate related investments are concentrated in one
geographic area or property type, the fund will be particularly subject to
the risks associated with that area or property type
REITs are generally classified as equity REITs, mortgage REITs or a combination
of equity and mortgage REITs (known as hybrid 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 similar real estate
interests and derive income primarily from the collection of interest payments.
REITs are not taxed on income distributed to shareholders provided they comply
with the applicable requirements of the Code. 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. Such indirect expenses
are not reflected in the fee table or expense example in the fund's prospectus.
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. Mortgage REITs are subject to the risks of default of the
mortgages or mortgage-related securities in which they invest, and REITs that
invest in
22
so-called "sub-prime" mortgages are particularly subject to this risk. 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 are typically invested in a limited number of
projects or in a particular market segment or geographic region. REITs whose
underlying assets are concentrated in properties in one geographic area or used
by a particular industry, such as health care, will be particularly subject to
risks associated with such area or industry.
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, may trade less frequently and in a
limited volume and may be subject to more abrupt or erratic price movements
than larger company securities. Historically REITs have been more volatile in
price than the larger capitalization stocks included in the S&P 500.
Many real estate companies, including REITs, utilize leverage (and some may be
highly leveraged), which increases investment risk and could adversely affect a
real estate company's operations and market value. Mortgage REITs tend to be
more leveraged than equity REITs. In addition, many mortgage REITs manage their
interest rate and credit risks through the use of derivatives and other hedging
techniques. In addition, capital to pay or refinance a REIT's debt may not be
available or reasonably priced. Financial covenants related to real estate
company leveraging may affect the company's ability to operate effectively.
DERIVATIVE INSTRUMENTS
DERIVATIVES
The fund may, but is not required to, use futures and options on securities,
indices and currencies, forward foreign currency exchange contracts and other
derivatives. A derivative is a security or instrument whose value is determined
by reference to the value or the change in value of one or more securities,
currencies, indices or other financial instruments. The fund may use
derivatives for a variety of purposes, including: in an attempt to hedge
against adverse changes in the market prices of securities, interest rates or
currency exchange rates; as a substitute for purchasing or selling securities;
to attempt to increase the fund's return as a non-hedging strategy that may be
considered speculative; to manage portfolio characteristics (for example, for
funds investing in securities denominated in non-U.S. currencies, a portfolio's
currency exposure, or, for funds investing in fixed income securities, a
portfolio's duration or credit quality); and as a cash flow management
technique. The fund may choose not to make use of derivatives for a variety of
reasons, and any use may be limited by applicable law and regulations.
Using derivatives exposes the fund to additional risks and may increase the
volatility of the fund's net asset value and may not provide the expected
result. Derivatives may have a leveraging effect on the portfolio. Leverage
generally magnifies the effect of a change in the value of an asset and creates
a risk of loss of value in a larger pool of assets than the fund would
otherwise have had. Therefore, using derivatives can disproportionately
increase losses and reduce opportunities for gain. If changes in a derivative's
value do not correspond to changes in the value of the fund's other investments
or do not correlate well with the underlying assets, rate or index, the fund
may not fully benefit from, or could lose money on, or could experience
unusually high expenses as a result of, the derivative position. Derivatives
involve the risk of loss if the counterparty defaults on its obligation.
Certain derivatives may be less liquid, which may reduce the returns of the
fund if it cannot sell or terminate the derivative at an advantageous time or
price. The fund also may have to sell assets at inopportune times to satisfy
its obligations. The fund may not be able
23
to purchase or sell a portfolio security at a time that would otherwise be
favorable for it to do so, or may have to sell a portfolio security at a
disadvantageous time or price to maintain cover or to segregate securities in
connection with its use of derivatives. Some derivatives may involve the risk
of improper valuation. Suitable derivatives may not be available in all
circumstances or at reasonable prices and may not be used by the fund for a
variety of reasons.
Financial reform laws enacted after the financial crisis of 2008-2009, such as
the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank"),
are changing many aspects of financial regulation applicable to derivatives.
For instance, Dodd-Frank calls for the comprehensive regulation of swaps by the
Commodity Futures Trading Commission (the "CFTC") and the Securities and
Exchange Commission (the "SEC"). The CFTC and the SEC are in the process of
adopting and implementing new regulations applicable to these instruments,
including rules with respect to recordkeeping, reporting, business conduct,
relationship documentation, margin, collateral, clearing, and trade execution
requirements. In addition, Dodd-Frank requires the registration of certain
parties that deal or engage in substantial trading, execution or advisory
activities in the markets for swaps. The extent and impact of these regulations
are not yet fully known and may not be known for some time.
The fund's use of derivatives may be affected by other applicable laws and
regulations and may be subject to review by the SEC, the CFTC, exchange and
market authorities and other regulators in the United States and abroad. The
fund's ability to use derivatives may be limited by tax considerations.
Certain derivatives transactions, including certain options, swaps, forward
contracts, and certain options on foreign currencies, are entered into directly
by the counterparties or through financial institutions acting as market makers
(OTC derivatives), rather than being traded on exchanges or in markets
registered with the CFTC or the SEC. Many of the protections afforded to
exchange participants will not be available to participants in OTC derivatives
transactions. For example, OTC derivatives transactions are not subject to the
guarantee of an exchange, and only OTC derivatives that are either required to
be cleared or submitted voluntarily for clearing to a clearinghouse will enjoy
all of the protections that central clearing provides against default by the
original counterparty to the trade. In an OTC derivatives transaction that is
not cleared, the fund bears the risk of default by its counterparty. In a
cleared derivatives transaction, the fund is instead exposed to the risk of
default of the clearinghouse and, to the extent the fund has posted any margin,
the risk of default of the broker through which it has entered into the
transaction. Information available on counterparty creditworthiness may be
incomplete or outdated, thus reducing the ability to anticipate counterparty
defaults.
Derivatives involve operational risk. There may be incomplete or erroneous
documentation or inadequate collateral or margin, or transactions may fail to
settle. For derivatives not guaranteed by an exchange or clearinghouse, the
fund may have only contractual remedies in the event of a counterparty default,
and there may be delays, costs, or disagreements as to the meaning of
contractual terms and litigation in enforcing those remedies.
Swap contracts that are required to be cleared must be traded on a regulated
execution facility or contract market that makes them available for trading.
The establishment of a centralized exchange or market for swap transactions may
disrupt or limit the swap market and may not result in swaps being easier to
trade or value. Market-traded swaps may become more standardized, and the fund
may not be able to enter into swaps that meet its investment needs. The fund
also may not be able to find a clearinghouse willing to accept the swaps for
clearing. The new regulations may make using swaps more costly, may limit their
availability, or may otherwise adversely affect their value or performance.
Risks associated with the use of derivatives are magnified to the extent that a
large portion of the fund's assets are committed to derivatives in general or
are invested in just one or a few types of derivatives.
24
OPTIONS ON SECURITIES AND SECURITIES INDICES
The fund may purchase and write 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 may 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. The exercise price may differ from the market price of an underlying
security. The fund has the risk of loss that the price of an underlying
security may decline during the call period. The risk may be offset to some
extent by the premium the fund receives. If the value of the investment does
not rise above the call price, it's likely that the call will lapse without
being exercised. In that case, the fund would keep the cash premium and the
investment. 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. The fund has no control over
when it may be required to purchase the underlying securities. 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.
Index options are subject to the timing risk inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level on the date when the option is exercised. If a fund
has purchased an index option and exercises it before the closing index value
for that day is available, it runs the risk that the level of the underlying
index may subsequently change. If such a change causes the exercised option to
fall "out-of-the-money," the fund will be required to pay cash in an amount of
the difference between the closing index value and the exercise price of the
option.
25
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 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."
OPTIONS SPREADS AND STRADDLES. Option spread and straddle transactions require
a fund to purchase and/or write more than one option simultaneously. A fund may
engage in option spread transactions in which it purchases and writes put or
call options on the same underlying instrument, with the options having
different exercise prices and/or expiration dates.
A fund also may engage in option straddles, in which it purchases or sells
combinations of put and call options on the same instrument. A long straddle is
a combination of a call and a put option purchased on the same security where
the exercise price of the put is less than or equal to the exercise price of
the call. A short straddle is a combination of a call and a put written on the
same security where the exercise price of the put is less than or equal to the
exercise price of the call and where the same issue of security or currency is
considered cover for both the put and the call.
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
26
exchange (or in that class or series of options) would cease to exist, although
it is expected that 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 Amundi 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 the ability of Amundi Pioneer 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, 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 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
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 enter into closing purchase and sale transactions with respect to any
futures contracts and options on futures contracts. 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 may invest in futures contracts based on the Chicago Board of Exchange
Volatility Index ("VIX Futures"). The VIX is an index of market sentiment
derived from the S&P 500 option prices, and is designed to reflect investors'
consensus view of expected stock market volatility over future periods. The
fund may invest in futures and options based on credit derivative contracts on
baskets or indices of securities, such as CDX. An interest rate futures
contract provides for the future sale by one party and the purchase by the
other party of a specified amount of a particular financial instrument (debt
security) at a specified price, date, time and place. The fund will engage in
futures and related options transactions for bona fide hedging and non-hedging
purposes as described below. Futures contracts are traded in the U.S. on
exchanges or boards of trade that are licensed and regulated by the CFTC.
27
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 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
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 Amundi Pioneer, there is a
sufficient degree of correlation between price trends for the fund's 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 portfolio may be more or less volatile than prices of such
futures contracts, Amundi 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 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 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.
28
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 REGARDING FUTURES CONTRACTS. 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. When futures
contracts and options are used for hedging purposes, perfect correlation
between the fund's futures positions and portfolio positions may be impossible
to achieve, particularly where futures contracts based on individual securities
are currently not available. 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.
If the fund were unable to liquidate a futures contract or an option on a
futures position due to the absence of a liquid secondary market, the
imposition of price limits or otherwise, it could incur substantial losses. The
fund would continue to be subject to market risk with respect to the position.
In addition, except in the case of purchased options, the fund would continue
to be required to make daily variation margin payments and might be required to
maintain the position being hedged by the future or option or to maintain cash
or securities in a segregated account.
INTEREST RATE SWAPS, COLLARS, CAPS AND FLOORS
In order to hedge the value of the portfolio against interest rate fluctuations
or to enhance the fund's income, the fund may, but is not required to, enter
into various interest rate transactions such as interest rate swaps and the
purchase or sale of interest rate caps and floors. To the extent that the fund
enters into these transactions, the fund expects to do so primarily to preserve
a return or spread on a particular investment or portion of its portfolio or to
protect against any increase in the price of securities the fund anticipates
purchasing at a later date. The fund intends to use these transactions
primarily as a hedge and not as a speculative investment. However, the fund
also may invest in interest rate swaps to enhance
29
income or to increase the fund's yield, for example, during periods of steep
interest rate yield curves (i.e., wide differences between short-term and
long-term interest rates). The fund is not required to hedge its portfolio and
may choose not to do so. The fund cannot guarantee that any hedging strategies
it uses will work.
In an interest rate swap, the fund exchanges with another party their
respective commitments to pay or receive interest (e.g., an exchange of fixed
rate payments for floating rate payments). For example, if the fund holds a
debt instrument with an interest rate that is reset only once each year, it may
swap the right to receive interest at this fixed rate for the right to receive
interest at a rate that is reset every week. This would enable the fund to
offset a decline in the value of the debt instrument due to rising interest
rates but would also limit its ability to benefit from falling interest rates.
Conversely, if the fund holds a debt instrument with an interest rate that is
reset every week and it would like to lock in what it believes to be a high
interest rate for one year, it may swap the right to receive interest at this
variable weekly rate for the right to receive interest at a rate that is fixed
for one year. Such a swap would protect the fund from a reduction in yield due
to falling interest rates and may permit the fund to enhance its income through
the positive differential between one week and one year interest rates, but
would preclude it from taking full advantage of rising interest rates.
The fund usually will enter into interest rate swaps on a net basis (i.e., the
two payment streams are netted out with the fund receiving or paying, as the
case may be, only the net amount of the two payments). The net amount of the
excess, if any, of the fund's obligations over its entitlements with respect to
each interest rate swap will be accrued on a daily basis, and an amount of cash
or liquid instruments having an aggregate net asset value at least equal to the
accrued excess will be maintained in a segregated account by the fund's
custodian. If the interest rate swap transaction is entered into on other than
a net basis, the full amount of the fund's obligations will be accrued on a
daily basis, and the full amount of the fund's obligations will be maintained
in a segregated account by the fund's custodian.
The fund also may engage in interest rate transactions in the form of
purchasing or selling interest rate caps or floors. The fund will not sell
interest rate caps or floors that it does not own. The purchase of an interest
rate cap entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest equal to the
difference of the index and the predetermined rate on a notional principal
amount (i.e., the reference amount with respect to which interest obligations
are determined although no actual exchange of principal occurs) from the party
selling such interest rate cap. The purchase of an interest rate floor entitles
the purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest at the difference of the index
and the predetermined rate on a notional principal amount from the party
selling such interest rate floor. The fund will not enter into caps or floors
if, on a net basis, the aggregate notional principal amount with respect to
such agreements exceeds the net assets of the fund.
Typically, the parties with which the fund will enter into interest rate
transactions will be broker-dealers and other financial institutions. The fund
will not enter into any interest rate swap, cap or floor transaction unless the
unsecured senior debt or the claims-paying ability of the other party thereto
is rated investment grade quality by at least one nationally recognized
statistical rating organization at the time of entering into such transaction
or whose creditworthiness is believed by the fund's adviser to be equivalent to
such rating. If there is a default by the other party to such a transaction,
the fund will have contractual remedies pursuant to the agreements related to
the transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals
and as agents utilizing standardized swap documentation. Caps and floors are
less liquid than swaps. Certain federal income tax requirements may limit the
fund's ability to engage in interest rate swaps.
30
TOTAL RETURN SWAPS, CAPS, FLOORS AND COLLARS
The fund may enter into total return swaps, caps, floors and collars to hedge
assets or liabilities or to seek to increase total return. Total return swaps
involve the exchange by a fund with another party of their respective
commitments to make or receive payments based on the change in market value of
a specified security, basket of securities or benchmark. The fund may invest in
swaps based on VIX futures contracts. The VIX is an index of market sentiment
derived from S&P 500 Index option prices, and is designed to reflect investors'
consensus view of expected stock market volatility over future periods. Total
return swaps may be used to obtain exposure to a security or market without
owning or taking physical custody of such security or market. The purchase of a
cap entitles the purchaser, to the extent that the market value of a specified
security or benchmark exceeds a predetermined level, to receive payments of a
contractually-based amount from the party selling the cap. The purchase of a
floor entitles the purchaser, to the extent that the market value of a
specified 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 total return swaps, caps, floors and collars may be considered
speculative because they involve significant risk of loss. If Amundi 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 securities.
CREDIT DEFAULT SWAP AGREEMENTS
The fund may enter into credit default swap agreements. The "buyer" in a credit
default contract is obligated to pay the "seller" a periodic stream of payments
over the term of the contract provided that no specified events of default, or
"credit events," on an underlying reference obligation have occurred. If such a
credit event occurs, the seller must pay the buyer the "par value" (full
notional value) of the reference obligation in exchange for the reference
obligation, or must make a cash settlement payment. The fund may be either the
buyer or seller in the transaction. If the fund is a buyer and no credit event
occurs, the fund will receive no return on the stream of payments made to the
seller. However, if a credit event occurs, the fund, as the buyer, receives the
full notional value for a reference obligation that may have little or no
value. As a seller, the fund receives a fixed rate of income throughout the
term of the contract, which typically is between six months and three years,
provided that there is no credit event. If a credit event occurs, the fund, as
the seller, must pay the buyer the full notional value of the reference
obligation. The fund, as the seller, would be entitled to receive the reference
obligation. Alternatively, the fund may be required to make a cash settlement
payment, where the reference obligation is received by the fund as seller. The
value of the reference obligation, coupled with the periodic payments
previously received, would likely be less than the full notional value the fund
pays to the buyer, resulting in a loss of value to the fund as seller. When the
fund acts as a seller of a credit default swap agreement it is exposed to the
risks of a leveraged transaction. Credit default swaps may involve greater
risks than if the fund had invested in the reference obligation directly. In
addition to general market risks, credit default swaps are subject to
illiquidity risk, counterparty risk and credit risk. The fund will enter into
swap agreements only with counterparties who are rated investment grade quality
by at least one nationally recognized statistical rating organization at the
time of entering into such transaction or whose creditworthiness is believed to
be equivalent to such rating.
Recent legislation will require most swaps to be executed through a centralized
exchange or regulated facility and be cleared through a regulated
clearinghouse. The swap market could be disrupted or limited as a result of
this legislation, which could adversely affect the fund. Moreover, the
establishment of a centralized exchange or market for swap transactions may not
result in swaps being easier to trade or value.
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The fund may also invest in credit derivative contracts on baskets or indices
of securities, such as CDX. A CDX can be used to hedge credit risk or to take a
position on a basket of credit entities or indices. The individual credits
underlying credit default swap indices may be rated investment grade or
non-investment grade. These instruments are designed to track representative
segments of the credit default swap market such as investment grade, below
investment grade and emerging markets. A CDX index tranche provides access to
customized risk, exposing each investor to losses at different levels of
subordination. The lowest part of the capital structure is called the "equity
tranche" as it has exposure to the first losses experienced in the basket. The
mezzanine and senior tranches are higher in the capital structure but can also
be exposed to loss in value. Investments are subject to liquidity risks as well
as other risks associated with investments in credit default swaps.
CREDIT-LINKED NOTES
The fund may invest in credit-linked notes ("CLNs"), which are derivative
instruments. A CLN is a synthetic obligation between two or more parties where
the payment of principal and/or interest is based on the performance of some
obligation (a reference obligation). In addition to credit risk of the
reference obligations and interest rate risk, the buyer/seller of the CLN is
subject to counterparty risk.
EXCHANGE TRADED NOTES
The fund may invest in exchange traded notes ("ETNs"). An ETN is a type of
senior, unsecured, unsubordinated debt security issued by financial
institutions that combines both aspects of bonds and ETFs. An ETN's returns are
based on the performance of a market index or other reference asset minus fees
and expenses. Similar to ETFs, ETNs are listed on an exchange and traded in the
secondary market. However, unlike an ETF, an ETN can be held until the ETN's
maturity, at which time the issuer will pay a return linked to the performance
of the market index or other reference asset to which the ETN is linked minus
certain fees. Unlike regular bonds, ETNs do not make periodic interest payments
and principal is not protected.
An ETN that is tied to a specific index may not be able to replicate and
maintain exactly the composition and relative weighting of securities,
commodities or other components in the applicable index. ETNs also incur
certain expenses not incurred by their applicable index. Additionally, certain
components comprising the index tracked by an ETN may, at times, be temporarily
unavailable, which may impede an ETN's ability to track its index. Some ETNs
that use leverage can, at times, be relatively illiquid and, thus, they may be
difficult to purchase or sell at a fair price. Leveraged ETNs are subject to
the same risk as other instruments that use leverage in any form. While
leverage allows for greater potential return, the potential for loss is also
greater. However, the fund's potential loss is limited to the amount actually
invested in the ETN.
The market value of an ETN is influenced by supply and demand for the ETN, the
current performance of the index or other reference asset, the credit rating of
the ETN issuer, volatility and lack of liquidity in the reference asset,
changes in the applicable interest rates, and economic, legal, political or
geographic events that affect the reference asset. The market value of ETN
shares may differ from their net asset value. This difference in price may be
due to the fact that the supply and demand in the market for ETN shares at any
point in time is not always identical to the supply and demand in the market
for the securities underlying the index (or other reference asset) that the ETN
seeks to track. The value of an ETN may also change due to a change in the
issuer's credit rating. As a result, there may be times when an ETN share
trades at a premium or discount to its net asset value. The fund will bear its
pro rata portion of any fees and expenses borne by the ETN. These fees and
expenses generally reduce the return realized at maturity or upon redemption
from an investment in an ETN.
COMMODITY-LINKED INVESTMENTS
The fund may seek to provide exposure to the investment returns of real assets
that trade in the commodity markets through investments in commodity-linked
investments, including commodities futures contracts, commodity-linked
derivatives, and commodity-linked notes. Real assets are assets such as oil,
gas, industrial and precious metals, livestock, and agricultural or meat
products, or other items that have tangible properties, as compared to stocks
or bonds, which are financial instruments. The value of commodity-linked
investments
32
held by the fund may be affected by a variety of factors, including, but not
limited to, overall market movements and other factors affecting the value of
particular industries or commodities, such as weather, disease, embargoes, acts
of war or terrorism, or political and regulatory developments.
The prices of commodity-linked investments may move in different directions
than investments in traditional equity and debt securities when the value of
those traditional securities is declining due to adverse economic conditions.
As an example, during periods of rising inflation, debt securities have
historically tended to decline in value due to the general increase in
prevailing interest rates. Conversely, during those same periods of rising
inflation, the prices of certain commodities, such as oil and metals, have
historically tended to increase. Of course, there cannot be any guarantee that
these investments will perform in that manner in the future, and at certain
times the price movements of commodity-linked investments have been parallel to
those of debt and equity securities. Commodities have historically tended to
increase and decrease in value during different parts of the business cycle
than financial assets. Nevertheless, at various times, commodities prices may
move in tandem with the prices of financial assets and thus may not provide
overall portfolio diversification benefits. Under favorable economic
conditions, the fund's commodity-linked investments may be expected to
underperform an investment in traditional securities.
Because commodity-linked derivatives are available from a relatively small
number of issuers, the fund's investments in commodity-linked derivatives are
particularly subject to counterparty risk, which is the risk that the issuer of
the commodity-linked derivative (which issuer may serve as counterparty to a
substantial number of the fund's commodity-linked and other derivative
investments) will not fulfill its contractual obligations.
The fund may gain exposure to commodities by investing in ETFs. ETFs that
invest in commodities may be, or may become subject to CFTC trading regulations
that limit the amount of commodity contracts an ETF may hold. Such regulations
would hurt the value of such ETF's securities. Additionally, some commodity
ETFs invest in commodity futures, which can lose money even when commodity
prices are rising.
FOREIGN CURRENCY SWAPS
Foreign currency swaps involve the exchange by the lenders, including the Fund,
with another party (the "counterparty") of the right to receive the currency in
which the loans are denominated for the right to receive U.S. dollars. The fund
will enter into a foreign currency swap only if the outstanding debt
obligations of the counterparty are rated investment grade quality by at least
one nationally recognized statistical rating organization at the time of
entering into such transaction or whose creditworthiness is believed by the
fund's adviser to be equivalent to such rating. The amounts of U.S. dollar
payments to be received by the fund and the foreign currency payments to be
received by the counterparty are fixed at the time the swap arrangement is
entered into. Accordingly, the swap protects the fund from the fluctuations in
exchange rates and locks in the right to receive payments under the loan in a
predetermined amount of U.S. dollars. If there is a default by the
counterparty, the fund will have contractual remedies pursuant to the swap
agreement; however, the U.S. dollar value of the fund's right to receive
foreign currency payments under the obligation will be subject to fluctuations
in the applicable exchange rate to the extent that a replacement swap
arrangement is unavailable or the fund is unable to recover damages from the
defaulting counterparty.
CROSS CURRENCY INTEREST RATE SWAP AGREEMENTS
Cross currency interest rate swap agreements combine features of currency swap
agreements and interest rate swap agreements. The cross currency interest rate
swaps in which the fund may enter generally will involve both the exchange of
currency and the payment of interest streams with reference to one currency
based on a specified index in exchange for receiving interest streams with
reference to the other currency. Such swaps may involve initial and final
exchanges that correspond to the agreed upon transaction amount. For example,
the payment stream on a specified amount of euro based on a European market
floating rate might be exchanged for a U.S. oriented floating rate on the same
principal amount converted into U.S. dollars.
33
FINANCIAL FUTURES AND OPTIONS TRANSACTIONS
Amundi Pioneer has claimed an exclusion from registration as a "commodity pool
operator" with respect to the fund under the Commodity Exchange Act (the
"CEA"), and, therefore, Amundi Pioneer will not, with respect to its management
of the fund, be subject to registration or regulation as a commodity pool
operator.
Under this exemption, the fund will remain limited in its ability to trade
instruments subject to the jurisdiction of the CFTC, including commodity
futures (which include futures on broad-based securities indexes and interest
rate futures), options on commodity futures and swaps. This limitation also
applies with respect to any indirect exposure that the fund may have to these
instruments through investments in other funds. Amundi Pioneer may have to rely
on representations from the underlying fund's manager about the amount (or
maximum permitted amount) of investment exposure that the underlying fund has
to instruments such as commodity futures, options on commodity futures and
swaps.
Under this exemption, the fund must satisfy one of the following two trading
limitations at all times: (1) the aggregate initial margin and premiums
required to establish the fund's positions in commodity futures, options on
commodity futures, swaps and other CFTC-regulated instruments may not exceed 5%
of the liquidation value of the fund's portfolio (after accounting for
unrealized profits and unrealized losses on any such investments); or (2) the
aggregate net notional value of such instruments, determined at the time the
most recent position was established, may not exceed 100% of the liquidation
value of the fund's portfolio (after accounting for unrealized profits and
unrealized losses on any such positions). The fund would not be required to
consider its exposure to such instruments if they were held for "bona fide
hedging" purposes, as such term is defined in the rules of the CFTC. In
addition to meeting one of the foregoing trading limitations, the fund may not
market itself as a commodity pool or otherwise as a vehicle for trading in the
markets for CFTC-regulated instruments.
