File No. 33-84546
File No. 811-8786
As Filed with the Securities and Exchange Commission on August 18, 1997
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /_X__/
Pre-Effective Amendment No. ___ /_ __/
Post-Effective Amendment No. _6_ /_X__/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT _____
OF 1940 /_X__/
Amendment No. 7 /_X__/
(Check appropriate box or boxes)
PIONEER VARIABLE CONTRACTS TRUST
(Exact name of registrant as specified in charter)
60 State Street, Boston, Massachusetts 02109
(Address of principal executive office) Zip Code
(617) 742-7825
(Registrant's Telephone Number, including Area Code)
Joseph P. Barri, Hale and Dorr LLP, 60 State
Street, Boston, MA 02109
(Name and address of agent for service)
It is proposed that this filing will become effective (check
appropriate box):
___ immediately upon filing pursuant to paragraph (b)
___ on April 30,1997 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
___ on [date] pursuant to paragraph (a)(1)
_X_ 75 days after filing pursuant to paragraph (a)(2)
___ on [date] pursuant to paragraph (a)(2) of Rule 485
The Registrant has registered an indefinite number of shares pursuant to Rule
24f-2 under the Investment Company Act of 1940, as amended. The Registrant filed
its Rule 24f-2 Notice for the year ended December 31, 1996 on February 27, 1997.
<PAGE>
PIONEER VARIABLE CONRACTS TRUST
Cross-Reference Sheet Showing Location in Prospectus and Statementof
Additional Information of Information Required by Items of the Registration
Form
Location in
Prospectus or
Statement of
Additional
Form N-1A Item Number and Caption Information
- --------------------------------- -----------
1. Cover Page Prospectus - Cover Page
2. Synopsis Prospectus
-Highlights--Pioneer
Variable
Contracts Trust
3 Condensed Financial Information Financial Highlights
4. General Description of Registrant Prospectus -
Highlights--Pioneer
Variable
Contracts Trust;
Investment
Objectives and
Policies;
The Fund
and the Pioneer
Organization;
Shareholder Information.
5. Management of the Fund Prospectus -
The Fund and
the Pioneer
Organization;
Fund
Management Fees and
Other
Expenses.
6. Capital Stock and Other Securities Prospectus
- Investment
Objective and Policies;
Shareholder Information.
7. Purchase of Securities Being
Offered Prospectus -
Shareholder
Information.
<PAGE>
Location in
Prospectus or
Statement of
Additional
Form N-1A Item Number and Caption Information
- ---------------------------------
- -----------
8. Redemption or Repurchase Prospectus - Shareholder
Information.
9. Pending Legal Proceedings Not Applicable
10. Cover Page Statement of Additional
Information - Cover Page
11. Table of Contents Statement of Additional
Information - Cover Page
12. General Information and History Statement of Additional
Information - Cover Page;
Description of Shares
13. Investment Objectives and Policy Statement of Additional
Information - Investment
Policies,
Restrictions and Risk
Factors
14. Management of the Fund Statement of Additional
Information - Management
of the
Trust; Investment Adviser
15. Control Persons and Principal Holders
of Securities Statement of Additional
Information - Management
of the
Trust
16. Investment Advisory and Other
Services Statement of Additional
Information - Management
of the
Trust; Investment
Adviser;
Principal Underwriter;
Shareholder
Servicing/Transfer Agent;
Custodian; Independent
Public
Accountant
<PAGE>
Location in
Prospectus or
Statement of
Additional
Form N-1A Item Number and Caption Information
- --------------------------------- -----------
17. Brokerage Allocation and Other
Practices Statement of Additional
Information - Portfolio
Transactions
18. Capital Stock and Other Securities Statement of Additional
Information -
Description
of Shares
19. Purchase, Redemption and Pricing of
Securities Being Offered Statement of Additional
Information -
Determination of
Net Asset Value
20. Tax Status Statement of Additional
Information - Tax Status
21. Underwriters Statement of Additional
Information - Principal
Underwriter
22. Calculation of Performance Data Statement of Additional
Information - Investment
Results
23. Financial Statements Statement of Additional
Information - Financial
Statements
<PAGE>
Pioneer Variable Contracts Trust
Prospectus
May 1, 1997
TABLE OF CONTENTS
PAGE
- ---------------------------------------------------------
I. HIGHLIGHTS 2
II. HOW THE FUND WORKS 7
III. RISK CONSIDERATIONS 11
IV. THE FUND AND THE PIONEER ORGANIZATION 13
V. FUND MANAGEMENT FEES AND OTHER EXPENSES 15
VI. PERFORMANCE 16
VII. DISTRIBUTIONS AND TAXES 16
VIII. SHAREHOLDER INFORMATION 17
IX. APPENDIX 19
Pioneer Variable Contracts Trust (the Fund) is an open-end, management
investment company primarily designed to provide investment vehicles for
variable annuity and variable life insurance contracts (Variable Contracts)
of various insurance companies.
The Fund currently offers these Portfolios:
International Growth Portfolio seeks long-term growth of capital primarily
through investments in non-United States (U.S.) equity securities and related
depositary receipts.
Capital Growth Portfolio seeks capital appreciation through a diversified
portfolio of securities consisting primarily of common stocks.
Real Estate Growth Portfolio seeks long-term growth of capital primarily through
investments in the securities of real estate investment trusts (REITs) and other
real estate industry companies. Current income is the Portfolio's secondary
investment objective.
Equity-Income Portfolio seeks current income and long-term capital growth by
investing in a portfolio of income-producing equity securities of U.S.
corporations. The Portfolio's goal is to achieve a current dividend yield which
exceeds the published composite yield of the securities comprising the Standard
& Poor's 500 Composite Stock Price Index.
Balanced Portfolio seeks capital growth and current income by actively managing
investments in a diversified portfolio of equity securities and bonds.
Swiss Franc Bond Portfolio seeks to approximate the performance of the Swiss
franc relative to the U.S. dollar while earning a reasonable level of income.
America Income Portfolio seeks as high a level of current income as is
consistent with the preservation of capital. The Portfolio invests in U.S.
Government Securities and in "when issued" commitments and repurchase agreements
with respect to such securities.
Money Market Portfolio seeks current income consistent with preserving capital
and providing liquidity. The Portfolio seeks to maintain a stable $1.00 share
price; however, there can be no assurance that a $1.00 share price will be
maintained.
PORTFOLIO RETURNS AND SHARE PRICES FLUCTUATE AND THE VALUE OF YOUR ACCOUNT UPON
REDEMPTION MAY BE MORE OR LESS THAN YOUR PURCHASE PRICE. SHARES IN THE
PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK OR OTHER DEPOSITORY INSTITUTION, ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY AND ARE NOT GUARANTEED BY THE UNITED STATES GOVERNMENT. THERE IS NO
ASSURANCE THAT A PORTFOLIO WILL ACHIEVE ITS OBJECTIVE.
Investors considering the purchase of shares of any Portfolio should read
this Prospectus before investing. It is designed to provide you with information
and help you decide if the goal of one or more of the Portfolios matches your
own. Retain this document for future reference.
Shares of each Portfolio may be purchased primarily by the separate
accounts of insurance companies, for the purpose of funding Variable Contracts.
Particular Portfolios may not be available in your state due to various
insurance or other regulations. Please check with your insurance company for
available Portfolios. Inclusion of a Portfolio in this Prospectus which is not
available in your state is not to be considered a solicitation. This Prospectus
should be read in conjunction with the separate account prospectus of the
specific insurance product which accompanies this Prospectus. Shares of each
Portfolio also may be purchased by certain qualified pension and retirement
plans (Qualified Plans). See "Shareholder Information -- Investments in Shares
of the Portfolios" for more complete information.
A Statement of Additional Information dated May 1, 1997 for the Fund has
been filed with the Securities and Exchange Commission and is incorporated
herein by reference. This free Statement is available upon request from your
insurance company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED ON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
1
<PAGE>
I. HIGHLIGHTS
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Variable Contracts Trust (the Fund) is an open-end management investment
company that currently consists of eight distinct Portfolios. Shares of the
Portfolios are offered primarily to holders of insurance company variable
annuity and variable life insurance contracts (Variable Contracts). You may
obtain certain tax benefits by purchasing a Variable Contract (refer to the
prospectus of your insurance company's separate account for a discussion of the
tax benefits).
Each Portfolio has its own distinct investment objective and policies. In
striving to meet its objective, each Portfolio will face the challenges of
changing business, economic and market conditions. Each Portfolio offers
different levels of potential return and will experience different levels of
risk.
No single Portfolio constitutes a complete investment plan. Each Portfolio's
share price (except as described below for Money Market Portfolio), yield and
total return will fluctuate and an investment in a Portfolio may be worth more
or less than your original cost when shares are redeemed. Money Market Portfolio
seeks to maintain a constant $1.00 share price although there can be no
assurance it will do so.
Pioneering Management Corporation (Pioneer) is the investment adviser to each
Portfolio. Each Portfolio pays a fee to its investment adviser for managing the
Portfolio's investments and business affairs. For a discussion of these fees,
please see "Fund Management Fees and Other Expenses."
Each Portfolio complies with various insurance regulations. Please read your
insurance company's separate account prospectus for more specific information
relating to insurance regulations and instructions on how to invest in and
redeem from each Portfolio. For a general discussion of how to buy and sell
Portfolio shares, see "Shareholder Information" in this Prospectus.
Choosing a Portfolio
The illustration below shows the expected relationship between the return
potential and the level of risk normally associated with each Portfolio's
investment objective. Refer to "How the Fund Works" for additional
information on each Portfolio's investment objective and policies.
Portfolio Strategic Focus
[Arrow] More Aggressive
International Invests for long-term growth of capital
Growth primarily through investments in non-U.S.
equity securities and related depositary
receipts.
Capital Invests for capital appreciation through
Growth a diversified portfolio of securities
consisting primarily of common stocks.
Real Estate Invests for long-term growth
Growth of capital primarily through investments
in REITs and other real estate industry
companies. Current income is the
Portfolio's secondary investment
objective.
Equity-Income Invests for current income and long-term
capital growth by investing in a
portfolio of income-producing equity
securities of U.S. corporations.
[Arrow] More Conservative
Balanced Invests for capital growth and current
income by actively managing investments
in a diversified portfolio of common
stocks and bonds.
Swiss Franc Invests to approximate the performance of
Bond the Swiss franc relative to the U.S.
dollar while earning a reasonable level
of income.
America Invests for as high a level of current
Income income as is consistent with the
preservation of capital. The Portfolio
invests in U.S. Government Securities and
in "when-issued" commitments and
repurchase agreements with respect to
such securities.
Money Market Invests for current income consistent
with preserving capital and providing
liquidity.
2
<PAGE>
The following information has been audited by Arthur Andersen LLP,
independent public accountants, in connection with their audit of the
Portfolios' financial statements. Arthur Andersen LLP's report on the Fund's
financial statements as of December 31, 1996 appears in the Portfolios'
Annual Report which is incorporated by reference into the Statement of
Additional Information. The information below should be read in conjunction
with financial statements contained in the Portfolios' Annual Report. The
Annual Report includes more information about the Portfolios' performance and
is available free of charge upon request from your insurance company.
Financial Highlights
Selected Data for a Share Outstanding for Each Period Presented:
<TABLE>
<CAPTION>
International Growth Portfolio Capital Growth Portfolio
----------------------------------------- -----------------------------------------
March 1, 1995 March 1, 1995
(Commencement (Commencement
For the year ended of Operations) For the year ended of Operations)
December 31, 1996 to December 31, 1995 December 31, 1996 to December 31, 1995
------------------ -------------------- ------------------ ----------------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period $ 10.93 $ 10.00 $ 11.57 $10.00
------- ------- ------- ------
Increase from investment
operations:
Net investment income $ 0.05 $ -- $ 0.03 $ 0.02
Net realized and
unrealized gain (loss) on
investments 0.88* 1.04* 1.71 1.69
------- ------- ------- ------
Total increase
(decrease) from investment
operations $ 0.93 $ 1.04 $ 1.74 $ 1.71
Distribution to
shareholders from:
Net investment income -- (0.02) (0.03) (0.02)
Net realized gain (0.03) (0.09) (0.23) (0.12)
Net increase (decrease) in
net asset value $ 0.90 $ 0.93 $ 1.48 $ 1.57
------- ------- ------- ------
Net asset value, end of
period $ 11.83 $ 10.93 $ 13.05 $11.57
======= ======= ======= ======
Total return** 8.54% 10.42% 15.03% 17.13%
Ratio of net expenses to
average net assets + 1.52% 2.10%*** 0.93% 1.56%***
Ratio of net investment
income to average net
assets + 0.78% (0.25)%*** 0.37% 0.48%***
Portfolio turnover rate 115% 139%*** 41% 46%***
Average commission rate
paid(1) $0.0033(2) -- $0.0661 --
Net assets end of period
(in thousands) $24,770 $ 2,967 $48,572 $9,357
Ratios assuming no waiver
of management fees and no
assumption of expenses by
Pioneer and no reduction
for fees paid indirectly:
Net expenses 3.04% 17.22%*** 0.95% 3.95%***
Net investment income
(loss) (0.74)% (15.37)%*** 0.35% (1.91)%***
Ratios assuming waiver of
management fees and
assumption of expenses by
Pioneer and a reduction
for fees paid indirectly:
Net expenses 1.50% 1.75%*** 0.92% 1.49%***
Net investment income
(loss) 0.80% 0.10%*** 0.38% 0.55%***
</TABLE>
* Includes foreign currency transactions.
** Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions, the complete redemption of the
investment at net asset value at the end of period.
*** Annualized.
+ Ratios assuming no reduction for fees paid indirectly.
(1) Amount represents the rate of commission paid per share on the
Portfolio's exchange listed securities transactions.
(2) Amount may fluctuate from period to period as a result of Portfolio
transactions executed in different markets where trading practices and
commission rate structures may vary.
3
<PAGE>
Financial Highlights (continued)
Selected Data for a Share Outstanding for Each Period Presented:
<TABLE>
<CAPTION>
Real Estate Growth Portfolio Equity Income Portfolio
----------------------------------------- -----------------------------------------
March 1, 1995 March 1, 1995
(Commencement (Commencement
For the year ended of Operations) For the year ended of Operations)
December 31, 1996 to December 31, 1995 December 31, 1996 to December 31, 1995
------------------ -------------------- ------------------ ----------------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period $ 11.23 $ 10.00 $ 12.17 $10.00
------- ------- ------- ------
Increase from investment
operations:
Net investment income $ 0.54 $ 0.12 $ 0.29 $ 0.19
Net realized and
unrealized gain (loss) on
investments 3.34 1.55 1.54 2.16
------- ------- ------- ------
Total increase
(decrease) from investment
operations $ 3.88 $ 1.67 $ 1.83 $ 2.35
Distribution to
shareholders from:
Net investment income (0.53) (0.23) (0.27) (0.18)
Tax return of capital -- (0.18) -- --
Net realized gain (0.12) (0.03) -- --
Net increase (decrease) in
net asset value $ 3.23 $ 1.23 $ 1.56 $ 2.17
------- ------- ------- ------
Net asset value, end of
period $ 14.46 $ 11.23 $ 13.73 $12.17
======= ======= ======= ======
Total return* 35.73% 16.96% 15.19% 23.62%
Ratio of net expenses to
average net assets + 1.34% 2.10%** 0.96% 1.63%**
Ratio of net investment
income to average net
assets + 4.63% 2.68%** 2.67% 2.89%**
Portfolio turnover rate 41% 1%** 18% --
Average commission rate
paid(1) $0.0595 -- $0.0583 --
Net assets end of period
(in thousands) $11,115 $ 512 $46,871 $6,914
Ratios assuming no waiver
of management fees and no
assumption of expenses by
Pioneer and no reduction
for fees paid indirectly:
Net expenses 3.35% 45.96%** 0.98% 5.32%**
Net investment income
(loss) 2.62% (41.18)%** 2.65% (0.80)%**
Ratios assuming waiver of
management fees and
assumption of expenses by
Pioneer and a reduction
for fees paid indirectly:
Net expenses 1.24% 1.57%** 0.95% 1.47%**
Net investment income
(loss) 4.73% 3.21%** 2.68% 3.05%**
</TABLE>
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions, the complete redemption of the
investment at net asset value at the end of period.
** Annualized.
+ Ratios assuming no reduction for fees paid indirectly.
(1) Amount represents the rate of commission paid per share on the
Portfolio's exchange listed security transactions.
4
<PAGE>
Financial Highlights (continued)
Selected Data for a Share Outstanding for Each Period Presented:
<TABLE>
<CAPTION>
Balanced Portfolio Swiss Franc Bond Portfolio
----------------------------------------- -----------------------------------------
March 1, 1995 November 1, 1995
(Commencement (Commencement
For the year ended of Operations) For the year ended of Operations)
December 31, 1996 to December 31, 1995 December 31, 1996 to December 31, 1995
------------------ -------------------- ------------------ ----------------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period $ 11.87 $ 10.00 $ 15.06 $ 15.00
------- ------- ------- ------
Increase (decrease) from
investment operations:
Net investment income $ 0.29 $ 0.20 $ 0.14 $ 0.04
Net realized and
unrealized gain (loss) on
investments 1.39 1.87 (1.78)* 0.02*
------- ------- ------- ------
Net increase (decrease)
from investment operations $ 1.68 $ 2.07 $ (1.64) $ 0.06
Distribution to
shareholders from:
Net investment income (0.29) (0.20) -- --
Net realized gain (0.07) -- -- --
Net increase (decrease) in
net asset value $ 1.32 $ 1.87 $ 1.64 $ 0.06
------- ------- ------- ------
Net asset value, end of
period $ 13.19 $ 11.87 $ 13.42 $ 15.06
======= ======= ======= ========
Total return** 14.26% 20.84% (10.88)% 0.40%
Ratio of net expenses to
average net assets + 1.20% 1.76%*** 1.20% 2.25%***
Ratio of net investment
income to average net
assets + 2.83% 2.99%*** 3.37% 1.70***
Portfolio turnover rate 74% -- 39% --
Average commission rate
paid(1) $0.0582 -- -- --
Net assets end of period
(in thousands) $16,783 $ 2,661 $13,079 $ 189
Ratios assuming no waiver
of management fees by
Pioneer and no reduction
for fees paid indirectly:
Net expenses 1.58% 14.77%*** 2.58% 69.22%***
Net investment income
(loss) 2.45% (10.02)%*** 1.99% (65.27)%***
Ratios assuming waiver of
management fees and
assumption of expenses by
Pioneer and a reduction
for fees paid indirectly:
Net expenses 1.15% 1.45%*** 1.15% 1.25%***
Net investment income
(loss) 2.88% 3.30%*** 3.42% 2.70%***
</TABLE>
* Includes foreign currency transactions.
** Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions, the complete redemption of the
investment at net asset value at the end of period.
*** Annualized.
+ Ratios assuming no reduction for fees paid indirectly.
(1) Amount represents the rate of commission paid per share on the
Portfolio's exchange listed security transactions.
5
<PAGE>
Financial Highlights (continued)
Selected Data for a Share Outstanding from
<TABLE>
<CAPTION>
America Income Portfolio Money Market Portfolio
----------------------------------------- -----------------------------------------
March 1, 1995 November 1, 1995
(Commencement (Commencement
For the year ended of Operations) For the year ended of Operations)
December 31, 1996 to December 31, 1995 December 31, 1996 to December 31, 1995
------------------ -------------------- ------------------ ----------------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period $10.18 $10.00 $ 1.00 $ 1.00
------- ------- ------- ------
Increase from investment
operations:
Net investment income $ 0.52 $ 0.38 $ 0.04 $ 0.04
Net realized and
unrealized gain (loss) on
investments (0.40) 0.18 -- --
------- ------- ------- ------
Net increase (decrease)
from investment operations $ 0.12 $ 0.56 $ 0.04 $ 0.04
Distribution to
shareholders from:
Net investment income (0.52) (0.38) (0.04) (0.04)
Net realized gain -- -- -- --
Net increase (decrease) in
net asset value $(0.40) $(0.18) $ 0.00 $ 0.00
------- ------- ------- ------
Net asset value, end of
period $ 9.78 $10.18 $ 1.00 $ 1.00
====== ====== ======= ======
Total return** 1.30% 5.68% 4.51% 4.35%
Ratio of net expenses to
average net assets + 1.31% 1.12%** 0.97% 0.81%**
Ratio of net investment
income to average net
assets + 5.25% 5.22%** 4.43% 5.00%**
Portfolio turnover rate 60% 96%** -- --
Net assets end of period
(in thousands) $6,872 $3,514 $11,744 $3,416
Ratios assuming no waiver
of management fees and no
assumption of expenses by
Pioneer and no reduction
for fees paid indirectly:
Net expenses 2.24% 11.86%** 1.29% 8.34%**
Net investment income
(loss) 4.32% (5.52)%** 4.11% (2.53)%**
Ratios assuming waiver of
management fees and
assumption of expenses by
Pioneer and a reduction
for fees paid indirectly:
Net expenses 1.25% 0.99%** 0.96% 0.74%**
Net investment income
(loss) 5.31% 5.35%** 4.44% 5.07%**
</TABLE>
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions, the complete redemption of the
investment at net asset value at the end of period.
** Annualized.
+ Ratios assuming no reduction for fees paid indirectly.
6
<PAGE>
II. HOW THE FUND WORKS
Investment Objectives and Policies
The Fund's Portfolios are designed to serve as investment vehicles primarily for
Variable Contracts of insurance companies. The Fund currently offers eight
Portfolios with different investment objectives and policies which are described
below. Each Portfolio's investment objective is fundamental and can be changed
only by vote of a majority of the outstanding shares of the Portfolio. All other
investment policies of each Portfolio are nonfundamental and may be changed by
the Fund's Trustees without shareholder approval. There is no assurance that a
Portfolio will achieve its investment objective.
Each Portfolio may invest up to 100% of its total assets in short-term
investments for temporary defensive purposes. A Portfolio will assume a
temporary defensive posture only when economic and other factors are such that
Pioneer believes there to be extraordinary risks in being substantially invested
in the securities in which the Portfolio normally concentrates its investments.
Refer to the Appendix for a description of short-term investments.
International Growth Portfolio seeks long-term growth of capital primarily
through investments in non-U.S. equity securities and related depositary
receipts. Non-U.S. equity securities are equity securities of issuers that are
organized and have principal offices in foreign countries. For information on
depositary receipts, please refer to the Appendix.
Normally, at least 80% of the Portfolio's total assets will be invested in
non-U.S. equity securities and related depositary receipts. The Portfolio may
not invest more than 25% of its total assets in securities of issuers from any
one country except Japan or the United Kingdom. Also, with the exception of the
Japanese yen, the British pound and the U.S. dollar, no more than 25% of the
Portfolio's total assets may be denominated in the currency of any one country.
Substantial investments in Japan and the United Kingdom or their currencies will
subject the Portfolio to the risks associated with changing economic, market and
social conditions in Japan and the United Kingdom. Refer to "Risks of
International Investments" for more information.
The Portfolio is managed in accordance with Pioneer's "investing for value"
investment philosophy. This approach consists of developing a diversified
portfolio of securities consistent with the Portfolio's investment objective and
selected primarily on the basis of Pioneer's judgment that the securities have
an underlying value, or potential value, which exceeds their current prices. The
analysis and quantification of the economic worth, or "value," of an individual
company reflects Pioneer's assessment of the company's assets and the company's
prospects for earnings growth over the next three to five years. Pioneer relies
primarily on the knowledge, experience and judgment of its own research staff,
but also receives and uses information from a variety of outside sources,
including brokerage firms, electronic databases, specialized research firms and
technical journals.
When allocating the Portfolio's investments among geographic regions and
individual countries, Pioneer considers various criteria, such as prospects for
relative economic growth among countries, expected levels of inflation,
government policies influencing business conditions, and the outlook for
currency relationships. Pioneer currently expects to invest most of the
Portfolio's assets in securities of issuers located in countries such as:
Australia, Canada, Hong Kong, Japan, Malaysia, Mexico, Singapore, the United
Kingdom and the other developed countries of Western Europe. The Portfolio may
also invest in the securities of issuers located in countries with emerging
markets such as: Algeria, Argentina, Bangladesh, Brazil, Bulgaria, Chile, China,
Colombia, Czech Republic, Ecuador, Egypt, Ghana, Greece, Hungary, India,
Indonesia, Israel, Jamaica, Jordan, Kenya, Kuwait, Morocco, Nigeria, Pakistan,
Peru, the Philippines, Poland, Portugal, Russia, South Africa, South Korea, Sri
Lanka, Taiwan, Thailand, Turkey, Uruguay, Venezuela, Vietnam and Zimbabwe.
Normally, at least 65% of the Portfolio's total assets will be invested in at
least three different non-U.S. countries. In addition, most of the securities
purchased by the Portfolio will be denominated in foreign currencies.
Pioneer may normally invest up to 20% of the Portfolio's total assets in
short-term debt securities, including certain securities issued by U.S. and
non-U.S. governments and banks, and debt securities of non-U.S. and U.S.
companies.
The Portfolio will not purchase lower rated debt securities or unrated debt
securities of comparable quality, but up to 5% of its net assets may be invested
in such securities as a result of credit quality downgrades. See "Risk
Considerations -- Risks of Medium and Lower Rated Debt Securities." Pioneer
expects that opportunities for long-term growth of capital will come primarily
from the Portfolio's investments in equity securities, including common stock,
securities such as warrants or rights that are convertible into common stock,
preferred stock and depositary receipts for such securities.
Other Investment Practices. Refer to the Appendix for information on the
Portfolio's possible use of illiquid investments, restricted securities,
warrants, options and futures contracts, forward foreign currency exchange
contracts and repurchase agreements, and its ability to lend securities.
Capital Growth Portfolio seeks capital appreciation through a diversified
portfolio of securities consisting primarily of common stocks. Normally, at
least 80% of the Portfolio's assets will be invested in common stocks and in
securities with common stock characteristics, such as convertible bonds and
preferred stocks. In selecting individual equity securities to be purchased by
the Portfolio, Pioneer uses the "investing for value" approach as described
above for International Growth Portfolio.
The Portfolio may invest up to 25% of its total assets in non-U.S. securities,
however such investments in non-U.S. securities are not currently expected to
exceed 10% of the Portfolio's total assets. For a discussion of international
investing, please see "Risks of International Investments."
7
<PAGE>
Other Investment Practices. Refer to the Appendix for information on the
Portfolio's possible use of repurchase agreements, illiquid investments,
restricted securities, options, futures contracts and forward foreign currency
exchange contracts, and its ability to lend securities.
Real Estate Growth Portfolio seeks long-term growth of capital primarily through
investments in REITs and other real estate industry companies. Current income is
the Portfolio's secondary investment objective. The Portfolio will invest in a
non-diversified portfolio consisting primarily of equity securities of REITs and
other real estate industry companies and, to a lesser extent, in debt securities
of such companies and in mortgage-backed securities. Normally, at least 75% of
the Portfolio's assets will be invested in equity securities of REITs and other
real estate industry companies. See "Risks Associated with the Real Estate
Industry" and "Risks Associated with Real Estate Investment Trusts."
A real estate industry company is defined as a company that derives at least 50%
of its gross revenues or net profits from either (a) the ownership, development,
construction, financing, management or sale of commercial, industrial or
residential real estate or (b) products or services related to the real estate
industry like building supplies or mortgage servicing. The equity securities of
real estate industry companies in which the Portfolio will invest consist of
common stock, shares of beneficial interest of REITs and securities with common
stock characteristics, such as preferred stock and debt securities convertible
into common stock.
The Portfolio may also invest up to 25% of its total assets in: (a) debt
securities of real estate industry companies, (b) mortgage-backed securities,
such as mortgage pass-through certificates, real estate mortgage investment
conduit (REMIC) certificates and collateralized mortgage obligations (CMOs) and
(c) short-term investments. See "Risks Associated with Mortgage-Backed
Securities." The Portfolio may invest up to 5% of its net assets in equity and
debt securities of non-U.S. real estate companies. See "Risks of International
Investments."
Pioneer will invest no more than 5% of the Portfolio's net assets in lower rated
debt securities or unrated debt securities of comparable quality. See "Risk
Considerations -- Risks of Medium and Lower Rated Debt Securities."
The Portfolio will purchase the securities of REITs and other real estate
industry companies when, in Pioneer's judgment, their market price appears to be
less than their fundamental value and/or which offer a high level of current
income consistent with reasonable investment risk. In selecting specific
investments, Pioneer will attempt to identify securities with significant
potential for appreciation relative to their downside exposure and/or which have
a timely record and high level of interest or dividend payments. In making these
determinations, Pioneer will take into account price/earnings ratios, cash flow,
the relationship of asset value to market price of the securities, interest or
dividend payment history and other factors which it may determine from time to
time to be relevant. Pioneer will attempt to allocate the Portfolio's
investments across regional economies and property types.
Unlike the other Portfolios, Real Estate Growth Portfolio is a non-diversified
mutual fund under the Investment Company Act of 1940 (the 1940 Act). As a
non-diversified mutual fund, the Portfolio may be more susceptible to risks
associated with a single economic, political or regulatory occurrence than a
diversified fund.
Other Investment Practices. Refer to the Appendix for information about the
Portfolio's possible use of repurchase agreements, illiquid investments,
restricted securities, options and futures, and its ability to lend securities.
Equity-Income Portfolio seeks current income and long-term capital growth
primarily by investing in the income-producing equity securities of U.S.
corporations. The Portfolio's goal is to achieve a current dividend yield which
exceeds the published composite yield of the securities comprising the Standard
& Poor's 500 Composite Stock Price Index (S&P 500 Index).
Normally, at least 80% of the Portfolio's total assets will be invested in
income-producing common or preferred stock. The remainder of the Portfolio's
assets may be invested in debt securities, most of which are expected to be
convertible into common stock. Pioneer will invest no more than 5% of the
Portfolio's net assets in lower rated debt securities or unrated debt securities
of comparable quality. See "Risk Considerations -- Risks of Medium and Lower
Rated Debt Securities."
The Portfolio is managed in accordance with Pioneer's "investing for value"
investment philosophy as described above for International Growth Portfolio.
This approach consists of developing a diversified portfolio of securities
consistent with the Portfolio's investment objectives and selected primarily on
the basis of Pioneer's judgment that the securities have an underlying value, or
potential value, which exceeds their current prices.
Other Investment Practices. Refer to the Appendix for information on the
Portfolio's possible use of repurchase agreements and its ability to lend
securities.
Balanced Portfolio seeks capital growth and current income by actively managing
investments in a diversified portfolio of equity securities and bonds. Normally,
equity securities and bonds will each represent 35% to 65% of the Portfolio's
assets.
The assets of the Portfolio allocated to equity securities will be invested in
common stocks and in securities with common stock characteristics, such as
convertible bonds and preferred stocks. Normally, Portfolio assets allocated to
bonds will be invested in (1) debt securities rated "A" or higher by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's) or, if
unrated, judged by Pioneer to be of comparable quality, (2) commercial paper of
comparable quality and (3) U.S. Government Securities, GNMA Certifi-
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cates (described below) and CMOs. The Portfolio may, however, invest up to 20%
of its total assets in debt securities that are rated "BBB" by S&P or "Baa" by
Moody's, or, if unrated, judged by Pioneer to be of comparable quality, and in
commercial paper that is of comparable quality. See "Risks of Medium and Lower
Rated Debt Securities." Although the Portfolio intends to be fully invested,
normally a portion of the Portfolio's total assets may be invested in cash and
short-term investments. Refer to the Appendix for a description of short-term
investments.
Consistent with its investment objectives, the Portfolio may invest up to 25% of
its total assets in non-U.S. securities and related forward foreign currency
exchange contracts. For a further discussion of international investing, please
see "Risks of International Investments."
The allocation of the Portfolio's assets between stocks and bonds will vary in
response to conclusions drawn from Pioneer's continual assessment of business,
economic and market conditions. The mix of equity securities, bonds, short-term
investments and cash may be held in whatever proportions Pioneer determines are
necessary for defensive purposes.
Other Investment Practices. Refer to the Appendix for information on the
Portfolio's possible use of repurchase agreements and its ability to lend
securities. The Portfolio will not invest in futures or options, except that the
Portfolio may use forward foreign currency exchange contracts and purchase and
sell options and futures contracts relating to foreign currencies.
Swiss Franc Bond Portfolio seeks to approximate the performance of the Swiss
franc relative to the U.S. dollar while earning a reasonable level of income.
The Portfolio was developed by Pioneer with the assistance of JML Swiss
Investment Counsellors, A.G., a Swiss financial consultant.
Normally, the Portfolio invests at least 65% of its total assets in (1)
government and corporate debt securities that are denominated in Swiss francs
and (2) combinations of forward foreign currency exchange contracts and debt
securities that are not denominated in Swiss francs ("non-Swiss franc
securities") designed to link the value of the investment in the non-Swiss franc
security to the performance of the Swiss franc. Pioneer expects that these
combination investments generally will represent no more than 25% of the
Portfolio's total assets. The Portfolio's investments in debt securities are
investment grade (i.e., rated "BBB" or higher by S&P or "Baa" or higher by
Moody's or, if unrated, determined by Pioneer to be of comparable quality). The
Portfolio's weighted average maturity normally will not exceed three years, but
may be as long as 5 years if Pioneer determines that a longer weighted average
maturity is appropriate in response to existing or expected market conditions.
The Portfolio may invest up to 35% of its total assets in investment grade
commercial paper, bank obligations and money market instruments which may be
denominated in the Swiss franc or other currencies. Normally, at least 50% of
the Portfolio's investments will be denominated in Swiss francs. An investment
in the Portfolio may effectively hedge a diversified investment program by
offering protection against declines in the value of the U.S. dollar relative to
the Swiss franc.
Other Investment Practices. Refer to the Appendix for information on the
Portfolio's possible use of illiquid investments, restricted securities, futures
and options contracts, forward currency exchange contracts and repurchase
agreements, and its ability to lend securities.
America Income Portfolio seeks as high a level of current income as is
consistent with the preservation of capital. Normally, the Portfolio invests in
U.S. Government Securities and in "when-issued" commitments and repurchase
agreements with respect to such securities.
The Portfolio's investments in U.S. Government Securities may include certain
mortgage-backed securities, such as mortgage pass-through certificates and
collateralized mortgage obligations (CMOs). See the Appendix and "Risks
Associated with Mortgage-Backed Securities."
U.S. Government Securities are debt securities issued or guaranteed as to
principal and interest by the U.S. Treasury or by an agency or instrumentality
of the U.S. Government. Not all U.S. Government Securities are backed by the
full faith and credit of the United States. For example, securities issued by
the Federal Farm Credit Bank, the Student Loan Marketing Association or the
Federal National Mortgage Association are supported by the agency's right to
borrow money from the U.S. Treasury under certain circumstances. Securities
issued by the Federal Home Loan Bank are supported only by the credit of the
agency. There is no guarantee that the U.S. Government will support these types
of securities, and therefore they involve more risk than U.S. Government
Securities that are backed by the full faith and credit of the United States.
U.S. Government Securities that are backed by the full faith and credit of the
United States include (1) U.S. Treasury obligations, which differ only in their
interest rates, maturities and times of issuance, and (2) obligations of varying
maturities issued or guaranteed by certain agencies and instrumentalities of the
U.S. Government, such as mortgage participation certificates (GNMA Certificates)
guaranteed by the Government National Mortgage Association (GNMA) and Federal
Housing Administration (FHA) debentures, for which the U.S. Treasury
unconditionally guarantees payment of principal and interest. Although the
payment when due of interest and principal on these securities is backed by the
full faith and credit of the United States, this guarantee does not extend to
the market value of these securities. The net asset value of the Portfolio's
shares will fluctuate accordingly.
