<PAGE>   1
================================================================================
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                            ------------------------
 
                                   FORM 10-Q
 
                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
                    FOR THE THREE MONTHS ENDED JUNE 30, 1997
                           COMMISSION FILE NO. 0-8841
 
                            ------------------------
 
                            THE PIONEER GROUP, INC.
             (exact name of registrant as specified in its charter)
 
                            ------------------------
 
<TABLE>
<S>                                                         <C>
                   DELAWARE                                     13-5657669
       (State or other jurisdiction of                        (IRS Employer
        incorporation or organization)                     Identification No.)

    60 STATE STREET, BOSTON, MASSACHUSETTS                        02109
   (Address of principal executive offices)                     (Zip Code)
</TABLE>
 

                                  617-742-7825
              (Registrant's telephone number, including area code)
 

                                    NO CHANGES
   (Former name, former address and former fiscal year, if changes since last
                                    report)
 
                            ------------------------
 
     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes X  No __
                                               --       
                            ------------------------
 
  As of June 30, 1997, there were 25,147,828 shares of the Registrant's Common
                                     Stock,
               $.10 par value per share, issued and outstanding.
 
================================================================================
<PAGE>   2
 
                         PART I  FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
                    THE PIONEER GROUP, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                 (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNT)
 
<TABLE>
<CAPTION>
                                                                                                       JUNE 30,     DECEMBER 31,
                                                                                                         1997           1996
                                                                                                       --------     ------------
                                                                                                       (UNAUDITED)
<S>                                                                                                    <C>          <C>
                                                             ASSETS
CURRENT ASSETS:
Cash and cash equivalents, at cost which approximates fair value.....................................  $ 38,131       $ 30,813
Restricted cash......................................................................................     1,901          1,664
Investment in marketable securities, at fair value...................................................    37,862         27,542
Receivables:
    From securities brokers and dealers for sales of mutual fund shares..............................    11,299          9,010
    From Pioneer Family of Mutual Funds..............................................................    15,896         13,978
    For securities sold..............................................................................    12,488          2,600
    For gold shipments...............................................................................     2,664          2,686
    Other............................................................................................    16,864         14,912
Mining inventory.....................................................................................    22,358         23,502
Other current assets.................................................................................     9,105         12,607
                                                                                                       --------       --------
        Total current assets.........................................................................   168,568        139,314
                                                                                                       --------       --------
NONCURRENT ASSETS:
Mining operations:
    Mining equipment and facilities (net of accumulated depreciation of $64,653 in 1997 and $56,143
     in 1996)........................................................................................   100,042        107,807
    Deferred mining development costs (net of accumulated amortization of $14,597 in 1997 and $13,455
     in 1996)........................................................................................    18,941         10,675
Cost of acquisition in excess of net assets (net of accumulated amortization of $10,676 in 1997 and
  $9,268 in 1996)....................................................................................    21,553         22,945
Long-term venture capital investments, at fair value (cost $67,978 in 1997 and $46,651 in 1996)......    88,693         59,872
Long-term investments, at cost.......................................................................    16,129         15,996
Timber project in development:
    Timber equipment and facilities (net of accumulated depreciation of $553 in 1997)................    21,578         11,852
    Deferred timber development costs (net of accumulated amortization of $642 in 1997)..............    20,913         25,713
    Timber inventory.................................................................................     4,339          1,406
Building (net of accumulated depreciation of $152 in 1997)...........................................    25,171         22,340
Furniture, equipment, and leasehold improvements (net of accumulated depreciation and amortization of
  $14,712 in 1997 and $13,293 in 1996)...............................................................    14,173         14,368
Loans to bank customers..............................................................................     3,067          6,632
Dealer advances (net of accumulated amortization of $12,620 in 1997 and $8,613 in 1996)..............    36,981         34,293
Other noncurrent assets..............................................................................    23,211         19,999
                                                                                                       --------       --------
        Total noncurrent assets......................................................................   394,791        353,898
                                                                                                       --------       --------
                                                                                                       $563,359..     $493,212
                                                                                                       ========       ========
                                              LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Payable to funds for shares sold.....................................................................  $ 11,289       $  8,996
Accounts payable.....................................................................................    34,501         25,633
Accrued expenses.....................................................................................    27,804         24,751
Customer deposits....................................................................................    22,039         15,328
Payable for securities purchased.....................................................................    11,619          2,040
Short-term borrowings - banking activities...........................................................     4,493          5,573
Accrued income taxes.................................................................................     3,520          1,690
Current portion of notes payable.....................................................................    14,570         10,002
                                                                                                       --------       --------
        Total current liabilities....................................................................   129,835         94,013
                                                                                                       --------       --------
NONCURRENT LIABILITIES:
Notes payable, net of current portion................................................................   151,815        149,500
Deferred income taxes, net...........................................................................    28,565         25,569
                                                                                                       --------       --------
        Total noncurrent liabilities.................................................................   180,380        175,069
                                                                                                       --------       --------
        Total liabilities............................................................................   310,215        269,082
                                                                                                       --------       --------
Minority interest....................................................................................    82,061         61,657
                                                                                                       --------       --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
    Common stock, $.10 par value; authorized 60,000,000 shares; issued 25,154,833 shares in 1997 and
     25,013,763 shares in 1996.......................................................................     2,515          2,501
    Paid-in capital..................................................................................    14,584         11,450
    Retained earnings................................................................................   159,716        152,457
    Cumulative translation adjustment................................................................      (269)            --
    Treasury stock at cost, 7,005 shares in 1997 and 910 shares in 1996..............................      (142)           (16)
                                                                                                       --------       --------
                                                                                                        176,404        166,392
    Less -- Deferred cost of restricted common stock issued..........................................    (5,321)        (3,919)
                                                                                                       --------       --------
        Total stockholders' equity...................................................................   171,083        162,473
                                                                                                       --------       --------
                                                                                                       $563,359       $493,212
                                                                                                       ========       ========
</TABLE>
 
  The Company's Annual Report on Form 10-K should be read in conjunction with
                          these financial statements.
 
                                        2
<PAGE>   3
 
                    THE PIONEER GROUP, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENT OF INCOME
                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED           SIX MONTHS ENDED
                                                      JUNE 30,                    JUNE 30,
                                              -------------------------   -------------------------
                                                 1997          1996          1997          1996
                                              -----------   -----------   -----------   -----------
<S>                                           <C>            <C>           <C>           <C>
Revenues and sales:
     Investment management fees.............   $   28,422    $   21,619    $   55,517    $   40,269
     Underwriting commissions and
       distribution fees....................        5,466         4,330        11,234         8,186
     Shareholder services fees..............        6,698         6,288        13,362        12,377
     Income from brokerage activities.......        6,313           637        10,442         1,163
     Securities and interest income --
       banking activities...................        2,608         4,836         5,052         6,513
     Trustee fees and other income..........        4,698         2,679        10,841         7,119
                                               ----------    ----------    ----------    ----------
     Revenues from financial services
       businesses...........................       54,205        40,389       106,448        75,627
     Gold sales.............................       20,993        16,522        38,460        37,759
     Timber sales...........................        4,267            --         4,267            --
                                               ----------    ----------    ----------    ----------
          Total revenues and sales..........       79,465        56,911       149,175       113,386
                                               ----------    ----------    ----------    ----------
Costs and expenses:
     Management, distribution, shareholder
       service and administrative
       expenses.............................       43,781        30,638        86,367        59,630
     Interest expense -- banking
       activities...........................        2,249         1,664         3,609         2,241
     Gold mining operating costs and
       expenses.............................       21,931        17,508        39,158        34,153
     Timber operating costs and expenses....        4,667           185         5,101           378
                                               ----------    ----------    ----------    ----------
          Total costs and expenses..........       72,628        49,995       134,235        96,402
                                               ----------    ----------    ----------    ----------
Other (income) expense:
     Unrealized and realized gains on
       venture capital and marketable
       securities investments, net..........       (7,823)         (145)      (16,309)         (362)
     Interest expense.......................        2,913           738         4,527         1,158
     Other, net.............................          651           617           963           845
                                               ----------    ----------    ----------    ----------
          Total other (income) expense......       (4,259)        1,210       (10,819)        1,641
                                               ----------    ----------    ----------    ----------
Income before provision for federal, state
  and foreign income taxes and minority
  interest..................................       11,096         5,706        25,759        15,343
                                               ----------    ----------    ----------    ----------
Provision for federal, state and foreign
  income taxes..............................        5,159         1,896        11,803         5,808
                                               ----------    ----------    ----------    ----------
Income before minority interest.............        5,937         3,810        13,956         9,535
                                               ----------    ----------    ----------    ----------
Minority interest...........................          962           290         1,672           901
                                               ----------    ----------    ----------    ----------
Net income..................................   $    4,975    $    3,520    $   12,284    $    8,634
                                               ==========    ==========    ==========    ==========
Earnings per share..........................   $     0.19    $     0.14    $     0.48    $     0.34
                                               ==========    ==========    ==========    ==========
Dividends per share.........................   $     0.10    $     0.10    $     0.20    $     0.20
                                               ==========    ==========    ==========    ==========
Weighted average common and common
  equivalent shares outstanding.............   25,575,000    25,458,000    25,539,000    25,458,000
                                               ==========    ==========    ==========    ==========
</TABLE>
 
  The Company's Annual Report on Form 10-K should be read in conjunction with
                          these financial statements.
 
                                        3
<PAGE>   4
 
                    THE PIONEER GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                                     SIX MONTHS ENDED
                                                                                         JUNE 30,
                                                                                   ---------------------
                                                                                     1997         1996
                                                                                   --------     --------
<S>                                                                                <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income...................................................................  $ 12,284     $  8,634
                                                                                   --------     --------
    Adjustments to reconcile net income to net cash provided by operating
     activities:
         Depreciation and amortization...........................................    18,704       13,181
         Unrealized and realized gains on venture capital and marketable
          securities, net........................................................   (16,309)        (362)
         (Equity in earnings of) provision on other investments..................      (121)          55
         Restricted stock plan expense...........................................       937          754
         Deferred income taxes...................................................     2,996        9,647
         Minority interest.......................................................     1,672          901
    Changes in operating assets and liabilities:
         Investments in marketable securities, net...............................    (8,854)       2,910
         Receivable from securities brokers and dealers for sales of mutual fund
          shares.................................................................    (2,289)       1,058
         Receivables for securities sold.........................................    (9,888)          --
         Receivables for gold shipments..........................................        22        3,118
         Receivables from Pioneer Family of Mutual Funds and other...............    (3,870)     (21,625)
         Mining inventory........................................................     1,144       (5,125)
         Other current assets....................................................     3,146       (3,874)
         Other noncurrent assets.................................................    (1,628)      (2,727)
         Payable to funds for shares sold........................................     2,293       (1,065)
         Accrued expenses and accounts payable...................................    11,921       27,864
         Payable for securities purchased........................................     9,579           --
         Accrued income taxes....................................................     1,945         (668)
                                                                                   --------     --------
             Total adjustments...................................................    11,400       24,042
                                                                                   --------     --------
             Net cash provided by operating activities...........................    23,684       32,676
                                                                                   --------     --------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of mining equipment and facilities..................................      (767)     (37,211)
    Deferred mining development costs............................................    (9,408)        (751)
    Additions to furniture, equipment and leasehold improvements.................    (2,615)      (2,089)
    Building.....................................................................    (2,849)      (6,398)
    Long-term venture capital investments........................................   (21,644)      (7,600)
    Proceeds from sale of long-term venture capital investments..................       500        3,863
    Loans to banks and customers.................................................     3,565           --
    Deferred timber development costs............................................     4,661        5,586
    Timber equipment and facilities..............................................    (9,726)      (8,792)
    Timber inventory.............................................................    (2,933)      (1,809)
    Other investments............................................................    (2,620)      (3,972)
    Proceeds from sales of other investments.....................................     1,732           --
    Cost of acquisition in excess of net assets acquired.........................       (16)        (194)
    Long-term investments........................................................    (3,127)      (1,880)
    Proceeds from sale of long-term investments..................................     9,024        4,539
                                                                                   --------     --------
         Net cash used in investing activities...................................   (36,223)     (56,708)
CASH FLOWS FROM FINANCING ACTIVITIES:
    Dividends paid...............................................................    (5,025)      (4,989)
    Distributions to limited partners of venture capital subsidiary..............       (64)         (23)
    Exercise of stock options....................................................       229          254
    Restricted stock plan award..................................................        10            7
    Employee stock purchase plan.................................................       329          377
    Dealer advances..............................................................    (6,695)     (15,559)
    Customer deposits............................................................     6,711           --
    Short term borrowings-banking activities, net................................    (1,080)          --
    Borrowings...................................................................    12,625      119,733
    Amounts raised by venture capital investment partnerships....................    18,796        6,333
    Repayments of notes payable..................................................    (5,742)     (78,026)
    Reclassification of restricted cash..........................................      (237)          --
                                                                                   --------     --------
         Net cash provided by financing activities...............................    19,857       28,107
                                                                                   --------     --------
Net increase in cash and cash equivalents........................................     7,318        4,075
Cash and cash equivalents at beginning of period.................................    30,813       27,809
                                                                                   --------     --------
Cash and cash equivalents at end of period.......................................  $ 38,131     $ 31,884
                                                                                   ========     ========
</TABLE>
 
  The Company's annual report on Form 10-K should be read in conjunction with
                          these financial statements.
 
                                        4
<PAGE>   5
 
                    THE PIONEER GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                                 JUNE 30, 1997
 
NOTE 1 -- NATURE OF OPERATIONS AND ORGANIZATION
 
     The Pioneer Group, Inc., and its subsidiaries (collectively, the
"Company"), are engaged in financial services businesses in the United States
and several foreign countries and in a number of natural resource development
projects, including a gold mining operation in the Republic of Ghana and three
timber ventures in the Russian Far East.
 