OTHER INVESTMENTS AND INVESTMENT TECHNIQUES
SHORT-TERM 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; (d) fixed income securities of non-governmental issuers;
and (e) other cash equivalents or cash. Subject to the fund's restrictions
regarding investment in non-U.S. securities, these securities may be
denominated in any currency. Although these investments generally are rated
investment grade or are determined by Amundi Pioneer to be of equivalent credit
quality, the fund may also invest in these instruments if they are rated below
investment grade in accordance with its investment objectives, policies and
restrictions.
ILLIQUID SECURITIES
The fund may invest up to 15% of its net assets in illiquid and other
securities that are not readily marketable. If due to subsequent fluctuations
in value or any other reasons, the value of the fund's illiquid securities
exceeds this percentage limitation, the fund will consider what actions, if
any, are necessary to maintain adequate liquidity. 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
Amundi Pioneer. Amundi 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, Amundi 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
34
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.
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. A repurchase
agreement may be considered a loan by the fund collateralized by securities.
Under the direction of the Board of Trustees, Amundi 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. 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.
There is no specific limit on the fund's ability to enter into repurchase
agreements. The SEC frequently treats repurchase agreements as loans for
purposes of the 1940 Act.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements involve the sale of securities to a bank or other
institution with an agreement that the fund will buy back the securities at a
fixed future date at a fixed price plus an agreed amount of "interest" which
may be reflected in the repurchase price. Reverse repurchase agreements involve
the risk that the market value of securities purchased by the fund with
proceeds of the transaction may decline below the repurchase price of the
securities sold by the fund that it is obligated to repurchase. The fund will
also continue to be subject to the risk of a decline in the market value of the
securities sold under the agreements because it will reacquire those securities
upon effecting their repurchase. Reverse repurchase agreements may be
considered to be a type of borrowing. The 1940 Act permits a fund to borrow
money in amounts of up to one-third of the fund's total assets from banks for
any purpose and up to 5% of the fund's total assets from banks and other
lenders for temporary purposes. The fund will segregate assets in an amount at
least equal to the repurchase price of the securities.
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 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. The fund
may engage in short sales of securities only against the box.
35
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 the tax consequences of
effecting short sales may limit the extent to which the fund may make short
sales against the box.
DOLLAR ROLLS
The fund may enter into mortgage "dollar rolls" in which the fund sells
securities for delivery in the current month and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon and maturity),
but not identical securities on a specified future date. During the roll
period, the fund loses the right to receive principal and interest paid on the
securities sold. However, the fund would benefit to the extent of any
difference between the price received for the securities sold and the lower
forward price for the future purchase (often referred to as the "drop") or fee
income plus the interest earned on the cash proceeds of the securities sold
until the settlement date of the forward purchase. Unless such benefits exceed
the income, capital appreciation and gain or loss due to mortgage prepayments
that would have been realized on the securities sold as part of the mortgage
dollar roll, the use of this technique will diminish the investment performance
of the fund compared with what such performance would have been without the use
of mortgage dollar rolls. All cash proceeds will be invested in instruments
that are permissible investments for the fund. The fund will hold and maintain
in a segregated account until the settlement date cash or liquid securities in
an amount equal to its forward purchase price.
For financial reporting and tax purposes, the fund treats mortgage dollar rolls
as two separate transactions; one involving the purchase of a security and a
separate transaction involving a sale.
Dollar rolls involve certain risks including the following: if the
broker-dealer to whom the fund sells the security becomes insolvent, the fund's
right to purchase or repurchase the securities subject to the dollar roll may
be restricted and the instrument which the fund is required to repurchase may
be worth less than an instrument which the fund originally held. Successful use
of dollar rolls will depend upon Amundi Pioneer's ability to manage its
interest rate and prepayment exposure. There is no assurance that dollar rolls
can be successfully employed.
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 portfolio. If
the fund enters into a transaction requiring segregation, such as a forward
commitment or a reverse repurchase agreement, the custodian or Amundi Pioneer
will segregate liquid assets in an amount required to comply with the 1940 Act.
To the extent the fund sells or writes credit default swaps, the fund
segregates liquid assets at least equal to the full notional value of such
credit default swaps. 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. In some instances a fund may "cover" its obligation using other
methods to the extent permitted under the 1940 Act, orders or releases issued
by the SEC thereunder, or no-action letters or other guidance of the SEC staff.
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. A high rate of portfolio
turnover (100% or more) involves correspondingly greater transaction costs
which must be borne by the fund and its shareholders. See "Annual Fee, Expense
and Other Information" for the fund's annual portfolio turnover rate.
36
LENDING OF PORTFOLIO SECURITIES
The fund may lend portfolio securities to registered broker-dealers or other
institutional investors deemed by Amundi Pioneer to be of good standing under
agreements which require that the loans be secured continuously by collateral
in the form of cash, cash equivalents, U.S. Government securities or
irrevocable letters of credit issued by banks approved by the fund. The value
of the collateral is monitored on a daily basis and the borrower is required to
maintain the collateral 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 and continues to have
all of the other risks associated with owning the securities. Where the
collateral received is cash, the cash will be invested and the fund will be
entitled to a share of the income earned on the investment, but will also be
subject to investment risk on the collateral and will bear the entire amount of
any loss in connection with investment of such collateral. The fund may pay
administrative and custodial fees in connection with loans of securities and,
where the collateral received is cash, the fund may pay a portion of the income
earned on the investment of collateral to the borrower, lending agent or other
intermediary. Fees and expenses paid by the fund in connection with loans of
securities are not reflected in the fee table or expense example in the fund's
prospectus. If the income earned on the investment of the cash collateral is
insufficient to pay these amounts or if the value of the securities purchased
with such cash collateral declines, the fund may take a loss on the loan. Where
the fund receives securities as collateral, the fund will earn no income on the
collateral, but will earn a fee from the borrower. The fund reserves the right
to recall loaned securities so that it may exercise voting rights on loaned
securities according to the fund's Proxy Voting Policies and Procedures.
The risk in lending portfolio securities, as with other extensions of credit,
consists of the possibility of loss to the fund due to (i) the inability of the
borrower to return the securities, (ii) a delay in receiving additional
collateral to adequately cover any fluctuations in the value of securities on
loan, (iii) a delay in recovery of the securities, or (iv) the loss of rights
in the collateral should the borrower fail financially. In addition, as noted
above, the fund continues to have market risk and other risks associated with
owning the securities on loan. Where the collateral delivered by the borrower
is cash, the fund will also have the risk of loss of principal and interest in
connection with its investment of collateral. If a borrower defaults, the value
of the collateral may decline before the fund can dispose of it. The fund will
lend portfolio securities only to firms that have been approved in advance by
Amundi Pioneer, which will monitor the creditworthiness of any such firms.
However, this monitoring may not protect the fund from loss. At no time would
the value of the securities loaned exceed 33 1/3% of the value of the fund's
total assets.
INTERFUND LENDING
To satisfy redemption requests or to cover unanticipated cash shortfalls, a
fund may enter into lending agreements ("Interfund Lending Agreements") under
which the fund would lend money and borrow money for temporary purposes
directly to and from another Pioneer fund through a credit facility ("Interfund
Loan"), subject to meeting the conditions of an SEC exemptive order granted to
the funds permitting such interfund lending. All Interfund Loans will consist
only of uninvested cash reserves that the fund otherwise would invest in
short-term repurchase agreements or other short-term instruments.
If a fund has outstanding borrowings, any Interfund Loans to the fund (a) will
be at an interest rate equal to or lower than any outstanding bank loan, (b)
will be secured at least on an equal priority basis with at least an equivalent
percentage of collateral to loan value as any outstanding bank loan that
requires collateral, (c) will have a maturity no longer than any outstanding
bank loan (and in any event not over seven days) and (d) will provide that, if
an event of default occurs under any agreement evidencing an outstanding bank
loan to the fund, the event of default will automatically (without need for
action or notice by the lending fund) constitute an immediate event of default
under the Interfund Lending Agreement entitling the lending fund to call the
Interfund Loan (and exercise all rights with respect to any collateral) and
that such call will be made if the lending bank exercises its right to call its
loan under its agreement with the borrowing fund.
37
A fund may make an unsecured borrowing through the credit facility if its
outstanding borrowings from all sources immediately after the interfund
borrowing total 10% or less of its total assets; provided, that if the fund has
a secured loan outstanding from any other lender, including but not limited to
another Pioneer fund, the fund's interfund borrowing will be secured on at
least an equal priority basis with at least an equivalent percentage of
collateral to loan value as any outstanding loan that requires collateral. If a
fund's total outstanding borrowings immediately after an interfund borrowing
would be greater than 10% of its total assets, the fund may borrow through the
credit facility on a secured basis only. A fund may not borrow through the
credit facility nor from any other source if its total outstanding borrowings
immediately after the interfund borrowing would be more than 33 1/3% of its
total assets.
No fund may lend to another fund through the interfund lending credit facility
if the loan would cause its aggregate outstanding loans through the credit
facility to exceed 15% of the lending fund's net assets at the time of the
loan. A fund's Interfund Loans to any one fund shall not exceed 5% of the
lending fund's net assets. The duration of Interfund Loans is limited to the
time required to receive payment for securities sold, but in no event more than
seven days. Loans effected within seven days of each other will be treated as
separate loan transactions for purposes of this condition. Each Interfund Loan
may be called on one business day's notice by a lending fund and may be repaid
on any day by a borrowing fund.
The limitations detailed above and the other conditions of the SEC exemptive
order permitting interfund lending are designed to minimize the risks
associated with interfund lending for both the lending fund and the borrowing
fund. However, no borrowing or lending activity is without risk. When a fund
borrows money from another fund, there is a risk that the loan could be called
on one day's notice or not renewed, in which case the fund may have to borrow
from a bank at higher rates if an Interfund Loan were not available from
another fund. A delay in repayment to a lending fund could result in a lost
opportunity or additional lending costs.
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. When the fund enters into when-issued or delayed delivery
transactions it will segregate liquid assets with a value equal to the fund's
obligations. See "Asset Segregation."
DISCLOSURE OF PORTFOLIO HOLDINGS
The Board of Trustees has adopted policies and procedures relating to
disclosure of the Pioneer funds' portfolio securities. These policies and
procedures are designed to provide a framework for disclosing information
regarding portfolio holdings, portfolio composition or other portfolio
characteristics consistent with applicable federal securities laws and
regulations and general principles of fiduciary duty relating to fund
shareholders. While Amundi Pioneer may manage other separate accounts and
unregistered products that have substantially similar investment strategies to
those of another Pioneer fund, and therefore portfolio holdings that may be
substantially similar, and in some cases nearly identical, to such fund, these
policies and procedures only relate to the disclosure of portfolio information
of the Pioneer funds that are registered management companies. Separate account
and unregistered product clients are not subject to these policies and
procedures. Separate account and unregistered product clients of Amundi Pioneer
have access to their portfolio holdings, and prospective clients have access to
representative holdings.
Generally, Amundi Pioneer will make a fund's full portfolio information
available to the public on a monthly basis with an appropriate delay based upon
the nature of the information disclosed. Amundi Pioneer normally will publish a
fund's full portfolio holdings thirty (30) days after the end of each month
(this time period may be different for certain funds. Such information shall be
made available on the funds' website
38
(us.amundipioneer.com) and may be sent to rating agencies, reporting/news
services and financial intermediaries, upon request. In addition, Amundi
Pioneer generally makes publicly available information regarding a fund's top
ten holdings (including the percentage of a fund's assets represented by each
security), the percentage breakdown of a fund's investments by country, sector
and industry, various volatility measures (such as beta, standard deviation,
etc.), market capitalization ranges and other portfolio characteristics (such
as alpha, average P/E ratio, etc.) three (3) business days after the end of
each month.
Amundi Pioneer may provide a fund's full portfolio holdings or other
information to certain entities prior to the date such information is made
public, provided that certain conditions are met. The entities to which such
disclosure may be made as of the date of this statement of additional
information are rating agencies, plan sponsors, prospective separate account
clients and other financial intermediaries (i.e., organizations evaluating a
fund for purposes of investment by their clients, such as broker-dealers,
investment advisers, banks, insurance companies, financial planning firms, plan
sponsors, plan administrators, shareholder servicing organizations and pension
consultants). The third party must agree to a limited use of that information
which does not conflict with the interests of the fund's shareholders, to use
the information only for that authorized purpose, to keep such information
confidential, and not to trade on such information. The Board of Trustees
considered the disclosure of portfolio holdings information to these categories
of entities to be consistent with the best interests of shareholders in light
of the agreement to maintain the confidentiality of such information and only
to use such information for the limited and approved purposes. Amundi Pioneer's
compliance department, the local head of investment management and the global
chief investment officer may, but only acting jointly, grant exemptions to this
policy. Exemptions may be granted only if these persons determine that
providing such information is consistent with the interests of shareholders and
the third party agrees to limit the use of such information only for the
authorized purpose, to keep such information confidential, and not to trade on
such information. Although the Board of Trustees will periodically be informed
of exemptions granted, granting exemptions entails the risk that portfolio
holdings information may be provided to entities that use the information in a
manner inconsistent with their obligations and the best interests of a fund.
Currently, Amundi Pioneer, on behalf of the Pioneer funds, has ongoing
arrangements whereby the following entities may receive a fund's full portfolio
holdings or other information prior to the date such information is made
public: Metropolitan Life Insurance Company (within 30 days after month end for
board materials and advance preparation of marketing materials, as needed to
evaluate Pioneer funds); Roszel Advisors (within 30 days after month end for
due diligence and review of certain Pioneer funds included in fund programs);
Oppenheimer & Co. (within 30 days after month end for due diligence and review
of certain Pioneer funds included in fund programs); UBS (within 15 days after
month end for due diligence and review of certain Pioneer funds included in
fund programs); Beacon Pointe Advisors (as needed for quarterly review of
certain Pioneer funds); Commonwealth Financial Network (within 30 days after
month end for risk analysis on funds on behalf of their clients); Hartford
Retirement Services, LLC (as needed for risk analysis on funds on behalf of
their clients); Transamerica Life Insurance Company (as needed for performance
and risk analysis on funds on behalf of their clients); TIBCO Software
Inc./Spotfire Division (as needed to evaluate and develop portfolio reporting
software); Curcio Webb, LLC (as needed for evaluation and research purposes);
Fidelity Investments (as needed to evaluate Pioneer funds); Egan Jones Ratings
Company (as needed in order to evaluate and select Nationally Recognized
Statistical Rating Organizations (NRSROs)); DBRS Limited (as needed in order to
evaluate and select NRSROs); Wells Fargo Advisors (as needed for risk analysis
on funds on behalf of their clients and product review); and Capital Market
Consultants (as needed to complete quarterly due diligence research).
Compliance with the funds' portfolio holdings disclosure policy is subject to
periodic review by the Board of Trustees, including a review of any potential
conflicts of interest in the disclosures made by Amundi Pioneer in accordance
with the policy or the exceptions permitted under the policy. Any change to the
policy
39
to expand the categories of entities to which portfolio holdings may be
disclosed or an increase in the purposes for which such disclosure may be made
would be subject to approval by the Board of Trustees and, reflected, if
material, in a supplement to the fund's statement of additional information.
The funds' full portfolio holdings disclosure policy is not intended to prevent
the disclosure of any and all portfolio information to the funds' service
providers who generally need access to such information in the performance of
their contractual duties and responsibilities, such as Amundi Pioneer, the
funds' custodian, fund accounting agent, principal underwriter, investment
sub-adviser, if any, independent registered public accounting firm or counsel.
In approving the policy, the Board of Trustees considered that the service
providers are subject to duties of confidentiality and duties not to trade on
non-public information arising under law or contract that provide an adequate
safeguard for such information. None of Amundi Pioneer, the funds, or any other
party receive any compensation or other consideration from any arrangement
pertaining to the release of a fund's full portfolio holdings information.
In addition, the funds make their portfolio holdings available semi-annually in
shareholder reports filed on Form N-CSR and after the first and third fiscal
quarters in regulatory filings on Form N-Q. These shareholder reports and
regulatory filings are filed with the SEC, as required by the federal
securities laws. Form N-Q is filed with the SEC within sixty (60) days after
the end of a fund's first and third fiscal quarters. Form N-CSR is filed with
the SEC within ten (10) days after the transmission to shareholders of a fund's
annual or semi-annual report, as applicable.
INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT POLICIES
The fund has adopted certain fundamental investment policies 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. For this purpose, a majority of the
outstanding shares of the fund means the vote of the lesser of:
(1) 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
(2) more than 50% of the outstanding shares of the fund.
The fund's fundamental policies are as follows:
(1) The fund may not borrow money except as permitted by (i) the 1940 Act, or
interpretations or modifications by the SEC, SEC staff or other authority
of competent jurisdiction, or (ii) exemptive or other relief or
permission from the SEC, SEC staff or other authority of competent
jurisdiction.
(2) The fund may not engage in the business of underwriting the securities of
other issuers except as permitted by (i) the 1940 Act, or interpretations
or modifications by the SEC, SEC staff or other authority of competent
jurisdiction, or (ii) exemptive or other relief or permission from the
SEC, SEC staff or other authority of competent jurisdiction.
(3) The fund may lend money or other assets to the extent permitted by (i)
the 1940 Act, or interpretations or modifications by the SEC, SEC staff
or other authority of competent jurisdiction or (ii) exemptive or other
relief or permission from the SEC, SEC staff or other authority of
competent jurisdiction.
(4) The fund may not issue senior securities except as permitted by (i) the
1940 Act, or interpretations or modifications by the SEC, SEC staff or
other authority of competent jurisdiction, or (ii) exemptive or other
relief or permission from the SEC, SEC staff or other authority of
competent jurisdiction.
(5) The fund may not purchase or sell real estate except as permitted by (i)
the 1940 Act, or interpretations or modifications by the SEC, SEC staff
or other authority of competent jurisdiction, or (ii) exemptive or other
relief or permission from the SEC, SEC staff or other authority of
competent jurisdiction.
40
(6) The fund may purchase or sell commodities or contracts related to
commodities to the extent permitted by (i) the 1940 Act, or
interpretations or modifications by the SEC, SEC staff or other authority
of competent jurisdiction, or (ii) exemptive or other relief or
permission from the SEC, SEC staff or other authority of competent
jurisdiction.
(7) Except as permitted by exemptive or other relief or permission from the
SEC, SEC staff or other authority of competent jurisdiction, the fund may
not make any investment if, as a result, the fund's investments will be
concentrated in any one industry.
With respect to the fundamental policy relating to borrowing money set forth in
(1) above, the 1940 Act permits a fund to borrow money in amounts of up to
one-third of the fund's total assets from banks for any purpose, and to borrow
up to 5% of the fund's total assets from banks or other lenders for temporary
purposes (the fund's total assets include the amounts being borrowed). To limit
the risks attendant to borrowing, the 1940 Act requires the fund to maintain at
all times an "asset coverage" of at least 300% of the amount of its borrowings.
Asset coverage means the ratio that the value of the fund's total assets
(including amounts borrowed), minus liabilities other than borrowings, bears to
the aggregate amount of all borrowings. Borrowing money to increase a fund's
investment portfolio is known as "leveraging." Borrowing, especially when used
for leverage, may cause the value of a fund's shares to be more volatile than
if the fund did not borrow. This is because borrowing tends to magnify the
effect of any increase or decrease in the value of the fund's portfolio
holdings. Borrowed money thus creates an opportunity for greater gains, but
also greater losses. To repay borrowings, the fund may have to sell securities
at a time and at a price that is unfavorable to the fund. There also are costs
associated with borrowing money, and these costs would offset and could
eliminate a fund's net investment income in any given period. Currently, the
fund does not contemplate borrowing for leverage, but if the fund does so, it
will not likely do so to a substantial degree. The policy in (1) above will be
interpreted to permit the fund to engage in trading practices and investments
that may be considered to be borrowing to the extent permitted by the 1940 Act.
Reverse repurchase agreements may be considered to be a type of borrowing.
Short-term credits necessary for the settlement of securities transactions and
arrangements with respect to securities lending will not be considered to be
borrowings under the policy. Practices and investments that may involve
leverage but are not considered to be borrowings are not subject to the policy.
Such trading practices may include futures, options on futures, forward
contracts and other derivative investments.
A fund may pledge its assets and guarantee the securities of another company
without limitation, subject to the fund's investment policies (including the
fund's fundamental policy regarding borrowing) and applicable laws and
interpretations. Pledges of assets and guarantees of obligations of others are
subject to many of the same risks associated with borrowings and, in addition,
are subject to the credit risk of the obligor for the underlying obligations.
To the extent that pledging or guaranteeing assets may be considered the
issuance of senior securities, the issuance of senior securities is governed by
the fund's policies on senior securities. If the fund were to pledge its
assets, the fund would take into account any then-applicable legal guidance,
including any applicable SEC staff position, would be guided by the judgment of
the fund's Board and Amundi Pioneer regarding the terms of any credit facility
or arrangement, including any collateral required, and would not pledge more
collateral than, in their judgment, is necessary for the fund to obtain the
credit sought. Shareholders should note that in 1973, the SEC staff took the
position in a no-action letter that a mutual fund could not pledge 100% of its
assets without a compelling business reason. In more recent no-action letters,
including letters that address the same statutory provision of the 1940 Act
(Section 17) addressed in the 1973 letter, the SEC staff has not mentioned any
limitation on the amount of collateral that may be pledged to support credit
obtained. This does not mean that the staff's position on this issue has
changed.
With respect to the fundamental policy relating to underwriting set forth in
(2) above, the 1940 Act does not prohibit a fund from engaging in the
underwriting business or from underwriting the securities of other issuers; in
fact, the 1940 Act permits a fund to have underwriting commitments of up to 25%
of its assets under certain circumstances. Those circumstances currently are
that the amount of the fund's underwriting
41
commitments, when added to the value of the fund's investments in issuers where
the fund owns more than 10% of the outstanding voting securities of those
issuers, cannot exceed the 25% cap. A fund engaging in transactions involving
the acquisition or disposition of portfolio securities may be considered to be
an underwriter under the Securities Act of 1933, as amended (the "1933 Act").
Under the 1933 Act, an underwriter may be liable for material omissions or
misstatements in an issuer's registration statement or prospectus. Securities
purchased from an issuer and not registered for sale under the 1933 Act are
considered restricted securities. There may be a limited market for these
securities. If these securities are registered under the 1933 Act, they may
then be eligible for sale but participating in the sale may subject the seller
to underwriter liability. These risks could apply to a fund investing in
restricted securities. Although it is not believed that the application of the
1933 Act provisions described above would cause a fund to be engaged in the
business of underwriting, the policy in (2) above will be interpreted not to
prevent the fund from engaging in transactions involving the acquisition or
disposition of portfolio securities, regardless of whether the fund may be
considered to be an underwriter under the 1933 Act.
With respect to the fundamental policy relating to lending set forth in (3)
above, the 1940 Act does not prohibit a fund from making loans; however, SEC
staff interpretations currently prohibit funds from lending more than one-third
of their total assets, except through the purchase of debt obligations or the
use of repurchase agreements. (A repurchase agreement is an agreement to
purchase a security, coupled with an agreement to sell that security back to
the original seller on an agreed-upon date at a price that reflects current
interest rates. The SEC frequently treats repurchase agreements as loans.)
While lending securities may be a source of income to a fund, as with other
extensions of credit, there are risks of delay in recovery or even loss of
rights in the underlying securities should the borrower fail financially.
However, loans would be made only when the fund's manager or a subadviser
believes the income justifies the attendant risks. The fund also will be
permitted by this policy to make loans of money, including to other funds. The
fund has obtained exemptive relief from the SEC to make short-term loans to
other Pioneer funds through a credit facility in order to satisfy redemption
requests or to cover unanticipated cash shortfalls; as discussed in this
Statement of Additional Information under "Interfund Lending." The conditions
of the SEC exemptive order permitting interfund lending are designed to
minimize the risks associated with interfund lending, however no lending
activity is without risk. A delay in repayment to a lending fund could result
in a lost opportunity or additional lending costs. The policy in (3) above will
be interpreted not to prevent the fund from purchasing or investing in debt
obligations and loans. In addition, collateral arrangements with respect to
options, forward currency and futures transactions and other derivative
instruments, as well as delays in the settlement of securities transactions,
will not be considered loans.
With respect to the fundamental policy relating to issuing senior securities
set forth in (4) above, "senior securities" are defined as fund obligations
that have a priority over the fund's shares with respect to the payment of
dividends or the distribution of fund assets. The 1940 Act prohibits a fund
from issuing senior securities except that the fund may borrow money in amounts
of up to one-third of the fund's total assets from banks for any purpose. A
fund also may borrow up to 5% of the fund's total assets from banks or other
lenders for temporary purposes, and these borrowings are not considered senior
securities. The issuance of senior securities by a fund can increase the
speculative character of the fund's outstanding shares through leveraging.