The Portfolio is free to take advantage of the entire range of maturities
offered by U.S. Government Securities and the average maturity of the Portfolio
may vary significantly. Under normal circumstances, however, the Portfolio's
dollar-weighted average portfolio maturity is not expected to exceed 20 years.
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GNMA Certificates. The Portfolio may invest all or any portion of its assets in
GNMA Certificates but it is not obligated to do so; the portion of its assets so
invested will vary with Pioneer's view of the relative yields and values of GNMA
Certificates compared to U.S. Treasury obligations and other U.S. Government
Securities. GNMA Certificates are mortgage-backed securities which evidence part
ownership of a pool of mortgage loans. The GNMA Certificates which the Portfolio
may purchase are the "modified pass-through" type. Modified pass-through
certificates entitle the holder to receive all principal and interest owed on
the mortgages in the pool, net of fees paid to the issuer and GNMA, regardless
of whether or not the mortgagor actually makes the payment.
GNMA Certificates may offer yields higher than those available from other types
of U.S. Government Securities. However, because of principal prepayments and
foreclosures with respect to mortgages in the underlying pool, they may be less
effective than other types of securities as a means of "locking in" attractive
long-term interest rates. Prepayments generally can be invested only at lower
interest rates.
"When-Issued" GNMA Certificates. When-issued or delayed delivery transactions
arise when securities are purchased or sold by the Portfolio with payment and
delivery taking place in the future in order to secure what is considered to be
an advantageous price and yield which is fixed at the time of entering into the
transaction. However, the yield on a comparable GNMA Certificate when the
transaction is consummated may vary from the yield on the GNMA Certificate at
the time that the when-issued or delayed delivery transaction was made. Also,
the market value of the when-issued or delayed delivery GNMA Certificate may
increase or decrease as a result of changes in general interest rates.
When-issued and delayed delivery transactions involve risk of loss if the value
of a GNMA Certificate declines before the settlement date.
The value of when-issued GNMA Certificate purchase commitments at any time will
not exceed the value of the Portfolio's assets invested in U.S. Treasury bills
(i.e., U.S. Treasury obligations with maturities of one year or less) and other
debt securities having remaining maturities of less than six months. In
addition, the Portfolio's aggregate investments in when-issued or delayed
delivery commitments and repurchase agreements may not exceed 25% of its assets.
Other Investment Practices. Refer to the Appendix for information on the
Portfolio's possible use of repurchase agreements and its ability to lend
securities.
Money Market Portfolio seeks current income consistent with preserving capital
and providing liquidity. The Portfolio should be considered as a temporary
investment rather than as an income or cash management vehicle. Pioneer will
invest the Portfolio's assets in the following types of high-quality money
market instruments.
(bullet) U.S. Government Securities.
(bullet) Obligations of U.S. banks and their non-U.S. branches, savings and
loan associations with total assets in excess of $1 billion and
certain smaller banks and savings and loan associations satisfying
criteria described in the Statement of Additional Information.
These obligations include certificates of deposit and bankers'
acceptances.
(bullet) Commercial Paper: that is, short-term unsecured promissory notes of
corporations, including variable amount master demand notes rated,
on the date of investment, A-1 by S&P or P-1 by Moody's, or, if
unrated, issued by companies having outstanding debt rated AAA or
AA by S&P or Aaa or Aa by Moody's.
(bullet) Short-Term Corporate Debt Securities: that is, bonds and debentures
with no more than 397 days remaining to maturity at date of
settlement and rated AAA or AA by S&P or Aaa or Aa by Moody's.
The Portfolio may enter into repurchase agreements with approved banks and
broker-dealers for periods not to exceed seven days and only with respect to
U.S. Government Securities that, throughout the period, have a value at least
equal to the amount of the repurchase agreement (including accrued interest). No
more than 25% of the Portfolio's assets will be invested in any one industry,
except that there is no percentage limitation on investments in bank obligations
or U.S. Government Securities.
Many of the instruments in which Money Market Portfolio may invest are described
in the Appendix.
Quality. Money Market Portfolio may purchase only high quality securities that
Pioneer believes present minimal credit risks. To be considered high quality, a
security must be rated, in accordance with applicable rules, in one of the two
highest categories for short-term securities by the major rating services, such
as S&P or Moody's (or by one, if only one rating service has rated the
security), or, if unrated, judged to be of equivalent quality by Pioneer.
High quality securities are divided into "first tier" and "second tier"
securities. First tier securities have received the highest rating (e.g., S&P's
A-1 rating) from at least two rating services (or one, if only one has rated the
security). Second tier securities have received ratings within the two highest
categories (e.g., S&P's A-1 or A-2) from at least two rating services (or one,
if only one has rated the security), but do not qualify as first tier
securities. If a security has been assigned different ratings by different
rating services, at least two rating services must have assigned the higher
rating in order for Pioneer to determine eligibility on the basis of that higher
rating. Based on procedures adopted by the Fund's Board of Trustees, Pioneer may
determine that an unrated security is of equivalent quality to a rated first or
second tier security.
Diversification. As a money market fund, the Portfolio is subject to the
following special diversification requirements. The Portfolio may not invest
more than 5% of its total assets in securities issued by or subject to puts from
any one issuer (except U.S. Government Securities and repurchase agreements
collateralized by such securities). In addition, the Port-
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folio may not invest (1) more than 5% of its total assets in second tier
securities or (2) more than 1% of its total assets or $1 million (whichever
is greater) in the second tier securities of a single issuer (other than U.S.
Government Securities).
Maturity Policies. The Portfolio must limit its investments to securities with
remaining maturities of 397 days or less and must maintain a dollar-weighted
average maturity of 90 days or less.
III. RISK CONSIDERATIONS
Risks of International Investments
The information contained in these paragraphs is of particular importance to
International Growth Portfolio and Swiss Franc Bond Portfolio; however, Capital
Growth, Balanced and Real Estate Growth Portfolios may also make non-U.S.
investments. Pioneer limits the amount of Capital Growth and Balanced
Portfolio's net assets that may be invested in non-U.S. securities to 25%.
Pioneer limits the amount of Real Estate Growth Portfolio's net assets that may
be invested in non-U.S. securities to 5%. Investing outside the U.S. involves
different opportunities and different risks from U.S. investments. Pioneer
believes that it may be possible to obtain significant returns from a portfolio
of non-U.S. investments, or a combination of non-U.S. investments and U.S.
investments, and to achieve increased diversification in comparison to a
portfolio invested solely in U.S. securities. By including international
investments in your investment portfolio, you may gain increased diversification
by combining securities from various countries and geographic areas that offer
different investment opportunities and are affected by different economic
trends. At the same time, these opportunities and trends involve risks that may
not be encountered in U.S. investments.
International investing in general may involve greater risks than U.S.
investments. There is generally less publicly available information about
non-U.S. issuers, and there may be less government regulation and supervision of
non-U.S. stock exchanges, brokers and listed companies. There may be difficulty
in enforcing legal rights outside the United States. Non-U.S. companies
generally are not subject to uniform accounting, auditing and financial
reporting standards, practices and requirements comparable to those that apply
to U.S. companies. Security trading practices abroad may offer less protection
to investors such as the Portfolios. Settlement of transactions in some non-U.S.
markets may be delayed or may be less frequent than in the U.S., which could
affect the liquidity of a Portfolio's investments. Additionally, in some foreign
countries, there is the possibility of expropriation or confiscatory taxation,
limitations on the removal of securities, property, or other assets of a
Portfolio, political or social instability, or diplomatic developments which
could affect U.S. investments in foreign countries. Pioneer will take these
factors into consideration in managing each Portfolio's non-U.S. investments.
International Growth Portfolio may invest a portion of its assets in developing
countries, or in countries with new or developing capital markets; for example,
countries in Eastern Europe. The considerations noted above are generally
intensified for these investments. These countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities. Securities of issuers located in these
countries tend to have volatile prices and may offer significant potential for
loss as well as gain.
Foreign Currencies. The value of Swiss Franc Bond Portfolio's and International
Growth Portfolio's non-U.S. investments, and the value of dividends and interest
earned by these Portfolios, may be significantly affected by changes in currency
exchange rates. Currency exchange rates may also affect Capital Growth, Balanced
and Real Estate Growth Portfolios to the extent that these Portfolios invest in
non-U.S. securities. Some foreign currency values may be volatile, and there is
the possibility of governmental controls on currency exchange or governmental
intervention in currency markets, which could adversely affect the Portfolios.
Pioneer may attempt to manage currency exchange rate risks for the Portfolios
(other than Swiss Franc Bond Portfolio). However, there is no assurance that
Pioneer will do so at an appropriate time or that Pioneer will be able to
predict exchange rates accurately. For example, to the extent that Pioneer
increases a Portfolio's exposure to a foreign currency, and that currency's
value subsequently falls, Pioneer's currency management may result in increased
losses to the Portfolio. Similarly, if Pioneer hedges a Portfolio's exposure to
a foreign currency, and the currency's value rises, the Portfolio will lose the
opportunity to participate in the currency's appreciation.
Because Swiss Franc Bond Portfolio seeks to approximate the performance of the
Swiss franc relative to the U.S. dollar, the Portfolio will be particularly
susceptible to the effects of social, political and economic events that affect
Switzerland and the value of the Swiss franc relative to the U.S. dollar.
Pioneer will not actively manage the currency exchange rate risk associated with
the Portfolio's investments. For information about the Swiss economy and the
Swiss franc, see the Appendix.
Currency Management. The relative performance of foreign currencies can be an
important factor in the performance of Swiss Franc Bond Portfolio, and in the
performance of International Growth Portfolio, each of which invests the
predominant portion of its assets outside the United States. The performance of
Capital Growth, Balanced and Real Estate Growth Portfolios may also be affected
by the relative performance of foreign currencies, but to a lesser extent.
Pioneer may manage International Growth, Capital Growth, Real Estate Growth and
Balanced Portfolios' exposure to various currencies to take advantage of
different yield, risk, and return characteristics that different currencies can
provide for U.S. investors.
To manage exposure to currency fluctuations, International Growth, Capital
Growth and Balanced Portfolios may enter into forward foreign currency exchange
contracts (agreements to exchange one currency for another at a future date) and
buy and sell options and futures contracts relating to for-
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eign currencies. The Portfolios will use forward foreign currency exchange
contracts in the normal course of business to lock in an exchange rate in
connection with purchases and sales of securities denominated in foreign
currencies. Other currency management strategies allow the Portfolios to hedge
portfolio securities, to shift investment exposure from one currency to another,
or to attempt to profit from anticipated declines in the value of a foreign
currency relative to the U.S. dollar. Subject to compliance with tax
requirements, there is no overall limitation on the amount of International
Growth Portfolio's assets that may be committed to currency management
strategies. Capital Growth and Balanced Portfolio may engage in currency
management strategies only to the extent that they invest in non-U.S.
securities. Because Real Estate Growth Portfolio may only invest up to 5% of its
net assets in non-U.S. securities, it does not actively seek to manage exposure
to currency fluctuations.
Swiss Franc Bond Portfolio may enter into forward foreign currency exchange
contracts to purchase Swiss francs in connection with its investments in
non-Swiss franc securities. The Portfolio may engage in this practice in order
to link an investment in a non-Swiss franc security to the value of the Swiss
franc. The Portfolio's use of this strategy will be subject to compliance with
tax requirements.
Risks of Medium and Lower Rated Debt Securities
All the Portfolios except America Income and Money Market Portfolios may invest
in medium rated debt securities which are usually defined as securities rated
"BBB" by S&P or "Baa" by Moody's. Medium rated debt securities have speculative
characteristics and involve greater risk of loss than higher rated debt
securities, and are more sensitive to changes in the issuer's capacity to make
interest payments and repay principal. Medium rated debt securities represent a
somewhat more aggressive approach to income investing than higher rated debt
securities. If the rating of a debt security is reduced below investment grade
(i.e., below "BBB" by S&P or "Baa" by Moody's), Pioneer will consider whatever
action is appropriate, consistent with the Portfolio's investment objective and
policies.
Real Estate Growth and Equity-Income Portfolios may invest up to 5% of their net
assets in lower rated debt securities. International Growth and Swiss Franc Bond
Portfolios may not purchase lower rated debt securities, but up to 5% of their
net assets may be invested in such securities as a result of credit quality
downgrades. Lower rated debt securities are usually defined as securities rated
below "BBB" by S&P or "Baa" by Moody's. Investments in lower rated debt
securities are speculative and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity of the issuer to
make principal and interest payments on such securities.
The considerations discussed above for medium and lower rated debt securities
also apply to medium and lower quality, unrated debt instruments of all types.
Unrated debt instruments are not necessarily of lower quality than similar rated
instruments, but they may not be attractive to as many buyers. Each Portfolio
relies more on Pioneer's credit analysis when investing in debt securities that
are unrated.
Please refer to the Statement of Additional Information for a discussion of
Moody's and S&P's ratings.
Risks Associated with the Real Estate Industry
Real Estate Growth Portfolio does not invest directly in real estate; however,
an investment in the Portfolio may be subject to certain risks associated with
the direct ownership of real estate and with the real estate industry in
general. These risks include, among others: possible declines in the value of
real estate; risks related to general and local economic conditions; possible
lack of availability of mortgage funds; overbuilding; extended vacancies of
properties; increases in competition, property taxes and operating expenses;
changes in zoning laws; costs resulting from the clean-up of, and liability to
third parties for damages resulting from, environmental problems; casualty or
condemnation losses; uninsured damages from floods, earthquakes or other natural
disasters; limitations on and variations in rents; and changes in interest
rates.
In addition, if Real Estate Growth Portfolio has rental income or income from
the disposition of real property acquired as a result of a default on securities
the Portfolio owns, the receipt of such income may adversely affect its ability
to retain its tax status as a regulated investment company. See "Distributions
and Taxes" in the Statement of Additional Information. Investments by the
Portfolio in securities of companies providing mortgage servicing will be
subject to the risks associated with refinancings and their impact on servicing
rights.
Risks Associated with Real Estate Investment Trusts
Real Estate Growth Portfolio may invest without limitation in shares of REITs.
REITs are pooled investment vehicles which invest primarily in income-producing
real estate or real estate related loans or interests. REITs are generally
classified as equity REITs, mortgage REITs or a combination of equity and
mortgage REITs. Equity REITs invest the majority of their assets directly in
real property and derive income primarily from the collection of rents. Equity
REITs can also realize capital gains by selling properties that have appreciated
in value. Mortgage REITs invest the majority of their assets in real estate
mortgages and derive income from the collection of interest payments. Like
investment companies such as Real Estate Growth Portfolio, REITs are not taxed
on income distributed to shareholders provided they comply with several
requirements of the Internal Revenue Code of 1986, as amended (the Code). The
Portfolio will indirectly bear its proportionate share of any expenses paid by
REITs in which it invests in addition to the expenses paid by the Portfolio.
Investing in REITs involves certain unique risks in addition to those risks
associated with investing in the real estate industry in general. Equity REITs
may be affected by changes in the
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value of the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of any credit extended. REITs are dependent upon
management skills, are not diversified and are subject to the risks of financing
projects. REITs are subject to heavy cash flow dependency, default by borrowers,
self-liquidation, and the possibilities of failing to qualify for the exemption
from tax for distributed income under the Code and failing to maintain their
exemptions under the 1940 Act. REITs whose underlying assets include long-term
health care properties, such as nursing, retirement and assisted living homes,
may be affected by federal regulations concerning the health care industry.
REITs (especially mortgage REITs) are also subject to interest rate risks. When
interest rates decline, the value of a REIT's investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a REIT's investment in fixed rate obligations can be expected to
decline.
Investing in REITs involves risks similar to those associated with investing in
small capitalization companies. REITs may have limited financial resources, may
trade less frequently and in a limited volume and may be subject to more abrupt
or erratic price movements than larger company securities. Historically, small
capitalization stocks, such as REITs, have been more volatile in price than the
larger capitalization stocks included in the S&P 500 Index.
Risks Associated with Mortgage-Backed Securities
Real Estate Growth, Balanced and America Income Portfolios may invest in
mortgage-backed securities. Mortgage-backed securities are securities that
directly or indirectly represent participation in, or are collateralized by and
payable from, mortgage loans secured by real property. America Income Portfolio
may invest in mortgage-backed securities issued or guaranteed by the U.S.
Government and its agencies and instrumentalities, including CMOs collateralized
by GNMA, Fannie Mae or Freddie Mac certificates. Real Estate Growth Portfolio
may invest in a variety of mortgage-backed securities and Balanced Portfolio may
invest in GNMA Certificates and CMOs. Refer to the APPENDIX for a description of
these securities.
Investing in mortgage-backed securities involves certain unique risks in
addition to those risks associated with investing in the real estate industry in
general. These risks include the failure of a counter-party to meet its
commitments, adverse interest rate changes and the effects of prepayments on
mortgage cash flows. When interest rates decline, the value of an investment in
fixed rate obligations can be expected to rise. Conversely, when interest rates
rise, the value of an investment in fixed rate obligations can be expected to
decline. In contrast, as interest rates on adjustable rate mortgage loans are
reset periodically, yields on investments in such loans will gradually align
themselves to reflect changes in market interest rates, causing the value of
such investments to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
The yield characteristics of mortgage-backed securities differ from those of
traditional fixed income securities. The major differences typically include
more frequent interest and principal payments (usually monthly), the
adjustability of interest rates, and the possibility that prepayments of
principal may be made substantially earlier than their final distribution dates.
Prepayment rates are influenced by changes in current interest rates and a
variety of economic, geographic, social and other factors and cannot be
predicted with certainty. Both adjustable rate mortgage loans and fixed rate
mortgage loans may be subject to a greater rate of principal prepayments in a
declining interest rate environment and to a lesser rate of principal
prepayments in an increasing interest rate environment. Under certain interest
rate and prepayment rate scenarios, Real Estate Growth Portfolio, Balanced
Portfolio and America Income Portfolio may fail to recoup fully their
investments in mortgage-backed securities notwithstanding any direct or indirect
governmental or agency guarantee. When a Portfolio reinvests amounts
representing payments and unscheduled prepayments of principal, it may receive a
rate of interest that is lower than the rate on existing adjustable rate
mortgage pass-through securities. Thus, mortgage-backed securities, and
adjustable rate mortgage pass-through securities in particular, may be less
effective than other types of U.S. Government Securities as a means of "locking
in" interest rates.
