Pioneer Short Term Income Fund

Annual Report | August 31, 2020

 

Beginning in February 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports like this one will no longer be sent by mail, unless you specifically request paper copies of the reports from the Fund or from your financial intermediary, such as a broker-dealer, bank or insurance company. Instead, the reports will be made available on the Fund’s website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications electronically by contacting your financial intermediary or, if you invest directly with the Fund, by calling 1-800-225-6292.

You may elect to receive all future reports in paper free of charge. If you invest directly with the Fund, you can inform the Fund that you wish to continue receiving paper copies of your shareholder reports by calling 1-800-225-6292. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. Your election to receive reports in paper will apply to all funds held in your account if you invest through your financial intermediary or all funds held within the Pioneer Fund complex if you invest directly.

 

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Table of Contents

President’s Letter


Dear Shareholders,

The new decade has arrived delivering a half-year (and more) that will go down in the history books. The beginning of 2020 seemed to extend the positive market environment of 2019. Then, March roared in like a lion and the COVID-19 pandemic became a global crisis impacting lives and life as we know it. The long-term impact on the global economy from the COVID-19 virus pandemic, while currently unknown, is likely to be considerable. It is clear that several industries have already felt greater effects than others. And the markets, which do not thrive on uncertainty, have been volatile, delivering significantly negative performance in the first quarter, and then staging a strong rally for most of the second quarter. Our business continuity plan was implemented given the new COVID-19 guidelines, and most of our employees are working remotely. To date, our operating environment has faced no interruption. I am proud of the careful planning that has taken place and confident we can maintain this environment for as long as is prudent. History in the making for a company that first opened its doors way back in 1928.

Since 1928, Amundi Pioneer’s investment process has been built on a foundation of fundamental research and active management, principles which have guided our investment decisions for more than 90 years. We believe active management – that is, making active investment decisions –can help mitigate the potential risks during periods of market volatility. As the first several months of 2020 have reminded us, investment risk can arise from a number of factors in today’s global economy, including slower or stagnating growth, changing U.S. Federal Reserve policy, oil price shocks, political and geopolitical factors and, unfortunately, major public health concerns such as a viral pandemic.

At Amundi Pioneer, active management begins with our own fundamental, bottom-up research process. Our team of dedicated research analysts and portfolio managers analyzes each security under consideration, communicating directly with the management teams of the companies issuing the securities and working together to identify those securities that best meet our investment criteria for our family of funds. Our risk management approach begins with each and every security, as we strive to carefully understand the potential opportunity, while considering any and all risk factors.

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Today, as investors, we have many options. It is our view that active management can serve shareholders well, not only when markets are thriving, but also during periods of market stress. As you consider your long-term investment goals, we encourage you to work with your financial advisor to develop an investment plan that paves the way for you to pursue both your short-term and long-term goals.

We remain confident that the current crisis, like others in human history, will pass, and we greatly appreciate the trust you have placed in us and look forward to continuing to serve you in the future.

Sincerely,

Lisa M. Jones
Head of the Americas, President and CEO of U.S.
Amundi Pioneer Asset Management USA, Inc.
August 31, 2020

Any information in this shareowner report regarding market or economic trends or the factors influencing the Fund’s historical or future performance are statements of opinion as of the date of this report. Past performance is no guarantee of future results.

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Portfolio Management Discussion | 8/31/20

In the following interview, portfolio managers Seth Roman, Noah Funderburk, and Nicolas Pauwels discuss the factors that influenced Pioneer Short Term Income Fund’s performance during the 12-month period ended August 31, 2020. Mr. Roman, a vice president and a portfolio manager at Amundi Pioneer Asset Management, Inc. (Amundi Pioneer), Mr. Funderburk, a vice president and portfolio manager at Amundi Pioneer, and Mr. Pauwels, a vice president and portfolio manager at Amundi Pioneer, are responsible for the day-to-day management of the Fund.

Q    How did the Fund perform during the 12-month period ended August 31, 2020?