Leveraging of a fund's portfolio through the issuance of senior securities
magnifies the potential for gain or loss on monies, because even though the
fund's net assets remain the same, the total risk to investors is increased.
Certain widely used investment practices that involve a commitment by a fund to
deliver money or securities in the future are not considered by the SEC to be
senior securities, provided that a fund segregates cash or liquid securities in
an amount necessary to pay the obligation or the fund holds an offsetting
commitment from another party. These investment practices include repurchase
and reverse repurchase agreements, swaps, dollar rolls, options, futures and
forward contracts. The policy in (4) above will be interpreted not to prevent
collateral arrangements with respect to swaps, options, forward or futures
contracts or other derivatives, or the posting of initial or variation margin.
42
With respect to the fundamental policy relating to real estate set forth in (5)
above, the 1940 Act does not prohibit a fund from owning real estate; however,
a fund is limited in the amount of illiquid assets it may purchase. Investing
in real estate may involve risks, including that real estate is generally
considered illiquid and may be difficult to value and sell. Owners of real
estate may be subject to various liabilities, including environmental
liabilities. To the extent that investments in real estate are considered
illiquid, the current SEC staff position generally limits a fund's purchases of
illiquid securities to 15% of net assets. The policy in (5) above will be
interpreted not to prevent the fund from investing in real estate-related
companies, companies whose businesses consist in whole or in part of investing
in real estate, instruments (like mortgages) that are secured by real estate or
interests therein, or real estate investment trust securities.
With respect to the fundamental policy relating to commodities set forth in (6)
above, the 1940 Act does not prohibit a fund from owning commodities, whether
physical commodities and contracts related to physical commodities (such as oil
or grains and related futures contracts), or financial commodities and
contracts related to financial commodities (such as currencies and, possibly,
currency futures). However, a fund is limited in the amount of illiquid assets
it may purchase. To the extent that investments in commodities are considered
illiquid, the current SEC staff position generally limits a fund's purchases of
illiquid securities to 15% of net assets. If a fund were to invest in a
physical commodity or a physical commodity-related instrument, the fund would
be subject to the additional risks of the particular physical commodity and its
related market. The value of commodities and commodity-related instruments may
be extremely volatile and may be affected either directly or indirectly by a
variety of factors. There also may be storage charges and risks of loss
associated with physical commodities. The policy in (6) above will be
interpreted to permit investments in exchange traded funds that invest in
physical and/or financial commodities.
With respect to the fundamental policy relating to concentration set forth in
(7) above, the 1940 Act does not define what constitutes "concentration" in an
industry. The SEC staff has taken the position that investment of 25% or more
of a fund's total assets in one or more issuers conducting their principal
activities in the same industry or group of industries constitutes
concentration. It is possible that interpretations of concentration could
change in the future. A fund that invests a significant percentage of its total
assets in a single industry may be particularly susceptible to adverse events
affecting that industry and may be more risky than a fund that does not
concentrate in an industry. The policy in (7) above will be interpreted to
refer to concentration as that term may be interpreted from time to time. The
policy also will be interpreted to permit investment without limit in the
following: securities of the U.S. government and its agencies or
instrumentalities; and repurchase agreements collateralized by any such
obligations. Accordingly, issuers of the foregoing securities will not be
considered to be members of any industry. The policy also will be interpreted
to give broad authority to the fund as to how to classify issuers within or
among industries. When identifying industries for purposes of its concentration
policy, the fund may rely upon available industry classifications. As of the
date of the SAI, the fund relies primarily on the Bloomberg L.P. ("Bloomberg")
classifications, and, with respect to securities for which no industry
classification under Bloomberg is available or for which the Bloomberg
classification is determined not to be appropriate, the fund may use industry
classifications published by another source, which, as of the date of the SAI,
is MSCI Global Industry Classification Standard. As of the date of the SAI, the
fund's adviser may assign an industry classification for an exchange-traded
fund in which the fund invests based on the constituents of the index on which
the exchange-traded fund is based. The fund may change any source used for
determining industry classifications without shareholder approval.
The fund's fundamental policies are written and will be interpreted broadly.
For example, the policies will be interpreted to refer to the 1940 Act and the
related rules as they are in effect from time to time, and to interpretations
and modifications of or relating to the 1940 Act by the SEC, SEC staff or other
authority of competent jurisdiction as they are given from time to time. When a
policy provides that an investment practice may be conducted as permitted by
the 1940 Act, the policy will be interpreted to mean either that the 1940 Act
expressly permits the practice or that the 1940 Act does not prohibit the
practice.
43
NON-FUNDAMENTAL INVESTMENT POLICY
The following policy is non-fundamental and may be changed by a vote of the
Board of Trustees without approval of shareholders.
The fund may 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
investment companies, or in reliance on Section 12(d)(1)(G) of the 1940 Act,
which would allow the fund to invest in other Pioneer funds, 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). The fund has adopted this non-fundamental
policy in order that the fund may be a permitted investment of the series of
Pioneer Asset Allocation Trust, which invest all of their assets in other
investment companies. If the series of Pioneer Asset Allocation Trust do not
invest in the fund, then this non-fundamental restriction will not apply.
DIVERSIFICATION
The fund is currently classified as a diversified fund under the 1940 Act. A
diversified fund may not purchase securities of an issuer (other than
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities) if, with respect to 75% of the fund's total assets, (a) more
than 5% of the fund's total assets would be invested in securities of that
issuer, or (b) the fund would hold more than 10% of the outstanding voting
securities of that issuer. Under the 1940 Act, the fund cannot change its
classification from diversified to non-diversified without shareholder
approval.
3. TRUSTEES AND OFFICERS
The fund's Trustees and officers are listed below, together with their
principal occupations and other directorships they have held during at least
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 43 U.S. registered
investment portfolios for which Amundi Pioneer serves as investment adviser
(the "Pioneer Funds"). The address for all Trustees and all officers of the
fund is 60 State Street, Boston, Massachusetts 02109.
NAME, AGE AND TERM OF OFFICE AND OTHER DIRECTORSHIPS
POSITION HELD WITH THE FUND LENGTH OF SERVICE PRINCIPAL OCCUPATION HELD BY TRUSTEE
----------------------------- -------------------------- --------------------------------------- -------------------------
INDEPENDENT TRUSTEES:
----------------------------- -------------------------- --------------------------------------- ----
THOMAS J. PERNA (68) Trustee since 2006. Private investor (2004 - 2008 and Director, Broadridge
Chairman of the Board and Serves until a successor 2013 - present); Chairman (2008 - Financial Solutions,
Trustee trustee is elected or 2013) and Chief Executive Officer Inc. (investor
-----------------------------
earlier retirement or (2008 - 2012), Quadriserv, Inc. communications and
removal. (technology products for securities securities processing
--------------------------
lending industry); and Senior provider for financial
Executive Vice President, The Bank services industry)
of New York (financial and securities (2009 - present);
services) (1986 - 2004) Director, Quadriserv,
---------------------------------------
Inc. (2005 - 2013);
and Commissioner,
New Jersey State
Civil Service
Commission (2011 -
2015)
----
44
NAME, AGE AND TERM OF OFFICE AND OTHER DIRECTORSHIPS
POSITION HELD WITH THE FUND LENGTH OF SERVICE PRINCIPAL OCCUPATION HELD BY TRUSTEE
----------------------------- -------------------------- ------------------------------------------- --------------------------
DAVID R. BOCK (74) Trustee since 2005. Managing Partner, Federal City Director of New York
Trustee Serves until a successor Capital Advisors (corporate advisory Mortgage Trust
---
trustee is elected or services company) (1997 - 2004 (publicly-traded
earlier retirement or and 2008 - present); Interim Chief mortgage REIT)
removal. Executive Officer, Oxford Analytica, (2004 - 2009, 2012
--------------------------
Inc. (privately held research and - present); Director of
consulting company) (2010); The Swiss Helvetia
Executive Vice President and Chief Fund, Inc.
Financial Officer, I-trax, Inc. (publicly (closed-end fund)
traded health care services (2010 - 2017);
company) (2004 - 2007); and Director of Oxford
Executive Vice President and Chief Analytica, Inc. (2008
Financial Officer, Pedestal Inc. - 2015); and
(internet-based mortgage trading Director of Enterprise
company) (2000 - 2002); Private Community
Consultant (1995 - 1997); Investment, Inc.
Managing Director, Lehman (privately-held
Brothers (1992 - 1995); Executive, affordable housing
The World Bank (1979 - 1992) finance company)
-------------------------------------------
(1985 - 2010)
------------------------
BENJAMIN M. FRIEDMAN Trustee since 2008. William Joseph Maier Professor of Trustee, Mellon
(74) Serves until a successor Political Economy, Harvard Institutional Funds
Trustee trustee is elected or University (1972 - present) Investment Trust and
--- -------------------------------------------
earlier retirement or Mellon Institutional
removal. Funds Master
--------------------------
Portfolio (oversaw
17 portfolios in fund
complex) (1989 -
2008)
----
MARGARET B.W. GRAHAM Trustee since 1996. Founding Director, Vice-President None
----
(71) Serves until a successor and Corporate Secretary, The
Trustee trustee is elected or Winthrop Group, Inc. (consulting
---
earlier retirement or firm) (1982 - present); Desautels
removal. Faculty of Management, McGill
--------------------------
University (1999 - 2017); and
Manager of Research Operations
and Organizational Learning, Xerox
PARC, Xerox's advance research
center (1990-1994)
-------------------------------------------
45
NAME, AGE AND TERM OF OFFICE AND OTHER DIRECTORSHIPS
POSITION HELD WITH THE FUND LENGTH OF SERVICE PRINCIPAL OCCUPATION HELD BY TRUSTEE
----------------------------- --------------------------- ------------------------------------- ---------------------
LORRAINE H. MONCHAK (62) Trustee since 2017. Chief Investment Officer, 1199 SEIU None
----
Trustee (Advisory Trustee from Funds (healthcare workers union
-----------------------------
2014 - 2017) Serves pension funds) (2001 - present);
until a successor trustee Vice President - International
is elected or earlier Investments Group, American
retirement or removal. International Group, Inc. (insurance
---------------------------
company) (1993 - 2001); Vice
President Corporate Finance and
Treasury Group, Citibank, N.A.(1980
- 1986 and 1990 - 1993); Vice
President - Asset/Liability
Management Group, Federal Farm
Funding Corporation
(government-sponsored issuer of
debt securities) (1988 - 1990);
Mortgage Strategies Group,
Shearson Lehman Hutton, Inc.
(investment bank) (1987 - 1988);
Mortgage Strategies Group, Drexel
Burnham Lambert, Ltd. (investment
bank) (1986 - 1987)
-------------------------------------
MARGUERITE A. PIRET (70) Trustee since 1996. President and Chief Executive Director of New
Trustee Serves until a successor Officer, Newbury Piret Company America High Income
-----------------------------
trustee is elected or (investment banking firm) (1981 - Fund, Inc.
earlier retirement or present) (closed-end
-------------------------------------
removal. investment company)
---------------------------
(2004 - present);
and Member, Board
of Governors,
Investment Company
Institute (2000 -
2006)
----
FRED J. RICCIARDI (71) Trustee since 2014. Consultant (investment company None
----
Trustee Serves until a successor services) (2012 - present);
-----------------------------
trustee is elected or Executive Vice President, BNY
earlier retirement or Mellon (financial and investment
removal. company services) (1969 - 2012);
---------------------------
Director, BNY International
Financing Corp. (financial services)
(2002 - 2012); Director, Mellon
Overseas Investment Corp.
(financial services) (2009 - 2012)
-------------------------------------
46
NAME, AGE AND TERM OF OFFICE AND OTHER DIRECTORSHIPS
POSITION HELD WITH THE FUND LENGTH OF SERVICE PRINCIPAL OCCUPATION HELD BY TRUSTEE
----------------------------- -------------------------- ------------------------------------- ---------------------
INTERESTED TRUSTEES:
----------------------------- -------------------------- ------------------------------------- ---------------------
LISA M. JONES (56)* Trustee since 2017. Director, CEO and President of None
---------------------
Trustee, President and Serves until a successor Amundi Pioneer Asset Management
Chief Executive Officer trustee is elected or USA, Inc. (since September 2014);
-----------------------------
earlier retirement or Director, CEO and President of
removal Amundi Pioneer Asset Management,
--------------------------
Inc. (since September 2014);
Director, CEO and President of
Amundi Pioneer Distributor, Inc.
(since September 2014); Director,
CEO and President of Amundi
Pioneer Institutional Asset
Management, Inc. (since September
2014); Chair, Amundi Pioneer Asset
Management USA, Inc., Amundi
Pioneer Distributor, Inc. and Amundi
Pioneer Institutional Asset
Management, Inc. (September 2014
- 2018); Managing Director, Morgan
Stanley Investment Management
(2010 - 2013); Director of
Institutional Business, CEO of
International, Eaton Vance
Management (2005 - 2010)
-------------------------------------
KENNETH J. TAUBES (60)* Trustee since 2014. Director and Executive Vice None
---------------------
Trustee Serves until a successor President (since 2008) and Chief
-----------------------------
trustee is elected or Investment Officer, U.S. (since
earlier retirement or 2010) of Amundi Pioneer Asset
removal Management USA, Inc.; Executive
--------------------------
Vice President and Chief Investment
Officer, U.S. of Amundi Pioneer
(since 2008); Executive Vice
President of Amundi Pioneer
Institutional Asset Management,
Inc. (since 2009); Portfolio Manager
of Amundi Pioneer (since 1999)
-------------------------------------
FUND OFFICERS:
----------------------------- -------------------------- ------------------------------------- ---------------------
CHRISTOPHER J. KELLEY (53) Since 2010. Serves at Vice President and Associate None
---------------------
Secretary and Chief Legal the discretion of the General Counsel of Amundi Pioneer
Officer Board since January 2008; Secretary and
----------------------------- --------------------------
Chief Legal Officer of all of the
Pioneer Funds since June 2010;
Assistant Secretary of all of the
Pioneer Funds from September
2003 to May 2010; Vice President
and Senior Counsel of Amundi
Pioneer from July 2002 to
December 2007
-------------------------------------
47
NAME, AGE AND TERM OF OFFICE AND OTHER DIRECTORSHIPS
POSITION HELD WITH THE FUND LENGTH OF SERVICE PRINCIPAL OCCUPATION HELD BY TRUSTEE
----------------------------- ----------------------- -------------------------------------- ---------------------
CAROL B. HANNIGAN (57) Since 2010. Serves at Fund Governance Director of Amundi None
---------------------
Assistant Secretary the discretion of the Pioneer since December 2006 and
-----------------------------
Board Assistant Secretary of all the
-----------------------
Pioneer Funds since June 2010;
Manager - Fund Governance of
Amundi Pioneer from December
2003 to November 2006; and
Senior Paralegal of Amundi Pioneer
from January 2000 to November
2003
----
THOMAS REYES (55) Since 2010. Serves at Senior Counsel of Amundi Pioneer None
---------------------
Assistant Secretary the discretion of the since May 2013 and Assistant
-----------------------------
Board Secretary of all the Pioneer Funds
-----------------------
since June 2010; Counsel of
Amundi Pioneer from June 2007 to
May 2013
--------------------------------------
MARK E. BRADLEY (58) Since 2008. Serves at Vice President - Fund Treasury of None
---------------------
Treasurer and Chief the discretion of the Amundi Pioneer; Treasurer of all of
Financial and Accounting Board the Pioneer Funds since March
-----------------------
Officer 2008; Deputy Treasurer of Amundi
-----------------------------
Pioneer from March 2004 to
February 2008; and Assistant
Treasurer of all of the Pioneer Funds
from March 2004 to February 2008
--------------------------------------
LUIS I. PRESUTTI (53) Since 2000. Serves at Director - Fund Treasury of Amundi None
---------------------
Assistant Treasurer the discretion of the Pioneer; and Assistant Treasurer of
-----------------------------
Board all of the Pioneer Funds
----------------------- --------------------------------------
GARY SULLIVAN (60) Since 2002. Serves at Senior Manager - Fund Treasury of None
---------------------
Assistant Treasurer the discretion of the Amundi Pioneer; and Assistant
-----------------------------
Board Treasurer of all of the Pioneer Funds
----------------------- --------------------------------------
DAVID F. JOHNSON (38) Since 2009. Serves at Senior Manager - Fund Treasury of None
---------------------
Assistant Treasurer the discretion of the Amundi Pioneer since November
-----------------------------
Board 2008; Assistant Treasurer of all of
-----------------------
the Pioneer Funds since January
2009; Client Service Manager -
Institutional Investor Services at
State Street Bank from March 2003
to March 2007
--------------------------------------
JEAN M. BRADLEY (66) Since 2010. Serves at Chief Compliance Officer of Amundi None
---------------------
Chief Compliance Officer the discretion of the Pioneer and of all the Pioneer Funds
-----------------------------
Board since March 2010; Chief
-----------------------
Compliance Officer of Amundi
Pioneer Institutional Asset
Management, Inc. since January
2012; Chief Compliance Officer of
Vanderbilt Capital Advisors, LLC
since July 2012: Director of Adviser
and Portfolio Compliance at Amundi
Pioneer since October 2005; Senior
Compliance Officer for Columbia
Management Advisers, Inc. from
October 2003 to October 2005
--------------------------------------
48
NAME, AGE AND TERM OF OFFICE AND OTHER DIRECTORSHIPS
POSITION HELD WITH THE FUND LENGTH OF SERVICE PRINCIPAL OCCUPATION HELD BY TRUSTEE
----------------------------- ----------------------- ------------------------------------- ---------------------
KELLY O'DONNELL (47) Since 2006. Serves at Vice President - Investor Services None
---------------------
Anti-Money Laundering the discretion of the Group of Amundi Pioneer and
Officer Board Anti-Money Laundering Officer of all
----------------------------- -----------------------
the Pioneer Funds since 2006
-------------------------------------
* Ms. Jones and Mr. Taubes are Interested Trustees because they are
officers or directors of the fund's investment adviser and certain of its
affiliates.
BOARD COMMITTEES
The Board of Trustees is responsible for overseeing the fund's management and
operations. The Chairman of the Board is an Independent Trustee. Independent
Trustees constitute more than 75% of the Board. During the most recent fiscal
year, the Board of Trustees held 6 meetings. Each Trustee attended at least 75%
of such meetings.
The Trustees were selected to join the Board based upon the following as to
each Board member: such person's character and integrity; such person's
willingness and ability to commit the time necessary to perform the duties of a
Trustee; as to each Independent Trustee, his or her status as not being an
"interested person" as defined under the 1940 Act; and, as to Ms. Jones and Mr.
Taubes, their association with Amundi Pioneer. Each of the Independent Trustees
also was selected to join the Board based on the criteria and principles set
forth in the Nominating Committee Charter. In evaluating a Trustee's
prospective service on the Board, the Trustee's experience in, and ongoing
contributions toward, overseeing the fund's business as a Trustee also are
considered. In addition, the following specific experience, qualifications,
attributes and/or skills apply as to each Trustee: Mr. Bock, accounting,
financial, business and public company experience as a chief financial officer
and an executive officer and experience as a board member of other
organizations; Mr. Friedman, academic leadership, economic and finance
experience and investment company board experience; Ms. Graham, academic
leadership, experience in business, finance and management consulting; Ms.
Monchak, investment, financial and business experience, including as the chief
investment officer of a pension fund; Mr. Perna, accounting, financial, and
business experience as an executive officer and experience as a board member of
other organizations; Ms. Piret, accounting, financial and entrepreneurial
experience as an executive, valuation experience and investment company board
experience; Mr. Ricciardi, financial, business and investment company
experience as an executive officer of a financial and investment company
services organization, and experience as a board member of offshore investment
companies and other organizations; Ms. Jones, investment management experience
as an executive and leadership roles with Amundi Pioneer and its affiliates;
and Mr. Taubes, portfolio management experience and leadership roles with
Amundi Pioneer. However, in its periodic assessment of the effectiveness of the
Board, the Board considers the complementary skills and experience of
individual Trustees primarily in the broader context of the Board's overall
composition so that the Board, as a body, possesses the appropriate (and
appropriately diverse) skills and experience to oversee the business of the
fund.
The Trust's Amended and Restated Agreement and Declaration of Trust provides
that the appointment, designation (including in any proxy or registration
statement or other document) of a Trustee as an expert on any topic or in any
area, or as having experience, attributes or skills in any area, or any other
appointment, designation or identification, shall not impose on that person any
standard of care or liability that is greater than that imposed on that person
as a Trustee in the absence of the appointment, designation or identification,
and no Trustee who has special attributes, skills, experience or expertise, or
is appointed, designated, or identified as aforesaid, shall be held to a higher
standard of care by virtue thereof.
The Board of Trustees has five standing committees: the Independent Trustees
Committee, the Audit Committee, the Governance and Nominating Committee, the
Policy Administration Committee and the Valuation Committee. Each committee is
chaired by an Independent Trustee and all members of each committee are
Independent Trustees.
49
The Chairs of the committees work with the Chairman of the Board and fund
management in setting the agendas for Board meetings. The Chairs of the
committees set the agendas for committee meetings with input from fund
management. As noted below, through the committees, the Independent Trustees
consider and address important matters involving the fund, including those
presenting conflicts or potential conflicts of interest for management. The
Independent Trustees also regularly meet without the presence of management and
are advised by independent legal counsel. The Board believes that the committee
structure, and delegation to the committees of specified oversight
responsibilities, help the Board more effectively to provide governance and
oversight of the fund's affairs. Mr. Perna, Chairman of the Board, is a member
of each committee except the Audit Committee and the Valuation Committee, of
each of which he is a non-voting, ex-officio member.
During the most recent fiscal year, the Independent Trustees, Audit, Governance
and Nominating, Policy Administration, and Valuation Committees held 6, 5, 5, 4
and 5 meetings, respectively.
INDEPENDENT TRUSTEES COMMITTEE
David R. Bock, Benjamin M. Friedman, Margaret B.W. Graham, Lorraine H. Monchak,
Thomas J. Perna (Chair), Marguerite A. Piret and Fred J. Ricciardi.
The Independent Trustees Committee is comprised of all of the Independent
Trustees. The Independent Trustees Committee serves as the forum for
consideration of a number of issues required to be considered separately by the
Independent Trustees under the 1940 Act, including the assessment and review of
the fund's advisory agreement and other related party contracts. The
Independent Trustees Committee also considers issues that the Independent
Trustees believe it is advisable for them to consider separately from the
Interested Trustees.
AUDIT COMMITTEE
David R. Bock (Chair), Benjamin M. Friedman, Lorraine H. Monchak and Marguerite
A. Piret.
The Audit Committee, among other things, oversees the accounting and financial
reporting policies and practices of the fund, oversees the quality and
integrity of the fund's financial statements, approves, and recommends to the
Independent Trustees for their ratification, the engagement of the fund's
independent registered public accounting firm, reviews and evaluates the
accounting firm's qualifications, independence and performance, and approves
the compensation of the accounting firm. The Audit Committee also approves all
audit and permissible non-audit services provided to the fund by the fund's
accounting firm and all permissible non-audit services provided by the fund's
accounting firm to Amundi Pioneer and any affiliated service providers of the
fund if the engagement relates directly to the fund's operations and financial
reporting.
GOVERNANCE AND NOMINATING COMMITTEE
Margaret B.W. Graham (Chair), Thomas J. Perna and Fred J. Ricciardi.
The Governance and Nominating Committee considers governance matters affecting
the Board and the fund. Among other responsibilities, the Governance and
Nominating Committee reviews the performance of the Independent Trustees as a
whole, and reviews and recommends to the Independent Trustees Committee any
appropriate changes concerning, among other things, the size and composition of
the Board, the Board's committee structure and the Independent Trustees'
compensation. The Governance and Nominating Committee also makes
recommendations to the Independent Trustees Committee or the Board on matters
delegated to it.
In addition, the Governance and Nominating Committee screens potential
candidates for Independent Trustees. Among other responsibilities, the
Governance and Nominating Committee reviews periodically the criteria for
Independent Trustees and the spectrum of desirable experience and expertise for
Independent Trustees as a whole, and reviews periodically the qualifications
and requisite skills of persons currently serving as Independent Trustees and
being considered for re-nomination. The Governance and Nominating Committee
also reviews the qualifications of any person nominated to serve on the Board
by a shareholder
50
or recommended by any Trustee, management or another person and makes a
recommendation as to the qualifications of such nominated or recommended person
to the Independent Trustees and the Board, and reviews periodically the
Committee's procedure, if any, regarding candidates submitted by shareholders.