     In the United States, the Company conducts four lines of financial services
businesses: (i) Pioneering Management Corporation ("PMC") serves as investment
manager to the 31 U.S. registered investment companies in the Pioneer Family of
Mutual Funds and several institutional accounts, (ii) Pioneer Funds Distributor,
Inc. ("PFD") serves as distributor of shares of the Pioneer Family of Mutual
Funds, (iii) Pioneer Capital Corporation ("PCC"), and its subsidiaries, engage
in venture capital investing and management activities, and (iv) Pioneering
Services Corporation serves as shareholder servicing agent for the Pioneer
Family of Mutual Funds.
 
     The Company's international financial services businesses include
investment operations in: (i) Warsaw, Poland, where the Company manages and
distributes units of four mutual funds, owns 50% of a unitholder servicing
agent, manages an institutional venture capital fund, and owns a majority
interest in a brokerage operation, (ii) Dublin, Ireland, where the Company
distributes shares of, manages and services three offshore investment funds,
sold primarily in Western Europe, and (iii) Moscow, Russia, where the Company
provides financial services, including banking, investment advisory, investment
banking and brokerage and transfer agency services, distributes shares of,
manages, and services, Pioneer First, one of the first open-end mutual funds
available to Russian citizens, and where the Company owns 51% of the First
Voucher Fund, the largest Russian voucher investment fund. In addition, the
Company has investment operations in the Czech Republic and has invested in
investment management operations in India and Taiwan.
 
     The Company's Russian investment operations are consolidated under Pioneer
First Russia, Inc. ("PFR"). In 1996, PFR entered into a subscription agreement
with the International Finance Commission ("IFC") for the sale of up to $4
million of its common stock. Simultaneously, the Company also entered into a put
and call agreement for this common stock. The put allows the holder of the
shares to put them to PFR for the greater of the IFC shares net asset value, as
defined in the agreement, or twelve times PFR's average earnings, as defined in
the agreement, during the period from four to eight years from the date of the
initial closing. The call feature allows the Company to call the shares for the
same amount, beginning eight years and ending ten years from the date of initial
closing.
 
     In 1996, the IFC advanced $2 million to PFR, pursuant to the subscription
agreement. The balance of the commitment was received by PFR during the first
quarter of 1997. The entire commitment is included in minority interest
liability. Adjustments are made to the carrying amount of this liability to
reflect the IFC's interest under the put and call agreement.
 
     The Company's wholly owned subsidiary, Pioneer Goldfields Limited ("PGL"),
conducts mining and exploration activities in the Republic of Ghana and
exploration activities elsewhere in Africa. PGL's principal asset is its
ownership of 90% of the outstanding shares of Teberebie Goldfields Limited
("TGL"), which operates a gold mine in the western region of the Republic of
Ghana. The Republic of Ghana owns the remaining 10% of TGL. The Company also
participates in several natural resource development ventures in Russia,
including a timber production project in the Russian Far East, in which the
Company has a 90% direct interest and a 2.1% indirect interest.
 
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     The accounting and reporting policies of the Company conform to generally
accepted accounting principles. The Company has not changed any of its principal
accounting policies from those stated in the Annual Report on Form 10-K for the
year ended December 31, 1996. The footnotes to the financial
 
                                        5
<PAGE>   6
 
                    THE PIONEER GROUP, INC. AND SUBSIDIARIES
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
                                 JUNE 30, 1997
 
statements reported in the 1996 Annual Report on Form 10-K are incorporated
herein by reference, except to the extent that any such footnote is updated by
the following:
 
     Certain reclassifications have been made to the accompanying 1996
consolidated financial statements to conform with the 1997 presentation.
 
     Income taxes paid were $6,915,000 and $522,000 for the six months ended
June 30, 1997, and June 30, 1996, respectively. In addition, interest paid was
$6,424,000 for the six months ended June 30, 1997, and $3,166,000 for the six
months ended June 30, 1996. Included in these interest paid amounts was
$1,353,000 for the six months ended June 30, 1997, that was capitalized related
to TGL's mining Phase III expansion operations and $1,491,000 for the six months
ended June 30, 1996, that was capitalized related to the development of the
Company's building in progress and Russian timber operations.
 
     The Company believes that there is a significant unrealized value in the
assets included in the Voucher Fund's securities portfolio. In accordance with
Generally Accepted Accounting Principles (FAS 115 -- Accounting for Certain
Investments in Debt and Equity Securities), the securities in the Voucher Fund
reflect the cost rather than "fair value" until such time as the breadth and
scope of the Russian securities markets develop to certain quantifiable levels.
The Company believes that these markets are rapidly approaching this point, at
which time the "fair value" of securities held by the Voucher Fund should be
reflected in the Company's financial statements.
 
     The Voucher Fund's assets consist of cash and cash equivalents, securities
(both liquid and illiquid), real estate holdings and other miscellaneous assets.
The cost of the securities portion of the portfolio on the Company's balance
sheet at June 30, 1997, was approximately $17 million. Recently, the value of
these securities (based on market quotations if available) was approximately $80
million, which represents an increase of approximately $63 million. The
Company's pre-tax interest in this increase, at 51%, would be approximately $32
million. The cost of the cash and cash equivalents, real estate and
miscellaneous assets of the Voucher Fund on the Company's balance sheet at June
30, 1997, was approximately $3 million, $25 million and $5 million,
respectively.
 
     Currently, the Company recognizes realized gains or losses on its income
statement only when Voucher Fund securities are sold. Once the Russian
securities market develops to the requisite level, unrealized gains and losses
(such as the $63 million described above) would be reflected in long term
investments in the Company's balance sheet with a corresponding after-tax
increase or decrease in stockholders' equity for the Company's 51% interest with
the remainder recorded as minority interest. The Company will continue to
recognize realized gains and losses in income upon the sale of such securities.
 
     The Russian securities markets are significantly smaller and less liquid
than the securities markets in the United States. As a result, a relatively
small number of issuers (approximately 15) currently account for approximately
90% of all trading on the Russian Trading System. The relative lack of liquidity
may result in the Voucher Fund selling a portfolio security at a price that does
not reflect its underlying value. Accordingly, fair values are not necessarily
indicative of the amount that could be realized in a short period of time on
large volumes of transactions. In addition, the securities investments in the
Voucher Fund may be negatively affected by adverse economic, political and
social developments in Russia including changes in government and government
policies, taxation, currency instability, interest rates and inflation levels
and developments in law and regulations affecting securities issuers and their
shareholders and securities markets. As a result of the foregoing, there can be
no assurance that the Company will be able to realize the values described
above.
 
                                        6
<PAGE>   7
 
                    THE PIONEER GROUP, INC. AND SUBSIDIARIES
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
                                 JUNE 30, 1997
 
NOTE 3 -- MINING INVENTORY
 
     Mining inventories consist of the following:
 
<TABLE>
<CAPTION>
                                                             JUNE 30,     DECEMBER 31,
                                                               1997           1996
                                                             --------     ------------
                                                              (DOLLARS IN THOUSANDS)
        <S>                                                       <C>            <C>
        Gold-in-process...................................... $ 2,202        $ 1,658
        Materials and supplies...............................  20,156         21,844
                                                              -------        -------
                                                              $22,358        $23,502
                                                              =======        =======
</TABLE>
 
NOTE 4 -- MINING EQUIPMENT
 
<TABLE>
<CAPTION>
                                                             JUNE 30,     DECEMBER 31,
                                                               1997           1996
                                                             --------     ------------
                                                              (DOLLARS IN THOUSANDS)
        <S>                                                     <C>            <C>
        Mobile mine equipment..............................  $ 63,358       $ 62,177
        Crusher............................................    38,215         22,550
        Processing plant and laboratory....................    16,737          5,040
        Leach pads and ponds...............................    24,809         19,318
        Building and civil works...........................    12,573         10,813
        Office furniture and equipment.....................     1,902          1,798
        Motor vehicles.....................................     2,842          2,307
        Construction in progress...........................     2,024         37,937
        Other assets.......................................     2,235          2,010
                                                             --------       --------
                                                              164,695        163,950
             Less:  accumulated depreciation...............   (64,653)       (56,143)
                                                             --------       --------
        Total mining equipment.............................  $100,042       $107,807
                                                             ========       ========
</TABLE>
 
NOTE 5 -- INCOME TAXES
 
     The Company follows the accounting and disclosure rules specified by
Statement of Financial Accounting Standards ("SFAS No. 109") "Accounting for
Income Taxes." Under SFAS No. 109, deferred tax assets and liabilities are
recognized for the expected future tax consequences of events that have been
included in the financial statements or tax returns. The amounts of deferred tax
assets or liabilities are based on the difference between the financial
statement and tax basis of assets and liabilities using enacted tax rates in
effect for the years in which the differences are expected to reverse. Deferred
tax assets consist principally of deferred interest on loans to Forest-Starma
(the Company's Russian timber venture), non-qualified pension expense, deferred
rent expense, and foreign tax credits' temporary differences. Deferred tax
liabilities include principally deferred foreign income taxes, dealer advances
and cumulative unrealized gains related to the Company's venture capital
investment portfolio.
 
NOTE 6 -- STOCK PLANS
 
     The Company records stock compensation in accordance with APB 25. The
Company has a Stock Incentive Plan (the "1997 Plan") to provide incentives to
certain employees who have contributed and are expected to contribute materially
to the success of the Company and its subsidiaries. An aggregate total of
1,500,000 shares of the Company's common stock may be awarded to participants
under the 1997 Plan. Under the 1997 Plan, the Company may grant restricted
stock, stock options and other stock based awards. The 1997 Plan is administered
by the Compensation Committee of the Board of Directors (the "Committee"). The
1997 Plan expires in February 2007. The Company's 1995 Restricted Stock Plan
(the "1995 Plan") and 1988 Stock Option Plan (the "1988 Option Plan") were
terminated upon the approval of the 1997 Plan by the
 
                                        7
<PAGE>   8
 
                    THE PIONEER GROUP, INC. AND SUBSIDIARIES
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
                                 JUNE 30, 1997
 
stockholders of the Company on May 20, 1997. The Company's 1990 Restricted Stock
Plan (the "1990 Plan") expired in January 1995. The 1997 Plan, 1995 Plan and the
1990 Plan are collectively referred to as the "Plans."
 
     Restricted stock is granted at a price to be determined by the Board of
Directors, generally $.10 per share. The following tables summarize restricted
stock plan activity for the Plans during the first six months of 1997.
 
<TABLE>
<CAPTION>
                                                                  UNVESTED SHARES
                                                       --------------------------------------
                                                       1995 PLAN      1990 PLAN       TOTAL
                                                       ----------     ----------     --------
        <S>                                            <C>              <C>          <C>
        Balance at 12/31/96..........................     69,680         259,841      329,521
             Awarded.................................    131,735              --      131,735
             Vested..................................       (240)       (123,682)    (123,922)
             Forfeited...............................     (6,020)        (29,585)     (35,605)
                                                         -------         -------      -------
        Balance at 6/30/97...........................    195,155         106,574      301,729
                                                         =======         =======      =======
</TABLE>
 
<TABLE>
<CAPTION>
                                                                    VESTED SHARES
                                                        -------------------------------------
                                                        1995 PLAN      1990 PLAN       TOTAL
                                                        ----------     ----------     -------
        <S>                                              <C>             <C>          <C>
        Balance at 12/31/96...........................    10,089         485,658      495,747
             Vested...................................       240         123,682      123,922
                                                         -------         -------      -------
        Balance at 6/30/97............................    10,329         609,340      619,669
                                                         =======         =======      =======
</TABLE>
 
     The Company awarded 78,137 shares in 1996 and 3,937 shares in 1995 under
the 1995 Plan. The Company awarded 123,400 shares in 1995 under the 1990 Plan.
 
     The participant's right to sell the awarded stock under the Plans is
generally restricted as to 100% of the shares awarded during the first two years
following the award, 60% during the third year and 20% less each year
thereafter. The Company may repurchase unvested restricted shares at $.10 per
share upon termination of employment. Awards under the Plans are compensatory,
and accordingly, the difference between the award price and the market value of
the shares under the Plans at the award date, less the applicable tax benefit,
is being amortized on a straight-line basis over a five-year period.
 
     Under the 1997 Plan, the Company may grant to key employees, consultants
and advisors, options to purchase the Company's common stock. Both incentive
stock options intended to qualify under Section 422A of the Internal Revenue
Code of 1986 and non-statutory options not intended to qualify for incentive
stock option treatment ("non-statutory options") may be granted under the 1997
Plan. Unless the 1997 Plan is earlier terminated, no option may be granted after
February 3, 2007. The option price per share is determined by the Committee, but
(i) in the case of incentive stock options, may not be less than 100% of the
fair market value of such shares on the date of option grant, and (ii) in the
case of non-statutory options, may not be less than 90% of the fair market value
on the date of option grant. Options issuable under the 1997 Plan become
exercisable as determined by the Committee not to exceed ten years from the date
of grant. Options granted to date vest over five years at an annual rate of 20%
on each anniversary date of the date of the grant. Prior to the adoption of the
1997 Plan, options were granted under the 1988 Option Plan.
 
                                        8
<PAGE>   9
 
                    THE PIONEER GROUP, INC. AND SUBSIDIARIES
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
                                 JUNE 30, 1997
 
     The following table summarizes all stock option activity since December 31,
1994.
 