IV. THE FUND AND THE PIONEER ORGANIZATION
The Fund is an open-end, management investment company organized as a Delaware
business trust on September 16, 1994. The Fund has its own Board of Trustees,
which supervises its activities and reviews contractual arrangements with
companies that provide each Portfolio with services. The Fund is not required to
hold annual shareholder meetings, although special meetings may be called for a
specific Portfolio, or the Fund as a whole, for purposes such as electing or
removing Trustees, changing fundamental policies or approving a management
contract. An insurance company issuing a Variable Contract that participates in
the Fund will vote shares of the Portfolios held by the insurance company's
separate accounts as required by law. In accordance with current law and
interpretations thereof, participating insurance companies are required to
request voting instructions from policyowners and must vote shares of the
Portfolios in proportion to the voting instructions received. For a further
discussion of voting rights, please refer to your insurance company's separate
account prospectus.
The Pioneer Group, Inc. (PGI), established in 1928, is one of America's oldest
investment managers and has its principal business address at 60 State Street,
Boston, Massachusetts. PGI is the parent company of Pioneer and a number of
different companies located in the U.S. and several other countries. These
companies provide a variety of financial services and products. Each Portfolio
employs various PGI companies to perform certain activities required for its
operation. In an effort to avoid conflicts of interest with the Fund, the Fund
and Pioneer have adopted a Code of Ethics that is designed to maintain a
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high standard of personal conduct by directing that all personnel defer to the
interests of the Fund and its shareholders in making personal securities
transactions.
John F. Cogan, Jr., Chairman and President of the Fund, President and a Director
of PGI and Chairman and a Director of Pioneer, owned approximately 14% of the
outstanding capital stock of PGI as of the date of this Prospectus.
The Manager
Pioneer, the investment adviser to each Portfolio, provides investment research
and portfolio management services to a number of other retail mutual funds and
certain institutional clients. It maintains a staff of experienced investment
personnel and a full complement of related support facilities. As of December
31, 1996, Pioneer advised mutual funds with a total value of over $15 billion,
which includes more than 1,000,000 U.S. shareholder accounts, and other
institutional accounts. Pioneer Funds Distributor, Inc. (PFD), with its
principal business address at 60 State Street, Boston, Massachusetts,
distributes shares of the Portfolios and shares of Pioneer's retail mutual
funds.
Mr. David Tripple, President and Chief Investment Officer of Pioneer and
Executive Vice President of the Fund, has general responsibility for Pioneer's
investment operations. Mr. Tripple chairs special committees which review the
research and portfolio operations for the Portfolios. Each committee is
responsible for focusing on select investment categories including domestic
equities, international equities, domestic fixed-income and international
fixed-income. Mr. Tripple joined Pioneer in 1974.
The Portfolio Managers responsible for day-to-day management of the
Portfolios are:
International Growth Portfolio: Norman Kurland, Senior Vice President of
Pioneer. Mr. Kurland joined Pioneer in 1990 after working with a variety of
investment and industrial concerns.
Capital Growth Portfolio: J. Rodman Wright, Vice President of Pioneer. Mr.
Wright joined Pioneer in 1994.
Real Estate Growth Portfolio: Robert Benson, Senior Vice President of
Pioneer, who joined Pioneer in 1974.
Equity-Income Portfolio: John A. Carey, Vice President of Pioneer. Mr. Carey
joined Pioneer in 1979.
America Income Portfolio: Sherman B. Russ, Senior Vice President of Pioneer.
Mr. Russ joined Pioneer in 1983.
Balanced Portfolio: William C. Field, Vice President of Pioneer. Mr. Field
joined Pioneer in 1991.
Swiss Franc Bond Portfolio: Salvatore P. Pramas, Vice President of Pioneer.
Mr. Pramas joined Pioneer in 1994 after working for a number of investment
management firms.
The Real Estate Growth Portfolio Subadviser. Boston Financial Securities,
Inc. (BFS), the investment subadviser to Real Estate Growth Portfolio since
May 1, 1996, is an affiliate of The Boston Financial Group Limited
Partnership, a Massachusetts limited partnership ("Boston Financial"), which
together with a predecessor business has extensive experience and expertise
in placing, evaluating and providing advice on a variety of real estate
related investments since 1969 for individuals, institutions and real estate
professionals. Several other affiliates of BFS also provide a variety of
financial, consulting and management services to real estate asset managers
in the U.S., Boston Financial oversees investment in over $6 billion of
properties in 49 states. The company serves over 37,000 investors with equity
contributions in excess of $2 billion in real estate investments.
In its capacity as subadviser to the Portfolio, BFS (i) identifies and
analyzes real estate industry companies, including real estate properties and
other permissible investments for the Portfolio, (ii) analyzes market
conditions affecting the real estate industry generally and specific
geographical and securities markets in which the Portfolio may invest or is
invested, (iii) continuously reviews and analyzes the investments in the Real
Estate Growth Portfolio's portfolio and (iv) furnishes advisory reports based
on such analysis to Pioneer.
Mr. Fred N. Pratt, Jr. has the ultimate responsibility for overseeing the
provision of subadvisory services to the Real Estate Growth Portfolio. Mr.
Pratt is President and Chief Executive officer of Boston Financial, a
Director of BFS and a Trustee of the Real Estate Growth Portfolio. Mr. Pratt
has worked in the real estate industry since 1969. Mr. Mark Howard-Johnson, a
Vice President of BFS, is primarily responsible for the day-to-day provision
of subadvisory services to the Real Estate Growth Portfolio since September
30, 1996. Mr. Howard-Johnson has worked as a real estate analyst since 1994.
The executive office of BFS is located at 101 Arch Street, Boston,
Massachusetts 02110.
Each Portfolio, other than Balanced Portfolio and Swiss Franc Bond Portfolio,
has an investment objective and policies similar to those of an existing Pioneer
retail mutual fund. International Growth Portfolio is most similar to Pioneer
International Growth Fund, Capital Growth Portfolio to Pioneer Capital Growth
Fund, Real Estate Growth Portfolio to Pioneer Real Estate Shares, Equity-Income
Portfolio to Pioneer Equity-Income Fund, America Income Portfolio to Pioneer
America Income Trust and Money Market Portfolio to Pioneer Cash Reserves Fund.
Performance of these Portfolios is not expected to be the same as the
performance of the corresponding retail mutual fund due in part to
dissimilarities in their investments. Various insurance costs will also affect
the performance of investments in the Portfolios, as measured for the
Accumulation Units of your Variable Contract.
Portfolio Transactions
Orders for each Portfolio's securities transactions are placed by Pioneer, which
strives to obtain the best price and execution for each transaction. In
circumstances where two or more broker-dealers are in a position to offer
comparable prices and execution, consideration may be given to whether the
broker-dealer provides investment research or brokerage
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services or sells shares of a Portfolio or other funds for which Pioneer or any
affiliate serves as investment adviser or manager. See the Statement of
Additional Information for a further description of Pioneer's brokerage
allocation practices.
Each of the Portfolios is substantially fully invested at all times. It is the
policy of the Portfolios not to engage in trading for short-term profits,
although a Portfolio may do so when it believes a particular transaction will
contribute to the achievement of its investment objective. Nevertheless, changes
in any Portfolio will be made promptly when determined to be advisable by reason
of developments not foreseen at the time of the initial investment decision, and
usually without reference to the length of time a security has been held.
Accordingly, portfolio turnover rate is not considered a limiting factor in the
execution of investment decisions.
The frequency of portfolio transactions -- a Portfolio's turnover rate -- will
vary from year to year depending on market conditions. Portfolio turnover rates
are not generally expected to exceed 100% with the exception of International
Growth Portfolio's turnover rate, which may be as high as 300%. See "Financial
Highlights" for actual turnover rates. Because a higher turnover rate increases
transaction costs and may have certain tax consequences, Pioneer carefully
weighs the anticipated benefits of short-term investment against these factors.
V. FUND MANAGEMENT FEES AND OTHER EXPENSES
Each Portfolio pays a management fee to Pioneer for managing its investments
and business affairs. Each Portfolio's management fee is computed daily and
paid monthly at the following annual rate:
Management fee as a percentage
of Portfolio's average daily
Portfolio net assets
International Growth Portfolio 1.00%
Capital Growth Portfolio 0.65%
Real Estate Growth Portfolio 1.00%
Equity-Income Portfolio 0.65%
Balanced Portfolio 0.65%
Swiss Franc Bond Portfolio 0.65%
America Income Portfolio 0.55%
Money Market Portfolio 0.50%
See "Expense Information" in the Prospectus and "Investment Adviser" in the
Statement of Additional Information.
Pioneer has agreed not to impose all or a portion of its management fee or to
make other arrangements to reduce Portfolio expenses to a specified percentage
of average daily net assets, as indicated below. Such agreements or arrangements
may be terminated by Pioneer at any time without notice.
Percentage of Portfolio's
Portfolio average daily net assets
International Growth Portfolio 1.50%
Real Estate Growth Portfolio 1.25%
Swiss Franc Bond Portfolio 1.25%
America Income Portfolio 1.25%
Under the terms of their respective management contracts with the Fund, Pioneer
assists in the management of each Portfolio and is authorized in its discretion
to buy and sell securities for the account of each Portfolio. Pioneer pays all
the expenses, including executive salaries and the rental of certain office
space, related to its services for each Portfolio, with the exception of the
following which are paid by each Portfolio: (a) charges and expenses for fund
accounting, pricing and appraisal services and related overhead, including, to
the extent such services are performed by personnel of Pioneer or its
affiliates, office space and facilities and personnel compensation, training and
benefits; (b) the charges and expenses of auditors; (c) the charges and expenses
of any custodian, transfer agent, plan agent, dividend disbursing agent and
registrar appointed by the Fund with respect to the Portfolio; (d) issue and
transfer taxes chargeable to the Portfolio in connection with securities
transactions to which the Portfolio is a party; (e) insurance premiums, interest
charges, dues and fees for membership in trade associations, and all taxes and
corporate fees payable by the Portfolio to federal, state or other governmental
agencies; (f) fees and expenses involved in registering and maintaining
registrations of the Fund and/or its shares with the SEC, individual states or
blue sky securities agencies, territories and foreign countries, including the
preparation of Prospectuses and Statements of Additional Information for filing
with the SEC; (g) all expenses of shareholders' and Trustees' meetings and of
preparing, printing and distributing prospectuses, notices, proxy statements and
all reports to shareholders and to governmental agencies; (h) charges and
expenses of legal counsel to the Fund and the Trustees; (i) compensation of
those Trustees of the Trust who are not affiliated with or interested persons of
Pioneer, the Fund (other than as Trustees), PGI or PFD; (j) the cost of
preparing and printing share certificates; and (k) interest on borrowed money,
if any. In addition to the expenses described above, each Portfolio shall pay
all brokers' and underwriting commissions chargeable to the Portfolio in
connection with securities transactions to which the Portfolio is a party.
Subadvisory Fee for Real Estate Growth Portfolio. As compensation for its
subadvisory services, Pioneer pays BFS a subadvisory fee equal to 0.30% per
annum of the Real Estate Growth Portfolio's average daily net assets. The
subadvisory fee payable by Pioneer to BFS could be reduced proportionally to the
extent that the management fee paid by the Real Estate Growth Portfolio to
Pioneer is reduced under Pioneer's voluntary expense limitation agreement or,
after written notice to BFS, to the extent that Pioneer elects to utilize a
portion of the management fees paid to Pioneer by the Real Estate Growth
Portfolio to make payments to third parties.
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VI. PERFORMANCE
Each Portfolio's performance may be quoted in advertising in terms of yield and
total return if accompanied by performance for your insurance company's separate
account. Performance is based on historical results and is not intended to
indicate future performance. For additional performance information, contact
your insurance company for a free annual report.
For America Income Portfolio, Swiss Franc Bond Portfolio, Equity-Income
Portfolio and Balanced Portfolio, yield is a way of showing the rate of income
the Portfolio earns on its investments as a percentage of the Portfolio's share
price. To calculate yield, a Portfolio takes the dividend and interest income,
if any, it earned from its portfolio of investments for a specified 30-day
period (net of expenses), divides it by the number of its shares entitled to
receive dividends and expresses the result as an annualized percentage rate
based on the Portfolio's share price at the end of the 30-day period.
Money Market Portfolio's yield refers to the income generated by an investment
in the Portfolio over a specified seven-day period, expressed as an annual
percentage rate. The Portfolio's effective yield is calculated similarly, but
assumes that the income earned from investments is reinvested in shares of the
Portfolio. Money Market Portfolio's effective yield will tend to be slightly
higher than its yield because of the compounding effect of this reinvestment.
Yields are calculated according to accounting methods that are standardized
for all stock and bond funds. Because yield accounting methods differ from
the methods used for other accounting purposes, a Portfolio's yield may not
equal its distribution rate, the income paid to an account or the income
reported on the Portfolio's financial statements.
A Portfolio's total return is based on the overall dollar or percentage change
in value of a hypothetical investment in the Portfolio, including changes in
share price (except for Money Market Portfolio) and assuming each Portfolio's
dividends and capital gain distributions are reinvested at net asset value. A
cumulative total return reflects a Portfolio's performance over a stated period
of time. An average annual total return reflects the hypothetical annually
compounded return that would have produced the same cumulative total return if a
Portfolio's performance had been constant over the entire period. Because
average annual returns tend to smooth out variations in a Portfolio's actual
return, you should recognize that they are not the same as actual year-by-year
results. To illustrate the components of overall performance, a Portfolio may
separate its cumulative and average annual returns into income results and
capital gain or loss.
Yields and total returns quoted for the Portfolios include the effect of
deducting each Portfolio's expenses, but may not include charges and expenses
attributable to any particular insurance product. Since shares of the Portfolios
may be purchased primarily through a variable contract, purchasers of such
contracts should carefully review the prospectus of the selected insurance
product for information on relevant charges and expenses. Excluding these
charges from quotations of each Portfolio's performance has the effect of
increasing the performance quoted. You should bear in mind the effect of these
charges when comparing a Portfolio's performance to that of other mutual funds.
VII. DISTRIBUTIONS AND TAXES
For a discussion of the tax status of a Variable Contract, including the tax
consequences of withdrawals or other payments, refer to the prospectus of the
Variable Contract insurance company's separate account. It is suggested you keep
all statements you receive to assist in your personal record keeping. It is
expected that shares of the Portfolios will be held primarily by life insurance
company separate accounts that fund Variable Contracts. A Portfolio's dividends
and capital gain distributions are generally treated as ordinary income and
long-term capital gain, respectively, under the Code. Insurance companies should
consult their own tax advisers regarding the tax treatment of dividends or
capital gain distributions they receive from any Portfolio.
Each Portfolio is treated as a separate entity for federal income tax purposes
and has elected to be treated, has qualified and intends to qualify each year as
a regulated investment company under Subchapter M of the Code. To qualify as
such, each Portfolio must satisfy certain requirements relating to the sources
of its income, diversification of its assets and distribution of its income to
shareholders. As a regulated investment company, each Portfolio will not be
subject to federal income tax on any net investment income and net realized
capital gains that are distributed to its shareholders as required under the
Code.
Each Portfolio intends to pay out all of its net investment income and net
realized capital gains for each year. International Growth, Capital Growth and
Swiss Franc Bond Portfolios distribute their dividends, if any, each year. Real
Estate Growth, Equity-Income and Balanced Portfolios distribute their dividends,
if any, quarterly. Dividends from America Income and Money Market Portfolios are
declared daily and paid monthly. Normally, net realized capital gains, if any,
are distributed each year for the Portfolios. Dividends from income may also be
paid at such other times as may be necessary for the Portfolios to avoid federal
income or excise tax. Such income and capital gains are automatically reinvested
in additional shares of the Portfolios.
All Portfolios make dividend and capital gain distributions on a per-share
basis. After every distribution from each Portfolio, except Money Market
Portfolio and America Income Portfolio's dividend distributions from income, the
Portfolio's share price declines by the amount of the distribution as a result
of the distribution. Since dividends and capital gain distributions are
reinvested, the total value of an account will not be affected by such
distributions because, although the shares will have a lower price, there will
be correspondingly more of them.
In addition to the above, each Portfolio also follows certain portfolio
diversification requirements imposed by the IRS on
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separate accounts of insurance companies relating to the tax-deferred status of
Variable Contracts. These requirements, which are in addition to the
diversification requirements imposed on the Portfolios by the 1940 Act (only
Real Estate Growth Portfolio is exempt from the 1940 Act's diversification
requirements) and Subchapter M of the Code generally, subject to a safe harbor
or other available exception, place certain percentage limitations on the assets
of a Portfolio that may be represented by any one, two, three or four
investments. More specific information on these diversification requirements is
contained in the insurance company's separate account prospectus and in the
Fund's Statement of Additional Information.
VIII. SHAREHOLDER INFORMATION
Opening an Account
Since individual investors may not purchase Portfolio shares directly, they
should read the prospectus of the insurance company's separate account to obtain
instructions for purchasing a variable annuity or variable life insurance
contract and information on the allocation of retirement plan purchase payments
among the Portfolios.
Share Price
The term "net asset value" or NAV per share refers to the worth of one share. A
Portfolio's NAV per share is computed by adding the value of the Portfolio's
investments, cash and other assets, deducting liabilities and dividing the
result by the number of shares outstanding. Each Portfolio is open for business
each day the New York Stock Exchange (the NYSE) is open. The price of one share
of a Portfolio is its NAV which is normally calculated daily as of the close of
regular trading on the NYSE (normally 4:00 p.m., Eastern time).