A    Pioneer Short Term Income Fund’s Class A shares returned –0.61% at net asset value during the 12-month period ended August 31, 2020, while the Fund’s benchmark, the Bloomberg Barclays One- to Three-Year Government/Credit Bond Index (the Bloomberg Barclays Index), returned 3.66%. During the same period, the average return of the 581 mutual funds in Morningstar’s Short-Term Bond Funds category was 3.28%.

Q    How would you describe the market environment for fixed-income investors over the 12-month period ended August 31, 2020?

A     Entering the period, the continued easing of global monetary policy by central banks helped to counterbalance deteriorating global economic growth, a slowdown largely driven by the ongoing U.S.-China trade war. U.S. economic growth had held up better than other developed-market economies during that time, due to a healthy U.S. consumer and continued strong employment figures. However, plummeting manufacturing purchasing managers’ index (PMI) data, increased tariffs –a fallout from the trade war – and a downward trend in non-farm payrolls increased concerns about a possible U.S. recession. In particular, the on-again, off-again trade negotiations between the U.S. and China increased market volatility. Responding to those concerns, the U.S. Federal Reserve (Fed) followed up on its July 2019 lowering of the federal funds rate target range with additional quarter-point reductions in the target range in both September and October. Due in part to the Fed’s actions, and the announcement of a “phase one” trade agreement between the U.S. and China in December, the markets ended 2019 on a relatively positive note.

The late-2019 market momentum continued through the early part of the 2020 calendar year. As January turned to February, however, the number of confirmed cases of a novel coronavirus (COVID-19) outside of China,

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where the virus had originated, rose dramatically, raising some concerns. Subsequent outbreaks in Iran, Italy, and South Korea ignited smoldering fears of a global pandemic. Those fears ultimately became reality by March after the virus spread throughout Europe and into the U.S. Up until the last two weeks of February, the financial markets had seemed to underappreciate the risk of such an event, as evidenced by a record-high close for the Standard & Poor’s 500 Index on February 19. Eventually, however, growing concerns about a more pronounced and prolonged drawdown in global economic activity driven by the lockdown measures imposed by governments to contain the spread of COVID-19 led to a significant repricing in both fixed-income and equity markets. Prices of riskier assets swooned while so-called “safe haven” investments, such as U.S. Treasuries, soared. The flight-to-quality buying of government bonds drove longer-term U.S. Treasury yields to all-time lows as their prices move higher.

The policy response to the economic stress caused by COVID-19 was swift, as central banks and governments sought to keep businesses and consumers from going under. The Fed, for its part, slashed the target range of the federal fund rate to near zero in mid-March, resurrected its 2008-2009 financial crisis-era lending facilities, and implemented a wide-ranging bond-purchase program to help provide stability and liquidity to the markets. On the fiscal side, the U.S. Congress and the White House agreed on a $2.2 trillion stimulus package in late March.

The extraordinary support forthcoming from policy makers in the wake of the pandemic generated enthusiasm among investors entering the second quarter of 2020. Market participants immediately sought to put money to work at the now much-wider spreads, in anticipation that the levels of compensation available were worth taking on the increased risk. (Credit spreads are commonly defined as the differences in yield between Treasuries and other types of fixed-income securities with similar maturities.)

As the second calendar quarter progressed, investors became increasingly optimistic that steps toward re-opening the economy in some areas would support something resembling a “V-shaped” recovery (a sharp, sudden rise). One of the results of this view was a resurgence in risk sentiment that allowed credit-sensitive areas of the bond market to recover much of their earlier losses, even as rising numbers of COVID-19 cases in some of the reopened U.S. states raised concerns of a second wave of infections.

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Q    Can you review the Fund’s principal investment strategies during the 12-month period ended August 31, 2020, and discuss how the strategies affected benchmark-relative performance?

A    We had overweighted the Fund to a broad range of investments within the securitized credit sectors during the 12-month period, and those overweights detracted from relative returns. The underperforming allocations included portfolio exposures to asset-backed securities (ABS), commercial mortgage backed securities (CMBS), and collateralized mortgage obligations (CMOs). The entire ABS sector underperformed relative to the Bloomberg Barclays Index during the 12-month period, including the Fund’s largest allocation in that category: subprime autos. Consumer loan holdings within the portfolio also were significant detractors from benchmark-relative performance.