<TABLE>
<CAPTION>
                                                                            WEIGHTED AVERAGE
                                                             NUMBER OF       EXERCISE PRICE
                                                               SHARES          PER SHARE
                                                             ----------     ----------------
        <S>                                                  <C>            <C>
        Outstanding at December 31, 1994...................   1,794,500          $ 7.35
             Granted.......................................     207,500           27.48
             Exercised.....................................     (25,000)           6.03
                                                              ---------          ------
        Outstanding at December 31, 1995...................   1,977,000          $ 9.30
             Granted.......................................     268,500           24.88
             Exercised.....................................     (80,000)           6.34
                                                              ---------          ------
        Outstanding at December 31, 1996...................   2,165,500          $11.50
             Granted.......................................      12,500           22.88
             Forfeited.....................................     (26,500)          19.24
             Exercised.....................................     (22,000)          10.39
                                                              ---------          ------
        Outstanding at June 30, 1997.......................   2,129,500          $11.49
                                                              =========          ======
        Exercisable at June 30, 1997.......................   1,475,100          $ 7.07
                                                              =========          ======
</TABLE>
 
     In May 1995, the Company adopted the 1995 Employee Stock Purchase Plan (the
"1995 Purchase Plan") which qualifies as an "Employee Stock Purchase Plan"
within the meaning of Section 423 of the Internal Revenue Code of 1986. An
aggregate total of 500,000 shares of common stock have been authorized for
issuance under the 1995 Purchase Plan, to be implemented through one or more
offerings, each approximately six months in length beginning on the first
business day of each January and July. The price at which shares may be
purchased during each offering will be the lower of (i) 85% of the closing price
of the common stock as reported on the NASDAQ National Market (the "closing
price") on the date that the offering commences or (ii) 85% of the closing price
of the common stock on the date the offering terminates. In 1996 and 1995, the
Company issued 33,433 shares and 18,228 shares under the 1995 Purchase Plan,
respectively. Through June 30, 1997, the Company issued 16,845 shares under the
1995 plan in 1997.
 
     In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS No. 128") "Earnings Per Share." It is
effective for fiscal years ending after December 15, 1997. SFAS No. 128 requires
the replacement of earnings per share ("EPS") with basic EPS. Basic EPS is
computed by dividing reported earnings available to stockholders by weighted
average shares outstanding. No dilution for potentially dilutive securities is
included. Fully diluted EPS, called diluted EPS under SFAS No. 128, is still
required. The Company does not expect the adoption of SFAS No. 128 to have a
material effect on previously reported earnings per share amounts.
 
NOTE 7 -- NET CAPITAL
 
     As a broker-dealer, Pioneer Funds Distributor, Inc. ("PFD"), is subject to
the Securities and Exchange Commission's ("SEC") regulations and operating
guidelines which, among other things, require PFD to maintain a specified amount
of net capital, as defined, and a ratio of aggregate indebtedness to net
capital, as defined, not exceeding 15 to 1. Net capital and the related ratio of
aggregate indebtedness to net capital may fluctuate on a daily basis. PFD's net
capital, as computed under Rule 15c3-1, was $3,266,435 at June 30, 1997, which
exceeded required net capital of $1,078,215 by $2,188,220. The ratio of
aggregate indebtedness to net capital at June 30, 1997, was 4.95 to 1.
 
     PFD is exempt from the reserve requirements of Rule 15c3-3, since its
broker-dealer transactions are limited to the purchase, sale and redemption of
redeemable securities of registered investment companies. All customer funds are
promptly transmitted and all securities received in connection with activities
as a broker-dealer are promptly delivered. PFD does not otherwise hold funds or
securities for, or owe money or securities to, customers.
 
                                        9
<PAGE>   10
 
                    THE PIONEER GROUP, INC. AND SUBSIDIARIES
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
                                 JUNE 30, 1997
 
NOTE 8 -- BENEFIT PLANS
 
     The Company and its subsidiaries have two defined contribution benefit
plans for eligible employees: a retirement benefit plan and a savings and
investment plan ("the Benefit Plans") qualified under section 401 of the
Internal Revenue Code. The Company makes contributions to a trustee, on behalf
of eligible employees, to fund both the retirement benefit and the savings and
investment plans. The Company's expenses under the Benefit Plans were $1,373,000
for the six months ended June 30, 1997, and $1,255,000 for the six months ended
June 30, 1996.
 
     Both of the Company's qualified Benefit Plans described above cover all
full-time employees who have met certain age and length-of-service requirements.
Regarding the retirement benefit plan, the Company contributes an amount which
would purchase a certain targeted monthly pension benefit at the participant's
normal retirement date. In connection with the savings and investment plan,
participants can voluntarily contribute up to 10% of their compensation to the
plan, and the Company will match this contribution up to 2%.
 
NOTE 9 -- RELATED PARTY TRANSACTIONS
 
     Certain officers and/or directors of the Company and its subsidiaries are
officers and/or trustees of the Pioneer Family of Mutual Funds and the Company's
international mutual funds. Investment management fees earned from the mutual
funds were approximately $54,008,000 for the six months ended June 30, 1997, and
$38,388,000 for the six months ended June 30, 1996. Underwriting commissions and
distribution fees earned from the sales of mutual funds shares were
approximately $11,234,000 for the six months ended June 30, 1997, and $8,186,000
for the six months ended June 30, 1996, respectively. Shareholder services fees
earned from the mutual funds were approximately $13,362,000 for the six months
ended June 30, 1997, and $12,377,000 for the six months ended June 30, 1996.
 
     Within the Pioneer mutual funds, total revenues from Pioneer II were
approximately $23,736,000 for the six months ended June 30, 1997, and
$18,708,000 for the six months ended June 30, 1996.
 
     Certain partners of Hale and Dorr, the Company's legal counsel, are
officers and/or directors of the Company and its subsidiaries. Amounts paid to
Hale and Dorr for legal services were $377,000 for the six months ended June 30,
1997, and $795,000 for the six months ended June 30, 1996.
 
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
 
     U.S. rental expense was approximately $1,714,000 for the six months ended
June 30, 1997, and $1,620,000 for the six months ended June 30, 1996. Future
minimum payments under the leases amount to approximately $1,900,000 for the
last six months of 1997, $3,821,000 in 1998, $3,749,000 in 1999, $3,610,000 in
2000, $3,692,000 in 2001, $1,194,000 in 2002 and $1,061,000 thereafter. These
future minimum payments include estimated annual operating and tax expenses of
approximately $798,000 in the last six months of 1997, and $1,642,000
thereafter.
 
     The Company is contingently liable to the Investment Company Institute
Mutual Insurance Company for unanticipated expenses or losses in an amount not
to exceed $500,000. Two thirds of this amount is secured by an irrevocable
standby letter of credit with a bank.
 
     At June 30, 1997, the Company was committed to additional capital
contributions of $1.2 million to Pioneer Poland U.S. L.P. and $1.2 million to
Pioneer Poland U.K. L.P.. These contributions are due upon call by Management as
prior contributions become 80% invested. At June 30, 1997, the Company was
committed to additional capital contributions of $1.9 million to Pioneer
Ventures Limited Partnership II, a U.S. venture capital fund.
 
                                       10
<PAGE>   11
 
                    THE PIONEER GROUP, INC. AND SUBSIDIARIES
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
                                 JUNE 30, 1997
 
NOTE 11 -- NOTES PAYABLE
 
     Notes payable of the Company consists of the following:
 
<TABLE>
<CAPTION>
                                                                    JUNE 30,     DECEMBER 31,
                                                                      1997           1996
                                                                    --------     ------------
                                                                       (DOLLARS IN THOUSANDS)
<S>                                                                 <C>            <C>
Revolving Credit Agreement........................................  $ 97,500       $ 87,500
Preferred shares financing related to the Russian investment
  operations, principal payable in three annual installments of
  $2,000,000 through 1998, interest payable at 5%.................     2,000          4,000
Small Business Administration ("SBA") financing, notes payable to
  a bank, interest payable semi-annually at rates ranging from
  6.12% to 9.8%, principal due in 1998 through 2003...............     4,950          4,950
Note payable to a bank, guaranteed by the Swedish Exports Credits
  Guarantee Board, principal payable on March 31, 1997, interest
  payable at 5.77%, secured by equipment..........................        --            812
Note payable to a bank, interest payable quarterly at the three
  month LIBOR rate plus 6%, principal due in eight quarterly
  installments through January, 1999, secured by lease rental
  payments and proceeds from insurance policies...................     2,425             --
Notes payable to a bank, guaranteed by the Company, principal
  payable in semi-annual installments of $214,000 through November
  30, 1999, no interest payable, secured by equipment.............     1,072          1,286
Note payable to a bank, guaranteed by the Swedish Exports Credits
  Guarantee Board, principal payable in ten semi-annual
  installments of $1,415,000 beginning no later than July 31,
  1997, interest payable at 6.42%, secured by equipment...........    14,147         14,147
Note payable to a supplier, principal payable in quarterly
  installments of $336,000 through April 15, 2001, interest
  payable at 7.85%, secured by equipment..........................     5,370          6,042
Note payable to a supplier, principal and interest payable in
  quarterly installments of $102,000 through April 15, 2001,
  interest payable at 7.85%, secured by equipment.................     1,390          1,535
Note payable to a supplier, principal payable in quarterly
  installments of $285,000 through May 30, 2001, interest payable
  at 8.00%, secured by equipment..................................     4,558          5,128
Note payable to a supplier, principal payable in quarterly
  installments of $338,000 through September 15, 2001, interest
  payable at 8.25%, secured by equipment..........................     5,913          6,422
Note payable to a bank, guaranteed by OPIC, principal payable in
  twelve equal semi-annual installments of $1,583,000 commencing
  March 15, 1998, interest payable at a fixed rate of 6.37%.......    19,000         19,000
Project financing, guaranteed by OPIC, payable in thirteen equal
  semiannual installments of $620,000 through December 15, 2003,
  interest payable at a fixed rate of 7.20%.......................     8,060          8,680
                                                                    --------       --------
                                                                     166,385        159,502
Less: Current portion.............................................   (14,570)       (10,002)
                                                                    --------       --------
                                                                    $151,815       $149,500
                                                                    ========       ========
</TABLE>
 
                                       11
<PAGE>   12
 
                    THE PIONEER GROUP, INC. AND SUBSIDIARIES
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
                                 JUNE 30, 1997
 
     In June 1996, the Company entered into an agreement with a syndicate of
commercial banks for a senior credit facility (the "Credit Facility"). Under the
Credit Facility, the Company may borrow up to $60 million (the "B-share
Revolver") to finance dealer advances relating to sales of back-end load shares
of the Company's domestic mutual funds. See Note 14 below for further discussion
on dealer advances. The B-share Revolver is subject to annual renewal by the
Company and the commercial banks. In the event the B-share Revolver is not
renewed at maturity it will automatically convert into a five-year term loan.
Advances under the B-share Revolver bear interest, at the Company's option, at
(a) the higher of the bank's base lending rate or the federal funds rate plus
0.50% or (b) LIBOR plus 1.25%. The Credit Facility also provides that the
Company may borrow up to $80 million for general corporate purposes (the
"Corporate Revolver"). The Corporate Revolver is payable in full on June 11,
2001. Advances under the Corporate Revolver bear interest, at the Company's
option, at (a) the higher of the bank's base lending rate or the federal funds
rate plus 0.50% or (b) LIBOR plus the applicable margin, tied to the Company's
financial performance, of either .75%, 1.25%, 1.50% or 1.75%. The Credit
Facility provides that the Company must pay additional interest at the rate of
0.375% per annum of the unused portion of the facility and an annual arrangement
fee of $35,000. The commitment fees were approximately $0.7 million. At June 30,
1997, the Company had borrowed $35 million under the B-share Revolver and $62.5
million under the Corporate Revolver. For the six months ended June 30, 1997,
and June 30, 1996, the weighted average interest rate on the borrowings under
the Credit Facility and lines of credit outstanding was 8.0% and 6.9%,
respectively.
 
     The Credit Facility contains restrictions that limit, among other things,
encumbrances on the assets of the Company's domestic mutual fund subsidiaries
and certain mergers and sales of assets. Additionally, the Credit Facility
requires that the Company meet certain financial covenants including covenants
that require the Company to maintain certain minimum ratios with respect to debt
to cash flow and interest payments to cash flow and a minimum tangible net
worth, all as defined in the Credit Facility. As of June 30, 1997, the Company
was in compliance with all applicable covenants of the Credit Facility.
 
     Under the Credit Facility, the Company is required to maintain interest
rate protection agreements covering at least 60% of the outstanding indebtedness
under the B-share Revolver. As of June 30, 1997, the Company entered into six
five-year interest rate swap agreements with a member of the Company's banking
group which has effectively fixed the interest rate on notional amounts totaling
$100 million. Under these agreements, the Company will pay the bank a weighted
average fixed rate of 6.76%, plus the applicable margin (ranging from .75% to
1.75%), on the notional principal. The bank will pay the Company interest on the
notional principal at the current variable rate stated under the B-share
Revolver. The Company has incurred approximately $562,000 of interest expense on
these swap agreement at June 30, 1997. The fair value of these agreements was
approximately $1,200,000, at June 30, 1997, which amount represents the
estimated amount the Company would be obligated to pay the commercial banks to
terminate the agreements.
 
     The Company has executed a commitment letter agreement with a commercial
lender pursuant to which the Company will issue to the lender Senior Notes in
the aggregate principal amount of $20 million. The Senior Notes, which bear
interest at the rate of 7.95% per annum, will have a maturity of seven years.
The lender's obligation under the commitment letter is subject to the
fulfillment of certain conditions which are not within the control of the
Company. The Company intends to use the proceeds of this financing to reduce the
amount outstanding under the Corporate Revolver.
 
     In March 1996, TGL executed a loan agreement with Enskilda, a division of
Skandinaviska Enskilda Banken, pursuant to which Enskilda agreed to provide a
direct loan of SEK 94.5 million (approximately $14.2 million) bearing interest
at a fixed rate of 6.42% to finance the gyratory crusher and related equipment
procured from Svedala Crushing and Screening AB. The loan is guaranteed by the
Swedish Export Credits Board. As of June 30, 1997, TGL has drawn down SEK 93.8
million (or approximately $14.1 million).
 