The investments of each Portfolio (other than Money Market Portfolio) are valued
at the last sale price on the principal exchange or market where they are
traded. Securities which have not traded on the date of valuation or securities
for which sales prices are not generally reported are valued at the mean between
the current bid and asked prices. The securities of each Portfolio (other than
Money Market Portfolio) are valued primarily on the basis of market quotations.
Securities quoted in foreign currencies are converted to U.S. dollars utilizing
foreign exchange rates employed by the Portfolios' independent pricing services.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of the NYSE. The values of such securities used
in computing the NAV of the Portfolios' shares are determined as of such times.
Foreign currency exchange rates are also generally determined prior to the close
of the NYSE. Occasionally, events which affect the values of such securities and
such exchange rates may occur between the times at which they are determined and
the close of the NYSE and will therefore not be reflected in the computation of
a Portfolio's NAV. If events materially affecting the value of such securities
occur during such period, then these securities are valued at their fair value
as determined in good faith by the Trustees.
Money Market Portfolio's investments are valued on the basis of amortized cost.
This means of valuation assumes a steady rate of amortization of any premium and
discount from the date of purchase until maturity.
For all Portfolios, investments for which market quotations are not readily
available will be valued by a method which the Fund's Trustees believe
accurately reflects fair value.
Investments in Shares of the Portfolios
Each Portfolio may sell its shares directly to separate accounts established and
maintained by insurance companies for the purpose of funding Variable Contracts
and to certain qualified pension and retirement plans (Qualified Plans). Shares
offered to Qualified Plans will be offered by a separate prospectus. Shares of
the Portfolios are sold at NAV. Variable Contracts may or may not make
investments in all the Portfolios described in this Prospectus. Investments in
each Portfolio are expressed in terms of the full and fractional shares of the
Portfolio purchased. Investments in a Portfolio are credited to an insurance
company's separate account immediately upon acceptance of the investment by the
Portfolio. Investments will be processed at the next NAV calculated after an
order is received and accepted by a Portfolio. The offering of shares of any
Portfolio may be suspended for a period of time and each Portfolio reserves the
right to reject any specific purchase order. Purchase orders may be refused if,
in Pioneer's opinion, they are of a size that would disrupt the management of a
Portfolio.
The interests of Variable Contracts and Qualified Plans investing in the Fund
could conflict due to differences of tax treatment and other considerations. The
Fund currently does not foresee any disadvantages to investors arising out of
the fact that each Portfolio may offer its shares to insurance company separate
accounts that serve as the investment medium for their Variable Contracts or
that each Portfolio may offer its shares to Qualified Plans. Nevertheless, the
Fund's Board of Trustees intends to monitor events in order to identify any
material irreconcilable conflicts which may possibly arise, and to determine
what action, if any, should be taken in response to such conflicts. If such a
conflict were to occur, one or more insurance companies' separate accounts or
Qualified Plans might be required to withdraw their investments in one or more
Portfolios and shares of another Portfolio may be substituted. This might force
a Portfolio to sell securities at disadvantageous prices. In addition, the Board
of Trustees may refuse to sell shares of any Portfolio to any separate account
or Qualified Plan or may suspend or terminate the offering of shares of any
Portfolio if such action is required by law or regulatory authority or is in the
best interests of the shareholders of the Portfolio.
Redemptions
Shares of a Portfolio may be redeemed on any business day. Redemptions are
effected at the per share NAV next determined after receipt and acceptance of
the redemption request by a Portfolio. Redemption proceeds will normally be
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forwarded by bank wire to the redeeming insurance company on the next
business day after receipt of the redemption instructions by a Portfolio but
in no event later than 7 days following receipt of instructions. Each
Portfolio may suspend redemptions or postpone payment dates during any period
in which any of the following conditions exists: the NYSE is closed or
trading on the NYSE is restricted; an emergency exists as a result of which
disposal by the Portfolio of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Portfolio to fairly
determine the value of its net assets; or the SEC, by order, so permits.
Please refer to the prospectus of your insurance company's separate account
for information on how to redeem from each Portfolio.
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IX. APPENDIX
The following paragraphs provide a brief description of certain securities in
which the Portfolios may invest and certain investment practices in which they
may engage. Unless stated otherwise, each security and investment practice
listed below may be used by each Portfolio. No Portfolio is limited by this
discussion, however, and each Portfolio may purchase other types of securities
and enter into other types of transactions if they are consistent with its
investment objective and policies.
Short-Term Investments. As described in "Investment Objectives and Policies,"
each Portfolio (other than Money Market Portfolio) may invest in short-term
investments consisting of: corporate commercial paper and other short-term
commercial obligations, in each case rated or issued by companies with similar
securities outstanding that are rated Prime-1, Aa or better by Moody's or A-1,
AA or better by S&P; obligations (including certificates of deposit, time
deposits, demand deposits and bankers' acceptances) of banks with securities
outstanding that are rated Prime-1, Aa or better by Moody's, or A-1, AA or
better by S&P; obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities with remaining maturities not exceeding 18 months;
and repurchase agreements. Normally, Swiss Franc Bond Portfolio may invest in
similar short-term investments that are denominated in Swiss francs or other
non-U.S. currencies, but may invest in U.S. dollar-denominated short-term
securities for certain purposes, including temporary defensive purposes. Money
Market Portfolio's short-term investments are subject to certain additional
restrictions. See "Investment Objectives and Policies."
Bankers' Acceptances are obligations of a bank to pay a draft which has been
drawn on it by a customer. These obligations are backed by large banks and
usually backed by goods in international trade.
Certificates Of Deposit represent a commercial bank's obligations to repay
funds deposited with it, earning specified rates of interest over given
periods.
Commercial Paper is a short-term unsecured promissory note, including
variable amount master demand notes, issued by banks, broker-dealers,
corporations or other entities for purposes such as financing their current
operations.
Repurchase Agreements And Lending Of Securities. As described in "Investment
Objectives and Policies," each Portfolio may enter into repurchase agreements.
In a repurchase agreement, a Portfolio buys a security at one price and
simultaneously agrees to sell it back to the seller at a higher price, generally
for a period not exceeding seven days and fully collateralized with investment
grade debt securities with a market value of not less than 100% of the
obligation, valued daily. Each Portfolio other than America Income and Money
Market Portfolios may lend securities to broker-dealers and institutional
investors, provided that the value of securities loaned by a Portfolio may not
exceed 33-1/3% of its total assets. In the event of the bankruptcy of the other
party to a repurchase agreement or a securities loan, a Portfolio could
experience delays in recovering its cash or the securities it lent. To the
extent that, in the meantime, the value of the securities purchased had
decreased, or the value of the securities lent had increased, the Portfolio
could experience a loss. In all cases, Pioneer must find the creditworthiness of
the other party to the transaction satisfactory.
Restricted Securities. Each Portfolio (other than America Income and Money
Market Portfolios) may invest up to 5% of its net assets in "restricted
securities," (i.e., securities that would be required to be registered prior to
distribution to the public), excluding restricted securities eligible for resale
to certain institutional investors pursuant to Rule 144A under the Securities
Act of 1933 and, for Portfolios that allow non-U.S. investments, foreign
securities which are offered or sold outside the United States. In no instance,
however, may more than 15% of a Portfolio's net assets be invested in restricted
securities, including securities eligible for resale under Rule 144A. It is not
possible to predict with assurance exactly how the market for such restricted
securities will develop and investments in restricted securities will be
carefully monitored by Pioneer and by the Fund's Trustees.
Illiquid Investments. Each Portfolio may invest up to 15% (except Money Market
Portfolio which is limited to 10%) of its net assets in illiquid investments
which includes securities that are not readily marketable and repurchase
agreements maturing in more than seven days. The Fund's Trustees have adopted
guidelines and delegated to Pioneer the daily function of determining and
monitoring the liquidity of restricted securities. The Trustees, however, retain
sufficient oversight and are ultimately responsible for the determination. Under
the supervision of the Board of Trustees, Pioneer determines the liquidity of
each Portfolio's investments. The absence of a trading market can make it
difficult to ascertain a market value for illiquid investments. Disposing of
illiquid investments may involve time-consuming negotiation and legal expenses,
and it may be difficult or impossible for a Portfolio to sell them promptly at
an acceptable price.
Forward Currency Exchange Contracts. International Growth, Swiss Franc Bond,
Capital Growth, Real Estate Growth and Balanced Portfolios each has the ability
to hold a portion of its assets in non-U.S. currencies and purchase or sell
forward currency exchange contracts to facilitate settlement of non-U.S.
securities transactions or to protect against changes in currency exchange
rates. A Portfolio might sell a non-U.S. currency on either a spot (i.e., cash)
or forward basis to hedge against an anticipated decline in the U.S. dollar
value of securities that it owns or securities that it intends to sell or to
preserve the U.S. dollar value of dividends, interest or other amounts it
expects to receive. Alternatively, a Portfolio might purchase a non-U.S.
currency or enter into a forward purchase contract for the non-U.S. currency to
preserve the U.S. dollar price of securities it intends to purchase. A Portfolio
may also engage in cross-hedging by using forward contracts in one currency to
hedge against fluctua-
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tions in the value of securities denominated in a different currency.
Swiss Franc Bond Portfolio may also purchase and sell forward currency exchange
contracts for Swiss francs in order to link the value of an investment in a
non-Swiss franc security to the value of the Swiss franc. See "Risk
Considerations--Currency Management."
Mortgage-Backed Securities. Real Estate Growth Portfolio may invest up to 25% of
its total assets in mortgage pass-through certificates and multiple-class
pass-through securities, such as guaranteed mortgage pass-through securities,
real estate mortgage investment conduit (REMIC) pass-through certificates,
collateralized mortgage obligations (CMOs) and stripped mortgage-backed
securities (SMBS) and other types of mortgage-backed securities that may be
available in the future. America Income Portfolio may invest in mortgage-backed
securities that are issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and in CMOs. Balanced Portfolio may invest in GNMA
Certificates, which are a type of mortgage pass-through security, and in CMOs.
Mortgage-backed securities are issued by government and non-government entities
such as banks, mortgage lenders or other financial institutions. A
mortgage-backed security may be an obligation of the issuer backed by a mortgage
or pool of mortgages or a direct interest in an underlying pool of mortgages.
Some mortgage-backed securities, such as collateralized mortgage obligations or
CMOs, make payments of both principal and interest at a variety of intervals;
others make semiannual interest payments at a predetermined rate and repay
principal at maturity (like a typical bond). Mortgage-backed securities are
based on different types of mortgages including those on commercial real estate
or residential properties. Other types of mortgage-backed securities will likely
be developed in the future, and a Portfolio may invest in them if Pioneer
determines they are consistent with its investment objective and policies. Real
Estate Growth, Balanced and America Income Portfolios will not invest in the
lowest tranche of CMOs or REMIC certificates.
The value of mortgage-backed securities may change due to shifts in the market's
perception of issuers. In addition, regulatory or tax changes may adversely
affect the mortgage securities market as a whole. Non-government mortgage-backed
securities may offer higher yields than those issued by government entities, but
also may be subject to greater price changes than government issues.
Mortgage-backed securities are subject to prepayment risk. Prepayment, which
occurs when unscheduled or early payments are made on the underlying mortgages,
may shorten the effective maturities of these securities and may lower their
total returns.
Guaranteed Mortgage Pass-Through Securities may be purchased by Real Estate
Growth, Balanced and America Income Portfolios. These securities represent
participation interests in pools of residential mortgage loans and are issued by
U.S. Governmental or private lenders and guaranteed by the U.S. Government or
one of its agencies or instrumentalities, including but not limited to the
Government National Mortgage Association (GNMA), the Federal National Mortgage
Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie
Mac).
Multiple-Class Pass-Through Securities and Collateralized Mortgage Obligations.
Real Estate Growth Portfolio's investments in mortgage-backed securities may
include CMOs and REMIC pass-through or participation certificates, which may be
issued by, among others, U.S. Government agencies and instrumentalities as well
as private lenders. Balanced Portfolio's investments in mortgage-backed
securities may include CMOs. America Income Portfolio may invest in CMOs
collateralized by GNMA, Fannie Mae or Freddie Mac certificates. CMOs and REMIC
certificates are issued in multiple classes and the principal of and interest on
the underlying mortgage assets may be allocated among the several classes of
CMOs or REMIC certificates in various ways. Each class of CMOs or REMIC
certificates, often referred to as a "tranche," is issued at a specific
adjustable or fixed interest rate and must be fully retired no later than its
final distribution date. Generally, interest is paid or accrues on all classes
of CMOs or REMIC certificates on a monthly basis.
Typically, CMOs are collateralized by GNMA, Fannie Mae or Freddie Mac
certificates but also may be collateralized by other mortgage assets such as
whole loans or private mortgage pass-through securities. Debt service on CMOs is
provided from payments of principal and interest on collateral of mortgaged
assets and any reinvestment income thereon.
Real Estate Mortgage Interest Conduit (REMIC) interests may be purchased by Real
Estate Growth Portfolio. A REMIC is a CMO that qualifies for special tax
treatment under the Code and invests in certain mortgages primarily secured by
interests in real property and other permitted investments. Investors may
purchase "regular" and "residual" interest shares of beneficial interest in
REMIC trusts although the Portfolio does not intend to invest in residual
interests.
Stripped Mortgage-Backed Securities (SMBS) are currently intended for use only
by Real Estate Growth Portfolio. Such securities are created when a U.S.
Government agency or a financial institution separates the interest and
principal components of a mortgage-backed security and sells them as individual
securities. The holder of the "principal-only" security (PO) receives the
principal payments made by the underlying mortgage-backed security, while the
holder of the "interest-only" security (IO) receives interest payments from the
same underlying security.
The prices of SMBS may be particularly affected by changes in interest rates. As
interest rates fall, prepayment rates tend to increase, which tends to reduce
prices of IOs and increase prices of POs. Rising interest rates can have the
opposite effect.
20
<PAGE>
Options and Futures Contracts provide a way for International Growth, Capital
Growth, Real Estate Growth and Swiss Franc Bond Portfolios to manage their
exposure to changing interest rates, security prices, and currency exchange
rates. Some options and futures strategies, including selling futures, buying
puts and writing calls, tend to hedge a Portfolio's investments against price
fluctuations. Other strategies, including buying futures, writing puts and
buying calls, tend to increase market exposure. Options and futures may be
combined with each other or with forward contracts in order to adjust the risk
and return characteristics of a Portfolio's overall strategy. A Portfolio may
invest in options and futures based on any type of security, index or currency,
including options and futures traded on non-U.S. exchanges and options not
traded on exchanges.
Subject to compliance with tax and other requirements, Swiss Franc Bond
Portfolio may enter into options and futures contracts in order to gain
investment exposure to the Swiss franc.
Options and futures can be volatile investments and involve certain risks. If
Pioneer applies a hedge at an inappropriate time or judges market conditions
incorrectly, options and futures strategies may lower a Portfolio's return. A
Portfolio could also experience losses if the prices of its options and futures
positions were poorly correlated with its other investments, or if it could not
close out its positions because of an illiquid secondary market.
Depositary Receipts. International Growth Portfolio and, to a lesser extent
Capital Growth, Real Estate Growth and Balanced Portfolios may invest in
securities of non-U.S. issuers in the form of American Depositary Receipts
(ADRs), Global Depositary Receipts (GDRs) and other similar instruments.
Generally, ADRs in registered form are designed for use in U.S. securities
markets, and GDRs and other similar global instruments in bearer form are
designed for use in non-U.S. securities markets. ADRs are denominated in U.S.
dollars and represent an interest in the right to receive securities of non-U.S.
issuers deposited in a U.S. bank or a correspondent bank. ADRs do not eliminate
all the risk inherent in investing in the securities of non-U.S. issuers.
However, by investing in ADRs rather than directly in the stock of non-U.S.
issuers, a Portfolio will avoid currency risks during the settlement period for
either purchases or sales. GDRs are not necessarily denominated in the same
currency as the securities for which they may be exchanged. For purposes of the
Portfolios' investment policies, investments in ADRs, GDRs and similar
instruments will be deemed to be investments in the equity securities into which
they may be converted.
Warrants. International Growth, Capital Growth, Real Estate Growth,
Equity-Income and Balanced Portfolios may invest in warrants, which entitle the
holder to buy equity securities at a specific price over a specific period of
time. Warrants may be considered more speculative than certain other types of
investments, in that they do not entitle the holder to dividends or voting
rights with respect to the securities which may be purchased nor do they
represent any rights in the assets of the issuing company. The value of a
warrant may be more volatile than the value of the warrant's underlying
securities. Also, the value of the warrant does not necessarily change with the
value of the underlying securities and a warrant ceases to have value if it is
not exercised prior to the expiration date.
21
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THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
October 31, 1997
SUPPLEMENT TO THE PROSPECTUS OF:
PIONEER VARIABLE CONTRACTS TRUST
dated May 1, 1997
Effective October 31, 1997, Pioneer Variable Contracts Trust will offer two
additional Portfolios. The following information supplements the corresponding
sections of the Prospectus. Please consult the Prospectus for the full text of
each section so supplemented.
Front Cover of the Prospectus
The following is added to the listing of Portfolios in the left hand column:
Growth Shares Portfolio seeks appreciation of capital through investments in
common stocks, together with preferred stocks, bonds, and debentures which are
convertible into common stocks.
Growth and Income Portfolio seeks reasonable income and growth of capital by
investing in a broad list of carefully selected, reasonably priced securities.
I. HIGHLIGHTS - PIONEER VARIABLE CONTRACTS TRUST
The word "ten" is substituted for the word "eight" in the first sentence listing
the number of portfolios.
Choosing a Portfolio
The following is inserted into the listing of Portfolio descriptions. The
description of Growth Shares follows that of Capital Growth (i.e., the next to
most aggressive portfolio); and that of Growth and Income follows that of Real
Estate Growth (i.e. the fifth to most aggressive):
Portfolio Strategic Focus
Growth Shares seeks appreciation of capital through investments in common
stocks, together with preferred stocks, bonds, and debentures which are
convertible into common stocks.
Growth and Income seeks reasonable income and growth of capital by investing in
a broad list of carefully selected, reasonably priced securities.