The Governance and Nominating Committee does not have specific, minimum
qualifications for nominees, nor has it established specific qualities or
skills that it regards as necessary for one or more of the Independent Trustees
to possess (other than qualities or skills that may be required by applicable
law or regulation). However, in evaluating a person as a potential nominee to
serve as an Independent Trustee, the Governance and Nominating Committee will
consider the following general criteria and principles, among any others that
it may deem relevant:
o whether the person has a reputation for integrity, honesty and adherence to
high ethical standards;
o whether the person has demonstrated business acumen and ability to exercise
sound judgment in matters that relate to the objectives of the fund and
whether the person is willing and able to contribute positively to the
decision-making process of the fund;
o whether the person has a commitment and ability to devote the necessary time
and energy to be an effective Independent Trustee, to understand the fund
and the responsibilities of a trustee of an investment company;
o whether the person has the ability to understand the sometimes conflicting
interests of the various constituencies of the fund and to act in the
interests of all shareholders;
o whether the person has a conflict of interest that would impair his or her
ability to represent the interests of all shareholders and to fulfill the
responsibilities of a trustee; and
o the value of diversity on the Board. The Governance and Nominating Committee
Charter provides that nominees shall not be discriminated against on the
basis of race, religion, national origin, sex, sexual orientation,
disability or any other basis proscribed by law.
The Governance and Nominating Committee also will consider whether the nominee
has the experience or skills that the Governance and Nominating Committee
believes would maintain or enhance the effectiveness of the Independent
Trustees' oversight of the fund's affairs, based on the then current
composition and skills of the Independent Trustees and experience or skills
that may be appropriate in light of changing business conditions and regulatory
or other developments. The Governance and Nominating Committee does not
necessarily place the same emphasis on each criterion.
The Governance and Nominating Committee does not have a formal policy for
considering trustee nominees submitted by the fund's shareholders. Nonetheless,
the Nominating Committee may, on an informal basis, consider any shareholder
recommendations of nominees that it receives. Shareholders who wish to
recommend a nominee should send recommendations to the fund's Secretary that
include all information relating to such persons that is required to be
included in solicitations of proxies for the election of trustees.
POLICY ADMINISTRATION COMMITTEE
Thomas J. Perna (Chair), Margaret B.W. Graham, and Fred J. Ricciardi.
The Policy Administration Committee, among other things, oversees and monitors
the fund's compliance with legal and regulatory requirements that are not
directly related to financial reporting, internal financial controls,
independent audits or the performance of the fund's internal audit function.
The Policy Administration Committee also oversees the adoption and
implementation of certain of the fund's policies and procedures.
VALUATION COMMITTEE
David R. Bock, Benjamin M. Friedman, Lorraine H. Monchak and Marguerite A.
Piret (Chair).
The Valuation Committee, among other things, determines with Amundi Pioneer the
value of securities under certain circumstances and considers other matters
with respect to the valuation of securities, in each case in accordance with
the fund's valuation procedures.
51
OVERSIGHT OF RISK MANAGEMENT
Consistent with its responsibility for oversight of the fund in the interests
of shareholders, the Board of Trustees has established a framework for the
oversight of various risks relating to the fund, including the oversight of the
identification of risks and the management of certain identified risks. The
Board has delegated certain aspects of its risk oversight responsibilities to
the committees, but relies primarily on Amundi Pioneer and its affiliates for
the identification and management or mitigation of risks relating to their
management activities on behalf of the fund, as well as to oversee and advise
the Board on the risks that may arise relating to the activities of other fund
service providers.
The fund faces a number of risks, such as investment risk, counterparty risk,
valuation risk, enterprise risk, reputational risk, cybersecurity risk, risk of
operational failure or lack of business continuity, and legal, compliance and
regulatory risk. The goal of risk management is to identify and address risks,
i.e., events or circumstances that could have material adverse effects on the
business, operations, shareholder services, investment performance or
reputation of the fund.
Most of the fund's investment management and business operations are carried
out by or through Amundi Pioneer, its affiliates, and other service providers
(such as the custodian and fund accounting agent and the transfer agent), each
of which has an independent interest in risk management but whose policies and
the methods by which one or more risk management functions are carried out may
differ from the fund's and each other's in the setting of priorities, the
resources available or the effectiveness of relevant controls. Operational or
other failures, including cybersecurity failures, at any one or more of the
fund's service providers could have a material adverse effect on the fund and
its shareholders.
Under the overall supervision of the Board or the applicable committee of the
Board, Amundi Pioneer and the affiliates of Amundi Pioneer, or other service
providers to the fund, employ a variety of processes, procedures and controls
in an effort to identify, address and mitigate risks. Different processes,
procedures and controls are employed with respect to different types of risks.
Various personnel, including the fund's and Amundi Pioneer's chief compliance
officer and Amundi Pioneer's chief risk officer and director of internal audit,
as well as various personnel of Amundi Pioneer and of other service providers,
make periodic reports to the applicable committee or to the Board with respect
to various aspects of risk management. The reports received by the Trustees
related to risks typically are summaries of relevant information.
The Trustees recognize that not all risks that may affect the fund can be
identified, that it may not be practical or cost-effective to eliminate or
mitigate certain risks, that it may be necessary to bear certain risks (such as
investment-related risks) to achieve the fund's goals, that the processes,
procedures and controls employed to address certain risks may be limited in
their effectiveness, and that some risks are simply beyond the control of the
fund or Amundi Pioneer and its affiliates or other service providers. Because
most of the fund's operations are carried out by various service providers, the
Board's oversight of the risk management processes of those service providers,
including processes to address cybersecurity and other operational failures, is
inherently limited. (See "Cybersecurity issues" above.) As a result of the
foregoing and other factors, the fund's ability to manage risk is subject to
substantial limitations.
It is important to note that the fund is designed for investors that are
prepared to accept investment risk, including the possibility that as yet
unforeseen risks may emerge in the future.
COMPENSATION OF OFFICERS AND TRUSTEES
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 Independent Trustee an
annual fee of $1,000.
52
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. Amundi Pioneer reimburses these
funds for the fees paid to the Interested Trustees.
Except for the chief compliance officer, the fund does not pay any salary or
other compensation to its officers. The fund pays a portion of the chief
compliance officer's compensation for her services as the fund's chief
compliance officer. Amundi Pioneer pays the remaining portion of the chief
compliance officer's compensation.
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 Amundi 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
The Amended and Restated Agreement and Declaration of Trust provides that no
Trustee, officer or employee of the fund shall be liable to the fund or any
shareholder for any action, failure to act, error or mistake except in cases of
bad faith, willful misfeasance, gross negligence or reckless disregard of duty.
The Amended and Restated Agreement and Declaration of Trust requires the fund
to indemnify each Trustee, director, officer, employee and authorized agent to
the fullest extent permitted by law against liability and against all expenses
reasonably incurred or paid by him in connection with any claim, action, suit
or proceeding in which he becomes involved as a party or otherwise by virtue of
his being or having been such a Trustee, director, officer, employee, or agent
and against amounts paid or incurred by him in settlement thereof. The 1940 Act
currently provides that no officer or director shall be protected from
liability to the fund or shareholders for willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties of office. The Amended and
Restated Agreement and Declaration of Trust extends to Trustees, officers and
employees of the fund the full protection from liability that the law allows.
SHARE OWNERSHIP
See "Annual Fee, Expense and Other Information" for 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.
PROXY VOTING POLICIES
Information regarding how the fund voted proxies relating to portfolio
securities during the most recent 12-month period ended June 30 is available to
shareowners without charge at http://us.amundipioneer.com and on the SEC's
website at http://www.sec.gov. The fund's proxy voting policies and procedures
are attached as "Appendix B."
4. INVESTMENT ADVISER
The fund has entered into a management agreement (hereinafter, the "management
contract") with Amundi Pioneer pursuant to which Amundi Pioneer acts as the
fund's investment adviser. Amundi Pioneer is an indirect, wholly owned
subsidiary of Amundi and Amundi's wholly owned subsidiary, Amundi USA, Inc.
Amundi is controlled by Credit Agricole S.A., a French credit institution.
Credit Agricole S.A. holds approximately 70% of Amundi's share capital. The
remaining shares of Amundi are held by institutional and retail investors.
53
On July 3, 2017, Amundi acquired Pioneer Investments, a group of asset
management companies located throughout the world, including the fund's
investment adviser. Prior to July 3, 2017, Pioneer Investments was owned by
Pioneer Global Asset Management S.p.A., a wholly owned subsidiary of UniCredit
S.p.A. Prior to July 3, 2017, the fund's investment adviser was named Pioneer
Investment Management, Inc. A new investment management contract between the
fund and the investment adviser became effective on July 3, 2017.
Certain Trustees or officers of the fund are also directors and/or officers of
certain of Amundi's subsidiaries (see management biographies above). Amundi
Pioneer has entered into an agreement with its affiliate, Amundi Ireland
Limited, pursuant to which Amundi Ireland Limited provides certain services to
Amundi Pioneer.
As the fund's investment adviser, Amundi 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. Amundi 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.
The management contract will continue in effect from year to year provided such
continuance is specifically approved at least annually (i) by the Trustees of
the fund or by a majority of the outstanding voting securities of the fund (as
defined in the 1940 Act), and (ii) in either event, by a majority of the
Independent Trustees of the fund, with such Independent Trustees casting votes
in person at a meeting called for such purpose.
The management contract may be terminated without penalty by the Trustees of
the fund or by vote of a majority of the outstanding voting securities of the
fund on not more than 60 days' nor less than 30 days' written notice to Amundi
Pioneer, or by Amundi Pioneer on not less than 90 days' written notice to the
fund, and will automatically terminate in the event of its assignment (as
defined in the 1940 Act) by Amundi Pioneer. The management contract is not
assignable by the fund except with the consent of Amundi Pioneer.
The Trustees' approval of and the terms, continuance and termination of the
management contract are governed by the 1940 Act. Pursuant to the management
contract, Amundi Pioneer assumes no responsibility other than to render the
services called for under the management contract, in good faith, and Amundi
Pioneer will not be liable for any error of judgment or mistake of law or for
any loss arising out of any investment or for any act or omission in the
execution of securities or other transactions for the fund. Amundi 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. The management contract requires Amundi Pioneer to furnish all
necessary services, facilities and personnel in connection with the performance
of its services under the management contract, and except as specifically
stated therein, Amundi Pioneer is not responsible for any of the fund's
ordinary and extraordinary expenses.
ADVISORY FEE
As compensation for its management services and expenses incurred, the fund
pays Amundi Pioneer a fee at the annual rate of 0.40% of the fund's average
daily net assets up to $500 million, 0.35% of the next $500 million of the
fund's average daily net assets, 0.30% of the next $1 billion of the fund's
average daily net assets, 0.25% of the next $8 billion of the fund's average
daily net assets, and 0.225% of the fund's average daily net assets over $10
billion. The fee is accrued daily and paid monthly.
Prior to October 1, 2018, the fund paid Amundi Pioneer at the annual rate of
0.40% of the fund's average daily net assets.
See the table in Annual Fee, Expense and Other Information for management fees
paid to Amundi Pioneer during recently completed fiscal years.
54
EXPENSE LIMITATION
Amundi Pioneer has contractually agreed to limit ordinary operating expenses
(ordinary operating expenses means all fund expenses other than taxes,
brokerage commissions, acquired fund fees and expenses, and extraordinary
expenses, such as litigation) to the extent required to reduce fund expenses to
0.85%, 1.10% and 0.58% of the average daily net assets attributable to Class A,
Class R and Class Y shares, respectively. These expense limitations are in
effect through November 1, 2019. However, there can be no assurance that Amundi
Pioneer will extend the expense limitation beyond these dates. While in effect,
the arrangement may be terminated for a class only by agreement of Amundi
Pioneer and the Board of Trustees.
ADMINISTRATION AGREEMENT
The fund has entered into an amended and restated administration agreement with
Amundi Pioneer pursuant to which Amundi Pioneer acts as the fund's
administrator, performing certain accounting, administration and legal services
for the fund. Amundi Pioneer is reimbursed for its cost of providing such
services. The cost of providing these services is based on direct costs and
costs of overhead, subject to review by the Board of Trustees. See "Annual Fee,
Expense and Other Information" for fees the fund paid to Amundi Pioneer for
administration and related services. In addition, Brown Brothers Harriman & Co.
performs certain sub-administration services to the fund pursuant to an
agreement with Amundi Pioneer and the fund.
Under the terms of the amended and restated administration agreement with the
fund, Amundi Pioneer pays or reimburses the fund for expenses 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 Amundi 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 fund who are not affiliated with
or interested persons of Amundi Pioneer, the fund (other than as Trustees),
Amundi Pioneer Asset Management USA, Inc. or the distributor; (k) the cost of
preparing and printing share certificates; (l) interest on borrowed money, if
any; (m) fees payable by the fund under management agreements and the
administration agreement; and (n) extraordinary expenses. The fund shall also
assume and pay any other expense that the fund, Amundi Pioneer or any other
agent of the fund may incur not listed above that is approved by the Board of
Trustees (including a majority of the Independent Trustees) as being an
appropriate expense of the fund. The fund shall pay all fees and expenses to be
paid by the fund under the sub-administration agreement with Brown Brothers
Harriman & Co. 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.
POTENTIAL CONFLICTS OF INTEREST
The fund is managed by Amundi Pioneer, which also serves as investment adviser
to other Pioneer mutual funds and other accounts (including separate accounts
and unregistered products) 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
55
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 Amundi 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 Amundi 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, Amundi Pioneer, and Amundi Pioneer Distributor, Inc. 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 Amundi Pioneer and
certain of Amundi Pioneer's affiliates. 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.
5. PRINCIPAL UNDERWRITER AND DISTRIBUTION PLAN
PRINCIPAL UNDERWRITER
Amundi Pioneer Distributor, Inc., 60 State Street, Boston, Massachusetts 02109,
is the principal underwriter for the fund in connection with the continuous
offering of its shares. Amundi Pioneer Distributor, Inc. is an indirect wholly
owned subsidiary of Amundi and a wholly owned subsidiary of Amundi Pioneer
Asset Management, Inc. Prior to July 3, 2017, the fund's distributor was named
Pioneer Funds Distributor, Inc.
The fund entered into an underwriting agreement with Amundi Pioneer
Distributor, Inc. which provides that Amundi Pioneer Distributor, Inc. will
bear expenses for the distribution of the fund's shares, except for expenses
incurred by Amundi Pioneer Distributor, Inc. for which it is reimbursed or
compensated by the fund under the distribution plan (discussed below). Amundi
Pioneer Distributor, Inc. 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. Amundi Pioneer
Distributor, Inc. 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, Amundi Pioneer Distributor, Inc. will use its best
efforts in rendering services to the fund.
56
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 under "Annual Fee, Expense and Other Information" for
commissions retained by Amundi Pioneer Distributor, Inc. and reallowed to
dealers in connection with Amundi Pioneer Distributor, Inc.'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 Amundi 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.
DISTRIBUTION PLAN
The fund has adopted a distribution plan (the "Distribution Plan") pursuant to
Rule 12b-1 under the 1940 Act with respect to its Class A, Class C and Class R
shares. The fund has not adopted a Distribution Plan with respect to its Class
K or Class Y shares.
For each Class that has adopted a Distribution Plan, fees under the
Distribution Plan may be used to make payments to one or more principal
underwriters, broker-dealers, financial intermediaries (which may include
banks) and other parties that enter into a distribution, selling or service
agreement with respect to the shares of such Class (each of the foregoing, a
"Service Party"). The fund, its principal underwriter or other parties also may
incur expenses in connection with the distribution or marketing and sales of
the fund's shares that may be paid or reimbursed by the fund. The aggregate
amount in respect of such fees and expenses with respect to each Class shall be
the amount calculated at a percentage per annum of the average daily net assets
attributable to such Class as set forth below:
APPLICABLE PERCENTAGE
CLASS PER ANNUM
--------- ----------------------
Class A 0.25%
--------- ----
Class C 1.00%
--------- ----
Class R 0.50%
--------- ----
Payments are made under the Distribution Plan for distribution services and
other activities in respect of the sale of shares of the fund and to make
payments for advertising, marketing or other promotional activity, and for
preparation, printing, and distribution of prospectuses, statements of
additional information and reports for recipients other than regulators and
existing shareholders. The fund also may make payments to Service Parties under
the Distribution Plan for providing personal service or the maintenance of
shareholder accounts. The amounts paid to each recipient may vary based upon
certain factors, including, among other things, the levels of sales of fund
shares and/or shareholder services provided; provided, however, that the fees
paid to a recipient with respect to a particular Class that may be used to
cover expenses primarily intended to result in the sale of shares of that
Class, or that may be used to cover expenses primarily intended for personal
service and/or maintenance of shareholder accounts, may not exceed the maximum
amounts, if any, as may from time to time be permitted for such services under
the Financial Industry Regulatory Authority ("FINRA") Conduct Rule 2341 or any
successor rule, in each case as amended or interpreted by FINRA.
57
The Distribution Plan also provides that the Service Parties may receive all or
a portion of any sales charges paid by investors.
The Distribution Plan permits the fund to pay fees to the Service Parties as
compensation for their services, not as reimbursement for specific expenses
incurred. Thus, even if their expenses exceed the fees provided for by the
Distribution Plan, the fund will not be obligated to pay more than those fees
and, if their expenses are less than the fees paid to them, they will realize a
profit. The fund may pay the fees to the Service Parties until the Distribution
Plan or any related distribution agreement is terminated or not renewed. In
that event, a Service Party's expenses in excess of fees received or accrued
through the termination date will be such Service Party's sole responsibility
and not obligations of the fund. In their annual consideration of the
continuation of the Distribution Plan for the fund, the Trustees will review
the Distribution Plan and the expenses for each Class within the fund
separately. The fund may participate in joint distribution activities with
other Pioneer funds. The costs associated with such joint distribution
activities are allocated to a fund based on the number of shares sold.
The Distribution Plan also recognizes that Amundi Pioneer, Amundi Pioneer
Distributor, Inc. or any other Service Party may make payments for
distribution-related expenses out of its own resources, including past profits,
or payments received from the fund for other purposes, such as management fees,
and that the Service Parties may from time to time use their own resources for
distribution-related services, in addition to the fees paid under the
Distribution Plan. The Distribution Plan specifically provides that, to the
extent that such payments might be deemed to be indirect financing of any
activity primarily intended to result in the sale of shares of the fund within
the context of Rule 12b-1, then the payments are deemed to be authorized by the
Distribution Plan but not subject to the maximum amounts set forth above.
Under its terms, the Distribution Plan continues in effect for one year and
thereafter for successive annual periods, provided such continuance is
specifically approved at least annually by vote of the Board, including a
majority of the Independent Trustees who have no direct or indirect financial
interest in the operation of the Distribution Plan. The Distribution Plan may
not be amended to increase materially the amount of the service and
distribution fees without shareholder approval, and all material amendments of
the Distribution Plan also must be approved by the Trustees, including all of
the Independent Trustees, in the manner described above. The Distribution Plan
may be terminated with respect to a Class of the fund at any time, without
penalty, by vote of a majority of the Independent Trustees or by vote of a
majority of the outstanding voting securities of such Class of the fund (as
defined in the 1940 Act).
See "Annual Fee, Expense and Other Information" for fund expenses under the
Distribution Plan paid to Amundi Pioneer Distributor, Inc. for the most
recently completed fiscal year.
CLASS C SHARES
Amundi Pioneer Distributor, Inc. will advance to dealers the first-year service
fee at a rate equal to 0.25% of the amount invested. As compensation therefor,
Amundi Pioneer Distributor, Inc. 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.
SERVICE PLAN FOR CLASS R SHARES
The fund has adopted a service plan (the "Service Plan") with respect to its
Class R shares under which the fund is authorized to pay securities dealers,
plan administrators or other service organizations who agree to provide certain
services to plans or plan participants holding shares of the fund a service fee
of up to 0.25% of the fund's average daily net assets attributable to Class R
shares held by such plan participants. These services may include (a) acting,
directly or through an agent, as the shareholder of record and nominee for all
plan participants, (b) maintaining account records for each plan participant
that
58
beneficially owns Class R shares, (c) processing orders to purchase, redeem and
exchange Class R shares on behalf of plan participants, and handling the
transmission of funds representing the purchase price or redemption proceeds,
and (d) addressing plan participant questions regarding their accounts and the
fund.
6. SHAREHOLDER SERVICING/TRANSFER AGENT
The fund has contracted with DST Asset Manager Solutions, Inc., 2000 Crown
Colony Drive, Quincy, Massachusetts, 02169, to act as shareholder servicing and
transfer agent for the fund.
Under the terms of its contract with the fund, DST Asset Manager Solutions,
Inc. 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.
7. CUSTODIAN AND SUB-ADMINISTRATOR
Brown Brothers Harriman & Co. ("BBH"), 50 Post Office Square, Boston,
Massachusetts 02110, 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.
BBH also performs certain fund accounting and fund administration services for
the Pioneer Fund complex, including the fund. For performing such services, BBH
receives fees based on complex-wide assets.
8. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116-5072,
independent registered public accounting firm, provided audit services, tax
return review services, and assistance and consultation with respect to filings
with the SEC for the fiscal year ended June 30, 2018.
9. PORTFOLIO MANAGEMENT
ADDITIONAL INFORMATION ABOUT THE PORTFOLIO MANAGERS
OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGERS
The table below indicates, for the portfolio managers of the fund, information
about the accounts other than the fund over which the portfolio manager has
day-to-day investment responsibility. All information on the number of accounts
and total assets in the table is as of June 30, 2018. For purposes of the
table, "Other Pooled Investment Vehicles" may include investment partnerships,
undertakings for collective investments in transferable securities ("UCITS")
and other non-U.S. investment funds and group trusts, and "Other Accounts" may
include separate accounts for institutions or individuals, insurance company
general or separate accounts, pension funds and other similar institutional
accounts but generally do not include the portfolio manager's personal
investment accounts or those which the manager may be deemed to own
beneficially under the code of ethics. Certain funds and other accounts managed
by the portfolio manager may have substantially similar investment strategies.
59
NUMBER OF ASSETS
ACCOUNTS MANAGED
MANAGED FOR FOR WHICH
WHICH ADVISORY ADVISORY
NUMBER OF FEE IS FEE IS
NAME OF ACCOUNTS TOTAL ASSETS PERFORMANCE- PERFORMANCE-
PORTFOLIO MANAGER TYPE OF ACCOUNT MANAGED MANAGED (000'S) BASED BASED (000'S)
------------------- ---------------------------------- ----------- ----------------- ---------------- --------------
Kenneth Taubes Other Registered Investment
Companies 5 $6,497,022 N/A N/A
Other Pooled Investment Vehicles 3 $5,747,700 2 $4,260,410
Other Accounts 11 $3,273,618 N/A N/A
------------------- ---------------------------------- -- ---------- ---------------- ----------
Brad Komenda Other Registered
Investment Companies 2 $ 440,798 N/A N/A
Other Pooled Investment Vehicles 3 $1,456,421 N/A N/A
Other Accounts 0 $ 0 N/A N/A
------------------- ---------------------------------- -- ---------- ---------------- ----------
Timothy Rowe Other Registered Investment
Companies 1 $ 174,220 N/A N/A
Other Pooled Investment Vehicles 1 $ 350,600 N/A N/A
Other Accounts 14 $4,967,958 N/A N/A
------------------- ---------------------------------- -- ---------- ---------------- ----------
POTENTIAL CONFLICTS OF INTEREST
When a portfolio manager is responsible for the management of more than one
account, the potential arises for the portfolio manager to favor one account
over another. The principal types of potential conflicts of interest that may
arise are discussed below. For the reasons outlined below, Amundi Pioneer does
not believe that any material conflicts are likely to arise out of a portfolio
manager's responsibility for the management of the fund as well as one or more
other accounts. Although Amundi Pioneer has adopted procedures that it believes
are reasonably designed to detect and prevent violations of the federal
securities laws and to mitigate the potential for conflicts of interest to
affect its portfolio management decisions, there can be no assurance that all
conflicts will be identified or that all procedures will be effective in
mitigating the potential for such risks. Generally, the risks of such conflicts
of interest are increased to the extent that a portfolio manager has a
financial incentive to favor one account over another. Amundi Pioneer has
structured its compensation arrangements in a manner that is intended to limit
such potential for conflicts of interest. See "Compensation of Portfolio
Managers" below.
o A portfolio manager could favor one account over another in allocating new
investment opportunities that have limited supply, such as initial public
offerings and private placements. If, for example, an initial public
offering that was expected to appreciate in value significantly shortly
after the offering was allocated to a single account, that account may be
expected to have better investment performance than other accounts that did
not receive an allocation of the initial public offering. Generally,
investments for which there is limited availability are allocated based upon
a range of factors including available cash and consistency with the
accounts' investment objectives and policies. This allocation methodology
necessarily involves some subjective elements but is intended over time to
treat each client in an equitable and fair manner. Generally, the investment
opportunity is allocated among participating accounts on a pro rata basis.
Although Amundi Pioneer believes that its practices are reasonably designed
to treat each client in an equitable and fair manner, there may be instances
where a fund may not participate, or may participate to a lesser degree than
other clients, in the allocation of an investment opportunity.
o A portfolio manager could favor one account over another in the order in
which trades for the accounts are placed. If a portfolio manager determines
to purchase a security for more than one account in an aggregate amount that
may influence the market price of the security, accounts that purchased or
sold the security first may receive a more favorable price than accounts
that made subsequent transactions.