                                       12
<PAGE>   13
 
                    THE PIONEER GROUP, INC. AND SUBSIDIARIES
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
                                 JUNE 30, 1997
 
     In April 1996, TGL obtained credit approval from Caterpillar Financial
Services Corporation, a wholly owned subsidiary of Caterpillar Inc.
(collectively, "Caterpillar"), pursuant to which Caterpillar agreed, subject to
the fulfillment of certain conditions, to provide a revolving credit facility of
up to $21 million to finance the purchase of Caterpillar and other mining
equipment. The revolving facility is subject to annual renewal and currently is
under review. In the event the credit facility is not renewed at maturity,
outstanding loan balances will continue to be repaid over a five year term. At
June 30, 1997, Caterpillar had issued net disbursements, at TGL's request, for
$17.2 million of such facility bearing interest at fixed rates ranging from
7.85% to 8.25%.
 
     In October 1996, TGL and the Company executed definitive loan agreements
with OPIC pursuant to which OPIC agreed to provide financing up to $19 million
with respect to the Phase III expansion. Disbursements under this facility
occurred in early November 1996. The underlying note is payable in twelve equal
semiannual installments from March 15, 1998, through September 15, 2003, and
bears a fixed interest rate of 6.37%. In addition, a spread of 2.65% on
outstanding borrowings is payable to OPIC. As a condition to such OPIC
financing, the Company was required to execute a Project Completion Agreement
pursuant to which the Company would advance funds, as necessary (to the extent
of dividends received during the construction stage of the Phase III Expansion),
to permit TGL to fulfill all of its financial obligations, including cost
overruns related to project development. Under the Project Completion Agreement,
the Company is also obligated to advance the lesser of $9 million and any
deficit with respect to a defined cash flow ratio in the event of a payment
default. The foregoing obligations of the Company continue to exist until such
time as TGL satisfies a production test and certain financial and project
development benchmarks. In addition, the Company has guaranteed that to the
extent that the percentage of gold proceeds that TGL must convert to Ghanaian
cedis increases above a certain threshold, and, as a result of regulatory or
other restrictions, TGL is unable to convert such proceeds to satisfy its debt
service obligations to OPIC, the Company shall guarantee up to $10 million of
such obligations. The Company insured 90% of this obligation in January 1997. In
addition to third party financing facilities, to satisfy TGL's short term
liquidity needs, the Company provided $1.25 million in bridge financing in the
second quarter of 1997 and $3 million additional bridge financing to TGL in July
1997.
 
     Forest-Starma completed a $9.3 million project financing, guaranteed by
OPIC, in early July 1996, of which $8.1 million was outstanding at June 30,
1997. The underlying note is payable in thirteen remaining equal semiannual
installments through December 15, 2003, and bears interest at a fixed rate of
7.20%. In addition, a spread of 2.75% on outstanding borrowings is payable to
OPIC prior to project completion, increasing to 5.125% after project completion
when the Company ceases to be an obligor in the transaction. As a condition to
OPIC's guarantee, the Company was required to execute a Project Completion
Agreement pursuant to which the Company would advance funds to Forest-Starma as
necessary, to permit Forest-Starma to fulfill all of its financial obligations,
including cost overruns related to project development, until such time as
Forest-Starma satisfies a production test and certain financial and project
development benchmarks. By the end of 1997, $1.9 million of principal will be
repaid on this third party financing leaving a $7.4 million outstanding balance.
 
     During the second half of 1996, Forest-Starma applied for $6.5 million in
additional OPIC financing for an expansion planned in 1997. These funds will
offset, in part, the subordinated debt provided by the Company for the 1997
expansion.
 
     In December 1996, Pioneer Real Estate Advisors, Inc. ("PREA") entered into
an agreement with a bank providing for a $2.6 million line of credit to finance
property development activities in Russia. Advances under the line bear interest
at the 3 month LIBOR rate plus 6%. The credit facility, which expires on January
5, 1999, provides for an arrangement fee of 0.25% of the total commitment and a
commitment fee of 0.50% of the unused portion of the line. Total net drawdowns
at June 30, 1997, amounted to $2.4 million.
 
                                       13
<PAGE>   14
 
                    THE PIONEER GROUP, INC. AND SUBSIDIARIES
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
                                 JUNE 30, 1997
 
     Maturities of notes payable at June 30, 1997, for each of the next five
years and thereafter are as follows (dollars in thousands):
 
<TABLE>
        <S>                                                               <C>
        7/1/97-6/30/98..................................................  $ 14,570
        7/1/98-6/30/99..................................................    13,073
        7/1/99-6/30/00..................................................    11,647
        7/1/00-6/31/01..................................................    75,490
        7/1/01-6/31/02..................................................     8,492
        Thereafter......................................................    43,113
                                                                          --------
                                                                          $166,385
                                                                          ========
</TABLE>
 
NOTE 12 -- MAJOR CUSTOMERS AND EXPORT SALES
 
     During the six months ended June 30, 1997, gold sales aggregated $38.5
million. During this period, gold shipments from TGL in Ghana to two
unaffiliated European refiners accounted for $20.6 million and $17.3 million of
total gold sales, respectively, representing 98% of such total gold sales.
 
     During the six months ended June 30, 1996, gold sales aggregated $37.8
million. During this period, gold shipments from TGL in Ghana to two
unaffiliated European refiners accounted for $15.7 million and $22.1 million of
total gold sales, respectively, representing 100% of such total gold sales.
 
NOTE 13 -- ACQUISITIONS
 
     Cost in excess of net assets acquired, net, as reflected in the
accompanying consolidated balance sheets, consists of the following:
 
<TABLE>
<CAPTION>
                                                              JUNE 30,     DECEMBER 31,
                                                                1997           1996
                                                              --------     ------------
                                                               (DOLLARS IN THOUSANDS)
        <S>                                                    <C>             <C>
        Mutual of Omaha Fund Management Company.............   $17,589        $18,649
        Russian investment operations.......................     2,310          2,458
        Gold mining operations..............................     1,405          1,592
        Polish brokerage operations.........................       249            246
                                                               -------        -------
                                                               $21,553        $22,945
                                                               =======        =======
</TABLE>
 
NOTE 14 -- DEALER ADVANCES
 
     Certain of the Pioneer Family of Mutual Funds maintain a multi-class share
structure, whereby the participating funds offer both the traditional front-end
load shares (Class A shares) and back-end load shares (Class B and Class C
shares). Back-end load shares do not require the investor to pay any sales
charge unless there is a redemption before the expiration of the minimum holding
period which ranges from three to six years in the case of Class B shares and is
one year in the case of C shares. However, the Company pays upfront sales
commissions (dealer advances) to broker-dealers ranging from 2% to 4% of the
sales transaction amount on Class B shares and 1% on Class C shares. The
participating Funds pay the Company distribution fees of 0.75% and service fees
of 0.25%, per annum of their net assets invested in Class B and Class C shares,
subject to annual renewal by the participating Fund's Board of Trustees. In
addition, the Company is paid a contingent deferred sales charge (CDSC) on B and
C shares redeemed within the minimum holding period. The CDSC is paid based on
declining rates ranging from 2% to 4% on the purchases of Class B shares and 1%
for Class C shares.
 
     The Company capitalizes and amortizes Class B share dealer advances for
financial statement purposes over periods which range from three to six years
depending on the participating Fund. The Company capitalizes and amortizes Class
C share dealer advances for financial statement purposes over a twelve month
 
                                       14
<PAGE>   15
 
                    THE PIONEER GROUP, INC. AND SUBSIDIARIES
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
                                 JUNE 30, 1997
 
period. The Company deducts the dealer advances in full for tax purposes in the
year such advances are paid. Distribution and service fees received by the
Company from participating Funds are recorded in income as earned. CDSC received
by the Company from redeeming shareholders reduce unamortized dealer advances
directly. For the six months ended June 30, 1997, and June 30, 1996, the Company
paid dealer advances in the amount of $9.5 million and $15.6 million,
respectively.
 
                                       15
<PAGE>   16
 
                    THE PIONEER GROUP, INC. AND SUBSIDIARIES
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
                                 JUNE 30, 1997
 
NOTE 15 -- FINANCIAL INFORMATION BY BUSINESS SEGMENT
 
     Total revenues and income (loss) before income taxes and minority interest
by business segment, excluding intersegment transactions, were as follows:
<TABLE>
<CAPTION>
                                               MUTUAL FUND
                        INVESTMENT             UNDERWRITING                                       VENTURE CAPITAL        SHAREHOLDER
                        MANAGEMENT              AND OTHER                   BANKING                 INVESTMENTS           SERVICES
                    ------------------    ----------------------      --------------------      --------------------      -------
 SIX MONTHS ENDED   6/30/97    6/30/96    6/30/97       6/30/96       6/30/97      6/30/96      6/30/97      6/30/96      6/30/97
------------------- -------    -------    --------      --------      -------      -------      -------      -------      -------
                                                               (DOLLARS IN THOUSANDS)
<S>                 <C>        <C>        <C>           <C>           <C>          <C>          <C>          <C>          <C>
Revenues & Sales... $56,696    $42,708    $ 29,643      $ 12,509      $ 5,052      $ 6,513      $   946      $ 1,271      $14,111
                    =======    =======    ========      ========      =======      =======      =======      =======      =======
Income (Loss)
 Before Income
 Taxes & Minority
 Interest.......... $40,391    $25,194    $(14,716)(1)  $(14,811)(1)  $(1,426)(2)  $ 3,119(2)   $ 5,955(3)   $(1,163)(3)  $ 1,524
                    =======    =======    ========      ========      =======      =======      =======      =======      =======
Depreciation &
 Amortization...... $ 1,201    $   931    $  7,348      $  4,618      $    52      $    29      $    68      $    62      $   913
                    =======    =======    ========      ========      =======      =======      =======      =======      =======
Capital
 Expenditures...... $   466    $   416    $  4,581      $  7,106      $    45      $   155      $    27      $    28      $   345
                    =======    =======    ========      ========      =======      =======      =======      =======      =======
Identifiable Assets
 at Quarter End.... $93,215    $79,288    $120,663      $ 86,628      $38,065      $18,325      $98,877      $63,358      $ 7,618
                    =======    =======    ========      ========      =======      =======      =======      =======      =======
 
<CAPTION>
 
                                     GOLD MINING                   TIMBER                     OTHER               CONSOLIDATED
 
                                ----------------------      ---------------------      -------------------    --------------------
 
 SIX MONTHS ENDED    6/30/96    6/30/97       6/30/96       6/30/97       6/30/96      6/30/97      6/30/96   6/30/97     6/30/96
 
-------------------  -------    --------      --------      --------      -------      -------      ------    --------    --------
 
<S>                 <C> <C>     <C>           <C>           <C>           <C>          <C>          <C>       <C>         <C>
Revenues & Sales...  $12,626    $ 38,460      $ 37,759       $ 4,267      $     0      $     0      $    0    $149,175    $113,386
 
                     =======    ========      ========       =======      =======      =======      ======    ========    ========
 
Income (Loss)
 Before Income
 Taxes & Minority
 Interest..........  $   973    $ (1,862)(4)  $  3,254(4)    $(1,888)(5)  $  (378)(5)  $(2,219)(6)  $ (845)   $ 25,759    $ 15,343
 
                     =======    ========      ========       =======      =======      =======      ======    ========    ========
 
Depreciation &
 Amortization......  $ 1,130    $  9,996      $  7,112       $    63      $     0      $     0      $   53    $ 19,641    $ 13,935
 
                     =======    ========      ========       =======      =======      =======      ======    ========    ========
 
Capital
 Expenditures......  $   782    $    767      $ 37,211       $ 9,726      $ 8,792      $     0      $    0    $ 15,957    $ 54,490
 
                     =======    ========      ========       =======      =======      =======      ======    ========    ========
 
Identifiable Assets
 at Quarter End....  $ 8,792    $149,711      $114,078       $50,933      $36,060      $ 4,277      $2,273    $563,359    $408,802
 
                     =======    ========      ========       =======      =======      =======      ======    ========    ========
 
</TABLE>
 
---------------
(1) Net of interest expense of approximately $1,334 for the six months ended
June 30, 1997, and $888 for the six months ended June 30, 1996.
 
(2) Net of interest expense of approximately $3,609 for the six months ended
June 30, 1997, and $2,241 for the six months ended June 30, 1996.
 
(3) Net of interest expense of approximately $200 for the six months ended June
30, 1997, and $201 for the six months ended June 30, 1996.
 
(4) Net of interest expense of approximately $748 for the six months ended June
30, 1997, and $69 for the six months ended June 30, 1996.
 
(5) Net of interest expense of $1,161 for the six months ended June 30, 1997.
 
(6) Net of unallocated interest expense of $1,084 for the six months ended June
30, 1997. The remaining expenses are related to the Company's other natural
resources businesses in Russia.
 