Within CMBS, the largest portfolio allocation was in single-asset/single-borrower (SASB) issues, which accounted for the bulk of the Fund’s relative underperformance. Each SASB securitization represents exposure to a large single property, or assets of a single borrower, and can include exposures to collateral such as office towers, suburban office parks, apartment buildings, refrigerated warehouses, and hotels. Because of the concentration risk involved, SASB issues typically have featured conservative loan-to-value ratios compared to traditional CMBS investments. In addition, equity owners of the properties have tended to be well-capitalized firms.

The Fund’s allocation to non-agency residential mortgage-backed securities (RMBS) also weighed on benchmark-relative results over the 12-month period, most notably the portfolio’s holdings of risk-sharing securities. For example, credit risk transfer (CRT) securities are investments that transfer a portion of the risk associated with credit losses within pools of conventional residential mortgage loans from government-sponsored entities to the private sector. We believe the CRT securities held by the Fund would have to fall victim to a significant decline in home prices –similar to what we witnessed in 2008 – to suffer permanent impairment. As a more liquid sector within non-agency MBS, CRT securities may have experienced greater price volatility from forced sellers during the 12-month period as compared to other sectors within the non-agency MBS market. In addition, the Fund’s allocation to single-family rental securitizations underperformed and detracted from relative returns.

Another modest detractor from benchmark-relative performance during the 12-month period was the Fund’s overweight to financials within its allocation to investment-grade corporate credit. In particular, we had

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favored investments in U.S. banks, where the Fund has had diversified holdings across both the money center and regional banking segments. We had viewed those issuers as attractive, due in part to the more stringent regulations pertaining to the use of leverage that have been applied to the domestic banking sector since the financial crisis more than a decade ago.

On the positive side, the Fund’s significant underweight to U.S. Treasuries, as well as overweights to bank loans and collateralized loan obligations (CLOs), were the top contributors to benchmark-relative performance. A portfolio allocation to floating-rate bank loans aided relative returns as the asset class experienced a strong recovery in December of 2019, and has benefited from narrowing spreads year-to-date in 2020, as well as from strong CLO demand during the second quarter’s “risk-on” environment. We continue to believe the incremental income potential of bank loans presents an attractive tradeoff between risk and reward for the Fund.

An allocation to insurance-linked securities (ILS) was also a notable positive contributor to the Fund’s benchmark-relative performance for the 12-month period. ILS returns have typically been uncorrelated to the returns of other fixed-income asset classes, and we view exposure to the incremental yield potential and diversification* provided by the sector as continuing to enhance the portfolio’s risk/reward profile.

Q    Can you discuss the factors that affected the Fund’s income-generation (or yield), either positively or negatively, during the 12-month period ended August 31, 2020?

A    Credit spreads narrowed after reaching their widest point on March 23, and that weighed on the Fund’s income generation as the 12-month period progressed. In addition, the Fed lowered the target range of the federal funds rate four times, leaving the target range effectively at zero as of August 31, 2020. That factor also contributed to the tapering of the Fund’s income level over the 12-month period.

Q    Did the Fund have any exposure to derivatives during the 12-month period ended August 31, 2020? If so, did the derivatives have an effect on the Fund’s performance?

A    We employed derivatives to help manage the overall duration of the portfolio. With the general decline in interest rates during the 12-month period, the Fund’s duration stance associated with derivatives use

*     Diversification does not assure a profit nor protect against loss.

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detracted from performance. (Duration is a measure of the sensitivity of the price, or the value of principal, of a fixed-income investment to changes in interest rates, expressed as a number of years.)

Q    What is your assessment of the current climate for fixed-income investing?