II. HOW THE FUND WORKS
Investment Objectives and Policies
The word "ten" is substituted for the word "eight" in the first sentence listing
the number of portfolios. The following description of Growth Shares Portfolio
is inserted as the third Portfolio description; and that of Growth and Income
Portfolio is inserted as the fifth description.
Growth Shares Portfolio seeks appreciation of capital through investments in
common stocks, together with preferred stocks, bonds, and debentures which are
convertible into common stocks. Current income will be incidental to the
Portfolio's primary objective. In selecting securities for investment, Pioneer
attempts to identify companies that have better-than-average earnings growth
potential and those industries that stand to enjoy the greatest benefit from the
expected economic environment. The Portfolio seeks to purchase the securities of
companies that are thought to be best situated in those industry groupings. The
Portfolio invests in companies in a variety of industries in an attempt to
reduce overall exposure to investment and market risks.
<PAGE>
The Portfolio may invest up to 25% of its net assets in non-U.S.
securities. For a discussion of international investing, please see "Risks of
International Investments." The Portfolio may invest up to 5% of the Portfolio's
net assets in lower rated debt securities or unrated debt securities of
comparable quality. See "Risk Considerations - Risks of Medium and Lower Rated
Debt Securities."
Other Investment Practices. Refer to the Appendix for information on the
Portfolio's possible use of repurchase agreements, illiquid investments,
restricted securities, when-issued securities, and its ability to lend
securities. The Portfolio will not invest in futures or options, except that
the Portfolio may use forward foreign currency exchange contracts and purchase
and sell options and futures contracts relating to foreign currencies.
Growth and Income Portfolio seeks reasonable income and growth of capital by
investing in a broad list of carefully selected, reasonably priced securities.
Most of the Portfolio's assets are invested in common stocks and other equity
securities such as preferred stocks and securities convertible into common
stock, but the Portfolio may also invest in debt securities and cash equivalent
investments.
The largest portions of the Portfolio's assets are invested in securities that
have paid dividends within the preceding twelve months, but some non-income
producing securities are held for anticipated increases in value. The Portfolio
is managed in accordance with Pioneer's "investing for value" investment
philosophy as described for International Growth Portfolio. This approach
consists of developing a diversified portfolio of securities consistent with the
Portfolio's investment objectives and selected primarily on the basis of
Pioneer's judgment that the securities have an underlying value, or potential
value, which exceeds their current prices.
The Portfolio may invest in non-U.S. securities. While there is no requirement
to do so, the Portfolio intends to limit its investments in foreign securities
to no more than 10% of its net assets. For a discussion of international
investing, please see "Risks of International Investments." The Portfolio may
invest up to 5% of the Portfolio's net assets in debt securities, including
convertible securities, which are rated less than investment grade or the
equivalent. See "Risk Considerations - Risks of Medium and Lower Rated Debt
Securities."
Other Investment Practices. Refer to the Appendix for information on the
Portfolio's possible use of repurchase agreements, illiquid investments,
restricted securities, writing (selling) covered call options, forward foreign
currency exchange contracts, options and futures contracts relating to foreign
currencies, and its ability to lend securities.
III. RISK CONSIDERATIONS
Risks Of International Investments
The first two sentences are replaced by the following inserting the two new
Portfolios in the discussion:
The information contained in these paragraphs is of particular importance to
International Growth Portfolio and Swiss Franc Bond Portfolio; however, Capital
Growth, Growth Shares, Balanced, Real Estate Growth and Growth and Income
Portfolios may also make non-U.S. investments. Pioneer limits the amount of
Capital Growth, Growth Shares and Balanced Portfolio's net assets that may be
invested in non-U.S. securities to 25%. Pioneer limits the amount of Growth and
Income Portfolio's net assets that may be invested in non-U.S. securities to
10%. Pioneer limits the amount of Real Estate Growth Portfolio's net assets that
may be invested in non-U.S. securities to 5%.
Foreign Currencies. The first two sentences are replaced by the following
inserting the two new Portfolios in the discussion:
<PAGE>
The value of Swiss Franc Bond Portfolio's and International Growth Portfolio's
non-U.S. investments, and the value of dividends and interest earned by these
Portfolios, may be significantly affected by changes in currency exchange rates.
Currency exchange rates may also affect Capital Growth, Growth Shares, Balanced,
Real Estate Growth and Growth and Income Portfolios to the extent that these
Portfolios invest in non-U.S. securities.
Currency Management. The first two paragraphs are replaced by the following
inserting the two new Portfolios in the discussion:
The relative performance of foreign currencies can be an important factor in the
performance of Swiss Franc Bond Portfolio, and in the performance of
International Growth Portfolio, each of which invests the predominant portion of
its assets outside the United States. The performance of Capital Growth, Growth
Shares, Balanced, Real Estate Growth and Growth and Income Portfolios may also
be affected by the relative performance of foreign currencies, but to a lesser
extent. Pioneer may manage International Growth, Capital Growth, Growth Shares,
Real Estate Growth, Growth and Income and Balanced Portfolios' exposure to
various currencies to take advantage of different yield, risk, and return
characteristics that different currencies can provide for U.S. investors.
To manage exposure to currency fluctuations, International Growth, Capital
Growth, Growth Shares, Growth and Income and Balanced Portfolios may enter into
forward foreign currency exchange contracts (agreements to exchange one currency
for another at a future date) and buy and sell options and futures contracts
relating to foreign currencies. The Portfolios will use forward foreign currency
exchange contracts in the normal course of business to lock in an exchange rate
in connection with purchases and sales of securities denominated in foreign
currencies. Other currency management strategies allow the Portfolios to hedge
portfolio securities, to shift investment exposure from one currency to another,
or to attempt to profit from anticipated declines in the value of a foreign
currency relative to the U.S. dollar. Subject to compliance with tax
requirements, there is no overall limitation on the amount of International
Growth Portfolio's assets that may be committed to currency management
strategies. Capital Growth, Growth Shares, Growth and Income and Balanced
Portfolio may engage in currency management strategies only to the extent that
they invest in non-U.S. securities. Because Real Estate Growth Portfolio may
only invest up to 5% of its net assets in non-U.S.
securities, it does not actively seek to manage exposure to currency
fluctuations.
Risks of Medium and Lower Rated Debt Securities
The first sentence of the second paragraph is replaced by the following
inserting the two new Portfolios in the discussion:
Growth Shares, Real Estate Growth, Growth and Income, and Equity-Income
Portfolios may invest up to 5% of their net assets in lower rated debt
securities.
<PAGE>
IV. THE FUND AND THE PIONEER ORGANIZATION
The Manager
The following are inserted as the third and fifth items in the listing of
Portfolio Managers:
Growth Shares Portfolio: Jeffrey B. Poppenhagen, Vice President of Pioneer. Mr.
Poppenhagen joined Pioneer in 1996 and has nine years of investment experience.
Growth and Income Portfolio: John A. Carey, Vice President of Pioneer. Mr. Carey
joined Pioneer in 1979.
Each Portfolio, other than Swiss Franc Bond Portfolio, has an investment
objective and policies similar to those of an existing Pioneer retail mutual
fund. International Growth Portfolio is most similar to Pioneer International
Growth Fund, Capital Growth Portfolio to Pioneer Capital Growth Fund, Growth
Shares Portfolio to Pioneer Growth Shares, Real Estate Growth Portfolio to
Pioneer Real Estate Shares, Growth and Income Portfolio to Pioneer Fund,
Equity-Income Portfolio to Pioneer Equity-Income Fund, America Income Portfolio
to Pioneer America Income Trust and Money Market Portfolio to Pioneer Cash
Reserves Fund.
<PAGE>
V. FUND MANAGEMENT FEES AND OTHER EXPENSES
The following are inserted as the third and fifth items in the listing of
management fee rates:
Management fee as a percentage
of Portfolio's average daily
Portfolio net assets
Growth Shares Portfolio 0.70%
Growth and Income Portfolio 0.65%
The following are inserted as the third and fifth items in the total expense
limitation:
Percentage of Portfolio's
Portfolio average daily net assets
Growth Shares Portfolio 1.25%
Growth and Income Portfolio 1.25%
VI. PERFORMANCE
The first sentence of the second paragraph is replaced by the following
inserting the Growth and Income Portfolio in the discussion:
For America Income Portfolio, Swiss Franc Bond Portfolio, Real Estate Growth
Portfolio, Growth and Income Portfolio, Equity-Income Portfolio and Balanced
Portfolio, yield is a way of showing the rate of income the Portfolio earns on
its investments as a percentage of the Portfolio's share price.
VII. DISTRIBUTIONS AND TAXES
The second and third sentences of the third paragraph are replaced by the
following inserting the new Portfolios in the discussion:
International Growth, Capital Growth, Growth Shares and Swiss Franc Bond
Portfolios distribute their dividends, if any, each year. Real Estate Growth,
Growth and Income, Equity-Income and Balanced Portfolios distribute their
dividends, if any, quarterly.
IX. APPENDIX
The first sentence of each of the following sections is replaced by the
following, adding the new Portfolio(s) as set forth below:
Forward Currency Exchange Contracts. International Growth, Swiss Franc Bond,
Capital Growth, Growth Shares, Real Estate Growth, Growth and Income, and
Balanced Portfolios each has the ability to hold a portion of its assets in
non-U.S. currencies and purchase or sell forward currency exchange contracts to
facilitate settlement of non-U.S. securities transactions or to protect against
changes in currency exchange rates.
<PAGE>
Options and Futures Contracts provide a way for International Growth, Capital
Growth, Real Estate Growth, Growth and Income, and Swiss Franc Bond Portfolios
to manage their exposure to changing interest rates, security prices, and
currency exchange rates.
The following section is inserted at the end of the Appendix:
When Issued Securities. Growth Shares Portfolio may purchase and sell securities
on a "when issued" and "delayed delivery" basis. These transactions are subject
to market fluctuation; the value at the time of delivery may be more or less
than the purchase price. Since the Portfolio will rely on the buyer or seller,
as the case may be, to consummate the transactions, failure by the other party
to complete the transaction may result in the Portfolio missing the opportunity
of obtaining a price or yield considered to be advantageous. No interest accrues
to the Portfolio prior to delivery. When the Portfolio is the buyer in such a
transaction it will maintain, in a segregated account with its custodian, cash,
U.S. government securities, or high-grade, liquid debt obligations having an
aggregate value equal to the amount of such purchase commitments until payment
is made. The Portfolio will make commitments to purchase securities on such
basis only with the intention of actually acquiring these securities, but the
Portfolio may sell such securities prior to the settlement date if such sales
are considered advisable. To the extent the Portfolio engages in "when issued"
and "delayed delivery" transactions, it will do so for the purpose of acquiring
securities for the Portfolio consistent with the Portfolio's investment
objective and policies not for the purpose of investment leverage.
XXXX-XXXX
(C) Pioneer Funds Distributor, Inc.
<PAGE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1997
(revised October 31, 1997)
PIONEER VARIABLE CONTRACTS TRUST
(consisting of ten portfolios)
International Growth Portfolio
Capital Growth Portfolio
Growth Shares Portfolio
Real Estate Growth Portfolio
Growth and Income Portfolio
Equity-Income Portfolio
Balanced Portfolio
Swiss Franc Bond Portfolio
America Income Portfolio
Money Market Portfolio
60 State Street
Boston, Massachusetts 02109
This Statement of Additional Information is not a Prospectus, but should be
read in conjunction with the Prospectus (the "Prospectus") dated May 1, 1997, as
amended and/or supplemented from time to time, of Pioneer Variable Contracts
Trust (the "Trust"). A copy of the Prospectus can be obtained free of charge
from your insurance company. The most recent Annual Report to shareholders is
attached to this Statement of Additional Information and is hereby incorporated
by reference.
TABLE OF CONTENTS
Page
1. Investment Policies and Restrictions.......................... 2
2. Management of the Trust....................................... 18
3. Investment Adviser............................................ 22
4. Principal Underwriter......................................... 24
5. Custodian..................................................... 24
6. Independent Public Accountant................................. 25
7. Portfolio Transactions........................................ 25
8. Tax Status.................................................... 27
9. Description of Shares......................................... 30
10. Certain Liabilities........................................... 31
11. Determination of Net Asset Value.............................. 31
12. Investment Results............................................ 33
13. Financial Statements.......................................... 36
APPENDIX A - Description of Bond Ratings................... 45
APPENDIX B - Index Descriptions and Performance Statistics. 49
APPENDIX C - Other Pioneer Information..................... 60
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A
PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
<PAGE>
1. INVESTMENT POLICIES AND RESTRICTIONS
The Trust consists of separate portfolios, each of which is an
investment vehicle for variable annuity and variable life insurance contracts
(the "Variable Contracts") offered by the separate accounts (the "Accounts") of
various insurance companies ("Participating Insurance Companies"). As described
in the Prospectus, the portfolios also may be offered to certain qualified
pension and retirement plans (the "Qualified Plans"). The Trust currently
consists of the following ten distinct portfolios: International Growth
Portfolio, Capital Growth Portfolio, Growth Shares Portfolio, Real Estate Growth
Portfolio, Growth and Income Portfolio, Equity-Income Portfolio, Balanced
Portfolio, Swiss Franc Bond Portfolio, America Income Portfolio and Money Market
Portfolio (each a "Portfolio"). Your Variable Contract or qualified plan may not
offer all Portfolios of the Fund. The terms and conditions of the Variable
Contracts and any limitations upon the Portfolios in which the Accounts may be
invested are set forth in a separate prospectus and statement of additional
information relating to the Variable Contracts. The terms and conditions of a
Qualified Plan and any limitations upon the Portfolios in which such Plan may be
invested are set forth in such Plan's governing documents. The Trust reserves
the right to limit the types of Accounts and the types of Qualified Plans that
may invest in any Portfolio.
Qualified Plans and Participating Insurance Companies are the record
holders and beneficial owners of shares of beneficial interest in each Portfolio
of the Trust. In accordance with any limitations set forth in their Variable
Contracts, contract holders may direct through their Participating Insurance
Companies the allocation of amounts available for investment among the Trust's
Portfolios. Similarly, in accordance with any limitations set forth in their
Qualified Plans, Qualified Plan participants may direct through their Qualified
Plan administrators the allocation of amounts available for investment among the
Trust's Portfolios. Instructions for any such allocation, or for the purchase or
redemption of shares of a Portfolio, must be made by the investor's
Participating Insurance Company or Qualified Plan administrator, as the case may
be, as the record holder of the Portfolio's shares. The rights of Participating
Insurance Companies and Qualified Plans as record holders of shares of a
Portfolio are different from the rights of contract holders and Qualified Plan
participants. The term "shareholder" in this Statement of Additional Information
refers only to Participating Insurance Companies and Qualified Plans, and not to
contract holders or Qualified Plan participants.
The Trust's Prospectus identifies the investment objective and the
principal investment policies of each Portfolio and the risk factors associated
with the Portfolio's investments. Other investment policies of the Portfolios
and associated risk factors are set forth below. This Statement of Additional
Information should be read in conjunction with the Prospectus.
Lower Quality Debt Obligations
Growth Shares Portfolio, Real Estate Growth Portfolio, Growth and
Income Portfolio and Equity-Income Portfolio may each invest up to 5% of their
respective net assets in debt securities which are rated in the lowest rating
categories by Standard & Poor's Ratings Group ("Standard & Poor's") or by
Moody's Investors Service, Inc. ("Moody's") (i.e., ratings of BB or lower by
Standard & Poor's or Ba or lower by Moody's) or, if unrated by such rating
organizations, determined to be of comparable quality by Pioneering Management
Corporation (the "Manager" or "PMC"), each Portfolio's investment adviser.
International Growth and Swiss Franc Bond Portfolios may not purchase such lower
quality debt securities, but up to 5% of their net assets may be invested in
such securities as a result of credit quality downgrades. In addition, each
Portfolio other than America Income and Money Market Portfolios may invest in
medium quality debt securities (i.e., securities rated BBB by Standard & Poor's
or Baa by Moody's, or unrated securities determined by the Manager to be of
comparable quality).
2
<PAGE>
Bonds rated BB or Ba or below or comparable unrated securities are
commonly referred to as "junk bonds" and are considered speculative and may be
questionable as to principal and interest payments. In some cases, such bonds
may be highly speculative, have poor prospects for reaching investment standing
and be in default. As a result, investment in such bonds will entail greater
speculative risks than those associated with investment in investment grade
bonds (i.e., bonds rated BBB or better by Standard & Poor's or Baa or better by
Moody's or, if unrated by such rating organizations, determined to be of
comparable quality by the Manager). See Appendix B to this Statement of
Additional Information for a description of the ratings issued by Standard &
Poor's and Moody's.
The amount of junk bond securities outstanding has proliferated in
conjunction with the increase in merger and acquisition and leveraged buyout
activity. An economic downturn could severely affect the ability of highly
leveraged issuers to service their debt obligations or to repay their
obligations upon maturity. Factors having an adverse impact on the market value
of lower quality securities will have an adverse effect on a Portfolio's net
asset value to the extent that it invests in such securities. In addition, a
Portfolio may incur additional expenses to the extent it is required to seek
recovery upon a default in payment of principal or interest on its portfolio
holdings.
The secondary market for junk bond securities, which is concentrated in
relatively few market makers, may not be as liquid as the secondary market for
more highly rated securities, a factor which may have an adverse effect on a
Portfolio's ability to dispose of a particular security when necessary to meet
its liquidity needs. Under adverse market or economic conditions, the secondary
market for junk bond securities could contract further, independent of any
specific adverse changes in the condition of a particular issuer. As a result, a
Portfolio could find it more difficult to sell these securities or may be able
to sell the securities only at prices lower than if such securities were widely
traded. Prices realized upon the sale of such lower rated or unrated securities,
under these circumstances, may be less than the prices used in calculating the
Portfolio's net asset value.
