Q: Even though I understand this is a multisector bond fund, based on a review of the latest report of principle holdings, why are you invested in all these foreign credits? A: We have what I would consider two kinds of bond holdings. One is high-quality, government agency debt of G7 type countries that are held as non-dollar investments in their home, or local currencies. For example, we own French TIPS. Q: Are they comparable to the U.S. treasury inflation protected securities? A: They don't call them French TIPS, but I do. They're comparable bonds. They adjust the principle for inflation. They are euro-denominated securities. We also own, for example, Danish mortgages, but they're held in Danish kroner. We own Swedish government bonds, which are denominated in Swedish kroner. Those are the principal high-quality securities we own. I would say our overall non-dollar exposure is about 18.5% of the fund. Q: Is that by charter or strategy of philosophy? A: A little bit of philosophy and strategy, principally, at the moment. We don't have to hold any non-dollar bonds in the portfolio. We're not required to. But, as a multisector fund, we do like to keep diversified. We do think that is one of our principal strategies in this fund. That means in my mind international securities, although we will adjust the asset allocation. Q: What is the second type of bond holding? A: The other types of international bond we will hold in the portfolio are of low quality, that is, not investment grade. We think they are good investments, but they are not investment grade. It is not the largest allocation. We have about 13% of the fund in this type. And, we don't own any emerging currency denominated bonds. We've never owned that sort of non-dollar investment in this portfolio. If we have made investments, and we have over time, in Brazil, Chile or Peru, which is a country we own right now, those are all dollar denominated securities. Q: Your global approach provides a clue as to how the research department is able to go around the world to find these attractive situations. A: That's right. I'm based in Boston. We're part of Pioneer Global Asset Management, which runs over $100 billion worldwide. We have principle investment operations in Boston, Dublin, Singapore and Milan. We cover, really, all the major investment continents from those four principle locations. We have bond managers and analysts covering companies in Europe and Asia as well. We do have global reach from an investment perspective. Q: Since bonds are quoted. How do you work the bidding for these overseas securities? A: We have broker/dealers that we work with throughout the world. We can trade most bonds in U.S. hours. If not, we will come in early in the morning to trade in European hours. Also, if we want to trade in Asia, we'll stay late to accomplish that. In the currencies, you can trade in the U.S. fairly easily all day long, regardless of what currency you're trading. Frequently, you can trade the bonds, too, of a lot of these countries. But the best pricing for a German government bond is going to be when the German market is open. We have people here that can trade in all those currencies or bond markets around the world. Q: Compared not only to bond funds, but any type of equity security fund, any time I see turnover below 50% it tells me the manager or management team tend to stick with positions. A: That's true. We consider ourselves investors, not traders. I believe for our fiscal year of 2002, it was around 34%, which is quite low. In fact, in similar funds, I think you'll see over 100% turnover. From my perspective, that's bad for a lot of reasons. One, it chews up a lot of trading costs. Two, and most importantly, is our approach. We are a value shop. We do a lot of bottom up credit work and even most of our portfolio structuring is very strategic in nature. We don't change our portfolio thinking every month. We think economic cycles are fairly long lived. We'll live with a position, whether it's interest rate risk, or yield curve positioning or asset allocation, for more than a year. If we have a credit, we'll own it for a couple of years. We don't just get rid of credits based on a price target. Q: Since inception goes back to April 1999, the chart for the fund hasn't looked back. It's at an incline with little fluctuation. $10,000 is now $13,000 after three years of bear market. A: We're grateful that we have been able to deliver good results for our clients. The fund, including all share classes, was about $225 million. We are seeing net subscriptions, and we have been since the day we started this fund. Just like stocks, I think it's important to be well diversified in the bond market. Q: You still have to protect capital as part of the investment strategy. A: But there are other types of risks and opportunities. One is credit risk. The second is currency risk. We try to blend those sorts of opportunities into this portfolio so that you have a balanced fixed-income portfolio. It allows us to do things that other funds can't, for example, take advantage of what we perceived to be a weak dollar environment. Also, the rebound in the corporate bond market, which we've taken quite a bit of advantage of over the last year. Q: I can see that in the holdings in corporates. A: We have a strong corporate process here. We run one of the largest high-yield funds in the country. Not only the largest, but probably also the best over