                                       16
<PAGE>   17
 
                    THE PIONEER GROUP, INC. AND SUBSIDIARIES
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
                                 JUNE 30, 1997
 
     The following table details for the investment management business segment
and mutual fund underwriting and other business segment, total revenues and
income (loss) before income taxes and minority interest by geographical region,
excluding intersegment transactions (dollars in thousands):
 
INVESTMENT MANAGEMENT
 
<TABLE>
<CAPTION>
                           EASTERN EUROPE &
                                RUSSIA                UNITED STATES                CONSOLIDATED
                          -------------------     ----------------------      ----------------------
    SIX MONTHS ENDED      6/30/97     6/30/96     6/30/97       6/30/96       6/30/97       6/30/96
------------------------  -------     -------     --------      --------      --------      --------
<S>                       <C>         <C>         <C>           <C>           <C>           <C>
Revenues and Sales......  $ 6,411     $ 6,104     $ 50,285      $ 36,604      $ 56,696      $ 42,708
                          =======     =======     ========      ========      ========      ========
Income (loss) before
  income taxes and
  minority interest.....  $ 6,472     $ 2,292     $ 33,919      $ 22,902      $ 40,391      $ 25,194
                          =======     =======     ========      ========      ========      ========
Depreciation and
  Amortization..........  $   156     $   119     $  1,045      $    812      $  1,201      $    931
                          =======     =======     ========      ========      ========      ========
Capital Expenditures....  $   105     $    56     $    361      $    360      $    466      $    416
                          =======     =======     ========      ========      ========      ========
Identifiable assets at
  quarter end...........  $50,990     $42,684     $ 42,225      $ 36,604      $ 93,215      $ 79,288
                          =======     =======     ========      ========      ========      ========
</TABLE>
 
MUTUAL FUND UNDERWRITING AND OTHER
 
<TABLE>
<CAPTION>
                           EASTERN EUROPE &
                                RUSSIA                UNITED STATES                CONSOLIDATED
                          -------------------     ----------------------      ----------------------
    SIX MONTHS ENDED      6/30/97     6/30/96     6/30/97       6/30/96       6/30/97       6/30/96
------------------------  -------     -------     --------      --------      --------      --------
<S>                       <C>         <C>         <C>           <C>           <C>           <C>
Revenues and Sales......  $16,162     $ 2,416     $ 13,481      $ 10,093      $ 29,643      $ 12,509
                          =======     =======     ========      ========      ========      ========
Income (loss) before
  income taxes and
  minority interest.....  $  (536)    $(2,427)    $(14,180)(1)  $(12,384)(1)  $(14,716)(1)  $(14,811)(1)
                          =======     =======     ========      ========      ========      ========
Depreciation and
  Amortization..........  $    13     $    33     $  7,335      $  4,585      $  7,348      $  4,618
                          =======     =======     ========      ========      ========      ========
Capital Expenditures....  $ 3,043     $ 6,396     $  1,538      $    710      $  4,581      $  7,106
                          =======     =======     ========      ========      ========      ========
Identifiable assets at
  quarter end...........  $39,036     $29,703     $ 81,627      $ 56,925      $120,663      $ 86,628
                          =======     =======     ========      ========      ========      ========
</TABLE>
 
---------------
(1) Net of interest expense of approximately $1,334 for the six months ended
June 30, 1997 and $888 for the six months ended June 30, 1996.
 
                                       17
<PAGE>   18
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
                             SUMMARY OF OPERATIONS
 
     The Pioneer Group, Inc. (the "Company") reported second quarter 1997
earnings of 19 cents per share, 5 cents higher than earnings in the second
quarter of 1996. The Company had gross revenues and net income of $79.5 million
and $5 million, respectively, in the second quarter of 1997, compared to $56.9
million and $3.5 million, respectively, in the second quarter of 1996. For the
six months ended June 30, 1997, the Company reported earnings of 48 cents per
share, 14 cents higher than earnings in the six months ended June 30, 1996. The
Company had gross revenues and net income of $149.2 million and $12.3 million,
respectively, for the six months ended June 30, 1997, compared to $113.4 million
and $8.6 million, respectively, for the six months ended June 30, 1996.
 
     The table compares earnings by business segment for the second quarter of
1997 versus the second quarter of 1996.
 
                       SECOND QUARTER EARNINGS PER SHARE
 
<TABLE>
<CAPTION>
                                                                              DIFFERENCE:
                          BUSINESS SEGMENT                    1997     1996   INCR./(DECR.)
        ----------------------------------------------------  ----     ----   ------------
        <S>                                                   <C>      <C>    <C>
        Domestic mutual fund................................   28c      18c        10c
        Venture capital:
          U.S...............................................    4        1          3
          Eastern Europe....................................   (2)      (2)         0
        Russian financial services..........................    3        3          0
        Polish financial services...........................    0       (1)         1
        Czech Republic mutual fund..........................   (1)       0         (1)
        Real estate services................................   (1)       0         (1)
                                                               --       --         --
             Worldwide financial services...................   31       19         12
                                                               --       --         --
        Gold mining.........................................   (5)      (3)        (2)
        Russian timber......................................   (5)      (1)        (4)
        Other...............................................   (2)      (1)        (1)
                                                               --       --         --
                  Total.....................................   19c      14c         5c
                                                               ==       ==         ==
</TABLE>
 
     The Company's earnings from its worldwide financial services businesses of
31 cents per share in the second quarter of 1997 increased by 12 cents over the
second quarter of 1996, principally as a result of increased earnings of 10
cents from domestic mutual fund operations and 3 cents from U.S. venture capital
operations. These higher earnings were partially offset by higher losses from
the Company's gold mining operations, consisting of its wholly owned subsidiary,
Pioneer Goldfields Limited ("PGL"), and PGL's 90% owned subsidiary, Teberebie
Goldfields Limited ("TGL"). Gold mining operations reported losses of 5 cents
per share in the second quarter of 1997 compared to losses of 3 cents per share
in the second quarter of 1996, principally reflecting lower gold prices. The
Company's Russian Far East timber operation, Closed Joint-Stock Company
"Forest-Starma," which commenced commercial operations on January 1, 1997,
reported losses of 5 cents per share for the quarter.
 
                                       18
<PAGE>   19
 
     The table compares earnings by business segment for the first half of 1997
versus the first half of 1996.
 
                         SIX MONTHS EARNINGS PER SHARE
 
<TABLE>
<CAPTION>
                                                                           DIFFERENCE:
                       BUSINESS SEGMENT                 1997     1996     INCR./(DECR.)
                       ----------------                 ----     ----     -------------
        <S>                                             <C>      <C>           <C>
        Domestic mutual fund..........................   53c      29c           24c
        Venture capital:
          U.S. .......................................   12        0            12
          Eastern Europe..............................   (2)      (3)            1
        Russian financial services....................    3        6            (3)
        Polish financial services.....................    2       (1)            3
        Czech Republic mutual fund....................   (3)      (1)           (2)
        Real estate services..........................   (1)       0            (1)
                                                        ----     ----          ---
             Worldwide financial services.............   64       30            34
                                                        ----     ----          ---
        Gold mining...................................   (5)       7           (12)
        Russian timber................................   (7)      (1)           (6)
        Other.........................................   (4)      (2)           (2)
                                                        ----     ----          ---
                  Total...............................   48c      34c           14c
                                                        ====     ====          ===
</TABLE>
 
     The Company's earnings from its worldwide financial services businesses of
64 cents per share in the first half of 1997 increased by 34 cents over the
first half of 1996, principally as a result of significantly higher earnings of
24 cents from domestic mutual fund operations and 12 cents from U.S. venture
capital operations. These higher earnings were partially offset by lower
earnings from the Company's gold mining operations which reported losses of 5
cents per share in the first half of 1997 compared to earnings of 7 cents per
share in the first half of 1996 and losses of 7 cents per share from
Forest-Starma.
 
                         FINANCIAL SERVICES BUSINESSES
 
RESULTS OF OPERATIONS
 
     Revenues.  The Company's worldwide financial services businesses have three
principal sources of revenues: fees derived from managing the 31 U. S.
registered investment companies (mutual funds) in the Pioneer Family of Mutual
Funds and institutional accounts, fees from underwriting and distribution of
mutual fund shares, and fees derived from acting as shareholder servicing agent.
The Company earns similar revenues from its international investment operations
in Poland, Russia, Ireland, the Czech Republic, and from its joint venture in
India. The Company also earns securities and interest income from Pioneer Bank
in Russia, in which the Company has a 57.7% interest, and revenues from Russian
brokerage operations.
 
     Revenues from the worldwide financial services businesses of $54.2 million
and $106.4 million for the second quarter and six months ended June 30, 1997,
respectively, were $13.8 million, or 34%, and $30.8 million, or 41%, higher than
revenues earned in the comparable 1996 periods as a result of increases
discussed below.
 
     Management fees of $28.4 million and $55.5 million for the second quarter
and six months ended June 30, 1997, respectively, were $6.8 million, or 31%, and
$15.2 million, or 38%, higher than management fees in the comparable 1996
periods. Substantially all of the increases resulted from higher management fees
earned from the Company's U.S. registered mutual funds. These increases in
management fees resulted from: (i) an increase in assets from strong U.S. stock
market performance; and (ii) a management fee rate increase for three of the
Company's largest U.S. registered mutual funds effective in the second quarter
of 1996.
 
     Worldwide assets under management grew to $19.6 billion at June 30, 1997,
compared to $17 billion at December 31, 1996, and $15.4 billion at June 30,
1996. Assets under management recently surpassed the $20 billion level.
 
                                       19
<PAGE>   20
 
     Distribution fees and underwriting commissions of $5.5 million in the
second quarter of 1997 were $1.1 million, or 26%, higher than comparable fees
and commissions earned in the second quarter of 1996. Distribution fees
increased by $1.2 million as a result of the increase in average assets under
management of the Company's mutual funds which offer back-end load shares.
Underwriting commissions earned from sales of U.S. registered mutual funds
decreased by $0.4 million. In the second quarter of 1997, the Company had U.S.
registered mutual fund sales (including reinvested dividends) of $669 million
and net sales of $184 million compared to sales of $841 million and net sales of
$478 million in the second quarter of 1996. Pioneer Small Company Fund, which
was launched in 1995 and was closed to new investors in May 1996, accounted for
approximately $216 million of sales in the second quarter of 1996.
 
     For the six months ended June 30, 1997, distribution fees and underwriting
commissions of $11.2 million were $3 million, or 37%, higher than comparable
fees and commissions earned in the first half of 1996. Distribution fees
increased by $2.6 million as a result of the increase in average assets under
management of the Company's mutual funds which offer back-end load shares.
Underwriting commissions earned from sales of U.S. registered mutual funds
decreased by $0.5 million. In the first half of 1997, the Company had U.S.
registered mutual fund sales (including reinvested dividends) of $1.3 billion
and net sales of $302 million compared to sales of $1.5 billion and net sales of
$785 million in the first half of 1996. Sales of the Company's three Polish
mutual funds were $160 million in the first half of 1997 versus $73 million in
the first half of 1996. Underwriting commissions of $1.7 million earned from
these sales increased by $0.7 million in the first half of 1997, offsetting the
decrease in underwriting commissions earned from the sale of U.S. registered
mutual funds.
 
     Shareholder services fees of $6.7 million and $13.4 million for the second
quarter and six months ended June 30, 1997, respectively, increased by $0.4
million, or 7%, and $1 million, or 8%, over the comparable 1996 periods, as a
result of an increase in the number of shareholder accounts.
 
     The Company had revenues (principally commission income) of $6.3 million
and $10.4 million for the second quarter and six months ended June 30, 1997,
respectively, from its brokerage activities, which are principally in Russia.
The Company earned $0.6 million and $1.2 million, respectively, for the second
quarter and six months ended June 30, 1996, from such activities. The Company
has benefited from the record volume experienced in the Russian stock market in
the first half of 1997.
 
     The Company reported securities and interest income from Pioneer Bank of
approximately $2.6 million and $5.1 million in the second quarter and six months
ended June 30, 1997, respectively, compared to $4.8 million and $6.5 million in
the second quarter and six months ended June 30, 1996. These revenues are
derived from interest earned on Russian government securities, realized and
unrealized gains and losses on these securities and interest income from loans.
Decreases in income principally reflect the impact of less favorable interest
rates which affect the realized and unrealized gains earned on the Russian
government securities. In the second quarter of 1997, Pioneer Bank did not renew
its license with the Russian Central Bank to deal in these government
securities.
 
     Trustee fees and all other income of $4.7 million and $10.8 million in the
second quarter and six months ended June 30, 1997, respectively, increased by $2
million and $3.7 million, compared to the respective 1996 periods, principally
from rental income from the building owned by First Voucher Fund, the Russian
voucher investment fund in which the Company owns a 51% interest.
 
     Costs and Expenses. Costs and expenses of the worldwide financial services
businesses of $43.8 million in the second quarter of 1997 increased by $13.1
million, or 43%, over the second quarter 1996 level. Approximately 80% of the
increase resulted from expenses from the Company's Russian investment
operations. The remaining increase reflected higher payroll costs in the
domestic mutual fund business.
 
     Costs and expenses of the worldwide financial services businesses of $86.4
million in the first half of 1997 increased by $26.7 million, or 45%, over the
first half 1996 level. Approximately 85% of the increase resulted from: (i) an
increase of $16.9 million in expenses related to the Company's Russian
investment operations; (ii) $4.6 million of higher payroll costs in the domestic
mutual fund business; and (iii) $1.7 million in higher expenses associated with
the amortization of dealer advances resulting from sales of back-end load mutual
 
                                       20
<PAGE>   21
 
fund shares. These amortization expenses were more than offset by the increase
in distribution fees of $2.6 million.
 
     Other Income and Expense. The Company's U.S. venture capital operations
reported net venture capital investment portfolio gains (excluding operating
expenses) of $3.4 million and $7.6 million in the second quarter and six months
ended June 30, 1997, respectively, compared to net gains of $0.5 million and
$0.6 million in the comparable 1996 periods. Additionally, the Company reported
net realized gains of $3.9 million and $8.1 million in the second quarter and
six months ended June 30, 1997, respectively, from investments held by the
Voucher Fund and other Russian venture capital investments compared to net
realized losses of $0.4 million and $0.3 million in the respective 1996 periods.
 
     Interest expense of $2.9 million and $4.5 million in the second quarter and
six months ended June 30, 1997, respectively, increased by $2.2 million and $3.4
million over the comparable 1996 periods. The increases in both periods resulted
from increased borrowings and from the Company no longer capitalizing interest
expenses related to projects that were completed in late 1996 or early 1997.
These projects included the Russian timber project, the Russian office building
and TGL's Phase III expansion.
 
     Taxes. The Company's effective tax rate for the worldwide financial
services businesses was 41% in the second quarter of 1997 and 34% in the second
quarter of 1996. Through June 30, 1997, the effective tax rate was 42% versus
39% in the first half of 1996. The 1996 results included significant tax exempt
income associated with the Company's Russian investment operations.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     IRS regulations require that, in order to serve as trustee, the Company
must maintain a net worth of at least 2% of the assets of Individual Retirement
Accounts and other qualified retirement plan accounts at year end. At June 30,
1997, the Company served as trustee for $5.9 billion of qualified plan assets
and the ratio of net worth to qualified assets was 2.9%. The Company's
stockholders' equity of $171 million at June 30, 1997, would permit it to serve
as trustee for up to $8.6 billion of qualified plan assets.
 