Certain proposed and recently enacted federal laws including the
required divestiture by federally insured savings and loan associations of their
investments in junk bonds and proposals designed to limit the use, or tax and
other advantages, of junk bond securities could adversely affect a Portfolio's
net asset value and investment practices. Such proposals could also adversely
affect the secondary market for junk bond securities, the financial condition of
issuers of these securities and the value of outstanding junk bond securities.
The form of such proposed legislation and the possibility of such legislation
being passed are uncertain.
Since investors generally perceive that there are greater risks
associated with the medium to lower quality debt securities of the type in which
each Portfolio other than America Income and Money Market Portfolios may invest
a portion of its assets, the yields and prices of such securities may tend to
fluctuate more than those for higher rated securities. In the lower quality
segments of the debt securities market, changes in perceptions of issuers'
creditworthiness tend to occur more frequently and in a more pronounced manner
than do changes in higher quality segments of the debt securities market,
resulting in greater yield and price volatility.
Medium to lower rated and comparable unrated debt securities tend to
offer higher yields than higher rated securities with the same maturities
because the historical financial condition of the issuers of such securities may
not have been as strong as that of other issuers. Since medium to lower rated
securities generally involve greater risks of loss of income and principal than
higher rated securities, investors should consider carefully the relative risks
associated with investment in securities which carry medium to lower ratings and
in comparable unrated securities. In addition to the risk of default, there are
the related costs of recovery on defaulted issues. The Manager will attempt to
reduce these risks through portfolio diversification and by analysis of each
issuer and its ability to make timely payments of income and principal, as well
as broad economic trends and corporate developments.
The prices of all debt securities generally fluctuate in response to
the general level of interest rates. Another factor which causes fluctuations in
the prices of debt securities is the supply and demand for similarly rated
securities. Fluctuations in the prices of portfolio securities subsequent to
their acquisition will not affect any cash income from such securities but will
be reflected in a Portfolio's net asset value.
3
<PAGE>
Certificates of Deposit
Swiss Franc Bond Portfolio may invest in investment grade certificates
of deposit of domestic banks and savings and loan associations and foreign
banks, without regard to the size of the issuing institution. Money Market
Portfolio may invest in certificates of deposit of large domestic banks and
savings and loan associations (i.e., banks which at the time of their most
recent annual financial statements show total assets in excess of $1 billion),
including foreign branches of such domestic banks, and of smaller banks as
described below. Money Market Portfolio will not invest in certificates of
deposit of foreign banks.
Investment in certificates of deposit issued by foreign banks and
foreign branches of domestic banks involves investment risks that are different
in some respects from those associated with investment in certificates of
deposit issued by domestic banks, including the possible imposition of
withholding taxes on interest income, the possible adoption of foreign
governmental restrictions which might adversely affect the payment of principal
and interest on such certificates of deposit, or other adverse political or
economic developments. In addition, it might be more difficult to obtain and
enforce a judgment against a foreign bank or a foreign branch of a domestic
bank.
Although Money Market Portfolio recognizes that the size of a bank is
important, this fact alone is not necessarily indicative of its
creditworthiness. Accordingly, Money Market Portfolio may invest in certificates
of deposit issued by banks and savings and loan associations which had at the
time of their most recent annual financial statements total assets of less than
$1 billion, provided that (i) the principal amounts of such certificates of
deposit are insured by an agency of the U.S. Government, (ii) at no time will
the Portfolio hold more than $100,000 principal amount of certificates of
deposit of any one such bank and (iii) at the time of acquisition, no more than
10% of the Portfolio's assets (taken at current value) are invested in
certificates of deposit of such banks having total assets not in excess of $1
billion.
Additional Information Regarding GNMA Certificates
As discussed in the Prospectus, America Income Portfolio's investments
in U.S. Government Securities may include mortgage participation certificates
("GNMA Certificates") guaranteed by the Government National Mortgage Association
("GNMA"). Real Estate Growth Portfolio and Balanced Portfolio also may invest in
GNMA Certificates. GNMA Certificates evidence part ownership of a pool of
mortgage loans. Because prepayment rates of individual mortgage pools will vary
widely, it is not possible to predict with certainty the average life of a
particular issue of GNMA Certificates. However, statistics published by the
Farmers' Home Administration ("FHA") are normally used as an indicator of the
expected average life of GNMA Certificates. These statistics indicate the
average life of single-family dwelling mortgages with 25- to 30-year maturities,
the type of mortgages backing the vast majority of GNMA Certificates, is
approximately 12 years. For this reason, it is customary to treat GNMA
Certificates as 30-year mortgage-backed securities which prepay fully in the
twelfth year. The actual life of a particular issue of GNMA Certificates,
however, will depend on the coupon rate of the underlying mortgages, with higher
interest rate mortgages being more prone to prepayment or refinancing.
The coupon rate of interest of GNMA Certificates is lower than the
interest rate paid on the Veterans Administration-guaranteed or FHA-insured
mortgages underlying the GNMA Certificates, but only by the amount of the fees
paid to GNMA and the issuer. For the most common type of mortgage pool,
containing single-family dwelling mortgages, GNMA receives an annual fee of
6/100 of 1% of the outstanding principal for providing its guarantee, and the
issuer is paid an annual fee of 44/100 of 1% for assembling the mortgage pool
and for passing through monthly payments of interest and principal to GNMA
Certificate holders.
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The coupon rate by itself, however, does not indicate the yield that
will be earned on GNMA Certificates for the reasons given in the section
"Investment Objective and Policies" in the Prospectus. In quoting yields for
GNMA Certificates, the customary practice is to assume that the GNMA
Certificates will have a 12-year life. Compared on this basis, GNMA Certificates
have historically yielded roughly 25/100 of 1% more than U.S. Government and
U.S. Government agency bonds. As the life of individual pools may vary widely,
however, the actual yield earned on any issue of GNMA Certificates may differ
significantly from the yield estimated on the assumption of a 12-year life.
Since the inception of the GNMA mortgage-backed securities program in
1970, the amount of GNMA Certificates outstanding has grown rapidly. The size of
the market and the active participation in the secondary market by securities
dealers and many types of investors make the GNMA Certificates a highly liquid
instrument. Prices of GNMA Certificates are readily available from securities
dealers and depend on, among other things, the level of market interest rates,
the GNMA Certificate's coupon rate and the prepayment experience of the pools of
mortgages backing each GNMA Certificate.
Covered Call Options
Growth and Income Portfolio may write (sell) covered call options on
certain portfolio securities, but options may not be written on more than 25% of
the aggregate market value of any single portfolio security (determined each
time a call is sold as of the date of such sale). The Fund does not expect to
write (sell) covered call options with an aggregate value exceeding 5% of the
Fund's total assets in the foreseeable future. As a writer of a call option, the
Portfolio receives a premium less commission, and, in exchange, foregoes the
opportunity to profit from increases in the market value of the security
covering the call above the sum of the premium and the exercise price of the
option during the life of the option. The purchaser of such a call has the
option of purchasing the security from the Portfolio's portfolio at the option
price during the life of the option. Portfolio securities on which options may
be written are purchased solely on the basis of investment considerations
consistent with the Portfolio's investment objectives. The security covering the
call is maintained in a segregated account of the Portfolio's custodian. The
Portfolio does not consider a security covered by a call option to be "pledged"
as that term is used in the Portfolio's policy which limits the pledging or
mortgaging of its assets.
The Portfolio will purchase a call option only when entering into a
"closing purchase transaction," i.e., a purchase of a call option on the same
security with the same exercise price and expiration date as a "covered" call
already written by the Portfolio. There is no assurance that the Portfolio will
be able to effect such closing purchase transactions at a favorable price; if
the Portfolio cannot enter into such a transaction it may be required to hold a
security that it might otherwise have sold. The Portfolio's portfolio turnover
may increase through the exercise of options if the market price of the
underlying securities appreciates and the Portfolio has not entered into a
closing purchase transaction. The commission on the purchase or sale of a call
option is higher in relation to the premium than the commission in relation to
the price on purchase or sale of the underlying security.
Securities Index Options
International Growth Portfolio, Capital Growth Portfolio, Real Estate
Growth Portfolio, Equity-Income Portfolio and Swiss Franc Bond Portfolio may
invest in call and put options on securities indices for the purpose of hedging
against the risk of unfavorable price movements adversely affecting the value of
the Portfolio's securities or securities the Portfolio intends to buy. The
Portfolios will not invest in securities index options for speculative purposes.
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Currently, options on stock indices are traded only on national
securities exchanges and over-the-counter, both in the United States and in
foreign countries. However, a Portfolio will not purchase over-the-counter
options. A securities index fluctuates with changes in the market values of the
securities included in the index. For example, some stock index options are
based on a broad market index such as the S&P 500 or the Value Line Composite
Index in the U.S., the Nikkei in Japan or the FTSE 100 in the United Kingdom.
Index options may also be based on a narrower market index.
A Portfolio may purchase put options in order to hedge against an
anticipated decline in securities prices that might adversely affect the value
of securities held by the Portfolio. If a Portfolio purchases a put option on a
securities index, the amount of the payment it would receive upon exercising the
option would depend on the extent of any decline in the level of the securities
index below the exercise price. Such payments would tend to offset a decline in
the value of securities held by the Portfolio. However, if the level of the
securities index increases and remains above the exercise price while the put
option is outstanding, the Portfolio will not be able to profitably exercise the
option and will lose the amount of the premium and any transaction costs. Such
loss may be partially offset by an increase in the value of the securities held
by the Portfolio.
A Portfolio may purchase call options on securities indices in order to
lock in a favorable price on securities that it intends to buy in the future. If
a Portfolio purchases a call option on a securities index, the amount of the
payment it receives upon exercising the option depends on the extent of any
increase in the level of the securities index above the exercise price. Such
payments may offset increases in the price of securities that the Portfolio
intends to purchase. If, however, the level of the securities index declines and
remains below the exercise price while the call option is outstanding, the
Portfolio will not be able to exercise the option profitably and will lose the
amount of the premium and transaction costs. Such loss may be partially offset
by a reduction in the price the Portfolio pays to buy additional securities for
its portfolio.
A Portfolio may sell any securities index option it has purchased or
write a similar offsetting securities index option in order to close out a
position in a securities index option which it has purchased. These closing sale
transactions enable a Portfolio to immediately realize gains or minimize losses
on its options positions. However, there is no assurance that a liquid secondary
market on an options exchange will exist for any particular option, or at any
particular time, and for some options no secondary market may exist. In
addition, securities index prices may be distorted by interruptions in the
trading of securities of certain companies or of issuers in certain industries,
or by restrictions that may be imposed by an exchange on opening or closing
transactions, or both, which would disrupt trading in options on such indices
and preclude a Portfolio from closing out its options positions. If a Portfolio
is unable to effect a closing sale transaction with respect to options that it
has purchased, it would have to exercise the options in order to realize any
profit.
The hours of trading for options may not conform to the hours during
which the underlying securities are traded. To the extent that the options
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying markets that can not
be reflected in the options markets. The purchase of options is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions.
In addition to the risks of imperfect correlation between securities
held by a Portfolio and the index underlying the option, the purchase of
securities index options involves the risk that the premium and transaction
costs paid by a Portfolio in purchasing an option will be lost. This could occur
as a result of unanticipated movements in prices of the securities comprising
the securities index on which the option is based.
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Forward Foreign Currency Transactions
International Growth Portfolio, Swiss Franc Bond Portfolio, Capital
Growth Portfolio, Growth Shares Portfolio, Real Estate Growth Portfolio, Growth
and Income Portfolio, and Balanced Portfolio each may enter into foreign
currency transactions on a spot (i.e., cash) basis at the spot rate for
purchasing or selling currency prevailing in the foreign exchange market. Each
of these Portfolios also has authority to purchase and sell forward foreign
currency exchange contracts involving currencies of the different countries in
which it will invest as a hedge against possible variations in the foreign
exchange rate between these currencies and the U.S. dollar. This is accomplished
through contractual agreements to purchase or sell a specified currency at a
specified future date and price set at the time of the contract. A Portfolio may
close out a forward position in a currency by selling the forward contract or
entering into an offsetting forward contract.
Each Portfolio's dealings in forward foreign currency contracts will be
limited to hedging either specific transactions or portfolio positions, except
that, as described below, Swiss Franc Bond Portfolio may also enter into such
contracts in order to link the value of an investment in a "non-Swiss franc
security" (as defined in the Prospectus) to the performance of the Swiss franc.
Transaction hedging is the purchase or sale of forward foreign currency
contracts with respect to specific receivables or payables of a Portfolio
accruing in connection with the purchase and sale of its portfolio securities
denominated in foreign currencies. Portfolio hedging is the use of forward
foreign currency contracts to offset portfolio security positions denominated or
quoted in such foreign currencies. There is no guarantee that a Portfolio will
be engaged in hedging activities when adverse exchange rate movements occur. A
Portfolio may not necessarily, and Swiss Franc Bond Portfolio will not, attempt
to hedge all of its foreign portfolio positions and will enter into such
transactions only to the extent, if any, deemed appropriate by the Manager.
A Portfolio may engage in cross-hedging by using forward contracts in
one currency to hedge against fluctuations in the value of securities
denominated in a different currency, if the Manager determines that there is a
pattern of correlation between the two currencies. Cross-hedging may also
include entering into a forward transaction involving two foreign currencies,
using one foreign currency as a proxy for the U.S. dollar to hedge against
variations in the other foreign currency, if the Manager determines that there
is a pattern of correlation between the proxy currency and the U.S. dollar.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also limit the opportunity
for gain if the value of the hedged currency should rise. Moreover, it may not
be possible for a Portfolio to hedge against a devaluation that is so generally
anticipated that the Portfolio is not able to contract to sell the currency at a
price above the devaluation level it anticipates.
Swiss Franc Bond Portfolio may combine forward contracts to purchase
Swiss francs with investments in securities denominated in another currency in
an attempt to construct a combined investment position whose overall performance
will be similar to that of a security denominated in Swiss francs. For example,
the Portfolio could purchase a dollar-denominated security and at the same time
enter into a forward contract to exchange dollars for Swiss francs at a future
date. If the amount of dollars to be exchanged is properly matched with the
anticipated value of the dollar-denominated security, the Portfolio should be
able to "lock in" the Swiss franc value of the security, and the Portfolio's
overall investment return from the combined position should be similar to the
return from purchasing a Swiss franc-denominated instrument. This is commonly
referred to as a "synthetic" investment position.
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Synthetic investment positions may offer greater liquidity than actual
purchases of Swiss franc-denominated securities because of the broad variety of
highly liquid short-term instruments available in the United States and other
countries (other than Switzerland). However, the execution of a synthetic
investment strategy may not be successful. It is impossible to forecast with
absolute precision what the market value of a particular security will be at any
given time. If the value of a non-Swiss franc security is not exactly matched
with Swiss Franc Bond Portfolio's obligation under the forward currency exchange
contract on the contract's maturity date, the Portfolio may be exposed to some
risk of loss from fluctuation in the exchange rate between the Swiss franc and
the non-Swiss franc currency. Although the Manager will attempt to match such
investments, there can be no assurance that the Manager will be successful in
doing so.
If a Portfolio enters into a forward contract to purchase foreign
currency, its custodian bank will segregate cash or liquid, high grade debt
securities in a separate account of the Portfolio in an amount equal to the
value of the Portfolio's total assets committed to the consummation of such
forward contract. Those assets will be valued at market daily and if the value
of the assets in the separate account declines, additional cash or securities
will be placed in the accounts so that the value of the account will equal the
amount of the Portfolio's commitment with respect to such contracts.
The cost to a Portfolio of engaging in foreign currency transactions
varies with such factors as the currency involved, the size of the contract, the
length of the contract period and the market conditions then prevailing. Since
transactions in foreign currency and forward contracts are usually conducted on
a principal basis, no fees or commissions are involved.
Options on Foreign Currencies
International Growth Portfolio, Capital Growth Portfolio, Growth Shares
Portfolio, Real Estate Growth Portfolio, Growth and Income Portfolio, Balanced
Portfolio and Swiss Franc Bond Portfolio each may purchase options on foreign
currencies for hedging purposes in a manner similar to that of transactions in
forward contracts. For example, a decline in the U.S. dollar value of a foreign
currency in which portfolio securities are quoted or denominated will reduce the
U.S. dollar value of such securities, even if their value in the foreign
currency remains constant. In order to protect against such decreases in the
value of portfolio securities, a Portfolio may purchase put options on the
foreign currency. If the value of the currency declines, the Portfolio will have
the right to sell such currency for a fixed amount of U.S. dollars which exceeds
the market value of such currency. This would result in a gain that may offset,
in whole or in part, the negative effect of currency depreciation on the value
of the Portfolio's securities quoted or denominated in that currency.
Conversely, if a rise in the U.S. dollar value of a currency is
projected for those securities to be acquired, thereby increasing the cost of
such securities, a Portfolio may purchase call options on such currency. If the
value of such currency increased, the purchase of such call options would enable
the Portfolio to purchase currency for a fixed amount of U.S. dollars which is
less than the market value of such currency. Such a purchase would result in a
gain that may offset, at least partially, the effect of any currency related
increase in the price of securities the Portfolio intends to acquire. As in the
case of other types of options transactions, however, the benefit a Portfolio
derives from purchasing foreign currency options will be reduced by the amount
of the premium and related transaction costs. In addition, if currency exchange
rates do not move in the direction or to the extent anticipated, a Portfolio
could sustain losses on transactions in foreign currency options which would
deprive it of a portion or all of the benefits of advantageous changes in such
rates.
A Portfolio may close out its position in a currency option by either
selling the option it has purchased or entering into an offsetting option.
Futures Contracts and Options on Futures Contracts
To hedge against changes in securities prices or currency exchange
rates, International Growth Portfolio, Capital Growth Portfolio, Real Estate
Growth Portfolio and Swiss Franc Bond Portfolio may purchase and sell various
kinds of futures contracts, and purchase and write (sell) call and put options
on any of such futures contracts. Growth Shares Portfolio, Growth and Income
Portfolio and Balanced Portfolio may only purchase and sell futures contracts
that relate to foreign currencies and related options. Each Portfolio may also
enter into closing purchase and sale transactions with respect to such futures
contracts and options. Futures contracts may be based on various securities
(such as U.S. Government securities), securities indices, foreign currencies and
other financial instruments and indices. All futures contracts entered into by
the Portfolios are traded on U.S. exchanges or boards of trade that are licensed
and regulated by the Commodity Futures Trading Commission (the "CFTC") or on
foreign exchanges.