60
The less liquid the market for the security or the greater the percentage that
the proposed aggregate purchases or sales represent of average daily trading
volume, the greater the potential for accounts that make subsequent purchases
or sales to receive a less favorable price. When a portfolio manager intends
to trade the same security on the same day for more than one account, the
trades typically are "bunched," which means that the trades for the individual
accounts are aggregated and each account receives the same price. There are
some types of accounts as to which bunching may not be possible for
contractual reasons (such as directed brokerage arrangements). Circumstances
may also arise where the trader believes that bunching the orders may not
result in the best possible price. Where those accounts or circumstances are
involved, Amundi Pioneer will place the order in a manner intended to result
in as favorable a price as possible for such client.
o A portfolio manager could favor an account if the portfolio manager's
compensation is tied to the performance of that account to a greater degree
than other accounts managed by the portfolio manager. If, for example, the
portfolio manager receives a bonus based upon the performance of certain
accounts relative to a benchmark while other accounts are disregarded for
this purpose, the portfolio manager will have a financial incentive to seek
to have the accounts that determine the portfolio manager's bonus achieve
the best possible performance to the possible detriment of other accounts.
Similarly, if Amundi Pioneer receives a performance-based advisory fee, the
portfolio manager may favor that account, whether or not the performance of
that account directly determines the portfolio manager's compensation.
o A portfolio manager could favor an account if the portfolio manager has a
beneficial interest in the account, in order to benefit a large client or to
compensate a client that had poor returns. For example, if the portfolio
manager held an interest in an investment partnership that was one of the
accounts managed by the portfolio manager, the portfolio manager would have
an economic incentive to favor the account in which the portfolio manager
held an interest.
o If the different accounts have materially and potentially conflicting
investment objectives or strategies, a conflict of interest could arise. For
example, if a portfolio manager purchases a security for one account and
sells the same security for another account, such trading pattern may
disadvantage either the account that is long or short. In making portfolio
manager assignments, Amundi Pioneer seeks to avoid such potentially
conflicting situations. However, where a portfolio manager is responsible
for accounts with differing investment objectives and policies, it is
possible that the portfolio manager will conclude that it is in the best
interest of one account to sell a portfolio security while another account
continues to hold or increase the holding in such security.
COMPENSATION OF PORTFOLIO MANAGERS
Amundi Pioneer has adopted a system of compensation for portfolio managers that
seeks to align the financial interests of the portfolio managers with those of
shareholders of the accounts (including Pioneer funds) the portfolio managers
manage, as well as with the financial performance of Amundi Pioneer. The
compensation program for all Amundi Pioneer portfolio managers includes a base
salary (determined by the rank and tenure of the employee) and an annual bonus
program, as well as customary benefits that are offered generally to all
full-time employees. Base compensation is fixed and normally reevaluated on an
annual basis. Amundi Pioneer seeks to set base compensation at market rates,
taking into account the experience and responsibilities of the portfolio
manager. The bonus plan is intended to provide a competitive level of annual
bonus compensation that is tied to the portfolio manager achieving superior
investment performance and align the interests of the investment professional
with those of shareholders, as well as with the financial performance of Amundi
Pioneer. Any bonus under the plan is completely discretionary, with a maximum
annual bonus that may be in excess of base salary. The annual bonus is based
upon a combination of the following factors:
o QUANTITATIVE INVESTMENT PERFORMANCE. The quantitative investment performance
calculation is based on pre-tax investment performance of all of the
accounts managed by the portfolio manager (which includes the fund and any
other accounts managed by the portfolio manager) over a one-year period
61
(20% weighting) and four-year period (80% weighting), measured for periods
ending on December 31. The accounts, which include the fund, are ranked
against a group of mutual funds with similar investment objectives and
investment focus (60%) and a broad-based securities market index measuring the
performance of the same type of securities in which the accounts invest (40%),
which, in the case of the fund, is the Bloomberg Barclays U.S. Aggregate Bond
Index. As a result of these two benchmarks, the performance of the portfolio
manager for compensation purposes is measured against the criteria that are
relevant to the portfolio manager's competitive universe.
o QUALITATIVE PERFORMANCE. The qualitative performance component with respect
to all of the accounts managed by the portfolio manager includes objectives,
such as effectiveness in the areas of teamwork, leadership, communications
and marketing, that are mutually established and evaluated by each portfolio
manager and management.
o AMUNDI PIONEER RESULTS AND BUSINESS LINE RESULTS. Amundi Pioneer's financial
performance, as well as the investment performance of its investment
management group, affect a portfolio manager's actual bonus by a leverage
factor of plus or minus (+/-) a predetermined percentage.
The quantitative and qualitative performance components comprise 80% and 20%,
respectively, of the overall bonus calculation (on a pre-adjustment basis). A
portion of the annual bonus is deferred for a specified period and may be
invested in one or more Pioneer funds.
Certain portfolio managers participate in other programs designed to reward and
retain key contributors. Portfolio managers also may participate in a deferred
compensation program, whereby deferred amounts are invested in one or more
Pioneer funds.
SHARE OWNERSHIP BY PORTFOLIO MANAGERS
The following table indicates as of June 30, 2018 the value, within the
indicated range, of shares beneficially owned by the portfolio managers of the
fund.
BENEFICIAL OWNERSHIP
NAME OF PORTFOLIO MANAGER OF THE FUND*
--------------------------- ---------------------
Kenneth Taubes E
--------------------------- ---------------------
Brad Komenda D
--------------------------- ---------------------
Timothy Rowe E
--------------------------- ---------------------
* Key to Dollar Ranges
A. None
B. $1 - $10,000
C. $10,001 - $50,000
D. $50,001 - $100,000
E. $100,001 - $500,000
F. $500,001 - $1,000,000
G. Over $1,000,000
10. PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of the fund by Amundi 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.
Amundi Pioneer normally seeks to deal directly with the primary market makers
unless, in its opinion, better prices are available elsewhere.
62
Amundi Pioneer seeks to obtain overall 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, Amundi 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.).
Amundi 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 Amundi 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 Amundi 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). Amundi 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 Amundi 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. Amundi
Pioneer believes that no exact dollar value can be calculated for such
services.
The research received from broker-dealers may be useful to Amundi Pioneer in
rendering investment management services to the fund as well as other
investment companies or other accounts managed by Amundi 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 Amundi Pioneer in carrying out its
obligations to the fund. The receipt of such research enables Amundi Pioneer to
avoid the additional expenses that might otherwise be incurred if it were to
attempt to develop comparable information through its own staff.
The fund may participate in third-party brokerage and/or expense offset
arrangements to reduce the fund's total operating expenses. Pursuant to
third-party brokerage arrangements, the fund may incur lower expenses by
directing brokerage to third-party broker-dealers which have agreed to use part
of their commission to pay the fund's fees to service providers unaffiliated
with Amundi Pioneer or other expenses. Since the commissions paid to the third
party brokers reflect a commission cost that the fund would generally expect to
incur on its brokerage transactions but not necessarily the lowest possible
commission, this arrangement is intended to reduce the fund's operating
expenses without increasing the cost of its brokerage commissions. Since use of
such directed brokerage is subject to the requirement to achieve best execution
in connection with the fund's brokerage transactions, there can be no assurance
that such arrangements will be utilized. Pursuant to expense offset
arrangements, the fund may incur lower transfer agency expenses due to interest
earned on cash held with the transfer agent. See "Financial highlights" in the
prospectus.
63
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 Amundi Pioneer's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the fund.
11. DESCRIPTION OF SHARES
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 contingent deferred sales charge ("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 fund is a series of Pioneer Bond Fund, a Delaware statutory trust. The
Trustees have authorized the issuance of the following classes of shares of the
fund, designated as Class A, Class C, Class K, Class R, Class T and Class Y
shares. Class T shares have not been issued as of the date of this statement of
additional information. 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 identical rights (based on relative net
asset values) to assets and liquidation proceeds. Share classes can bear
different class-specific fees and expenses such as transfer agent and
distribution fees. Differences in class-specific fees and expenses will result
in differences in net investment income and, therefore, the payment of
different dividends by each class. Share classes have exclusive voting rights
with respect to matters affecting only that class, including with respect to
the distribution plan for that class.
THE TRUST
The Trust's operations are governed by the Amended and Restated Agreement and
Declaration of Trust, dated as of January 12, 2016 (referred to in this section
as the declaration). A copy of the Trust's Certificate of Trust dated as of
January 5, 1999, as amended, is on file with the office of the Secretary of
State of Delaware.
Delaware law provides a statutory framework for the powers, duties, rights and
obligations of the board (referred to in this section as the trustees) and
shareholders of the Delaware statutory trust, while the more specific powers,
duties, rights and obligations of the trustees and the shareholders are
determined by the trustees as set forth in the declaration. Some of the more
significant provisions of the declaration are described below.
SHAREHOLDER VOTING
The declaration provides for shareholder voting as required by the 1940 Act or
other applicable laws but otherwise permits, consistent with Delaware law,
actions by the trustees without seeking the consent of shareholders. The
trustees may, without shareholder approval, where approval of shareholders is
not otherwise required under the 1940 Act, merge or consolidate the Trust into
other entities, reorganize the Trust or any series or class into another trust
or entity or a series or class of another entity, sell the assets of the Trust
or any series or class to another entity, or a series or class of another
entity, or terminate the Trust or any series or class.
64
The fund is not required to hold an annual meeting of shareholders, but the
fund will call special meetings of shareholders whenever required by the 1940
Act or by the terms of the declaration. The declaration gives the board the
flexibility to specify either per share voting or dollar-weighted voting. Under
per share voting, each share of the fund is entitled to one vote. Under
dollar-weighted voting, a shareholder's voting power is determined, not by the
number of shares the shareholder owns, but by the dollar value of those shares
determined on the record date. All shareholders of all series and classes of
the Trust vote together, except where required by the 1940 Act to vote
separately by series or by class, or when the trustees have determined that a
matter affects only the interests of one or more series or classes of shares.
ELECTION AND REMOVAL OF TRUSTEES
The declaration provides that the trustees may establish the number of trustees
and that vacancies on the board may be filled by the remaining trustees, except
when election of trustees by the shareholders is required under the 1940 Act.
Trustees are then elected by a plurality of votes cast by shareholders at a
meeting at which a quorum is present. The declaration also provides that a
mandatory retirement age may be set by action of two-thirds of the trustees and
that trustees may be removed at any time or for any reason by a majority of the
board or by a majority of the outstanding shareholders of the Trust.
AMENDMENTS TO THE DECLARATION
The trustees are authorized to amend the declaration without the vote of
shareholders, but no amendment may be made that impairs the exemption from
personal liability granted in the declaration to persons who are or have been
shareholders, trustees, officers or, employees of the trust or that limit the
rights to indemnification or insurance provided in the declaration with respect
to actions or omissions of persons entitled to indemnification under the
declaration prior to the amendment.
ISSUANCE AND REDEMPTION OF SHARES
The fund may issue an unlimited number of shares for such consideration and on
such terms as the trustees may determine. Shareholders are not entitled to any
appraisal, preemptive, conversion, exchange or similar rights, except as the
trustees may determine. The fund may involuntarily redeem a shareholder's
shares upon certain conditions as may be determined by the trustees, including,
for example, if the shareholder fails to provide the fund with identification
required by law, or if the fund is unable to verify the information received
from the shareholder. Additionally, as discussed below, shares may be redeemed
in connection with the closing of small accounts.
DISCLOSURE OF SHAREHOLDER HOLDINGS
The declaration specifically requires shareholders, upon demand, to disclose to
the fund information with respect to the direct and indirect ownership of
shares in order to comply with various laws or regulations, and the fund may
disclose such ownership if required by law or regulation.
SMALL ACCOUNTS
The declaration provides that the fund may close out a shareholder's account by
redeeming all of the shares in the account if the account falls below a minimum
account size (which may vary by class) that may be set by the trustees from
time to time. Alternately, the declaration permits the fund to assess a fee for
small accounts (which may vary by class) and redeem shares in the account to
cover such fees, or convert the shares into another share class that is geared
to smaller accounts.
SERIES AND CLASSES
The declaration provides that the trustees may establish series and classes in
addition to those currently established and to determine the rights and
preferences, limitations and restrictions, including qualifications for
ownership, conversion and exchange features, minimum purchase and account size,
expenses
65
and charges, and other features of the series and classes. The trustees may
change any of those features, terminate any series or class, combine series
with other series in the trust, combine one or more classes of a series with
another class in that series or convert the shares of one class into another
class.
Each share of the fund, as a series of the Trust, represents an interest in the
fund only and not in the assets of any other series of the Trust.
SHAREHOLDER, TRUSTEE AND OFFICER LIABILITY
The declaration provides that shareholders are not personally liable for the
obligations of the fund and requires a fund to indemnify a shareholder against
liability arising solely from the shareholder's ownership of shares in the
fund. In addition, the fund will assume the defense of any claim against a
shareholder for personal liability at the request of the shareholder. The
declaration also provides that no Trustee, officer or employee of the Trust
owes any duty to any person (including without limitation any shareholder),
other than the Trust or any series. The declaration further provides that no
trustee, officer or employee of the fund shall be liable to the fund or any
shareholder for any action, failure to act, error or mistake except in cases of
bad faith, willful misfeasance, gross negligence or reckless disregard of duty.
The declaration requires the fund to indemnify each trustee, director, officer,
employee and authorized agent to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been such a
trustee, director, officer, employee, or agent and against amounts paid or
incurred by him in settlement thereof. The 1940 Act currently provides that no
officer or director shall be protected from liability to the fund or
shareholders for willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties of office. The declaration extends to trustees,
officers and employees of the fund the full protection from liability that the
law allows.
The declaration provides that the appointment, designation or identification of
a trustee as chairperson, a member of a committee, an expert, lead independent
trustee, or any other special appointment, designation or identification shall
not impose any heightened standard of care or liability on such trustee.
DERIVATIVE AND DIRECT ACTIONS
The declaration provides a detailed process for the bringing of derivative or
direct actions by shareholders in order to permit legitimate inquiries and
claims while avoiding the time, expense, distraction, and other harm that can
be caused to the fund or its shareholders as a result of spurious shareholder
demands and derivative actions. Prior to bringing a derivative action, a demand
by three unrelated shareholders must first be made on the fund's trustees. The
declaration details various information, certifications, undertakings and
acknowledgements that must be included in the demand. Following receipt of the
demand, the trustees have a period of 90 days, which may be extended by an
additional 60 days, to consider the demand. If a majority of the trustees who
are considered independent for the purposes of considering the demand determine
that maintaining the suit would not be in the best interests of the fund, the
trustees are required to reject the demand and the complaining shareholders may
not proceed with the derivative action unless the shareholders are able to
sustain the burden of proof to a court that the decision of the trustees not to
pursue the requested action was not a good faith exercise of their business
judgment on behalf of the fund. The declaration further provides that
shareholders owning shares representing at least 10% of the voting power of the
affected fund must join in bringing the derivative action. If a demand is
rejected, the complaining shareholders will be responsible for the costs and
expenses (including attorneys' fees) incurred by the fund in connection with
the consideration of the demand, if a court determines that the demand was made
without reasonable cause or for an improper purpose. If a derivative action is
brought in violation of the declaration, the shareholders bringing the action
may be responsible for the fund's costs, including attorneys' fees, if a court
determines that the action was brought without reasonable cause or for an
improper purpose.
66
The declaration provides that no shareholder may bring a direct action claiming
injury as a shareholder of the Trust, or any series or class thereof, where the
matters alleged (if true) would give rise to a claim by the Trust or by the
Trust on behalf of a series or class, unless the shareholder has suffered an
injury distinct from that suffered by the shareholders of the Trust, or the
series or class, generally. Under the declaration, a shareholder bringing a
direct claim must be a shareholder of the series or class with respect to which
the direct action is brought at the time of the injury complained of, or have
acquired the shares afterwards by operation of law from a person who was a
shareholder at that time.
The declaration further provides that the fund shall be responsible for payment
of attorneys' fees and legal expenses incurred by a complaining shareholder
only if required by law, and any attorneys' fees that the fund is obligated to
pay shall be calculated using reasonable hourly rates. The declaration also
requires that actions by shareholders against the fund be brought only in
federal court in Boston, Massachusetts, or if not permitted to be brought in
federal court, then in state court in Boston, Massachusetts, and that
shareholders have no right to jury trial for such actions.
The declaration also provides that shareholders have no rights, privileges,
claims or remedies under any contract or agreement entered into by the Trust
with any service provider or other agent or contract with the Trust, including,
without limitation, any third party beneficiary rights, except as may be
expressly provided in any service contract or agreement.
12. SALES CHARGES
The fund continuously offers the following classes of shares: Class A, Class C,
Class K, Class R and Class Y 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. The availability of
certain sales charge waivers and discounts may depend on whether you purchase
your shares directly from the fund or through a financial intermediary. Please
see the prospectus to determine any sales charge discounts and waivers that may
be available to you through your financial intermediary.
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 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 Amundi Pioneer Distributor, Inc. is notified by such person or his or
her broker-dealer
67
each time a purchase is made which would qualify. Pioneer mutual funds include
all mutual funds for which Amundi Pioneer Distributor, Inc. serves as principal
underwriter. At the sole discretion of Amundi Pioneer Distributor, Inc.,
holdings of funds domiciled outside the U.S., but which are managed by
affiliates of Amundi Pioneer, may be included for this purpose.
No sales charge is payable at the time of purchase on investments of $500,000
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 12 months of purchase. Amundi Pioneer
Distributor, Inc. may, in its discretion, pay a commission to broker-dealers
who initiate and are responsible for such purchases as follows:
1.00% Up to $4 million
---- ---------------------------------
Greater than $4 million and less
0.50% than or equal to $50 million
---- ---------------------------------
0.25% Over $50 million
---- ---------------------------------
Commissions are based on cumulative investments in Class A shares of the
Pioneer funds. 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 $500,000 in total plan assets (or that has 1,000 or more eligible
participants for employer-sponsored retirement plans with accounts established
with Amundi 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 12 months of purchase.
If an investor eligible to purchase Class R shares is otherwise qualified to
purchase Class A shares at net asset value or at a reduced sales charge, Class
A shares may be selected where the investor does not require the distribution
and account services needs typically required by Class R share investors and/or
the broker-dealer has elected to forgo the level of compensation that Class R
shares provides.
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 the fund's transfer agent
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 the fund's transfer agent,
registered in your name, until the terms of the LOI are fulfilled. When you
sign the Account Application, you agree to irrevocably appoint the fund's
transfer agent 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. Any share class for which no sales charge is paid cannot
be included under the LOI.
If the total purchases exceed the amount specified under the LOI and are in an
amount that 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 Amundi Pioneer Distributor, Inc., 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.
68
If the total purchases are less than the amount specified under the LOI, Amundi
Pioneer Distributor, Inc. will recalculate your sales charge and the fund's
transfer agent will redeem the appropriate number of shares held in escrow to
realize the difference and release any excess.
If sufficient shares are not purchased to complete the LOI because all
registered account owners died within the 13-month period, Amundi Pioneer
Distributor, Inc. will consider the LOI complete and will not adjust past
transactions for purposes of the sales charges paid. Commissions to dealers
will not be adjusted or paid on the difference between the LOI amount and the
amount actually invested before the shareholders' deaths.
CLASS C SHARES
You may buy Class C 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 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. Effective September 1, 2018, Class C
shares automatically convert to Class A shares after 10 years.
The automatic conversion will be based on the relative net asset values of the
two share classes without the imposition of a sales charge or fee. Generally,
in order for your Class C shares to be eligible for automatic conversion to
Class A shares, the fund or the financial intermediary through which you
purchased your shares must have records which confirm that your Class C shares
have been held for 10 years. Class C shares held through group retirement plan
recordkeeping platforms of certain financial intermediaries who hold such
shares in an omnibus account and do not track participant level share lot aging
to facilitate such a conversion will not be eligible for automatic conversion
to Class A shares. Specific intermediaries may have different policies and
procedures regarding the conversion of Class C shares to Class A 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 Amundi Pioneer Distributor, Inc. and are
used in whole or in part to defray Amundi Pioneer Distributor, Inc.'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.
CLASS K SHARES
No front-end, deferred or asset-based sales charges are applicable to Class K
shares.
CLASS R SHARES
You may buy Class R shares at the net asset value per share next computed after
receipt of a purchase order without the imposition of an initial sales charge
or CDSC.
Class R shares are available to certain tax-deferred retirement plans
(including 401(k) plans, employer-sponsored 403(b) plans, 457 plans, profit
sharing and money purchase pension plans, defined benefit plans and
non-qualified deferred compensation plans) held in plan level or omnibus
accounts. Class R shares also are available to individual retirement account
rollovers from eligible retirement plans that offered one or more Pioneer funds
as investment options. Class R shares generally are not available to
non-retirement accounts, traditional and Roth IRA's, Coverdell Education
Savings Accounts, SEP's, SAR-SEP's, Simple IRA's, individual 403(b)'s or
retirement plans that are not subject to the Employee Retirement Income
Security Act of 1974.
69
Investors that are eligible to purchase Class R shares may also be eligible to
purchase other share classes. Your investment professional can help you
determine which class is appropriate. You should ask your investment
professional if you qualify for a waiver of sales charges on another class and
take that into consideration when selecting a class of shares. Your investment
firm may receive different compensation depending upon which class is chosen.
CLASS Y SHARES
No front-end, deferred or asset-based sales charges are applicable to Class Y
shares.
ADDITIONAL PAYMENTS TO FINANCIAL INTERMEDIARIES
The financial intermediaries through which shares are purchased may receive all
or a portion of the sales charges and Rule 12b-1 fees discussed above. In
addition to those payments, Amundi Pioneer or one or more of its affiliates
(collectively, "Amundi Pioneer Affiliates") may make additional payments to
financial intermediaries in connection with the promotion and sale of shares of
Pioneer funds. Amundi Pioneer Affiliates make these payments from their own
resources, which include resources that derive from compensation for providing
services to the Pioneer funds. These additional payments are described below.
The categories described below are not mutually exclusive. The same financial
intermediary may receive payments under more than one or all categories. Many
financial intermediaries that sell shares of Pioneer funds receive one or more
types of these payments. The financial intermediary typically initiates
requests for additional compensation. Amundi Pioneer negotiates these
arrangements individually with financial intermediaries and the amount of
payments and the specific arrangements may differ significantly. A financial
intermediary also may receive different levels of compensation with respect to
sales or assets attributable to different types of clients of the same
intermediary or different Pioneer funds. Where services are provided, the costs
of providing the services and the overall array of services provided may vary
from one financial intermediary to another. Amundi Pioneer Affiliates do not
make an independent assessment of the cost of providing such services. While
the financial intermediaries may request additional compensation from Amundi
Pioneer to offset costs incurred by the financial intermediary in servicing its
clients, the financial intermediary may earn a profit on these payments, since
the amount of the payment may exceed the financial intermediary's costs. In
this context, "financial intermediary" includes any broker, dealer, bank
(including bank trust departments), insurance company, transfer agent,
registered investment adviser, financial planner, retirement plan administrator
and any other financial intermediary having a selling, administrative and
shareholder servicing or similar agreement with an Amundi Pioneer Affiliate.
A financial intermediary's receipt of additional compensation may create
conflicts of interest between the financial intermediary and its clients. Each
type of payment discussed below may provide your financial intermediary with an
economic incentive to actively promote the Pioneer funds over other mutual
funds or cooperate with the distributor's promotional efforts. The receipt of
additional compensation for Amundi Pioneer Affiliates may be an important
consideration in a financial intermediary's willingness to support the sale of
the Pioneer funds through the financial intermediary's distribution system.
Amundi Pioneer Affiliates are motivated to make the payments described above
since they promote the sale of Pioneer fund shares and the retention of those
investments by clients of financial intermediaries. In certain cases these
payments could be significant to the financial intermediary. The financial
intermediary may charge additional fees or commissions other than those
disclosed in the prospectus. Financial intermediaries may categorize and
disclose these arrangements differently than Amundi Pioneer Affiliates do. To
the extent financial intermediaries sell more shares of the funds or retain
shares of the funds in their clients' accounts, Amundi Pioneer Affiliates
benefit from the incremental management and other fees paid to Amundi Pioneer
Affiliates by the funds with respect to those assets.
70
REVENUE SHARING PAYMENTS
Amundi Pioneer Affiliates make revenue sharing payments as incentives to
certain financial intermediaries to promote and sell shares of Pioneer funds.
The benefits Amundi Pioneer Affiliates receive when they make these payments
include, among other things, entry into or increased visibility in the
financial intermediary's sales system, participation by the intermediary in the
distributor's marketing efforts (such as helping facilitate or providing
financial assistance for conferences, seminars or other programs at which
Amundi Pioneer personnel may make presentations on the funds to the
intermediary's sales force), placement on the financial intermediary's
preferred fund list, and access (in some cases, on a preferential basis over
other competitors) to individual members of the financial intermediary's sales
force or management. Revenue sharing payments are sometimes referred to as
"shelf space" payments because the payments compensate the financial
intermediary for including Pioneer funds in its fund sales system (on its
"shelf space"). Amundi Pioneer Affiliates also may pay financial intermediaries
"finders'" or "referral" fees for directing investors to the Pioneer funds.