A    Heightened uncertainty driven by an ongoing global pandemic as well as an approaching U.S. presidential election have continued to characterize the current environment. What is clear, however, is the magnitude of the efforts by both monetary and fiscal policy makers to soften the blows to the economy caused by the COVID-19 situation. We believe much of the economic outlook depends on the success of the multiple efforts to develop vaccines and therapeutic agents to either eradicate or at least effectively treat COVID-19. In the last few months, we have become more optimistic that drugs that could render COVID-19 manageable ultimately will become available, and the Fund’s current positioning reflects that view.

We believe a more dovish Fed and a continued recovery in economic activity bodes well for future performance of riskier assets. Securitized credit sectors, in particular, could stand to benefit, in our view, given the domestic housing market’s strength and the slower spread recovery within the securitized areas of the market, relative to corporate bonds.

While we broadly favor overweights in the Fund to both the corporate and securitized credit markets, current valuations have led us to reduce selected portfolio risk exposures. We believe that gives us the flexibility to add exposure in response to any unexpected setbacks in the near future.

As always, we will continue to monitor macroeconomic factors that could potentially affect the markets, while remaining principally focused on adding value to the portfolio through individual security selection.

Please refer to the Schedule of Investments on pages 19–55 for a full listing of Fund securities.

All investments are subject to risk, including the possible loss of principal. In the past several years, financial markets have experienced increased volatility and heightened uncertainty. The market prices of securities may go up or down, sometimes rapidly or unpredictably, due to general market conditions, such as real or perceived adverse economic, political, or regulatory conditions, recessions, inflation, changes in interest or currency rates, lack of liquidity in the bond markets, the spread of infectious illness or other public health issues or adverse investor sentiment. These conditions may continue, recur, worsen or spread.

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When interest rates rise, the prices of fixed-income securities held by the Fund will generally fall. Conversely, when interest rates fall, the prices of fixed-income securities held by the Fund will generally rise.

Investments in the Fund are subject to possible loss due to the financial failure of the issuers of the underlying securities and their inability to meet their debt obligations.

Prepayment risk is the chance that an issuer may exercise its right to prepay its security, if falling interest rates prompt the issuer to do so. Forced to reinvest the unanticipated proceeds at lower interest rates, the Fund would experience a decline in income and lose the opportunity for additional price appreciation.

Investments in high-yield or lower-rated securities are subject to greater-than-average price volatility, illiquidity and possibility of default.

The securities issued by U.S. government sponsored entities (i.e. Fannie Mae, Freddie Mac) are neither guaranteed nor issued by the U.S. government.

The portfolio may invest in mortgage-backed securities, which during times of fluctuating interest rates may increase or decrease more than other fixed-income securities. Mortgage-backed securities are also subject to pre-payments.

Investing in foreign and/or emerging markets securities involves risks relating to interest rates, currency exchange rates, economic, and political conditions.

At times, the Fund’s investments may represent industries or industry sectors that are interrelated or have common risks, making the Fund more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors.

These risks may increase share price volatility.

Before investing, consider the product’s investment objectives, risks, charges and expenses. Contact your advisor or Amundi Pioneer Asset Management, Inc., for a prospectus or summary prospectus containing this information. Read it carefully.

Any information in this shareholder report regarding market or economic trends or the factors influencing the Fund’s historical or future performance are statements of opinion as of the date of this report. Past performance is not a guarantee of future results.

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*  Excludes temporary cash investments and all derivative contracts except for options purchased. The Fund is actively managed, and current holdings may be different. The holdings listed should not be considered recommendations to buy or sell any securities.

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Index Definitions

The Bloomberg Barclays One- to Three-Year Government/Credit Index is an unmanaged measure of the performance of the short-term (1 to 3 years) government and investment-grade corporate bond markets. Index returns are calculated monthly, assume reinvestment of dividends and, unlike Fund returns, do not reflect any fees, expenses or sales charges. It is not possible to invest directly in an index.

The index defined here pertains to the “Value of $10,000 Investment” and “Value of $5 Million Investment” charts on pages 12–16.

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Investment Returns

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The mountain chart on the right shows the change in value of a $10,000 investment made in Class A shares of Pioneer Short Term Income Fund at public offering price during the periods shown, compared to that of the Bloomberg Barclays One- to Three-Year Government/Credit Index.