the last five years. You get the same sort of credit process in this fund as you do in our high-yield process and our other corporate bond funds. I think that just adds to the opportunities for investors. Q: In reviewing the overall credit rate for the corporate holdings, it's quite good from the high-yield perspective. A: First off, on average, the portfolio's credit rating is triple B minus, which places it at the low end of investment grade. It's our strategy to keep this fund as an investment grade bond fund. We don't run it as a high-yield fund. As of recently, it's been about 22% in double Bs, and 24% in single Bs, and less than 1% in triple Cs. We own about 17% in double Bs, 4% in single As and double As, and 26% in triple As in government bonds or government agencies. Q: When you invest in foreign corporate bonds what do you look for to see that the company will make good on its debt? A: It's important to us to be in sectors that are showing reasonable growth, even if we can find sectors that are growing faster than the overall economy. That is one of our principle objectives. When you buy corporates, particularly in the high-yield area, even the best companies can't escape who they are. And if the industry is shrinking, it's very difficult, as a levered entity, to get ahead of the debt payments. We like to have the wind at our back, and the way to do that is to find industries that are growing. We have been able to find industries that are growing in a bear market, like oil and gas, like healthcare, for example. If we find those sectors, we use our top down research to identify sectors that are attractive to us. Within those sectors, we will do rigorous bottom up research, where we will look for certain characteristics of companies, typically market leaders, number one or number two in their field. We look at six or seven different factors that make them one of the better credits in the industry. Q: I just noticed in the top holdings a couple of semiconductor companies. They don't make the high-end products. Why do you own them? A: From our perspective, a lot of the semiconductor companies, in our view, have bottomed out. They have gotten their costs in line relative to new sales and, frankly, as bondholders, all we need them to do is pay their debts and generate some cash flow. A lot of these companies have shrunk themselves down to the point where they're generating lots of free cash flow and are living for another day. We think that in the case of International Rectifier and General Semiconductor, they have certain characteristics that we like, products or markets where they're adding value for their clients and they've been able to do pretty well. In those two in particular, we own some busted convertible bonds. Q: The thing about a multisector bond manager is he goes everywhere in the debt markets. A: Once we find a company we like and the industry we like, we'll look at the bond structure and decide which bonds, whether it's straight bonds or busted convertibles that make the most sense to us. In the technology industry, a lot of them do not issue straight debt. We take advantage of making investments in those companies where the stock prices are down quite a bit. These busted convertibles have very attractive yields to them compared to straight debt. Q: Since you don't trade much, it tells me you're patient about getting your price. A: We're always looking for certain credits to own in the portfolio and if it meets our price, we'll acquire it if we have the cash. We don't stretch for yield. We don't pay the highest distribution. We pay a competitive rate of income, but we're focused on people's capital and preserving it. We're one of the few funds in the category that has an NAV over its initial price, too. Q: How about default rates? If you want to learn how the economy is doing, don't go to an economist, go to a bond fund manager and ask him about the default rate. A: Frankly, we're pretty optimistic about the economy because default rates have been coming down and spreads have been narrowing as though economic activity is getting better and stronger in the future. Based on what I've seen, default rates peaked early last year. Default rates peaked 15 months ago. They've been working their way down and we think they're going to continue to come down. We've had many rate cuts from the Fed, but only up until the fall of last year, October really, have corporate bond yields collapsed relative to treasuries. That is going to have and is having a very positive impact on companies. They're able to access the credit markets much easier today than they were six or 12 months ago and frankly at much lower yields. It is a real monetary ease for corporations, a big tax cut, essentially. I think it's going to start working its magic over the next couple of quarters. Q: Does Pioneer have an outlook on U.S. GDP growth? A: Generally, most of the managers feel as though the economy is in the process of bottoming and bouncing along, but there are probably enough leading indicators and good things that are coming to pick up economic activity next year, and, frankly, towards the end of this year, too. As I mentioned, what's gone on in the corporate markets is going to be a big help to companies. It will permit projects to go forward that weren't profitable six to 12 months ago. They will be able refinance debt at much lower levels. It's going to reduce their costs and increase their earnings.