Amundi Pioneer Affiliates compensate financial intermediaries differently
depending typically on the level and/or type of considerations provided by the
financial intermediary.
The revenue sharing payments Amundi Pioneer Affiliates make may be calculated
on sales of shares of Pioneer funds ("Sales-Based Payments"); although there is
no policy limiting the amount of Sales-Based Payments any one financial
intermediary may receive, the total amount of such payments normally does not
exceed 0.25% per annum of those assets. Such payments also may be calculated on
the average daily net assets of the applicable Pioneer funds attributable to
that particular financial intermediary ("Asset-Based Payments"); although there
is no policy limiting the amount of Asset-Based Payments any one financial
intermediary may receive, the total amount of such payments normally does not
exceed 0.16% per annum of those assets. Sales-Based Payments primarily create
incentives to make new sales of shares of Pioneer funds and Asset-Based
Payments primarily create incentives to retain previously sold shares of
Pioneer funds in investor accounts. Amundi Pioneer Affiliates may pay a
financial intermediary either or both Sales-Based Payments and Asset-Based
Payments.
ADMINISTRATIVE AND PROCESSING SUPPORT PAYMENTS
Amundi Pioneer Affiliates also may make payments to certain financial
intermediaries that sell Pioneer fund shares for certain administrative
services, including record keeping and sub-accounting shareholder accounts, to
the extent that the funds do not pay for these costs directly. Amundi Pioneer
Affiliates also may make payments to certain financial intermediaries that sell
Pioneer fund shares in connection with client account maintenance support,
statement preparation and transaction processing. The types of payments that
Amundi Pioneer Affiliates may make under this category include, among others,
payment of ticket charges per purchase or exchange order placed by a financial
intermediary, payment of networking fees in connection with certain mutual fund
trading systems, or one-time payments for ancillary services such as setting up
funds on a financial intermediary's mutual fund trading system.
OTHER PAYMENTS
From time to time, Amundi Pioneer Affiliates, at their expense, may provide
additional compensation to financial intermediaries which sell or arrange for
the sale of shares of the Pioneer funds. Such compensation provided by Amundi
Pioneer Affiliates may include financial assistance to financial intermediaries
that enable Amundi Pioneer Affiliates to participate in and/or present at
conferences or seminars, sales or training programs for invited registered
representatives and other employees, client entertainment, client and investor
events, and other financial intermediary-sponsored events, and travel expenses,
including lodging incurred by registered representatives and other employees in
connection with client prospecting, retention and due diligence trips. Other
compensation may be offered to the extent not prohibited by federal or state
laws or any self-regulatory agency, such as FINRA. Amundi Pioneer Affiliates
make payments for entertainment events they deem appropriate, subject to Amundi
Pioneer Affiliates'
71
guidelines and applicable law. These payments may vary depending upon the
nature of the event or the relationship. Amundi Pioneer Affiliates also may
make payments to financial intermediaries for detailed information about the
intermediaries' activities relating to the Pioneer funds.
As of January 1, 2018, Amundi Pioneer anticipates that the following
broker-dealers or their affiliates will receive additional payments as
described in the fund's prospectus and statement of additional information:
ADP Retirement Services
AIG
Ameriprise Financial Services, Inc.
Ascensus Broker Dealer Services, Inc.
Cetera Advisors Networks LLC
Charles Schwab & Co., Inc.
Citigroup Global Markets Inc.
Commonwealth Financial Network
Conduent Securities, LLC
Fidelity Brokerage Services LLC
First Clearing, LLC
First Command Financial Planning, Inc.
FSC Securities Corporation
Guardian Investor Services LLC
GWFS Equities, Inc.
H.D. Vest Investment Services
Hartford Securities Distribution Company, Inc.
J.P. Morgan Securities LLC
Jefferson National Securities Corporation
Ladenburg Thalmann & Co. Inc.
Legend Equities Corporation
Lincoln Financial
LPL Financial Corp.
Merrill Lynch & Co., Inc.
MetLife Securities Inc.
Mid Atlantic Capital Corporation
MML Investors Services
Morgan Stanley & Co., Inc.
MSCS Financial Services, LLC
Mutual of Omaha Investor Services, Inc.
N.I.S. Financial Services, Inc.
National Financial Services LLC
Nationwide Securities, Inc.
Northwestern Investment Services, LLC
NYLife Securities, LLC
OneAmerica Securities, Inc.
Oppenheimer & Co. Inc.
Pershing LLC
PFS Investments Inc.
PNC Investments
Principal Securities, Inc.
Prudential Financial
Raymond James Financial Services, Inc.
RBC Dain Rauscher Inc.
72
Royal Alliance Associates, Inc.
SagePoint Financial
Sammons Financial Network, LLC
Symetra Investment Services, Inc.
TD Ameritrade, Inc.
TIAA-CREF Individual & Institutional Services, LLC
T. Rowe Price Investment Services, Inc.
Transamerica Financial Advisors, Inc.
UBS Financial Services Inc.
U.S. Bancorp Investments, Inc.
Vanguard Marketing Corporation
Voya Financial Partners, LLC
Wells Fargo Investments, LLC
Woodbury Financial Services
Please contact your financial intermediary for details about any payments it
receives from Amundi Pioneer
Affiliates or the funds, as well as about fees and/or commissions it charges.
13. 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 otherwise as
permitted by the rules of or by the order of the SEC.
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 C AND CLASS 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 to use the SWP option.
Periodic payments 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 C and Class R 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.
73
A SWP may be terminated at any time (1) by written notice to the fund or from
the fund to the shareholder; (2) upon receipt by the fund 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 the fund at 1-800-225-6292.
REINSTATEMENT PRIVILEGE (CLASS A SHARES)
Subject to the provisions outlined in the prospectus, you may reinvest all or
part of your sale proceeds from Class A 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.
14. TELEPHONE AND ONLINE TRANSACTIONS
You may purchase, exchange or sell 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 "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, the fund's transfer agent nor Amundi Pioneer Distributor,
Inc. 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:
o For new accounts, complete the online section of the account application
o For existing accounts, complete an account options form, write to the fund or
complete the online authorization screen on us.amundipioneer.com
To use online transactions, you must read and agree to the terms of an online
transaction agreement available on the Amundi 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.
74
TELEPHONE AND WEBSITE ONLINE ACCESS
You may have difficulty contacting the fund by telephone or accessing
us.amundipioneer.com during times of market volatility or disruption in
telephone or Internet services. On Exchange holidays or on days when the
Exchange closes early, Amundi Pioneer will adjust the hours for the telephone
center and for online transaction processing accordingly. If you are unable to
access us.amundipioneer.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 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
the fund at 1-800-225-6292 for assistance.
FactFone/SM/ allows shareholders to hear the following recorded fund
information:
o net asset value prices for all Pioneer mutual funds;
o dividends and capital gain distributions on all Pioneer mutual funds.
The value of each class of shares (except for Pioneer U.S. Government Money
Market Fund, which seeks 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.
15. PRICING OF SHARES
The net asset value per share of each class of the fund is determined as of the
scheduled 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 days the following holidays are observed: 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. 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
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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 Amundi Pioneer to be unreliable, the fund uses fair value methods
to value its securities in accordance with procedures approved by the fund's
trustees. The fund also may use fair value pricing methods to value its
securities, including a non-U.S. security, when Amundi 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. Valuing securities using fair value methods may
cause the net asset value of the fund's 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 may use a pricing matrix. The prices used for these securities may differ
from the amounts received by the fund upon sale of the securities, and these
differences may be substantial.
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
C, Class K, Class R, and Class Y shares are offered at net asset value without
the imposition of an initial sales charge (Class C may be subject to a CDSC).
16. TAX STATUS
The fund has elected to be treated, and has qualified and intends to continue
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. In order to qualify as a regulated
investment company under Subchapter M of the Code, the fund must, among other
things, (i) derive at least 90% of its gross income for each taxable year from
dividends, interest, payments with respect to certain 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, and net income derived from an interest in a qualified publicly
traded partnership (as defined in Section 851(h) of the Code) (the "90% income
test") and (ii) diversify its holdings so that, at the end of each quarter of
each taxable year: (a) at least 50% of the value of the fund's total assets is
represented by (1) cash and cash items, U.S. government securities, securities
of other regulated investment companies, and (2) other securities, with such
other securities limited, in respect of any one issuer, to an amount not
greater than 5% of the value of the fund's total assets and to not more than
10% of the outstanding voting securities of such issuer and (b) not more than
25% of the value of the fund's total assets is invested in (1) the securities
(other than U.S. government securities and securities of other regulated
investment companies) of any one issuer, (2) the securities (other than
securities of other regulated investment companies) of two or more issuers that
the fund controls and that are engaged in the same, similar, or related trades
or businesses, or (3) the securities of one or more qualified publicly traded
partnerships.
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 other than certain
publicly traded partnerships or trusts that have not elected to be classified
as corporations
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under the "check-the-box" regulations) will generally pass through to the fund.
Consequently, in order to qualify as a regulated investment company, 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 income, if any, over certain disallowed deductions,
the fund generally will not be subject to 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 its taxable income or gains, it generally will be subject to U.S.
federal income tax at regular corporate rates on the amount retained. The fund
may designate certain amounts retained as undistributed net capital gain in a
notice to its shareholders, who (i) will be required to include in income for
U.S. federal income tax purposes, as long-term capital gain, their
proportionate shares of the undistributed amount so designated, (ii) will be
entitled to credit their proportionate shares of the income tax paid by the
fund on that undistributed amount against their federal income tax liabilities
and to claim refunds to the extent such credits exceed their liabilities and
(iii) will be entitled to increase their tax basis, for federal income tax
purposes, in their shares by an amount equal to the excess of the amount of
undistributed net capital gain included in their respective income over their
respective income tax credits. The fund intends to distribute at least annually
all or substantially all of its investment company taxable income (computed
without regard to the dividends-paid deduction), net tax-exempt interest
income, and net capital gain.
The tax treatment of certain insurance-linked securities is not entirely clear.
Certain of the fund's investments (including commodity-linked investments and,
potentially, certain insurance-linked securities) may generate income that is
not qualifying income for purposes of the 90% income test. The fund might
generate more non-qualifying income than anticipated, might not be able to
generate qualifying income in a particular taxable year at levels sufficient to
meet the 90% income test, or might not be able to determine the percentage of
qualifying income it has derived for a taxable year until after year-end. The
fund may determine not to make an investment that it otherwise would have made,
or may dispose of an investment it otherwise would have retained (potentially
resulting in the recognition of taxable gain or loss, and potentially under
disadvantageous circumstances), in an effort to meet the 90% income test.
If, for any taxable year, the fund does not qualify as a regulated investment
company or does not satisfy the 90% distribution requirement, it will 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 and to a
further tax at the shareholder level when such income is distributed. Under
certain circumstances, the fund may be able to cure a failure to qualify as a
regulated investment company, but in order to do so, the fund may incur
significant fund-level taxes and may be forced to dispose of certain assets.
Under the Code, the fund will be subject to a nondeductible 4% U.S. 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 and year ending October 31, respectively. The fund
intends to make distributions in a timely manner and accordingly does not
expect to be subject to the excise tax.
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The fund declares a dividend from any net investment income (other than capital
gains) each business day. The fund generally pays dividends from any net
investment income (other than capital gains) 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.
Unless a shareholder specifies otherwise, all distributions from the fund to
that shareholder 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 net investment income
and net short-term capital gains are taxable either as ordinary income or, if
certain conditions are met, as "qualified dividend income," taxable to
individual and certain other noncorporate shareholders at U.S. federal income
tax rates of up to 20%.
The fund invests primarily in debt securities. However, a portion of the
dividend distributions to individuals and certain other noncorporate
shareholders may qualify for U.S. federal income tax rates of up to 20% on
dividends to the extent that such dividends are attributable to qualified
dividend income received by the fund. Qualified dividend income generally means
dividend income received from the fund's investments, if any, 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. The fund is permitted to acquire
equity securities and debt securities that are convertible to equity under
certain circumstances, and it is therefore possible that a portion of the
fund's distributions may be eligible for treatment as qualified dividend
income.
A foreign corporation is treated as a qualified foreign corporation for this
purpose if it is incorporated in a possession of the United States or it is
eligible for the benefits of certain income tax treaties with the United States
and meets certain additional requirements. Certain foreign corporations that
are not otherwise qualified foreign corporations will be treated as qualified
foreign corporations with respect to dividends paid by them if the stock with
respect to which the dividends are paid is readily tradable on an established
securities market in the United States. Passive foreign investment companies
are not qualified foreign corporations for this purpose. Dividends received by
the fund from REITs generally are not expected to qualify for treatment as
qualified dividend income.
A dividend that is attributable to qualified dividend income of the fund that
is paid by the fund to a shareholder will not be taxable as qualified dividend
income to such shareholder (1) if 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 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) if the shareholder elects to have the
dividend treated as investment income for purposes of the limitation on
deductibility of investment interest. The "ex-dividend" date is the date on
which the owner of the share at the commencement of such date is entitled to
receive the next issued dividend payment for such share even if the share is
sold by the owner on that date or thereafter.
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.
Certain dividends received by the fund from U.S. corporations (generally,
dividends received by the fund in respect of any share of stock (1) with a tax
holding period of at least 46 days during the 91-day period beginning on the
date that is 45 days before the date on which the stock becomes ex-dividend as
to that dividend and (2) that is held in an unleveraged position) and
distributed and appropriately so reported by the fund may be eligible for the
50% dividends-received deduction generally available to corporations under
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the Code. Certain preferred stock must have a holding period of at least 91
days during the 181-day period beginning on the date that is 90 days before the
date on which the stock becomes ex-dividend as to that dividend in order to be
eligible. Capital gain dividends distributed to the fund from other regulated
investment companies are not eligible for the dividends-received deduction. The
fund is permitted to acquire stock of U.S. domestic corporations, and it is
therefore possible that a portion of the fund's distributions may qualify for
this deduction. 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 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 with respect to those shares. 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.
Distributions from net capital gains, if any, that are reported as capital gain
dividends by the fund 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 and certain other noncorporate shareholders will be taxed as
long-term capital gains, which are generally taxable to noncorporate taxpayers
at U.S. federal income tax rates of up to 20%. A shareholder should also be
aware that the benefits of the favorable tax rates applicable to long-term
capital gains and qualified dividend income may be affected by the application
of the alternative minimum tax.
The U.S. federal income tax status of all distributions will be reported to
shareholders annually.
A 3.8% Medicare contribution tax generally applies to all or a portion of the
net investment income of a shareholder who is an individual and not a
nonresident alien for federal income tax purposes and who has adjusted gross
income (subject to certain adjustments) that exceeds a threshold amount
($250,000 if married filing jointly or if considered a "surviving spouse" for
federal income tax purposes, $125,000 if married filing separately, and
$200,000 in other cases). This 3.8% tax also applies to all or a portion of the
undistributed net investment income of certain shareholders that are estates
and trusts. For these purposes, interest, dividends and certain capital gains
(among other categories of income) are generally taken into account in
computing a shareholder's net investment income.
Certain tax-exempt educational institutions will be subject to a 1.4% tax on
net investment income. For these purposes, certain dividends and capital gain
distributions, and certain gains from the disposition of fund shares (among
other categories of income), are generally taken into account in computing a
shareholder's net investment income.
Although dividends generally will be treated as distributed when paid, any
dividend declared by the fund in October, November or December and payable to
shareholders of record in such a month that is 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 was declared. In
addition, certain distributions made after the close of a taxable year of the
fund may be "spilled back" and treated for certain purposes as paid by the fund
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. For purposes of calculating the amount of a
regulated investment company's undistributed income and gain subject to the 4%
excise tax described above, such "spilled back" dividends are treated as paid
by the regulated investment company when they are actually paid.
For U.S. federal income tax purposes, the fund is permitted to carry forward
indefinitely a net capital loss from any taxable year to offset its capital
gains, if any, in years following the year of the loss. To the extent
subsequent capital gains are offset by such losses, they will not result in
U.S. federal income tax liability to the fund and may not be distributed as
capital gains to shareholders. See "Annual Fee, Expense and
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Other Information" for the fund's available capital loss carryforwards.
Generally, the fund may not carry forward any losses other than net capital
losses. Under certain circumstances, the fund may elect to treat certain losses
as though they were incurred on the first day of the taxable year immediately
following the taxable year in which they were actually incurred.
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 to undistributed capital gains of the fund. Consequently,
subsequent distributions by the fund with respect to these shares from such
appreciation or gains 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 to ascertain 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 to
the shareholder of long-term capital gain with respect to such shares
(including any amounts credited to the shareholder as undistributed capital
gains).
The fund will report to the Internal Revenue Service (the "IRS") the amount of
sale proceeds that a shareholder receives from a sale or exchange of fund
shares. For sales or exchanges of shares acquired on or after January 1, 2012,
the fund will also report the shareholder's basis in those shares and whether
any gain or loss that the shareholder realizes on the sale or exchange is
short-term or long-term gain or loss. For purposes of calculating and reporting
basis, shares acquired prior to January 1, 2012 and shares acquired on or after
January 1, 2012 will generally be treated as held in separate accounts. If a
shareholder has a different basis for different shares of the fund, acquired on
or after January 1, 2012, in the same account (e.g., if a shareholder purchased
fund shares in the same account at different times for different prices), the
fund will calculate the basis of the shares sold using its default method
unless the shareholder has properly elected to use a different method. The
fund's default method for calculating basis will be the average basis method,
under which the basis per share is reported as the average of the bases of all
of the shareholder's fund shares in the account. A shareholder may elect, on an
account-by-account basis, to use a method other than average basis by following
procedures established by the fund. If such an election is made on or prior to
the date of the first exchange or redemption of shares in the account and on or
prior to the date that is one year after the shareholder receives notice of the
fund's default method, the new election will generally apply as if the average
basis method had never been in effect for such account. If such an election is
not made on or prior to such dates, the shares in the account at the time of
the election will retain their averaged bases. Shareholders should consult
their tax advisers concerning the tax consequences of applying the average
basis method or electing another method of basis calculation.
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.
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Gain may be increased (or loss reduced) upon a redemption of Class A shares of
the fund within 90 days after their purchase followed by any purchase
(including purchases by exchange or by reinvestment), without payment of an
additional sales charge, of Class A shares of the fund or of another Pioneer
fund (or any other shares of a Pioneer fund generally sold subject to a sales
charge) before February 1 of the calendar year following the calendar year in
which the original Class A shares were redeemed.
Under Treasury regulations, if a shareholder recognizes a loss with respect to
fund 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 certain
greater amounts over a combination of years), the shareholder must file with
the IRS a disclosure statement on IRS 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. A shareholder who fails to make the required disclosure to the
IRS may be subject to substantial penalties. 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.
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 fund shares are "debt-financed
property" within the meaning of the Code. However, in the case of fund shares
held through a non-qualified deferred compensation plan, fund dividends and
distributions received by the plan and gains from 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 that are generally
applicable to shareholders receiving such dividends or distributions from
regulated investment companies such as the fund.
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 gains from 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.
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.
Certain investments made by the fund (including certain insurance-linked
securities) may be treated as equity in passive foreign investment companies
for federal income tax purposes. In general, a passive foreign investment
company is a foreign corporation (i) that receives at least 75% of its annual
gross income from passive sources (such as interest, dividends, certain rents
and royalties, or capital gains) or (ii) where at least 50% of its assets
(computed based on average fair market value) either produce or are held for
the production of passive income. 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 a passive foreign investment company, the
fund
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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. A
"qualified electing fund" election or a "mark to market" election may be
available that would ameliorate these adverse tax consequences, but such
elections could require the fund to recognize taxable income or gain (subject
to the distribution requirements applicable to regulated investment companies,
as described above) without the concurrent receipt of cash. In order to satisfy
the distribution requirements and avoid a tax on the fund, the fund may be
required to liquidate portfolio securities that it might otherwise have
continued to hold, potentially resulting in additional taxable gain or loss to
the fund. Gains from the sale of stock of passive foreign investment companies
may also be treated as ordinary income. In order for the fund to make a
qualified electing fund election with respect to a passive foreign investment
company, the passive foreign investment company would have to agree to provide
certain tax information to the fund on an annual basis, which it might not
agree to do. Under proposed Treasury regulations, certain income derived by the
fund for a taxable year from a passive foreign investment company with respect
to which the fund has made a qualified electing fund election would generally
constitute qualifying income only to the extent the passive foreign investment
company makes distributions in respect of that income to the fund for that
taxable year. 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.
If a sufficient portion of the interests in a foreign issuer (including certain
insurance-linked securities issuers) are held or deemed held by the fund,
independently or together with certain other U.S. persons, that issuer may be
treated as a "controlled foreign corporation" (a "CFC") with respect to the
fund, in which case the fund will be required to take into account each year,
as ordinary income, its share of certain portions of that issuer's income,
whether or not such amounts are distributed. The fund may have to dispose of
its portfolio securities (potentially resulting in the recognition of taxable
gain or loss, and potentially under disadvantageous circumstances) to generate
cash, or may have to borrow the cash, to meet its distribution requirements and
avoid fund-level taxes. Under proposed Treasury regulations, certain income
derived by the fund from a CFC for a taxable year would generally constitute
qualifying income only to the extent the CFC makes distributions in respect of
that income to the fund for that taxable year. In addition, some fund gains on
the disposition of interests in such an issuer may be treated as ordinary
income. The fund may limit and/or manage its holdings in issuers that could be
treated as CFCs in order to limit its tax liability or maximize its after-tax
return from these investments.
The law with respect to the taxation of non-U.S. entities treated as
corporations for U.S. federal income tax purposes and the individuals and
entities treated as their shareholders changed under legislation enacted in
late 2017. If the fund owned 10% or more of the voting power of a foreign
entity treated as a corporation for U.S. federal income tax purposes for the
last tax year of the foreign entity beginning before January 1, 2018, the fund
may owe a one-time transition tax on its share of certain deferred foreign
income of that foreign entity. Under those circumstances, the fund may make an
election for such transition tax to be paid in installments over eight years.
As a result of this tax, the value of the fund's shares could be reduced.
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 to its
shareholders, at least annually, all or substantially all of its investment
company taxable income (determined without regard to the deduction for
dividends paid), including such accrued income, to qualify to be treated 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
82
portfolio securities, potentially under disadvantageous circumstances, to
generate cash, or may have to borrow the cash, to satisfy distribution
requirements. Such a disposition of securities may potentially result in
additional taxable gain or loss to the fund.
The fund may invest to a significant extent in, or hold, debt obligations that
are in the lowest rating categories or that are unrated, including debt
obligations of issuers not currently paying interest or that are in default.
Investments in debt obligations that are at risk of or are in default present
special tax issues for the fund. Federal income 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 interest and
whether certain 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 or holds 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.
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 or 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. Such a disposition of securities may potentially
result in additional taxable gain or loss to the fund. 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.
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. Any such taxes 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 any share of 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.
The fund is required to withhold (as "backup withholding") a portion 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 certain IRS regulations. The backup
withholding rate is currently 24%. In order to avoid this withholding
requirement, shareholders, other than certain exempt entities, must generally
certify that the Social Security Number or other Taxpayer
83
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.
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.,
generally, 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, other regulated investment companies, 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 any lower
applicable treaty rate on amounts treated as ordinary dividends from the fund
(other than certain dividends reported by the fund as (i) interest-related
dividends, to the extent such dividends are derived from the fund's "qualified
net interest income," or (ii) short-term capital gain dividends, to the extent
such dividends are derived from the fund's "qualified short-term gain") or, in
certain circumstances, unless an effective IRS Form W-8BEN or other authorized
withholding certificate is on file, to backup withholding on certain other
payments from the fund. "Qualified net interest income" is the fund's net
income derived from U.S.-source interest and original issue discount, subject
to certain exceptions and limitations. "Qualified short-term gain" generally
means the excess of the net short-term capital gain of the fund for the taxable
year over its net long-term capital loss, if any. Backup withholding will not
be applied to payments that have been subject to the 30% (or lower applicable
treaty rate) withholding tax on shareholders who are neither citizens nor
residents of the United States.
Unless certain non-U.S. entities that hold fund shares comply with IRS
requirements that will generally require them to report information regarding
U.S. persons investing in, or holding accounts with, such entities, a 30%
withholding tax may apply to fund distributions payable to such entities and,
after December 31, 2018, to redemptions and certain capital gain dividends
payable to such entities. A non-U.S. shareholder may be exempt from the
withholding described in this paragraph under an applicable intergovernmental
agreement between the U.S. and a foreign government, provided that the
shareholder and the applicable foreign government comply with the terms of such
agreement.
Shareholders should consult their own tax advisers on these matters and on
state, local, foreign and other applicable tax laws.
If, as anticipated, the fund qualifies 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.
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, to the
extent 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.
17. FINANCIAL STATEMENTS
The fund's financial statements and financial highlights for the fiscal year
ended June 30, 2018 appearing in the fund's annual report, filed with the SEC
on August 29, 2018 (Accession No. 0000078713-18-000021), are incorporated by
reference into this statement of additional information. Those financial
84
statements and financial highlights have been audited by Ernst & Young LLP,
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.