     The Company has established a multi-class share structure for the Pioneer
Family of Mutual Funds. Under this arrangement, the funds offer both traditional
front-end load shares (Class A shares) and back-end load shares (Class B and C
shares). On back-end load shares, the investor does not pay any sales charge
unless there is a redemption before the expiration of the minimum holding period
(which ranges from three to six years in the case of Class B shares and is one
year in the case of Class C shares), in which case the shareholder would pay a
contingent deferred sales charge ("CDSC"). The Company, however, pays "up-front"
commissions to broker-dealers ("Dealer Advances") related to sales and service
of the back-end load shares ranging from 2% to 4% of the sales transaction
amount on Class B shares and of 1% on Class C shares. The funds pay the Company
distribution fees of 0.75%, and service fees of 0.25%, per annum of their
respective net assets invested in Class B and Class C shares, subject to annual
renewal by the trustees of the funds. Class B shares were introduced in April
1994 and Class C shares were introduced in January 1996. Sales of back-end load
shares were $307 million in the first half of 1997 versus $481 million in the
first half of 1996. Dealer Advances totaled $9.5 million in the first half of
1997 versus $15.6 million in the first half of 1996. Dealer Advances (which are
amortized to operations over the life of the CDSC period) were $37 million at
June 30, 1997. The Company intends to continue to finance this program, in part,
through the credit facilities described in the section entitled "General."
 
     In April 1995, the Company acquired approximately 51% of the shares of the
First Voucher Fund (the "Voucher Fund"), the largest voucher investment fund
established in Russia in connection with that country's privatization program.
The shares were issued by the Voucher Fund to two newly-formed subsidiaries of
Pioneer Omega, Inc. ("Pioneer Omega"), a subsidiary of the Company. In addition
to acquiring shares in the Voucher Fund, Pioneer Omega, acting through a
subsidiary, Pioneer First Russia, Inc. ("PFR"), acquired a Russian company that
holds the right to manage the Voucher Fund's investments. Pioneer Omega paid $2
million in cash and issued preferred shares (the "Omega shares") valued at $6
million as consideration for the acquisition of the management company and
related rights. The holder of the Omega shares has the right to cause the
Company to purchase such shares (the "put option") and the Company has a
corresponding right to
 
                                       21
<PAGE>   22
 
purchase such shares from the holder (the "call option"). The put and call
options are each exercisable with respect to one-third of the Omega shares on
the first, second and third anniversaries of the closing of the transaction. The
put and call option exercise price is $2 million per tranche, plus a 5% per
annum premium on the option exercise price. The Company will pay a total of $6.6
million for the Omega shares over a three-year period as the put and/or call
options are exercised. The Company has exercised its options and purchased the
first two tranches of Omega shares for $4.3 million.
 
     The Company, through Pioneer Omega, has secured Overseas Private Investment
Corporation ("OPIC") "political risk" insurance covering the Voucher Fund and
PFR's subsidiaries subject to annual elections up to a ceiling amount of $68
million which would protect 90% of the Company's equity investment and a
proportionate share of cumulative retained earnings.
 
RECENT DEVELOPMENTS
 
     The Company believes that there is significant unrealized value in the
assets included in the Voucher Fund's securities portfolio. In accordance with
Generally Accepted Accounting Principles (FAS 115 -- Accounting for Certain
Investments in Debt and Equity Securities), the securities in the Voucher Fund
reflect the cost rather than "fair value" until such time as the breadth and
scope of the Russian securities markets develop to certain quantifiable levels.
The Company believes that these markets are rapidly approaching this point, at
which time the "fair value" of securities held by the Voucher Fund should be
reflected in the Company's financial statements.
 
     The Voucher Fund's assets consist of cash and cash equivalents, securities
(both liquid and illiquid), real estate holdings and other miscellaneous assets.
The cost of the securities portion of the portfolio on the Company's balance
sheet at June 30, 1997, was approximately $17 million. Recently, the value of
these securities (based on market quotations if available) was approximately $80
million, which represents an increase of approximately $63 million. The
Company's pre-tax interest in this increase, at 51%, would be approximately $32
million. The cost of the cash and cash equivalents, real estate and
miscellaneous assets of the Voucher Fund on the Company's balance sheet at June
30, 1997, was approximately $3 million, $25 million and $5 million,
respectively.
 
     Currently, the Company recognizes realized gains or losses on its income
statement only when Voucher Fund securities are sold. Once the Russian
securities market develops to the requisite level, unrealized gains and losses
(such as the $63 million described above) would be reflected in long term
investments in the Company's balance sheet with a corresponding after-tax
increase or decrease in stockholders' equity for the Company's 51% interest with
the remainder recorded as minority interest. The Company will continue to
recognize realized gains and losses in income upon the sale of such securities.
 
     The Russian securities markets are significantly smaller and less liquid
than the securities markets in the United States. As a result, a relatively
small number of issuers (approximately 15) currently account for approximately
90% of all trading on the Russian Trading System. The relative lack of liquidity
may result in the Voucher Fund selling a portfolio security at a price that does
not reflect its underlying value. Accordingly, fair values are not necessarily
indicative of the amount that could be realized in a short period of time on
large volumes of transactions. In addition, the securities investments in the
Voucher Fund may be negatively affected by adverse economic, political and
social developments in Russia including changes in government and government
policies, taxation, currency instability, interest rates and inflation levels
and developments in law and regulations affecting securities issuers and their
shareholders and securities markets. As a result of the foregoing, there can be
no assurance that the Company will be able to realize the values described
above.
 
                                       22
<PAGE>   23
 
                    NATURAL RESOURCE DEVELOPMENT BUSINESSES
 
                              GOLD MINING BUSINESS
 
     The results of the gold mining business are substantially attributable to
the operations of TGL, the principal operating subsidiary of the Company's
wholly owned subsidiary, PGL. The Company's financial statements include an
adjustment to TGL's earnings to give effect to the 10% minority interest in TGL
held by the Government of Ghana.
 
     TGL earns all of its revenues in U.S. dollars and the majority of its
transactions and costs are denominated in U. S. dollars or are based in U.S.
dollars. Consequently, Ghanaian inflation has not had a material effect on TGL's
operations. Ghanaian cedi denominated costs such as cement, fuel, power and
local purchases are affected, in dollar terms, when currency devaluation does
not offset changes in the relative inflation rates in the U.S. and Ghana. Since
Ghana has experienced significant inflation over the last three years, the cedi
has devalued continuously against the dollar.
 
RESULTS OF OPERATIONS
 
     The gold mining business lost $1.2 million, or 5 cents per share, in the
second quarter of 1997, 2 cents per share lower than losses of 3 cents per share
reported in the second quarter of 1996. For the six months ended June 30, 1997,
losses of $1.3 million, or 5 cents per share, were 12 cents per share below 1996
first half earnings of 7 cents per share.
 
     Revenues increased by 27% to $21.0 million in the second quarter of 1997
compared with the second quarter of 1996. Gold sales increased by 45% to 61,500
ounces, including 6,800 ounces of gold dore that were shipped from inventory
remaining at the end of the first quarter. The average realized price of gold
decreased by 12% to $341 per ounce. TGL produced 54,700 ounces of gold in the
second quarter of 1997 compared with 42,500 ounces in the second quarter of
1996. Revenues increased by 2% to $38.5 million during the first half of 1997
compared with the first half of 1996 as gold sales increased by 16% to 111,500
ounces. The average realized price of gold decreased by 12% to $345 per ounce.
 
     The following table compares TGL's production and shipment results, cash
costs and total costs per ounce for the three and six months ended June 30,
1997, with the comparable periods in 1996:
 
<TABLE>
<CAPTION>
                                      THREE MONTHS ENDED JUNE 30,          SIX MONTHS ENDED JUNE 30,
                                    -------------------------------     --------------------------------
                                                        (DECREASE)/                          (DECREASE)/
                                     1997      1996      INCREASE         1997      1996      INCREASE
                                    -------   -------   -----------     --------   -------   -----------
<S>                                 <C>       <C>         <C>            <C>        <C>       <C>
Production (ounces)................  54,700    42,500      12,200        111,500    95,800      15,700
Shipments (ounces).................  61,500    42,500      19,000        111,500    95,800      15,700
Cash Costs:
     Production Costs.............. $   219   $   273     $   (54)      $    205    $  227     $   (22)
     Royalties.....................      10        12          (2)            10        12          (2)
     General and administrative....      39        46          (7)            37        38          (1)
                                    -------   -------     -------       --------    ------     -------
     Cash Cost Per Ounce...........     268       331         (63)           252       277         (25)
Non Cash:
     Depreciation and
       Amortization................      83        80           3             87        74          13
     Other.........................       5         2           3              5         2           3
                                    -------   -------     -------       --------    ------     -------
     Cost of Production Per
       Ounce.......................     356       413         (57)           344       353          (9)
Interest and other costs...........      16        11           5             13        11           2
                                    -------   -------     -------       --------    ------     -------
          Total Cost Per Ounce..... $   372   $   424     $   (52)      $    357    $  364     $    (7)
                                    =======   =======     =======       ========    ======     =======
</TABLE>
 
     Production Costs.  Production costs represent costs attributable to mining
ore and waste and processing the ore through crushing and processing facilities.
TGL's costs of production are affected by ore grade, gold recovery rates, the
waste to ore, or "stripping" ratio, the age and availability of equipment, the
weather, availability of labor, haul distances, foreign exchange fluctuations
and gold production lag from new operations and the number of lifts on the heap
leach pads. Production costs for the three and six months ended June 30,
 
                                       23
<PAGE>   24
 
1997, decreased by $54 per ounce and $22 per ounce, respectively, compared with
the three and six months ended June 30, 1996, principally because of a decrease
in the stripping ratio associated with the transition from selective to bulk
mining, and higher production levels. The expected reduction in the ore grade
from bulk mining was offset largely by increases in gold recoveries. Although
TGL experienced an increase in the cost per tonne hauled in the second quarter
of 1997 due largely to inclement weather, the cost per tonne hauled decreased in
the first half of 1997 because of lower explosives costs and certain production
efficiencies associated with the introduction of larger mining equipment.
Processing costs also decreased compared with the three and six months ended
June 30, 1996 principally because of higher gold production levels, which tends
to decrease the cost per ounce when applied to these relatively fixed costs, and
decreases in run-of-mine costs.
 
     A comparison of key production statistics for the three and six months
ended June 30, 1997, with the same periods in 1996 is shown below:
 
<TABLE>
<CAPTION>
                                                        THREE MONTHS        SIX MONTHS ENDED
                                                       ENDED JUNE 30,           JUNE 30,
                                                      -----------------     -----------------
                                                       1997       1996       1997       1996
                                                      ------     ------     ------     ------
     <S>                                              <C>        <C>        <C>        <C>
     Tonnes mined (in thousands):
     Waste..........................................   5,092      4,666     11,274      7,891
     Run-of-mine....................................      18      1,457        610      3,298
                                                      ------     ------     ------     ------
     Tonnes Waste and Run-of-mine...................   5,110      6,123     11,884     11,189
     Ore............................................   2,258      1,787      4,237      3,498
                                                      ------     ------     ------     ------
          Total Tonnes Mined........................   7,368      7,910     16,121     14,687
     Stripping Ratio (waste + run of mine/ore)......  2.26:1     3.43:1     2.80:1     3.20:1
     Tonnes of Ore Processed........................   2,069      1,661      3,840      3,313
     Process Grade (grams/tonne)....................    1.15       1.29       1.21       1.29
</TABLE>
 
     Royalties.  Under the Ghanaian Minerals and Mining Law, royalties are
levied at rates ranging from 3% to 12% of operating revenues as determined by
reference to an operating ratio. The operating ratio represents the percentage
that operating profits, after giving effect to capital allowances and interest
expense (as permitted by TGL's Deed of Warranty), bears to gold sales. In the
first half of 1997 and 1996, the royalty rate payable by TGL remained at 3% of
operating revenues, the minimum permitted by law, principally because of a
sustained level of capital expenditures, and associated capital allowances,
since the inception of the project.
 
     General and Administrative Costs.  General and administrative costs consist
principally of administrative salaries and related benefits, travel expenses,
insurance, utilities, legal costs, employee meals and rents. Since these costs
are relatively fixed and unrelated to production levels, the cost per ounce
decreased by $7 per ounce and $1 per ounce, respectively, during the three and
six months ended June 30, 1997, compared with the corresponding periods in 1996
because of production increases. In addition, the underlying costs during the
current periods increased by $5 per ounce over the three and six months ended
June 30, 1996, primarily because of higher benefit costs associated with TGL's
1996 collective bargaining agreement with the Ghana Mineworkers' Union and
increases in employee meals, commercial insurance premiums, consulting and
telecommunications costs.
 
     Depreciation and Amortization.  Depreciation and amortization is calculated
using units-of-production and straight-line methods designed to fully depreciate
property, plant, and equipment over the lesser of their estimated useful lives
or ten years. These costs increased during the three and six months ended June
30, 1997, by $3 per ounce and $13 per ounce, respectively, compared with three
and six months ended June 30, 1996, principally because of mining equipment
additions (increasing depreciation expense by $7 per ounce and $9 per ounce,
respectively, offset partially by decreases in development cost amortization ($3
per ounce and $2 per ounce, respectively).
 
     Other.  Other costs represent a provisions for future reclamation costs and
supplies inventory obsolescence and costs related to exploration activities
conducted by TGL at the Teberebie concession. The increase of $3 per ounce in
1997 compared with 1996 was attributable principally to an increase in the
provision for inventory obsolescence.
 