The fund's annual report includes the financial statements referenced above and
is available without charge upon request by calling the fund at 1-800-225-6292.
18. ANNUAL FEE, EXPENSE AND OTHER INFORMATION
PORTFOLIO TURNOVER
The fund's annual portfolio turnover rate for the fiscal years ended June 30
2018 2017
------ -----
45% 44%
-- --
SHARE OWNERSHIP
As of October 1, 2018, the Trustees and officers of the fund owned beneficially
in the aggregate less than 1% of the outstanding shares of the fund. The
following is a list of the holders of 5% or more of any class of the fund's
outstanding shares as of October 1, 2018
RECORD HOLDER SHARE CLASS NUMBER OF SHARES % OF CLASS
------------------------------------------------------- ------------- ------------------ -----------
A 31,205,167.612 28.03
MLPF&S
C 1,750,843.754 24.97
FBO its clients
K 18,826,757.060 17.25
Mutual Fund Administration
R 1,725,604.572 8.94
4800 Deer Lake Drive East 2nd Floor
Y 40,915,295.618 14.30
------------- -------------- -----
Jacksonville, FL 32246-6484
-------------------------------------------------------
Y 29,714,960.625 10.38
------------- -------------- -----
Edward D. Jones
Attn: Mutual Funds
Shareholder Accounting
201 Progress Pkwy
Maryland Hts, MO 63043-3009
-------------------------------------------------------
A 11,791,870.919 10.59
National Financial Services LLC
K 11,129,768.609 10.20
Attn: Mutual Funds Dept 4th Floor
Y 34,681,627.788 12.12
------------- -------------- -----
499 Washington Blvd
Jersey City, NJ 07310-2010
-------------------------------------------------------
C 487,010.669 6.94
------------- -------------- -----
Wells Fargo Clearing Services LLC
Special Custody Acct for Exclusive Benefit of Customer
2801 Market St.
St. Louis, MO 63103-2523
-------------------------------------------------------
C 406,325.817 5.79
------------- -------------- -----
Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Funds Department
211 Main St.
San Francisco, CA 94105-1905
-------------------------------------------------------
C 511,672.555 7.30
Pershing LLC
Y 16,678,731.028 5.83
------------- -------------- -----
1 Pershing Plaza
Jersey City, NJ 07399-0001
-------------------------------------------------------
85
RECORD HOLDER SHARE CLASS NUMBER OF SHARES % OF CLASS
------------------------------------------ ------------- ------------------ -----------
C 449,695.151 6.41
------------- -------------- -----
Raymond James
Omnibus for Mutual Funds
Attn: Courtney Waller
880 Carillon Pkwy
St. Petersburg, FL 33716
------------------------------------------
C 991,594.187 14.14
Morgan Stanley Smith Barney
Y 17,902,889.479 6.26
------------- -------------- -----
Harborside Financial Center
Plaza 2, 3rd Floor
Jersey City, NJ 07311
------------------------------------------
K 6,044,895.414 5.54
------------- -------------- -----
Great-West Trust Co. LLC
Employee Benefits Clients 401K
8515 E. Orchard Rd 2T2
Greenwood Village, CO 80111-5002
------------------------------------------
K 5,839,942.795 5.35
Voya Retirement Insurance and Annuity Co.
R 1,132,541.285 5.87
------------- -------------- -----
One Orange Way B3N
Windsor, CT 06095-4773
------------------------------------------
R 2,661,152.231 13.79
------------- -------------- -----
State Street Corporation
FBO ADP Access Product
1 Lincoln St.
Boston, MA 02111-2901
------------------------------------------
R 10,574,766.769 54.79
------------- -------------- -----
Sammons Financial Network LLC
4546 Corporate Dr. Ste 100
West Des Moines, IA 50266
------------------------------------------
C 367,160.521 5.24
------------- -------------- -----
LPL Financial
FBO Customer Accounts
ATTN: Mutual Funds Operations
P.O. Box 509046
San Diego, CA 92150-9046
------------------------------------------
K 9,060,831.096 8.30
------------- -------------- -----
Saxon & Co.
VI Omnibus Account VICA
P.O. Box 7780-1888
Philadelphia, PA 19182-0001
------------------------------------------
K 12,075,165.600 11.06
------------- -------------- -----
Reliance Trust Company
FBO Reliance Advisor Portfolios
P.O. Box 48520
Atlanta GA 30362-1529
------------------------------------------
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, 2017. 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, 2017. The share value of any open-end Pioneer Fund is
based on the net asset value of the class of shares on December 31, 2017. The
dollar ranges in this table are in accordance with SEC requirements.
86
AGGREGATE DOLLAR RANGE OF EQUITY
DOLLAR RANGE OF SECURITIES IN ALL REGISTERED
EQUITY SECURITIES INVESTMENT COMPANIES OVERSEEN BY
NAME OF TRUSTEE IN THE FUND TRUSTEE IN THE PIONEER FAMILY OF FUNDS
----------------------- ------------------- ---------------------------------------
INTERESTED TRUSTEES:
----------------------- ------------------- ---------------------------------------
Lisa M. Jones $10,001 - $50,000 Over $100,000
----------------------- ------------------- ---------------------------------------
Kenneth J. Taubes $10,001 - $50,000 Over $100,000
----------------------- ------------------- ---------------------------------------
INDEPENDENT TRUSTEES:
----------------------- ------------------- ---------------------------------------
David R. Bock None Over $100,000
----------------------- ------------------- ---------------------------------------
Benjamin M. Friedman None Over $100,000
----------------------- ------------------- ---------------------------------------
Margaret B.W. Graham None Over $100,000
----------------------- ------------------- ---------------------------------------
Lorraine H. Monchak None Over $100,000
----------------------- ------------------- ---------------------------------------
Thomas J. Perna None Over $100,000
----------------------- ------------------- ---------------------------------------
Marguerite A. Piret $10,001 - $50,000 Over $100,000
----------------------- ------------------- ---------------------------------------
Fred J. Ricciardi 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
AGGREGATE BENEFITS ACCRUED TOTAL COMPENSATION
COMPENSATION AS PART OF FUND FROM THE FUND AND
NAME OF TRUSTEE+ FROM FUND** EXPENSES OTHER PIONEER FUNDS**
----------------------- -------------- ------------------ ----------------------
INTERESTED TRUSTEES:
----------------------- ----------- ----- -------------
Lisa M. Jones* $ 0.00 $0.00 $ 0.00
----------------------- ----------- ----- -------------
Kenneth J. Taubes* $ 0.00 $0.00 $ 0.00
----------------------- ----------- ----- -------------
----------------------- ----------- ----- -------------
INDEPENDENT TRUSTEES:
----------------------- ----------- ----- -------------
David R. Bock $ 31,272.66 $0.00 $ 288,125.00
----------------------- ----------- ----- -------------
Benjamin M. Friedman $ 31,102.36 $0.00 $ 286,750.00
----------------------- ----------- ----- -------------
Margaret B.W. Graham $ 27,172.99 $0.00 $ 255,000.00
----------------------- ----------- ----- -------------
Lorraine H. Monchak+ $ 28,477.97 $0.00 $ 265,625.00
----------------------- ----------- ----- -------------
Thomas J. Perna $ 39,450.26 $0.00 $ 354,250.00
----------------------- ----------- ----- -------------
Marguerite A. Piret $ 29,787.42 $0.00 $ 276,125.00
----------------------- ----------- ----- -------------
Fred J. Ricciardi $ 25,203.33 $0.00 $ 239,125.00
----------------------- ----------- ----- -------------
TOTAL $212,466.99 $0.00 $1,965,000.00
----------------------- ----------- ----- -------------
* Under the management contract, Amundi Pioneer reimburses the fund for any
Interested Trustee fees paid by the fund.
** For the fiscal year ended June 30, 2018. As of June 30, 2018, there were
42 U.S. registered investment portfolios in the Pioneer Family of Funds.
+ Ms. Lorraine H. Monchak was a non-voting Advisory Trustee of the fund
from 2014 - July 2, 2017.
APPROXIMATE MANAGEMENT FEES THE FUND PAID OR OWED AMUNDI PIONEER
The following table shows the dollar amount of gross investment management fees
incurred by the fund, along with the net amount of fees that were paid after
applicable fee waivers or expense reimbursements, if any. The data is for the
past three fiscal years or shorter period if the fund has been in operation for
a shorter period.
87
FOR THE FISCAL YEARS ENDED JUNE 30 2018 2017 2016
------------------------------------ -------------- -------------- --------------
Gross Fee Incurred $19,731,767 $16,975,464 $13,785,228
------------------------------------ ----------- ----------- -----------
Net Fee Paid $19,731,767 $16,975,464 $13,785,228
------------------------------------ ----------- ----------- -----------
FEES THE FUND PAID TO AMUNDI PIONEER UNDER THE ADMINISTRATION AGREEMENT
FOR THE FISCAL YEARS ENDED JUNE 30
---------------------------------------------------
2018 2017 2016
--------------------- ------------- -------------
$1,370,766 $1,334,755 $1,104,227
------------ ---------- ----------
UNDERWRITING EXPENSES AND COMMISSIONS
FOR THE FISCAL YEARS ENDED JUNE 30 2018 2017 2016
--------------------------------------------------------------- ---------- ---------- ----------
Approximate Net Underwriting Expenses Retained by PFD $ 42,193 $ 63,843 $ 71,806
--------------------------------------------------------------- -------- -------- --------
Approximate Commissions Reallowed to Dealers (Class A shares) $271,451 $358,809 $407,224
--------------------------------------------------------------- -------- -------- --------
Approximate Commissions Reallowed to Dealers (Class C shares) $ 0 $ 0 $ 0
--------------------------------------------------------------- -------- -------- --------
Approximate Brokerage and Underwriting Commissions (Portfolio
Transactions) $ 8 $ 4,374 $ 25,140
--------------------------------------------------------------- -------- -------- --------
FUND EXPENSES UNDER THE DISTRIBUTION PLAN
FOR THE FISCAL YEAR ENDED JUNE 30, 2018
----------------------------------------------------------------------
COMBINED PLAN CLASS A PLAN CLASS C PLAN CLASS R PLAN
------------------ -------------- -------------- --------------
$4,657,922 $2,863,481 $897,826 $896,615
------------ ---------- -------- -------- --
ALLOCATION OF FUND EXPENSES UNDER THE DISTRIBUTION PLAN
An estimate by category of the allocation of fees paid by each class of shares
of the fund during the fiscal year ended June 30, 2018 is set forth in the
following table:
PAYMENTS
TO SERVICING SALES PRINTING
PARTIES/1/ ADVERTISING MEETINGS AND MAILING TOTAL
-------------- ------------- ---------- ------------- -------------
Class A $3,005,713 $105,735 $338,288 $103,213 $3,552,949
--------- ---------- -------- -------- -------- ----------
Class C $ 882,548 $ 3,089 $ 9,939 $ 2,982 $ 898,558
--------- ---------- -------- -------- -------- ----------
Class R $ 852,337 $ 22,138 $ 71,503 $ 21,657 $ 967,635
--------- ---------- -------- -------- -------- ----------
1 Payments to Servicing Parties include Amundi Pioneer Distributor, Inc.,
broker-dealers, financial intermediaries and other parties that enter into
a distribution, selling or service agreement with respect to one or more
classes of the fund (annualized for the period ending June 30, 2018).
SECURITIES OF REGULAR BROKER-DEALERS
As of June 30, 2018, the fund held the following securities of its regular
broker-dealers (or affiliates of such broker-dealers):
($000'S)
------------------------------- -------- -------
Citigroup Debt $ 43,702
------------------------------- -------- --------
RBC Capital Markets Debt $ 20,505
------------------------------- -------- --------
JP Morgan Debt $259,195
------------------------------- -------- --------
Bank of New York Mellon Corp. Debt $ 10,517
------------------------------- -------- --------
Bank of America Debt $ 1,156
------------------------------- -------- --------
Bank of America Equity $ 22,903
------------------------------- -------- --------
Wells Fargo Equity $ 22,797
------------------------------- -------- --------
88
Wells Fargo Debt $36,570
------------- ------ -------
Barclays Debt $ 7,831
------------- ------ -------
CDSCS
During the fiscal year ended June 30, 2018, the following CDSCs were paid to
Amundi Pioneer Distributor, Inc.:
$6,433
CAPITAL LOSS CARRYFORWARDS AS OF JUNE 30, 2018
At June 30, 2018, the fund had the following net capital loss carryforward:
$10,473,300 of short-term losses and $5,062,126 of long-term losses under the
Regulated Investment Company Modernization Act of 2010 without limitation.
Included in these amounts are $911,824 of short-term losses and $6,019,010 of
long-term losses which, as a result of the reorganization with Pioneer
Government Income Fund on March 18, 2016 may be subject to limitations imposed
by the Internal Revenue Code. Since unlimited losses are required to be used
first, loss carryforwards that are subject to expiration may be more likely to
expire unused.
89
19. APPENDIX A - DESCRIPTION OF SHORT-TERM DEBT, CORPORATE BOND AND PREFERRED
STOCK RATINGS/1/
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S ("MOODY'S") SHORT-TERM
RATINGS:
Moody's short-term ratings are forward-looking opinions of the ability of
issuers to honor short-term financial obligations. Ratings may be assigned to
issuers, short-term programs or to individual short-term debt instruments. Such
obligations generally have an original maturity of thirteen months or less and
reflect the likelihood of a default on contractually promised payments.
Moody's employs the following designations to indicate the relative repayment
ability of rated issuers:
P-1: Issuers (or supporting institutions) rated Prime-1 have a superior ability
to repay short-term debt obligations.
P-2: Issuers (or supporting institutions) rated Prime-2 have a strong ability
to repay short-term debt obligations.
P-3: Issuers (or supporting institutions) rated Prime-3 have an acceptable
ability to repay short-term obligations.
NP: Issuers (or supporting institutions) rated Not Prime do not fall within any
of the Prime rating categories.
NOTE: Canadian issuers rated P-1 or P-2 have their short-term ratings enhanced
by the senior-most long-term rating of the issuer, its guarantor or
support-provider.
DESCRIPTION OF MOODY'S LONG-TERM CORPORATE RATINGS:
Moody's long-term obligation ratings are forward-looking opinions of the
relative credit risk of fixed-income obligations with an original maturity of
one year or more. They address the possibility that a financial obligation will
not be honored as promised. Such ratings use Moody's Global Long-Term Rating
Scale and reflect both on the likelihood of default on contractually promised
payments and the expected financial loss suffered in the event of default.
AAA: Obligations rated Aaa are judged to be of the highest quality, subject to
the lowest level of credit risk.
AA: Obligations rated Aa are judged to be of high quality and are subject to
very low credit risk.
A: Obligations rated A are considered upper-medium grade and are subject to low
credit risk.
BAA: Obligations rated Baa are judged to be medium-grade and subject to
moderate credit risk, and as such may possess certain speculative
characteristics.
BA: Obligations rated Ba are judged to be speculative and are subject to
substantial credit risk.
B: Obligations rated B are considered speculative and are subject to high
credit risk.
CAA: Obligations rated Caa are judged to be speculative and of poor standing
and are subject to very high credit risk.
------------------------
/1/ The ratings indicated herein are believed to be the most recent ratings
available at the date of this statement of additional information for the
securities listed. Ratings are generally given to securities at the time of
issuance. While the rating agencies may from time to time revise such
ratings, they undertake no obligation to do so, and the ratings indicated
do not necessarily represent ratings which will be given to these
securities on the date of the fund's fiscal year-end.
90
CA: Obligations rated Ca are highly speculative and are likely in, or very
near, default, with some prospect of recovery of principal and interest.
C: Obligations rated C are the lowest rated class of bonds and are typically in
default, with little prospect for recovery of principal or interest.
NOTE: Moody's appends numerical modifiers "1", "2", and "3" to each generic
rating classification from "Aa" through "Caa". The modifier "1" indicates that
the obligation ranks in the higher end of its generic rating category; the
modifier "2" indicates a mid-range ranking; and the modifier "3" indicates a
ranking in the lower end of that generic rating category. Additionally, a
"(hyb)" indicator is appended to all ratings of hybrid securities issued by
banks, finance companies and securities firms.
STANDARD & POOR'S RATINGS GROUP'S LONG-TERM ISSUE CREDIT RATINGS:
Issue credit ratings are based, in varying degrees, on Standard & Poor's
analysis of the following considerations:
o Likelihood of payment-capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation;
o Nature of and provisions of the obligation;
o Protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
Issue ratings are an assessment of default risk, but may incorporate an
assessment of relative seniority or ultimate recovery in the event of default.
Junior obligations are typically rated lower than senior obligations, to
reflect the lower priority in bankruptcy, as noted above. (Such differentiation
may apply when an entity has both senior and subordinated obligations, secured
and unsecured obligations, or operating company and holding company
obligations.)
AAA: An obligation rated "AAA" has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA: An obligation rated "AA" differs from the highest-rated obligations only to
a small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: An obligation rated "A" is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB: An obligation rated "BBB" exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
BB, B, CCC, CC, AND C: Obligations rated "BB", "B", "CCC", "CC", and "C" are
regarded as having significant speculative characteristics. "BB" indicates the
least degree of speculation and "C" the highest. While such obligations will
likely have some quality and protective characteristics, these may be
outweighed by large uncertainties or major exposures to adverse conditions.
BB: An obligation rated "BB" is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B: An obligation rated "B" is more vulnerable to nonpayment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
91
CCC: An obligation rated "CCC" is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC: An obligation rated "CC" is currently highly vulnerable to nonpayment.
C: A "C" rating is assigned to obligations that are currently highly vulnerable
to nonpayment, obligations that have payment arrearages allowed by the terms of
the documents, or obligations of an issuer that is the subject of a bankruptcy
petition or similar action which have not experienced a payment default. Among
others, the "C" rating may be assigned to subordinated debt, preferred stock or
other obligations on which cash payments have been suspended in accordance with
the instrument's terms or when preferred stock is the subject of a distressed
exchange offer, whereby some or all of the issue is either repurchased for an
amount of cash or replaced by other instruments having a total value that is
less than par.
D: An obligation rated "D" is in payment default. The "D" rating category is
used when payments on an obligation, including a regulatory capital instrument,
are not made on the date due even if the applicable grace period has not
expired, unless Standard & Poor's believes that such payments will be made
during such grace period. The "D" rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized. An obligation's rating is lowered to "D" upon
completion of a distressed exchange offer, whereby some or all of the issue is
either repurchased for an amount of cash or replaced by other instruments
having a total value that is less than par.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within the
major rating categories.
NR: This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular obligation as a matter of policy.
STANDARD & POOR'S SHORT-TERM ISSUE CREDIT RATINGS:
Short-term ratings are generally assigned to those obligations considered
short-term in the relevant market. In the U.S., for example, that means
obligations with an original maturity date of no more than 365 days - including
commercial paper. Short-term ratings are also used to indicate the
creditworthiness of an obligor with respect to put features on long-term
obligations. The result is a dual rating, in which the short-term rating
addresses the put feature, in addition to the usual long-term rating.
A-1: A short-term obligation rated "A-1" is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's capacity to
meet its financial commitment on these obligations is extremely strong.
A-2: A short-term obligation rated "A-2" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to
meet its financial commitment on the obligation is satisfactory.
A-3: A short-term obligation rated "A-3" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
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B: A short-term obligation rated "B" is regarded as having significant
speculative characteristics. Ratings of "B-1", "B-2", and "B-3" may be assigned
to indicate finer distinctions within the "B" category. The obligor currently
has the capacity to meet its financial commitment on the obligation; however,
it faces major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B-1: A short-term obligation rated "B-1" is regarded as having significant
speculative characteristics, but the obligor has a relatively stronger capacity
to meet its financial commitments over the short-term compared to other
speculative-grade obligors.
B-2: A short-term obligation rated "B-2" is regarded as having significant
speculative characteristics, and the obligor has an average speculative-grade
capacity to meet its financial commitments over the short-term compared to
other speculative-grade obligors.
B-3: A short-term obligation rated "B-3" is regarded as having significant
speculative characteristics, and the obligor has a relatively weaker capacity
to meet its financial commitments over the short-term compared to other
speculative-grade obligors.
C: A short-term obligation rated "C" is currently vulnerable to nonpayment and
is dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
D: A short-term obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation, including a regulatory capital
instrument, are not made on the date due even if the applicable grace period
has not expired, unless Standard & Poor's believes that such payments will be
made during such grace period. The "D" rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
LOCAL CURRENCY AND FOREIGN CURRENCY RISKS
Country risk considerations are a standard part of Standard & Poor's analysis
for credit ratings on any issuer or issue. Currency of repayment is a key
factor in this analysis. An obligor's capacity to repay foreign currency
obligations may be lower than its capacity to repay obligations in its local
currency due to the sovereign government's own relatively lower capacity to
repay external versus domestic debt. These sovereign risk considerations are
incorporated in the debt ratings assigned to specific issues. Foreign currency
issuer ratings are also distinguished from local currency issuer ratings to
identify those instances where sovereign risks make them different for the same
issuer.
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20. APPENDIX B - PROXY VOTING POLICIES AND PROCEDURES
POLICY
Each of Amundi Pioneer Asset Management, Inc. and Amundi Pioneer Institutional
Asset Management, Inc. (collectively, "Amundi Pioneer") is a fiduciary that
owes each of its clients the duties of care and loyalty with respect to all
services undertaken on the client's behalf, including voting proxies for
securities held by the client. When Amundi Pioneer has been delegated
proxy-voting authority for a client, the duty of care requires Amundi Pioneer
to monitor corporate events and to vote the proxies. To satisfy its duty of
loyalty, Amundi Pioneer must place the client's interests ahead of its own and
must cast proxy votes in a manner consistent with the best interest of the
client. It is Amundi Pioneer's policy to vote proxies presented to Amundi
Pioneer in a timely manner in accordance with these principles.
Amundi Pioneer's sole concern in voting proxies is the economic effect of the
proposal on the value of portfolio holdings, considering both the short- and
long-term impact. In many instances, Amundi Pioneer believes that supporting
the company's strategy and voting "for" management's proposals builds portfolio
value. In other cases, however, proposals set forth by management may have a
negative effect on that value, while some shareholder proposals may hold the
best prospects for enhancing it. Amundi Pioneer monitors developments in the
proxy-voting arena and will revise this policy as needed.
Amundi Pioneer's clients may request copies of their proxy voting records and
of Amundi Pioneer's proxy voting policies and procedures by either sending a
written request to Amundi Pioneer's Proxy Coordinator, or clients may review
Amundi Pioneer's proxy voting policies and procedures online at
us.amundipioneer.com. Amundi Pioneer may describe to clients its proxy voting
policies and procedures by delivering a copy of Amundi Pioneer's Form ADV (Part
II), by separate notice to the client or by other means.
APPLICABILITY
This Proxy Voting policy and the procedures set forth below are designed to
complement Amundi Pioneer's investment policies and procedures regarding its
general responsibility to monitor the performance and/or corporate events of
companies that are issuers of securities held in accounts managed by Amundi
Pioneer. This policy sets forth Amundi Pioneer's position on a number of issues
for which proxies may be solicited, but it does not include all potential
voting scenarios or proxy events. Furthermore, because of the special issues
associated with proxy solicitations by closed-end Funds, Amundi Pioneer will
vote shares of closed-end Funds on a case-by-case basis.
PURPOSE
The purpose of this policy is to ensure that proxies for United States ("US")
and non-US companies that are received in a timely manner will be voted in
accordance with the principles stated above. Unless the Proxy Voting Oversight
Group (as described below) specifically determines otherwise, all shares in a
company held by Amundi Pioneer-managed accounts for which Amundi Pioneer has
proxy-voting authority will be voted alike, unless a client has given specific
voting instructions on an issue.
Amundi Pioneer does not delegate the authority to vote proxies relating to
securities held by its clients to any of its affiliates, which include other
subsidiaries of Amundi.
Any questions about this policy should be directed to Amundi Pioneer's Director
of Investment Operations (the "Proxy Coordinator").
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PROCEDURES
PROXY VOTING SERVICE
Amundi Pioneer has engaged an independent proxy voting service to assist in the
voting of proxies. The proxy voting service works with custodians to ensure
that all proxy materials are received by the custodians and are processed in a
timely fashion. To the extent applicable, the proxy voting service votes all
proxies in accordance with the proxy voting guidelines established by Amundi
Pioneer and set forth herein. The proxy voting service will refer proxy
questions to the Proxy Coordinator (described below) for instructions under
circumstances where: (1) the application of the proxy voting guidelines is
unclear; (2) a particular proxy question is not covered by the guidelines; or
(3) the guidelines call for specific instructions on a case-by-case basis. The
proxy voting service is also requested to call to the Proxy Coordinator's
attention specific proxy questions that, while governed by a guideline, appear
to involve unusual or controversial issues. Amundi Pioneer reserves the right
to attend a meeting in person and may do so when it determines that the company
or the matters to be voted on at the meeting are strategically important to its
clients.
PROXY COORDINATOR
The Proxy Coordinator coordinates the voting, procedures and reporting of
proxies on behalf of Amundi Pioneer's clients. The Proxy Coordinator will deal
directly with the proxy voting service and, in the case of proxy questions
referred by the proxy voting service, will solicit voting recommendations and
instructions from the Portfolio Management Group or, to the extent applicable,
investment sub-advisers. The Proxy Coordinator is responsible for ensuring that
these questions and referrals are responded to in a timely fashion and for
transmitting appropriate voting instructions to the proxy voting service. The
Proxy Coordinator is responsible for verifying with the General Counsel or his
or her designee whether Amundi Pioneer's voting power is subject to any
limitations or guidelines issued by the client (or in the case of an employee
benefit plan, the plan's trustee or other fiduciaries).
REFERRAL ITEMS
The proxy voting service will refer proxy questions to the Proxy Coordinator or
his or her designee that are described by Amundi Pioneer's proxy voting
guidelines as to be voted on a case-by-case basis, that are not covered by
Amundi Pioneer's guidelines or where Amundi Pioneer's guidelines may be unclear
with respect to the matter to be voted on. Under such circumstances, the Proxy
Coordinator will seek a written voting recommendation from the Chief Investment
Officer, U.S. or his or her designated equity portfolio-management
representative. Any such recommendation will include: (i) the manner in which
the proxies should be voted; (ii) the rationale underlying any such decision;
and (iii) the disclosure of any contacts or communications made between Amundi
Pioneer and any outside parties concerning the proxy proposal prior to the time
that the voting instructions are provided.
SECURITIES LENDING
In accordance with industry standards, proxies are not available to be voted
when the shares are out on loan through either Amundi Pioneer's lending program
or a client's managed security lending program. However, Amundi Pioneer will
reserve the right to recall lent securities so that they may be voted according
to Amundi Pioneer's instructions. If a portfolio manager would like to vote a
block of previously lent shares, the Proxy Coordinator will work with the
portfolio manager and Investment Operations to recall the security, to the
extent possible, to facilitate the vote on the entire block of shares. Certain
clients participate in securities lending programs. Although such programs
allow for the recall of securities for any reason, Amundi Pioneer may determine
not to vote securities on loan and it may not always be possible for securities
on loan to be recalled in time to be voted.
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SHARE-BLOCKING
"Share-blocking" is a market practice whereby shares are sent to a custodian
(which may be different than the account custodian) for record keeping and
voting at the general meeting. The shares are unavailable for sale or delivery
until the end of the blocking period (typically the day after general meeting
date).
Amundi Pioneer will vote in those countries with "share-blocking." In the event
a manager would like to sell a security with "share-blocking", the Proxy
Coordinator will work with the Portfolio Manager and Investment Operations
Department to recall the shares (as allowable within the market time frame and
practices) and/or communicate with executing brokerage firm. A list of
countries with "share-blocking" is available from the Investment Operations
Department upon request.
PROXY VOTING OVERSIGHT GROUP
The members of the Proxy Voting Oversight Group include Amundi Pioneer's Chief
Investment Officer, U.S. or his or her designated equity portfolio management
representative, the Director of Investment Operations, and the Chief Compliance
Officer of the Adviser and Funds. Other members of Amundi Pioneer will be
invited to attend meetings and otherwise participate as necessary. The Director
of Investment Operations will chair the Proxy Voting Oversight Group.
The Proxy Voting Oversight Group is responsible for developing, evaluating, and
changing (when necessary) Amundi Pioneer's proxy voting policies and
procedures. The group meets at least annually to evaluate and review this
policy and procedures and the services of its third-party proxy voting service.
In addition, the Proxy Voting Oversight Group will meet as necessary to vote on
referral items and address other business as necessary.
AMENDMENTS
Amundi Pioneer may not amend this policy without the prior approval of the
Proxy Voting Oversight Group.
FILING FORM N-PX
The Proxy Coordinator and the Director of Regulatory Reporting are responsible
for ensuring that Form N-PX documents receive the proper review by a member of
the Proxy Voting Oversight Group prior to a Fund officer signing the forms.
The Investment Operations department will provide the Compliance department
with a copy of each Form N-PX filing prepared by the proxy voting service.
COMPLIANCE FILES N-PX.
The Compliance department will ensure that a corresponding Form N-PX exists for
each Amundi Pioneer registered investment company.
Following this review, each Form N-PX is formatted for public dissemination via
the EDGAR system.
Prior to submission, each Form N-PX is to be presented to the Fund officer for
a final review and signature.
Copies of the Form N-PX filings and their submission receipts are maintained
according to Amundi Pioneer record keeping policies.
PROXY VOTING GUIDELINES
ADMINISTRATIVE
While administrative items appear infrequently in U.S. issuer proxies, they are
quite common in non-U.S. proxies.
We will generally support these and similar management proposals:
o Corporate name change.
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o A change of corporate headquarters.
o Stock exchange listing.
o Establishment of time and place of annual meeting.
o Adjournment or postponement of annual meeting.
o Acceptance/approval of financial statements.
o Approval of dividend payments, dividend reinvestment plans and other
dividend-related proposals.
o Approval of minutes and other formalities.
o Authorization of the transferring of reserves and allocation of income.
o Amendments to authorized signatories.
o Approval of accounting method changes or change in fiscal year-end.
o Acceptance of labor agreements.
o Appointment of internal auditors.
Amundi Pioneer will vote on a case-by-case basis on other routine
administrative items; however, Amundi Pioneer will oppose any routine proposal
if insufficient information is presented in advance to allow Amundi Pioneer to
judge the merit of the proposal. Amundi Pioneer has also instructed its proxy
voting service to inform Amundi Pioneer of its analysis of any administrative
items that may be inconsistent, in its view, with Amundi Pioneer's goal of
supporting the value of its clients' portfolio holdings so that Amundi Pioneer
may consider and vote on those items on a case-by-case basis.
AUDITORS
We normally vote for proposals to:
o Ratify the auditors. We will consider a vote against if we are concerned
about the auditors' independence or their past work for the company.
Specifically, we will oppose the ratification of auditors and withhold votes
for audit committee members if non-audit fees paid by the company to the
auditing firm exceed the sum of audit fees plus audit-related fees plus
permissible tax fees according to the disclosure categories proposed by the
Securities and Exchange Commission.
o Restore shareholder rights to ratify the auditors.
We will normally oppose proposals that require companies to:
o Seek bids from other auditors.
o Rotate auditing firms, except where the rotation is statutorily required or
where rotation would demonstrably strengthen financial disclosure.
o Indemnify auditors.
o Prohibit auditors from engaging in non-audit services for the company.
BOARD OF DIRECTORS
On issues related to the board of directors, Amundi Pioneer normally supports
management. We will, however, consider a vote against management in instances
where corporate performance has been very poor or where the board appears to
lack independence.
GENERAL BOARD ISSUES
Amundi Pioneer will vote for:
o Audit, compensation and nominating committees composed of independent
directors exclusively.
o Indemnification for directors for actions taken in good faith in accordance
with the business judgment rule. We will vote against proposals for broader
indemnification.
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o Changes in board size that appear to have a legitimate business purpose and
are not primarily for anti-takeover reasons.
o Election of an honorary director.
We will vote against:
o Minimum stock ownership by directors.
o Term limits for directors. Companies benefit from experienced directors, and
shareholder control is better achieved through annual votes.
o Requirements for union or special interest representation on the board.
o Requirements to provide two candidates for each board seat.
We will vote on a case-by case basis on these issues:
o Separate chairman and CEO positions. We will consider voting with
shareholders on these issues in cases of poor corporate performance.
ELECTIONS OF DIRECTORS
In uncontested elections of directors we will vote against:
o Individual directors with absenteeism above 25% without valid reason. We
support proposals that require disclosure of director attendance.
o Insider directors and affiliated outsiders who sit on the audit,
compensation, stock option or nominating committees. For the purposes of our
policy, we accept the definition of affiliated directors provided by our
proxy voting service.
We will also vote against:
o Directors who have failed to act on a takeover offer where the majority of
shareholders have tendered their shares.
o Directors who appear to lack independence or are associated with very poor
corporate performance.
We will vote on a case-by-case basis on these issues:
o Re-election of directors who have implemented or renewed a dead-hand or
modified dead-hand poison pill (a "dead-hand poison pill" is a shareholder
rights plan that may be altered only by incumbent or "dead" directors. These
plans prevent a potential acquirer from disabling a poison pill by obtaining
control of the board through a proxy vote).
o Contested election of directors.
o Election of a greater number of independent directors (in order to move
closer to a majority of independent directors in cases of poor performance.
o Mandatory retirement policies.
o Directors who have ignored a shareholder proposal that has been approved by
shareholders for two consecutive years.
We will vote for:
o Precatory and binding resolutions requesting that the board changes the
company's bylaws to stipulate that directors need to be elected with
affirmative majority of votes cast, provided that the resolutions allow for
plurality voting in cases of contested elections.
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TAKEOVER-RELATED MEASURES
Amundi Pioneer is generally opposed to proposals that may discourage takeover
attempts. We believe that the potential for a takeover helps ensure that
corporate performance remains high.
Amundi Pioneer will vote for:
o Cumulative voting.
o Increasing the ability for shareholders to call special meetings.
o Increasing the ability for shareholders to act by written consent.
o Restrictions on the ability to make greenmail payments.
o Submitting rights plans to shareholder vote.
o Rescinding shareholder rights plans ("poison pills").
o Opting out of the following state takeover statutes:
- Control share acquisition statutes, which deny large holders voting rights
on holdings over a specified threshold.
- Control share cash-out provisions, which require large holders to acquire
shares from other holders
- Freeze-out provisions, which impose a waiting period on large holders
before they can attempt to gain control
- Stakeholder laws, which permit directors to consider interests of
non-shareholder constituencies.
- Disgorgement provisions, which require acquirers to disgorge profits on
purchases made before gaining control.
- Fair price provisions.
- Authorization of shareholder rights plans.
- Labor protection provisions.
- Mandatory classified boards.
We will vote on a case-by-case basis on the following issues:
o Fair price provisions. We will vote against provisions requiring
supermajority votes to approve takeovers. We will also consider voting
against proposals that require a supermajority vote to repeal or amend the
provision. Finally, we will consider the mechanism used to determine the
fair price; we are generally opposed to complicated formulas or requirements
to pay a premium.
o Opting out of state takeover statutes regarding fair price provisions. We
will use the criteria used for fair price provisions in general to determine
our vote on this issue.
o Proposals that allow shareholders to nominate directors.
We will vote against:
o Classified boards, except in the case of closed-end funds, where we shall
vote on a case-by-case basis.
o Limiting shareholder ability to remove or appoint directors. We will support
proposals to restore shareholder authority in this area. We will review on
case-by-case basis proposals that authorize the board to make interim
appointments.
o Classes of shares with unequal voting rights.
o Supermajority vote requirements.
o Severance packages ("golden" and "tin" parachutes). We will support proposals
to put these packages to shareholder vote.
o Reimbursement of dissident proxy solicitation expenses. While we ordinarily
support measures that encourage takeover bids, we believe that management
should have full control over corporate funds.
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o Extension of advance notice requirements for shareholder proposals.
o Granting board authority normally retained by shareholders (e.g., amend
charter, set board size).
o Shareholder rights plans ("poison pills"). These plans generally allow
shareholders to buy additional shares at a below-market price in the event
of a change in control and may deter some bids.
CAPITAL STRUCTURE
Managements need considerable flexibility in determining the company's
financial structure, and Amundi Pioneer normally supports managements'
proposals in this area. We will, however, reject proposals that impose high
barriers to potential takeovers.
Amundi Pioneer will vote for:
o Changes in par value.
o Reverse splits, if accompanied by a reduction in number of shares.
o Shares repurchase programs, if all shareholders may participate on equal
terms.
o Bond issuance.
o Increases in "ordinary" preferred stock.
o Proposals to have blank check common stock placements (other than shares
issued in the normal course of business) submitted for shareholder approval.
o Cancellation of company treasury shares.
We will vote on a case-by-case basis on the following issues:
o Reverse splits not accompanied by a reduction in number of shares,
considering the risk of delisting.
o Increase in authorized common stock. We will make a determination
considering, among other factors:
- Number of shares currently available for issuance;
- Size of requested increase (we would normally approve increases of up to
100% of current authorization);
- Proposed use of the proceeds from the issuance of additional shares, and
- Potential consequences of a failure to increase the number of shares
outstanding (e.g., delisting or bankruptcy).
o Blank check preferred. We will normally oppose issuance of a new class of
blank check preferred, but may approve an increase in a class already
outstanding if the company has demonstrated that it uses this flexibility
appropriately.
o Proposals to submit private placements to shareholder vote.
o Other financing plans.
We will vote against preemptive rights that we believe limit a company's
financing flexibility.
COMPENSATION
Amundi Pioneer supports compensation plans that link pay to shareholder returns
and believes that management has the best understanding of the level of
compensation needed to attract and retain qualified people. At the same time,
stock-related compensation plans have a significant economic impact and a
direct effect on the balance sheet. Therefore, while we do not want to
micromanage a company's compensation programs, we will place limits on the
potential dilution these plans may impose.
Amundi Pioneer will vote for:
o 401(k) benefit plans.
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o Employee stock ownership plans (ESOPs), as long as shares allocated to ESOPs
are less than 5% of outstanding shares. Larger blocks of stock in ESOPs can
serve as a takeover defense. We will support proposals to submit ESOPs to
shareholder vote.
o Various issues related to the Omnibus Budget and Reconciliation Act of 1993
(OBRA), including:
- Amendments to performance plans to conform with OBRA;
- Caps on annual grants or amendments of administrative features;
- Adding performance goals, and
- Cash or cash and stock bonus plans.
o Establish a process to link pay, including stock-option grants, to
performance, leaving specifics of implementation to the company.
o Require that option repricing be submitted to shareholders.
o Require the expensing of stock-option awards.
o Require reporting of executive retirement benefits (deferred compensation,
split-dollar life insurance, SERPs, and pension benefits).
o Employee stock purchase plans where the purchase price is equal to at least
85% of the market price, where the offering period is no greater than 27
months and where potential dilution (as defined below) is no greater than
10%.
We will vote on a case-by-case basis on the following issues:
o Shareholder proposals seeking additional disclosure of executive and director
pay information.
o Executive and director stock-related compensation plans. We will consider the
following factors when reviewing these plans:
- The program must be of a reasonable size. We will approve plans where the
combined employee and director plans together would generate less than 15%
dilution. We will reject plans with 15% or more potential dilution.
Dilution = (A + B + C) / (A + B + C + D), where
A = Shares reserved for plan/amendment,
B = Shares available under continuing plans,
C = Shares granted but unexercised and
D = Shares outstanding.
- The plan must not:
- Explicitly permit unlimited option repricing authority or that have
repriced in the past without shareholder approval
- Be a self-replenishing "evergreen" plan, or a plan that grants discount
options and tax offset payments
- We are generally in favor of proposals that increase participation beyond
executives.
- We generally support proposals asking companies to adopt rigorous vesting
provisions for stock option plans such as those that vest incrementally
over, at least, a three- or four-year period with a pro rata portion of
the shares becoming exercisable on an annual basis following grant date.
- We generally support proposals asking companies to disclose their window
period policies for stock transactions. Window period policies ensure that
employees do not exercise options based on insider information
contemporaneous with quarterly earnings releases and other material
corporate announcements.
- We generally support proposals asking companies to adopt stock holding
periods for their executives.
o All other employee stock purchase plans.
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o All other compensation-related proposals, including deferred compensation
plans, employment agreements, loan guarantee programs and retirement plans.
o All other proposals regarding stock compensation plans, including extending
the life of a plan, changing vesting restrictions, repricing options,
lengthening exercise periods or accelerating distribution of awards and
pyramiding and cashless exercise programs.
We will vote against:
o Pensions for non-employee directors. We believe these retirement plans reduce
director objectivity.
o Elimination of stock option plans.
We will vote on a case-by-case basis on these issues:
o Limits on executive and director pay.
o Stock in lieu of cash compensation for directors.
CORPORATE GOVERNANCE
Amundi Pioneer will vote for:
o Confidential voting.
o Equal access provisions, which allow shareholders to contribute their
opinions to proxy materials.
o Proposals requiring directors to disclose their ownership of shares in the
company.
We will vote on a case-by-case basis on the following issues:
o Change in the state of incorporation. We will support reincorporations
supported by valid business reasons. We will oppose those that appear to be
solely for the purpose of strengthening takeover defenses.
o Bundled proposals. We will evaluate the overall impact of the proposal.
o Adopting or amending the charter, bylaws or articles of association.
o Shareholder appraisal rights, which allow shareholders to demand judicial
review of an acquisition price.
We will vote against:
o Shareholder advisory committees. While management should solicit shareholder
input, we prefer to leave the method of doing so to management's discretion.
o Limitations on stock ownership or voting rights.
o Reduction in share ownership disclosure guidelines.
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MERGERS AND RESTRUCTURINGS
Amundi Pioneer will vote on the following and similar issues on a case-by-case
basis:
o Mergers and acquisitions.
o Corporate restructurings, including spin-offs, liquidations, asset sales,
joint ventures, conversions to holding company and conversions to
self-managed REIT structure.
o Debt restructurings.
o Conversion of securities.
o Issuance of shares to facilitate a merger.
o Private placements, warrants, convertible debentures.
o Proposals requiring management to inform shareholders of merger
opportunities.
We will normally vote against shareholder proposals requiring that the company
be put up for sale.
MUTUAL FUNDS
Many of our portfolios may invest in shares of closed-end funds or
exchange-traded funds. The non-corporate structure of these investments raises
several unique proxy-voting issues.
Amundi Pioneer will vote for:
o Establishment of new classes or series of shares.
o Establishment of a master-feeder structure.
Amundi Pioneer will vote on a case-by-case on:
o Changes in investment policy. We will normally support changes that do not
affect the investment objective or overall risk level of the fund. We will
examine more fundamental changes on a case-by-case basis.
o Approval of new or amended advisory contracts.
o Changes from closed-end to open-end format.
o Election of a greater number of independent directors (in order to move
closer to a majority of independent directors) in cases of poor performance.
o Authorization for, or increase in, preferred shares.
o Disposition of assets, termination, liquidation, or mergers.
o Classified boards of closed-end funds, but will typically support such
proposals.
SOCIAL ISSUES
Amundi Pioneer will abstain on stockholder proposals calling for greater
disclosure of corporate activities with regard to social issues. "Social
Issues" may generally be described as shareholder proposals for a company to:
o Conduct studies regarding certain issues of public concern and interest;
o Study the feasibility of the company taking certain actions with regard to
such issues; or
o Take specific action, including ceasing certain behavior and adopting company
standards and principles, in relation to issues of public concern and
interest.
We believe these issues are important and should receive management attention.
Amundi Pioneer will vote against proposals calling for substantial changes in
the company's business or activities. We will also normally vote against
proposals with regard to contributions, believing that management should
control the routine disbursement of funds.
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AVOIDING CONFLICTS OF INTEREST
Amundi Pioneer recognizes that in certain circumstances a conflict of interest
may arise when Amundi Pioneer votes a proxy.
A conflict of interest occurs when Amundi Pioneer's interests interfere, or
appear to interfere with the interests of Amundi Pioneer's clients.
A conflict may be actual or perceived and may exist, for example, when the
matter to be voted on concerns:
o An affiliate of Amundi Pioneer, such as another company belonging to the
Credit Agricole banking group (a "Credit Agricole Affiliate");
o An issuer of a security for which Amundi Pioneer acts as a sponsor, advisor,
manager, custodian, distributor, underwriter, broker, or other similar
capacity (including those securities specifically declared by Amundi Asset
Management to present a conflict of interest for Amundi Pioneer);
o An issuer of a security for which Amundi Asset Management has informed Amundi
Pioneer that a Credit Agricole Affiliate acts as a sponsor, advisor,
manager, custodian, distributor, underwriter, broker, or other similar
capacity; or
o A person with whom Amundi Pioneer (or any of its affiliates) has an existing,
material contract or business relationship.
Any member of the Proxy Voting Oversight Group and any other associate involved
in the proxy voting process with knowledge of any apparent or actual conflict
of interest must disclose such conflict to the Proxy Coordinator and the Chief
Compliance Officer of Amundi Pioneer and the Funds. If any associate is lobbied
or pressured with respect to any voting decision, whether within or outside of
Amundi Pioneer, he or she should contact a member of the Proxy Voting Oversight
Group or Amundi Pioneer's Chief Compliance Officer.
The Proxy Voting Oversight Group will review each item referred to Amundi
Pioneer by the proxy voting service to determine whether an actual or potential
conflict of interest exists in connection with the proposal(s) to be voted
upon. The review will be conducted by comparing the apparent parties affected
by the proxy proposal being voted upon against the Controller's and Compliance
Department's internal list of interested persons and, for any matches found,
evaluating the anticipated magnitude and possible probability of any conflict
of interest being present. The Proxy Voting Oversight Group may cause any of
the following actions to be taken when a conflict of interest is present:
o Vote the proxy in accordance with the vote indicated under "Voting
Guidelines," If a vote is indicated;
o Direct the independent proxy voting service to vote the proxy in accordance
with its independent assessment; or
o As determined by the Proxy Voting Oversight Group in its discretion
consistent with its fiduciary duty.
If the Proxy Voting Oversight Group perceives a material conflict of interest,
the group may also choose to disclose the conflict to the affected clients and
solicit their consent to proceed with the vote, or may take such other action
in good faith (in consultation with counsel) that would protect the interest of
clients.
For each referral item, the determination regarding the presence or absence of
any actual or potential conflict of interest will be documented in a Conflicts
of Interest Report prepared by the Proxy Coordinator.
The Proxy Voting Oversight Group will review periodically the independence of
the proxy voting service. This may include a review of the service's conflict
management procedures and other documentation, and an evaluation as to whether
the service continues to have the competency and capacity to vote proxies.
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DECISION NOT TO VOTE PROXIES
Although it is Amundi Pioneer's general policy to vote all proxies in
accordance with the principles set forth in this policy, there may be
situations in which the Proxy Voting Oversight Group does not vote a proxy
referred to it. For example, because of the potential conflict of interest
inherent in voting shares of a Credit Agricole affiliate, Amundi Pioneer will
abstain from voting the shares unless otherwise directed by a client. In such a
case, the Proxy Coordinator will inform Amundi Asset Management Compliance and
the Amundi Independent Directors before exercising voting rights.
There exist other situations in which the Proxy Voting Oversight Group may
refrain from voting a proxy. For example, if the cost of voting a foreign
security outweighs the benefit of voting, the Group may not vote the proxy. The
Group may not be given enough time to process a vote, perhaps because it
receives a meeting notice too late or it cannot obtain a translation of the
agenda in the time available. If Amundi Pioneer has outstanding "sell" orders,
the proxies for shares subject to the order may not be voted to facilitate the
sale. Although Amundi Pioneer may hold shares on a company's record date, if
the shares are sold prior to the meeting date, the Group may decide not to vote
those shares.
SUPERVISION
ESCALATION
It is each associate's responsibility to contact his or her business unit head,
the Proxy Coordinator, a member of the Proxy Voting Oversight Group or Amundi
Pioneer's Chief Compliance Officer if he or she becomes aware of any possible
noncompliance with this policy.
TRAINING
Amundi Pioneer will conduct periodic training regarding proxy voting and this
policy. It is the responsibility of the business line policy owner and the
applicable Compliance Department to coordinate and conduct such training.
RELATED POLICIES AND PROCEDURES
Amundi Pioneer Asset Management, Inc.'s Books and Records Policy and the Books
and Records of the Pioneer Funds' Policy.
RECORD KEEPING
The Proxy Coordinator shall ensure that Amundi Pioneer's proxy voting service:
o Retains a copy of each proxy statement received (unless the proxy statement
is available from the SEC's Electronic Data Gathering, Analysis, and
Retrieval (EDGAR) system);
o Retains a record of the vote cast;
o Prepares Form N-PX for filing on behalf of each client that is a registered
investment company; and
o Is able to promptly provide Amundi Pioneer with a copy of the voting record
upon its request.
The Proxy Coordinator shall ensure that for those votes that may require
additional documentation
(i.e. conflicts of interest, exception votes and case-by-case votes) the
following records are maintained:
o A record memorializing the basis for each referral vote cast;
o A copy of any document created by Amundi Pioneer that was material in making
the decision on how to vote the subject proxy;
o A copy of any recommendation of the proxy voting service; and
o A copy of any conflict notice, conflict consent or any other written
communication (including emails or other electronic communications) to or
from the client (or in the case of an employee benefit plan, the plan's
trustee or other fiduciaries) regarding the subject proxy vote cast by, or
the vote recommendation of, Amundi Pioneer.
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Amundi Pioneer shall maintain the above records in the client's file in
accordance with applicable regulations.
RELATED REGULATIONS
Form N-1A, ICA Rule 30b1-4, Rule 31a1-3, Rule 38a-1 & IAA 206(4)-6, 204-2
ADOPTED BY THE PIONEER FUNDS' BOARD OF TRUSTEES
October 5, 2004
EFFECTIVE DATE:
October 5, 2004
REVISION DATE:
September 2009
ANNUAL UPDATES:
December 2015 and August 2017
22088-13-1118
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