                                       24
<PAGE>   25
 
     Interest and Other Costs.  Interest and other costs include interest
expense, foreign exchange gains and losses, political risk insurance premiums,
and goodwill amortization. The $5 per ounce and $2 per ounce increases in
interest and other costs in the three and six months ended June 30, 1997,
compared with the corresponding periods in 1996 were attributable to interest
expense and fees (increases of $11 and $6 per ounce, respectively) associated
with the Phase III financing which ceased to be capitalized after April 1997,
offset partially by, increases in foreign exchange gains of $5 per ounce and $4
per ounce, respectively, associated with a high incidence of cedi denominated
payables.
 
     Income Taxes.  The statutory tax rate for mining companies in Ghana in 1997
and 1996 was 35%.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     Cash Flow.  PGL's cash balances increased by $1.6 million to $2.6 million
during the first half of 1997. Thirty-three percent, or $0.8 million, of TGL's
cash balances remain in escrow and are unavailable to pay short-term
obligations. Cash generated from operating activities aggregated $12.7 million
while capital expenditures and loan principal payments were $10.2 million and
$2.9 million, respectively. Major capital expenditures during the year included
$3.4 million for crushing, electrical, and other processing equipment associated
with the Phase III mine expansion; pad and pond construction, conveyor
replacement, and ongoing processing equipment aggregating $2.5 million;
capitalized interest and financing costs associated with the Phase III mine
expansion of $1.3 million; and capitalized rebuilds of $1.1 million. In
addition, the Company provided financing of approximately $1.3 million to
satisfy TGL's short term liquidity needs and approximately $0.7 million for PGL
exploration activities. Otherwise, TGL generated sufficient operating cash flow
to fund all of its third-party debt service payments and short-term cash
commitments.
 
     Third Party Debt.  At the end of the first half of 1997, third-party debt
aggregated $51.4 million, including $19 million from OPIC for which the Company
is subject to limited recourse (described under "Financing Facilities" below)
and $1.1 million from other sources which is guaranteed by the Company.
Scheduled third-party debt service for the second half of 1997 is expected to
aggregate $5.5 million.
 
     Phase III Mine Expansion.  In July 1995, the Board of Directors of TGL
approved the Phase III expansion of the Teberebie mine. Phase III includes a
further heap leach operation and a near-pit gyratory crushing facility which
will act as the primary crushing facility for both the existing West Plant and
the new South Plant. The Phase III expansion is expected to increase annual
crushing capacity to 12 million tonnes of ore. Construction work on the project
has been substantially completed and the first gold pour at the South Plant
occurred in April 1997. The Phase III expansion, however, is not expected to
reach operating capacity until the fourth quarter of 1997. See "Recent
Developments" below. The cost of the expansion is expected to aggregate
approximately $57 million, including 1996 and 1995 expenditures of $48.1 million
and $2.6 million, respectively. Expansion capital expenditures in 1997 are
estimated at approximately $6.0 million, of which approximately $4.7 million had
been expended through June 1997.
 
     Financing Facilities.  At inception, financing requirements for the Phase
III mine expansion were estimated at $54 million. By December 31, 1996,
third-party financing of approximately $54.2 million had been secured, of which
$53.6 million was drawn down, and $50.4 million remained outstanding at June 30,
1997.
 
     In March 1996, TGL executed a loan agreement with Enskilda, a division of
Skandinaviska Enskilda Banken, pursuant to which Enskilda agreed to provide a
direct loan of SEK 94.5 million (approximately $14.2 million) bearing interest
at a fixed rate of 6.42% to finance the gyratory crusher and related equipment
procured from Svedala Crushing and Screening AB. The loan is guaranteed by the
Swedish Export Credits Board. As of June 30, 1997, TGL had drawn down SEK 93.8
million (or approximately $14.1 million). In April 1996, TGL obtained credit
approval from CAT Financial Services Corporation, a wholly-owned subsidiary of
Caterpillar Inc. (collectively, "Caterpillar"), pursuant to which Caterpillar
agreed to provide a revolving credit facility of up to $21 million to finance
the purchase of Caterpillar and other mining equipment. The revolving credit
facility is subject to annual renewal and currently is under review. In the
event that the credit facility is not renewed, outstanding loan balances will
continue to be repaid over a five year term. At June 30, 1997, Caterpillar had
issued disbursements, at TGL's request, for $20.5 million of such
 
                                       25
<PAGE>   26
 
facility, bearing interest at fixed rates ranging from 7.85% to 8.25%, of which
$3.3 million had been repaid. In October 1996, TGL and the Company executed
definitive loan agreements with OPIC pursuant to which OPIC agreed to provide
financing of up to $19.0 million with respect to the Phase III expansion.
Disbursement under this facility occurred in early November 1996. The underlying
note is payable in twelve equal semiannual installments from March 15, 1998
through September 15, 2003 and bears a fixed interest rate of 6.37%. In
addition, a spread of 2.65% on outstanding borrowings is payable to OPIC. As a
condition to the financing, the Company was required to execute a Project
Completion Agreement pursuant to which the Company would advance funds, as
necessary (to the extent of dividends received during the construction stage of
the Phase III expansion), to permit TGL to fulfill all of its financial
obligations, including cost overruns related to project development. Under the
Project Completion Agreement, the Company is also obligated to advance the
lesser of $9.0 million and any deficit with respect to a defined cash flow ratio
in the event of a payment default. The foregoing obligations of the Company
continue to exist until such time as TGL satisfies a production test and certain
financial and project development benchmarks. In addition, the Company has
guaranteed that to the extent that the percentage of gold proceeds that TGL must
convert to Ghanaian cedis increases above a certain threshold, and, as a result
of regulatory or other restrictions, TGL is unable to convert such proceeds to
satisfy its debt service obligations to OPIC, the Company shall guarantee up to
$10.0 million of such obligations. The Company secured insurance for 90% of this
obligation in the beginning of 1997.
 
     In addition to third party financing facilities, to satisfy TGL's short
term liquidity needs, the Company provided $1.25 million in bridge financing in
the second quarter of 1997 and $3 million additional bridge financing to TGL in
July 1997.
 
     Risk Management.  In the fourth quarter of 1996, TGL entered into a series
of put options which secure a minimum selling price of $340 per ounce to cover
1997 estimated production. Should the market price of gold decline below $340
per ounce in 1997, the Company continues to ship gold to refineries and either
sells or exercises the put options, receiving payment for the difference between
the market price of gold and approximately $340 per ounce. Accordingly, TGL sold
several of these put options since February 1997. In May 1997, TGL purchased
additional options at an exercise price of $320 per ounce to cover estimated
production for the first four months of 1998.
 
     The Company maintains $65.9 million of "political risk" insurance
principally from OPIC covering 90% of its equity and loan guarantees. The
insurance also covers 90% of the Company's proportionate share of TGL's
cumulative retained earnings. This insurance is presently limited to a ceiling
of $64.4 million; however, the Company intends to apply to increase their
ceiling in 1997. There can be no assurance that such OPIC insurance will become
available in 1997. The Company has also secured $9.0 million foreign exchange
exposure insurance from another source to hedge 90% of its exposure to a limited
recourse provision contained in the OPIC Phase III expansion financing
(discussed in more detail above). In addition to other commercial insurance
policies, TGL has secured business interruption coverage of up to $19.0 million
for losses associated with machinery breakdown and property damage and to defray
continuing infrastructure and interest costs.
 
RECENT DEVELOPMENTS
 
     TGL changed its mining method from selective to bulk mining in the second
quarter of 1997. TGL believes that this change will increase operating
efficiencies and improve ore control. TGL is currently developing and testing a
new mine plan using a more sophisticated mine model and historical production
data. The new mine plan: (i) incorporates a new, modified pit design, (ii)
facilitates the change in mining method, and (iii) addresses the previously
disclosed slope instability problem. Until the new mine plan is finalized and
testing completed, TGL cannot quantify the effect that the new mine plan will
have on the calculation of previously reported proven and probable in situ
mineable reserves. It is anticipated, however, that proven and probable in situ
mineable reserves will be reduced.
 
     TGL has revised its 1997 gold production target to approximately 265,000
ounces from 300,000 ounces. This revision is necessary primarily because the
Phase III expansion has not yet achieved full operating capacity primarily due
to mechanical and design deficiencies in the manufacturer's conveying systems
 
                                       26
<PAGE>   27
 
encountered during the commissioning phase. Record rainfall during the second
quarter, principally during June, also contributed to the decision to revise the
production forecast. TGL anticipates that the Phase III expansion will reach
operating capacity in the fourth quarter of 1997.
 
     The 1997 current production estimate requires that the Phase III expansion
reach full operating capacity in the fourth quarter of 1997 and there can be no
assurance that this will happen. In addition, TGL's gold production is dependent
upon a number of factors that could cause actual gold production to differ
materially from projections, including obtaining and maintaining necessary
equipment, accessing key supplies, including fuel, and hiring and training
supervisory personnel and skilled workers. Gold production is also affected by
the time lag inherent in heap leaching technology, subject to changing weather
conditions, dependent on the continued political stability in the Republic of
Ghana and subject to the additional risk factors detailed below in the section
entitled "Future Operating Results."
 
                                TIMBER BUSINESS
 
     The Company's Russian venture, Forest-Starma, in which Pioneer Forest, Inc.
(a wholly owned subsidiary of the Company) has a 90% direct interest and a 2.1%
indirect interest, is pursuing the development of timber production under a
long-term lease comprising 129,900 hectares (approximately 321,000 acres) in the
aggregate with annual cutting rights of 245,000 cubic meters awarded to the
venture in the Khabarovsk Territory of Russia. The Company is in the process of
confirming with governmental authorities that it has been granted additional
annual cutting rights of approximately 450,000 cubic meters on additional
contiguous forest area. Forest-Starma has developed a modern logging camp,
including a harbor, from which it exports timber for markets in the Pacific Rim,
primarily Japan. Timber harvesting in the development phase commenced in the
first quarter of 1995 and the first shipments of timber totaling approximately
30,000 cubic meters occurred in the second half of that year. In 1996,
Forest-Starma shipped approximately 133,000 cubic meters of timber. Since
Forest-Starma remained in the development stage through the end of 1996, timber
proceeds aggregating $10.1 million were used to offset capitalized interest and
development costs.
 
RESULTS OF OPERATIONS
 
     In January 1997, Forest-Starma commenced commercial operations, producing
approximately 112,000 cubic meters of timber in the first half of the year,
including 63,000 cubic meters in the second quarter, and commencing amortization
of deferred development costs. Shipments began at the end of April 1997 and
Forest-Starma shipped 63,000 cubic meters in the second quarter resulting in
revenues of $4.3 million. During the second quarter Forest-Starma recorded
losses of 5 cents per share. For the six months ended June 30, 1997,
Forest-Starma recorded losses of 7 cents per share. The losses were principally
attributable to lower than expected shipments.
 
     Forest-Starma values its inventory using full absorption accounting method.
Accordingly, costs of goods sold of $3.7 million in the second quarter and six
months ended June 30, 1997, included all operating costs such as payroll, fuel,
spare parts; general and administrative, amortization, depreciation and other
taxes. Other expenses of $1.4 million and $2 million for the second quarter and
six months ended June 30, 1997, respectively, included interest, management
fees, foreign exchange losses and bad debt expense. The statutory income tax
rate in Russia is 35%.
 
     While Forest Starma harvests timber throughout the year and incurs the
resulting operating expenses, it ships timber from mid-April through
mid-December. As a result, Forest Starma has incurred, and expects to continue
to incur, operating losses from fixed costs in the first quarter of the
Company's fiscal year, and may incur operating losses in the second quarter.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     Project Financing.  Capital required by this venture is now projected at
approximately $45.5 million through the end of 1997, including $38.1 million in
subordinated debt and accrued interest provided by the Company and $7.4 million
in outstanding third party financing. Forest-Starma completed a $9.3 million
project financing with OPIC in early July 1996, of which $8.1 million was
outstanding at June 30, 1997. The
 
                                       27
<PAGE>   28
 
underlying note is payable in thirteen remaining semiannual installments through
December 15, 2003, and bears interest at a fixed rate of 7.20%. In addition, a
spread of 2.75% on outstanding borrowings is payable to OPIC prior to project
completion, increasing to 5.125% after project completion when the Company
ceases to be an obligor in the transaction. As a condition to the OPIC
financing, the Company was required to execute a Project Completion Agreement
pursuant to which the Company would advance funds to Forest-Starma, as
necessary, to permit Forest-Starma to fulfill all of its financial obligations,
including cost overruns related to project development, until such time as
Forest-Starma satisfies a production test and certain financial and project
development benchmarks. By the end of 1997, $1.9 million of principal will be
repaid on the third-party financing, leaving an outstanding balance of $7.4
million. During the second half of 1996, Forest-Starma applied for $6.5 million
in additional OPIC financing for an expansion planned in 1997. These funds will
offset, in part, the subordinated debt provided by the Company for the 1997
expansion.
 
     Direct Investment and Risk Management. Direct investments in Forest-Starma
by the Company aggregated $33.8 million at June 30, 1997. Forest-Starma is
expected to produce approximately 300,000 cubic meters of timber in 1997. In
connection with its investment in Forest-Starma, the Company has secured OPIC
political risk insurance in an amount of up to $47 million which would protect
90% of the Company's equity investment and loans and a proportionate share of
cumulative retained earnings.
 
     Other Ventures. In 1995, Closed Joint-Stock Company "Amgun-Forest" and
Closed Joint-Stock Company "Udinskoye," the Company's other Russian timber
ventures, each executed a long-term lease (50 years) relating to timber
harvesting. The Amgun-Forest lease covers 485,400 hectares (approximately
1,200,000 acres) with annual cutting rights of 350,000 cubic meters while the
Udinskoye lease covers 201,000 hectares (approximately 497,000 acres) with
annual cutting rights of 300,000 cubic meters. Pioneer Forest, Inc. has an 80.6%
direct interest and 4.2% indirect interest in Amgun-Forest and a 72% direct
interest and 4.2% indirect interest in Udinskoye. The feasibility study on
Amgun-Forest is being reviewed, and the Udinskoye feasibility study is in the
early stages of development. The studies will form the basis for estimating
capital requirements for these projects. Prior to securing third-party
financing, the Company will provide funding of approximately $1 million in 1997.
 
                                    GENERAL
 
     The Company's liquid assets consisting of cash and marketable securities
(exclusive of gold mining operations) increased by $16.1 million in the first
half of 1997 to $73.4 million principally from increased cash and investments
held by Pioneer Bank and the Russian brokerage operation.
 
     The Company entered into an agreement in June 1996 with a syndicate of
commercial banks for a senior credit facility (the "Credit Facility"). Under the
Credit Facility, the Company may borrow up to $60 million (the "B-share
Revolver") to finance Dealer Advances relating to sales of back-end load shares
of the Company's domestic mutual funds. The B-share Revolver is subject to
annual renewal by the Company and the commercial banks. In the event the B-share
Revolver is not renewed at maturity, it will automatically convert into a
five-year term loan. Advances under the B-share Revolver bear interest, at the
Company's option, at (a) the higher of the bank's base lending rate or the
federal funds rate plus 0.50% or (b) LIBOR plus 1.25%. The Credit Facility also
provides that the Company may borrow up to $80 million for general corporate
purposes (the "Corporate Revolver"). The Corporate Revolver is payable in full
on June 11, 2001. Advances under the Corporate Revolver bear interest, at the
Company's option, at (a) the higher of the bank's base lending rate or the
federal funds rate plus 0.50% or (b) LIBOR plus the applicable margin, tied to
the Company's financial performance, of either 0.75%, 1.25%, 1.50% or 1.75%. The
Credit Facility provides that the Company must pay additional interest at the
rate of 0.375% per annum of the unused portion of the facility and an annual
arrangement fee of $35,000. At August 1, 1997, the Company had borrowed $36
million under the B-share Revolver and $66.5 million under the Corporate
Revolver.
 
     The Credit Facility contains restrictions that limit, among other things,
encumbrances on the assets of the Company's domestic mutual fund subsidiaries
and certain mergers and sales of assets. Additionally, the Credit Facility
requires that the Company meet certain financial covenants including covenants
that require the
 
                                       28
<PAGE>   29
 
Company to maintain certain minimum ratios with respect to debt to cash flow and
interest payments to cash flow and a minimum tangible net worth, all as defined
in the Credit Facility. As of June 30, 1997, the Company was in compliance with
all applicable covenants.
 
     Under the Credit Facility, the Company is required to maintain interest
rate protection agreements covering at least 60% of the outstanding indebtedness
under the B-share Revolver. As of June 30, 1997, the Company had entered into
six five-year interest rate swap agreements with a member of the Company's
banking syndicate which has effectively fixed the interest rate on notional
amounts totaling $100 million. Under these agreements, the Company will pay the
bank a weighted average fixed rate of 6.76%, plus the applicable margin (ranging
from 0.75% to 1.75%), on the notional principal. The bank will pay the Company
interest on the notional principal at the current variable rate stated under the
B-share Revolver. The fair value of these swap agreements was approximately $1.2
million at June 30, 1997, which amount represents the estimated amount the
Company would be obligated to pay to terminate the agreements.
 
     The Company has executed a commitment letter agreement with a commercial
lender pursuant to which the Company will issue to the lender Senior Notes in
the aggregate principal amount of $20 million. The Senior Notes, which bear
interest at the rate of 7.95% per annum, will have a maturity of seven years.
The lender's obligation under the commitment letter is subject to the
fulfillment of certain conditions which are not within the control of the
Company. The Company intends to use the proceeds of this financing to reduce the
amount outstanding under the Corporate Revolver.
 
     In December 1996, the Company's wholly owned subsidiary, Pioneer Real
Estate Advisors, Inc. ("PREA"), entered into an agreement with a bank providing
for a $2.6 million line of credit to finance property development activities in
Russia. Advances under the line bear interest at the rate of LIBOR (3 months)
plus 6%. The credit facility, which expires on January 5, 1999, provides for an
arrangement fee of 0.25% of the total commitment and an annual commitment fee of
0.50% of the unused portion of the facility. At August 1, 1997, PREA had
borrowed $2.2 million under the facility.
 
                            FUTURE OPERATING RESULTS
 
     Certain of the information contained in this Quarterly Report on Form 10-Q,
including information with respect to the Company's plans and strategies for its
worldwide financial services and natural resource development businesses,
consists of forward-looking statements. For this purpose, any statements
contained herein that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the foregoing, the words
"believes," "anticipates," "plans," "expects," "projects," "estimates" and
similar expressions are intended to identify forward-looking statements.
Important factors that could cause actual results to differ materially from
those indicated by such forward-looking statements include, but are not limited
to, the following:
 
     The Company derives a significant portion of its revenues from investment
management fees, underwriting and distribution fees and shareholder services
fees. Success in the investment management and mutual fund share distribution
businesses is substantially dependent on investment performance. Good
performance stimulates sales of shares and tends to keep redemptions low. Sales
of shares generate higher management fees and distribution fees (which are based
on assets of the funds). Good performance also attracts institutional accounts.
Conversely, relatively poor performance results in decreased sales and increased
redemptions and the loss of institutional accounts, with corresponding decreases
in revenues to the Company. Investment performance may also be affected by
economic or market conditions which are beyond the control of the Company. In
addition, three of the Company's mutual funds (including the two largest funds)
have management fees which are adjusted based upon the funds' performance
relative to the performance of an established index. As a result, management fee
revenues may be subject to unexpected volatility.
 
     The mutual fund industry is intensely competitive. Many organizations in
this industry are attempting to sell and service the same clients and customers,
not only with mutual fund investments but with other financial services
products. Some of the Company's competitors have more products and product lines
and substantially greater assets under management and financial resources.
 
                                       29
<PAGE>   30
 
     As described above, the Company offers a multi-class share structure on its
domestic mutual funds. Under such structure, the Company pays to dealers a
commission on the sale of back-end load shares but the investor does not pay any
sales charge unless it redeems before the expiration of the minimum holding
period, which ranges from three to six years in the case of Class B Shares and
which is one year in the case of Class C Shares. The Company's cash flow and
results of operations may be adversely affected by vigorous sales of back-end
load shares because its recovery of the cost of commissions paid up front to
dealers is spread over a period of years. During this period, the Company bears
the costs of financing and the risk of market decline.
 
     The businesses of the Company and its domestic financial services
subsidiaries are primarily dependent upon their associations with the Pioneer
Family of Mutual Funds with which they have contractual relationships. In the
event any of the management contracts, underwriting contracts or service
agreements were canceled or not renewed pursuant to the terms thereof, the
Company may be substantially adversely affected.
 
     The Securities and Exchange Commission has jurisdiction over registered
investment companies, registered investment advisers, broker-dealers and
transfer agents and, in the event of a violation of applicable rules or
regulations by the Company or its subsidiaries, may take action which could have
a serious negative effect on the Company and its financial performance.
 
     Because a significant portion of the Company's revenues and net income are
derived from the mining and sale of gold by TGL, the Company's earnings are
directly related to gold production, the cost of such production, and the price
of gold. TGL's gold production is dependent upon a number of factors that could
cause actual gold production to differ materially from projections, including
obtaining and maintaining necessary equipment, accessing key supplies, and
hiring and training supervisory personnel and skilled workers. Gold production
is also affected by the time lag inherent in heap leaching technology, subject
to weather conditions and dependent on the continued political stability in the
Republic of Ghana. Gold prices have historically fluctuated significantly and
are affected by numerous factors, including expectations for inflation, the
strength of the U.S. dollar, global and regional demand, central bank gold
supplies and political and economic conditions. If, as a result of a decline in
gold prices, TGL's revenues from gold sales were to fall below cash costs of
production, and to remain below cash costs of production for any substantial
period, the Company could determine that it is not economically feasible for TGL
to continue commercial production.
 
     TGL is dependent upon a number of key supplies for its mining operations,
including diesel fuel, electricity, explosives, lubricants, tires and sodium
cyanide. There can be no assurance that a disruption in the supplies to TGL of
these key materials will not occur and adversely affect the Company's
operations.
 
     The operations at TGL depend on the ability to recruit, train and retain
employees with the requisite skills to operate large-scale mining equipment.
Although TGL offers its employees an attractive compensation package,
competition for skilled labor is strong among the various mines in Ghana. There
can be no assurance that the Company's operations will not be adversely affected
by a shortage of skilled laborers or by an increase in the time required to
fully train new employees.
 
     The Company has incurred considerable expenses in connection with the
Forest-Starma timber project located in the Russian Far East. Forest-Starma has
commenced harvesting and has made shipments of timber. The commercial
feasibility of Forest-Starma is, however, dependent upon a number of factors
which are not within the control of the Company including the price of timber,
the weather, political stability in Russia and the strength of the Japanese
economy, the primary market for Forest-Starma's timber. While the Company
continues to believe that the project will achieve commercial feasibility, there
can be no assurance that it will do so.
 
     The Company has a significant number of operations and investments located
outside of the U. S., including the gold mining operation at TGL and the timber
and investment management operations in Russia. Foreign operations and
investments may be adversely affected by exchange controls, currency
fluctuations, taxation, political instability and laws or policies of the
particular countries in which the Company may have operations. There is no
assurance that permits, authorizations and agreements to implement plans at the
Company's projects can be obtained under conditions or within time frames that
make such plans
 
                                       30
<PAGE>   31
 
economically feasible, that applicable laws or the governing political
authorities will not change or that such changes will not result in the
Company's having to incur material additional expenditures.
                         ------------------------------
 
     THE COMPANY BELIEVES THAT IT IS IN SOUND FINANCIAL CONDITION, THAT IT HAS
SUFFICIENT LIQUIDITY FROM OPERATIONS AND FINANCING FACILITIES TO COVER
SHORT-TERM COMMITMENTS AND CONTINGENCIES AND THAT IT HAS ADEQUATE CAPITAL
RESOURCES TO PROVIDE FOR LONG-TERM COMMITMENTS.
 
                                       31
<PAGE>   32
 
                          PART II -- OTHER INFORMATION
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
 
     The 1997 Annual Meeting of Stockholders (the "Annual Meeting") was held on
May 20, 1997. At the Annual Meeting, the following persons were elected to serve
as directors until the next Annual Meeting of Stockholders and thereafter until
their successors are duly elected and qualified: Robert L. Butler, John F.
Cogan, Jr., Maurice Engleman, Alan J. Strassman, Jaskaran S. Teja, David D.
Tripple and John H. Valentine.
 
     At the Annual Meeting, the stockholders also voted to (i) ratify and
approve the 1997 Stock Incentive Plan and (ii) ratify the selection of Arthur
Andersen LLP as the Company's independent accountants for the 1997 fiscal year.
 
     The following is a summary of the voting at the Annual Meeting:
 
<TABLE>
<CAPTION>
ELECTION OF DIRECTORS:                                                  FOR        AGAINST
------------------------------------------------------------------  -----------    -------
<S>                                                                 <C>            <C>
Robert L. Butler..................................................   20,949,068     81,869
John F. Cogan, Jr.................................................   20,967,498     63,439
Maurice Engleman..................................................   20,966,953     63,984
Alan J. Strassman.................................................   20,962,976     67,961
Jaskaran S. Teja..................................................   20,955,783     75,154
David D. Tripple..................................................   20,970,001     60,936
John H. Valentine.................................................   20,964,174     66,763
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                      BROKER
                                                FOR         AGAINST      ABSTAIN    NON-VOTES
                                            -----------    ----------    -------    ----------
<S>                                         <C>            <C>           <C>        <C>
Ratification and Approval of 1997 Stock
  Incentive Plan:                            15,265,907     3,567,388    790,980     1,406,662
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                      BROKER
                                                    FOR        AGAINST    ABSTAIN    NON-VOTES
                                                -----------    -------    -------    ---------
<S>                                             <C>            <C>        <C>        <C>
Ratification of Arthur Andersen LLP as
  Independent Accountants for the 1997 Fiscal
  Year:                                          20,968,640     22,720     11,627      27,950
</TABLE>
 
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
 
     (A) EXHIBITS.
 
     The Exhibits filed with this Quarterly Report on Form 10-Q are listed on
the "Index to Exhibits" below, which is incorporated herein by reference.
 
     (B) REPORTS FILED ON FORM 8-K. None.
 
                                       32
<PAGE>   33
 
                                   SIGNATURES
 
     It is the opinion of management that the financial information contained in
this report reflects all adjustments necessary to a fair statement of results
for the period report, but such results are not necessarily indicative of
results to be expected for the year due to the effect that stock market
fluctuations may have on assets under management. All accounting policies have
been applied consistently with those of prior periods. Such financial
information is subject to year-end adjustments and annual audit by independent
public accountants.
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
 
Dated: August 14, 1997
                                          THE PIONEER GROUP, INC.
 
                                                  /s/ WILLIAM H. KEOUGH
 
                                          --------------------------------------
                                                    WILLIAM H. KEOUGH
                                          SENIOR VICE PRESIDENT, CHIEF FINANCIAL
                                                         OFFICER
                                                      AND TREASURER
 
                                       33
<PAGE>   34
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                        DESCRIPTION
------    ------------------------------------------------------------------------------------
<C>       <S>
 10.1     Letter Agreement dated as of May 2, 1997, by and between The Pioneer Group, Inc. and
          The Travelers Insurance Company.
 10.2     Amendment No. 2 to Credit Agreement dated as of June 30, 1997, by and among The
          Pioneer Group, Inc., certain of its subsidiaries, the Lenders and BankBoston, N.A.
          f/k/a The First National Bank of Boston.
 10.3     1997 Stock Incentive Plan
   11     Computation of earnings per share.
   27     Financial Data Schedule.
</TABLE>
 
                                       34