Futures Contracts. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
for an agreed price during a designated month (or to deliver the final cash
settlement price, in the case of a contract relating to an index or otherwise
not calling for physical delivery at the end of trading in the contract).
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When interest rates are rising or securities prices are falling, a
Portfolio can seek to offset a decline in the value of its current portfolio
securities through the sale of futures contracts. When interest rates are
falling or securities prices are rising, a Portfolio, through the purchase of
futures contracts, can attempt to secure better rates or prices than might later
be available in the market when it effects anticipated purchases. Similarly, a
Portfolio can sell futures contracts on a specified currency to protect against
a decline in the value of such currency and a decline in the value of its
portfolio securities which are quoted or denominated in such currency. A
Portfolio can purchase futures contracts on foreign currency to establish the
price in U.S. dollars of a security quoted or denominated in such currency that
the Portfolio has acquired or expects to acquire.
Positions taken in the futures markets are not normally held to
maturity but are instead liquidated through offsetting transactions which may
result in a profit or a loss. While futures contracts on securities or currency
will usually be liquidated in this manner, a Portfolio may instead make, or
take, delivery of the underlying securities or currency whenever it appears
economically advantageous to do so. A clearing corporation associated with the
exchange on which futures on securities or currency are traded guarantees that,
if still open, the sale or purchase will be performed on the settlement date.
Each Portfolio will be required, in connection with transactions in
futures contracts and the writing of options on futures, to make margin
deposits, which will be held by the Portfolio's custodian for the benefit of the
futures commission merchant through whom the Portfolio engages in such futures
contracts and options transactions. In the case of futures contracts or options
requiring a Portfolio to purchase securities, the Portfolio must place cash or
liquid, high grade debt securities in a segregated account maintained by the
custodian and marked to market daily to cover such futures contracts and
options.
Hedging Strategies. Hedging, by use of futures contracts, seeks to
establish with more certainty the effective price, rate of return and currency
exchange rate on portfolio securities and securities that a Portfolio owns or
proposes to acquire. A Portfolio may, for example, take a "short" position in
the futures market by selling futures contracts in order to hedge against an
anticipated rise in interest rates or a decline in market prices or foreign
currency rates that would adversely affect the value of securities held by the
Portfolio. Such futures contracts may include contracts for the future delivery
of securities held by the Portfolio or securities with characteristics similar
to those securities held by the Portfolio. Similarly, a Portfolio may sell
futures contracts in currency in which its portfolio securities are quoted or
denominated, or in one currency to hedge against fluctuations in the value of
securities quoted or denominated in a different currency if there is an
established historical pattern of correlation between the two currencies. If, in
the opinion of the Manager, there is a sufficient degree of correlation between
price trends for the securities held by the Portfolio and futures contracts
based on other financial instruments, securities indices or other indices, the
Portfolio may also enter into such futures contracts as part of its hedging
strategy. Although under some circumstances prices of securities held by a
Portfolio may be more or less volatile than prices of such futures contracts,
the Manager will attempt to estimate the extent of this volatility difference
based on historical patterns and compensate for any such differential by having
the Portfolio enter into a greater or lesser number of futures contracts or by
attempting to achieve only a partial hedge against price changes affecting the
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Portfolio's securities portfolio. When hedging of this character is successful,
any depreciation in the value of securities held by a Portfolio will be
substantially offset by appreciation in the value of the futures position. On
the other hand, any unanticipated appreciation in the value of securities held
by a Portfolio would be substantially offset by a decline in the value of the
futures position.
On other occasions, a Portfolio may take a "long" position by
purchasing futures contracts. This would be done, for example, when the
Portfolio anticipates the subsequent purchase of particular securities when it
has the necessary cash, but expects the prices or currency exchange rates then
available in the applicable market to be less favorable than prices or rates
that are currently available.
Options on Futures Contracts. International Growth Portfolio, Capital
Growth Portfolio, Growth Shares Portfolio, Real Estate Growth Portfolio, Growth
and Income Portfolio, Balanced Portfolio and Swiss Franc Bond Portfolio may each
purchase and write options on futures contracts for hedging purposes. The
acquisition of put and call options on futures contracts will give a Portfolio
the right (but not the obligation) for a specified price to sell or to purchase,
respectively, the underlying futures contract at any time during the option
period. As the purchaser of an option on a futures contract, a Portfolio obtains
the benefit of the futures position if prices move in a favorable direction but
limits its risk of loss in the event of an unfavorable price movement to the
loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium
which may partially offset a decline in the value of a Portfolio's assets. By
writing a call option, a Portfolio becomes obligated (if the option is
exercised), in exchange for the premium, to sell a futures contract, which may
have a value higher than the exercise price. Conversely, the writing of a put
option on a futures contract generates a premium which may partially offset an
increase in the price of securities that the Portfolio intends to purchase.
However, by writing a put option, the Portfolio becomes obligated (if the option
is exercised) to purchase a futures contract which may have a value lower than
the exercise price. Thus, the loss that a Portfolio may incur by writing options
on futures is potentially unlimited and may exceed the amount of the premium
received. A Portfolio will incur transaction costs in connection with the
writing of options on futures.
The holder or writer of an option on a futures contract may terminate
its position by selling or purchasing an offsetting option of the same series.
There is no guarantee that such closing transactions can be effected. A
Portfolio's ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid market.
Other Considerations. As noted above, International Growth Portfolio,
Capital Growth Portfolio, Growth Shares Portfolio, Real Estate Growth Portfolio,
Growth and Income Portfolio, Balanced Portfolio and Swiss Franc Bond Portfolio
may each engage in futures and related options transactions for hedging
purposes. CFTC regulations permit principals of an investment company registered
under the 1940 Act to engage in such transactions for bona fide hedging (as
defined in such regulations) and certain other limited purposes without
registering as commodity pool operators. Each Portfolio will determine that the
price fluctuations in the futures contracts and options on futures contracts
used for hedging purposes are substantially related to price fluctuations in
securities held by the Portfolio or which it expects to purchase. Except as
stated below, each Portfolio's futures transactions will be entered into for
traditional hedging purposes--i.e., futures contracts will be sold to protect
against a decline in the price of securities (or the currency in which they are
quoted or denominated) that the Portfolio owns, or futures contracts will be
purchased to protect the Portfolio against an increase in the price of
securities (or the currency in which they are quoted or denominated) it intends
to purchase. As evidence of this hedging intent, each Portfolio expects that on
75% or more of the occasions on which it takes a long futures or option position
(involving the purchase of futures contracts), the Portfolio will have
purchased, or will be in the process of purchasing, equivalent amounts of
related securities or assets quoted or denominated in the related currency in
the cash market at the time when the futures or option position is closed out.
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However, in particular cases, when it is economically advantageous for a
Portfolio to do so, a long futures position may be terminated or an option may
expire without the corresponding purchase of securities or other assets.
As an alternative to literal compliance with the bona fide hedging
definition, a CFTC regulation permits a Portfolio to elect to comply with a
different test under which the sum of the amounts of initial margin deposits on
the Portfolio's existing futures contracts and premiums paid for options on
futures entered into for the purpose of seeking to increase total return (net of
the amount the positions were "in the money" at the time of purchase) may not
exceed 5% of the market value of the Portfolio's net assets. A Portfolio will
engage in transactions in futures contracts and related options only to the
extent such transactions are consistent with the requirements of the Internal
Revenue Code of 1986, as amended (the "Code"), for maintaining its qualification
as a regulated investment company for federal income tax purposes.
Transaction costs associated with futures contracts and related options
include brokerage costs, required margin deposits and, in the case of contracts
and options obligating a Portfolio to purchase securities or currencies, the
requirement that the Portfolio segregate assets to cover such contracts and
options.
While transactions in futures contracts and options on futures may
reduce certain risks, such transactions themselves entail certain other risks.
Thus, while a Portfolio may benefit from the use of futures and options on
futures, unanticipated changes in interest rates, securities prices or currency
exchange rates may result in a poorer overall performance for the Portfolio than
if it had not entered into any futures contracts or options transactions. In the
event of an imperfect correlation between a futures position and a portfolio
position which is intended to be protected, the desired protection may not be
obtained and a Portfolio may be exposed to risk of loss.
Perfect correlation between a Portfolio's futures positions and
portfolio positions will be difficult to achieve because the only futures
contracts available to hedge a Portfolio's portfolio are various futures on U.S.
Government securities and foreign currencies, futures on a municipal securities
index and stock index futures. In addition, it is not possible to hedge fully or
perfectly against the effect of currency fluctuations on the value of foreign
securities because currency movements affect the value of different securities
in differing degrees.
Restricted and Illiquid Securities
Each Portfolio, other than America Income Portfolio and Money Market
Portfolio, may invest up to 5% of its net assets in "restricted securities"
(i.e., securities that would be required to be registered prior to distribution
to the public), excluding restricted securities eligible for resale under Rule
144A under the Securities Act of 1933, as amended (the "1933 Act"), and, for the
Portfolios that allow non-U.S. investments, foreign securities which are offered
or sold outside the United States. In addition, each Portfolio other than Money
Market Portfolio may invest up to 15% of its net assets in illiquid investments,
which includes securities that are not readily marketable and repurchase
agreements maturing in more than seven days. Money Market Portfolio may invest
up to 10% of its net assets in such investments. Generally, a security may be
considered illiquid if a Portfolio is unable to dispose of such security within
seven days at approximately the price at which it values such security.
Securities may also be considered illiquid as a result of certain legal or
contractual restrictions on resale. The sale of illiquid securities, if they can
be sold at all, generally will require more time and result in higher brokerage
charges and other selling expenses than will the sale of liquid securities, such
as securities eligible for trading on U.S. exchanges or in the over-the-counter
markets. Moreover, restricted securities (i.e., securities that would be
required to be registered prior to distribution to the general public), such as
securities eligible for resale pursuant to Rule 144A ("144A securities"), which
may be illiquid for purposes of this limitation, often sell, if at all, at a
price lower than similar securities that are not subject to restrictions on
resale.
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With respect to liquidity determinations generally, the Board of
Trustees has the ultimate responsibility for determining whether specific
securities, including Rule 144A securities, are liquid or illiquid. The Board
has delegated the function of making day-to-day determinations of liquidity for
each Portfolio to the Manager, pursuant to guidelines reviewed by the Trustees.
The Manager takes into account a number of factors in reaching liquidity
decisions. These factors may include, but are not limited to: (i) the frequency
of trading in the security; (ii) the number of dealers who make quotes for the
security; (iii) the number of dealers who have undertaken to make a market in
the security; (iv) the number of other potential purchasers; and (v) the nature
of the security and how trading is effected (e.g., the time needed to sell the
security, how offers are solicited and the mechanics of transfer). The Manager
will monitor the liquidity of securities held by the Portfolio and report
periodically on such decisions to the Trustees.
Repurchase Agreements
Each Portfolio may enter into repurchase agreements with "primary
dealers" in U.S. Government securities and banks which furnish collateral at
least equal in value or market price to the amount of their repurchase
obligation. Each Portfolio that may invest in foreign securities may also enter
into repurchase agreements involving certain foreign government securities. The
primary risk associated with repurchase agreements is that, if the seller
defaults, a Portfolio might suffer a loss to the extent that the proceeds from
the sale of the underlying securities and other collateral held by the Portfolio
in connection with the related repurchase agreement are less than the repurchase
price. Another risk is that, in the event of bankruptcy of the seller, a
Portfolio could be delayed in or prohibited from disposing of the underlying
securities and other collateral held by the Portfolio in connection with the
related repurchase agreement pending court proceedings. In evaluating whether to
enter into a repurchase agreement for a Portfolio, the Manager will carefully
consider the creditworthiness of the seller pursuant to procedures reviewed and
approved by the Trustees. See "Repurchase Agreements" in the Prospectus.
Lending of Portfolio Securities
Each Portfolio other than America Income Portfolio and Money Market
Portfolio may lend portfolio securities to member firms of the New York Stock
Exchange, under agreements which would require that the loans be secured
continuously by collateral in cash, cash equivalents or U.S. Treasury Bills
maintained on a current basis at an amount at least equal to the market value of
the securities loaned. A Portfolio would continue to receive the equivalent of
the interest or dividends paid by the issuer on the securities loaned as well as
the benefit of an increase in the market value of the securities loaned and
would also receive compensation based on investment of the collateral. A
Portfolio would not, however, have the right to vote any securities having
voting rights during the existence of the loan, but would call the loan in
anticipation of an important vote to be taken among holders of the securities or
of the giving or withholding of consent on a material matter affecting the
investment.
As with other extensions of credit there are risks of delay in recovery
or even loss of rights in the collateral should the borrower of the securities
fail financially. A Portfolio will lend portfolio securities only to firms which
have been approved in advance by the Board of Trustees, which will monitor the
creditworthiness of any such firms. At no time would the value of the securities
loaned by a Portfolio exceed 33 1/3% of the value of its total assets.
Investment Restrictions
The Trust, on behalf of each Portfolio, has adopted certain fundamental
investment restrictions which may not be changed without the affirmative vote of
the record holders of a "majority" (as defined in the 1940 Act) of the
Portfolio's outstanding voting securities. As used in the Prospectus and this
Statement of Additional Information, such approval means the approval of the
lesser of (i) the recordholders of 67% or more of the shares of a Portfolio
represented at a meeting if the recordholders of more than 50% of the
outstanding shares of the Portfolios are present in person or by proxy, or (ii)
the holders of more than 50% of the Portfolio's outstanding shares.
14
<PAGE>
Restrictions That Apply to International Growth Portfolio, Capital Growth
Portfolio, Growth Shares Portfolio, Real Estate Growth Portfolio, Growth and
Income Portfolio, Equity-Income Portfolio, Balanced Portfolio and Swiss Franc
Bond Portfolio:
Each Portfolio may not:
(1) Issue senior securities, except as permitted by paragraphs (2), (6)
and (7) below. For purposes of this restriction, the issuance of shares of
beneficial interest in multiple classes or series, the purchase or sale of
options, futures contracts and options on futures contracts, forward
commitments, forward foreign exchange contracts, repurchase agreements and
reverse repurchase agreements entered into in accordance with the Portfolio's
investment policy, and the pledge, mortgage or hypothecation of the Portfolio's
assets within the meaning of paragraph (3) below are not deemed to be senior
securities.
(2) Borrow money, except from banks as a temporary measure for
extraordinary emergency purposes and except pursuant to reverse repurchase
agreements and (for Swiss Franc Bond Portfolio only) forward roll transactions,
and then only in amounts not to exceed 33 1/3% of the Portfolio's total assets
(including the amount borrowed) taken at market value. The Portfolio will not
use leverage to attempt to increase income. The Portfolio will not purchase
securities while outstanding borrowings (including reverse repurchase
agreements) exceed 5% of the Portfolio's total assets.
(3) Pledge, mortgage, or hypothecate its assets, except to secure
indebtedness permitted by paragraph (2) above and then only if such pledging,
mortgaging or hypothecating does not exceed 33 1/3% of the Portfolio's total
assets taken at market value.
(4) Act as an underwriter, except to the extent that, in connection
with the disposition of portfolio securities, the Portfolio may be deemed to be
an underwriter for purposes of the Securities Act of 1933.
(5) Purchase or sell real estate, except that the Portfolio may (i)
lease office space for its own use, (ii) invest in securities of issuers that
invest in real estate or interests therein, (iii) invest in securities that are
secured by real estate or interests therein, (iv) purchase and sell
mortgage-related securities and (v) hold and sell real estate acquired by the
Portfolio as a result of the ownership of securities.
(6) Make loans, except that the Portfolio may lend portfolio securities
in accordance with the Portfolio's investment policies and may purchase or
invest in repurchase agreements, bank certificates of deposit, a portion of an
issue of publicly distributed bonds, bank loan participation agreements,
bankers' acceptances, debentures or other securities, whether or not the
purchase is made upon the original issuance of the securities.
(7) Invest in commodities or commodity contracts or in puts, calls, or
combinations of both, except interest rate futures contracts, options on
securities, securities indices, currency and other financial instruments,
futures contracts on securities, securities indices, currency and other
financial instruments and options on such futures contracts, forward foreign
currency exchange contracts, forward commitments, securities index put or call
warrants, interest rate swaps, caps and floors and repurchase agreements entered
into in accordance with the Fund's investment policies.
15
<PAGE>
(8) (This restriction No. 8 does not apply to Real Estate Growth
Portfolio) With respect to 75% of its total assets, purchase
securities of an issuer (other than the U.S. Government, its agencies
or instrumentalities), if
(a) such purchase would cause more than 5% of the Portfolio's
total assets, taken at market value, to be invested in the securities
of such issuer, or
(b) such purchase would at the time result in more than 10% of
the outstanding voting securities of such issuer being held by the
Portfolio.
It is the fundamental policy of each Portfolio other than Real Estate
Growth Portfolio not to concentrate its investments in securities of companies
in any particular industry. Following the current opinion of the staff of the
Securities and Exchange Commission (the "SEC"), investments are concentrated in
a particular industry if such investments aggregate 25% or more of the
Portfolio's total assets. The foregoing industry concentration policy does not
apply to investments in U.S. Government securities.
Real Estate Growth Portfolio will invest 25% or more of its total
assets in securities issued by companies in the real estate industry.
As a matter of nonfundamental investment policy and in connection with
the offering of its shares in various states and foreign countries, the Trust,
on behalf of each Portfolio, has agreed not to:
(a) Participate on a joint-and-several basis in any securities trading
account. The "bunching" of orders for the sale or purchase of marketable
portfolio securities with other accounts under the management of the Manager to
save commissions or to average prices among them is not deemed to result in a
securities trading account.
(b) Purchase securities on margin or make short sales unless by virtue
of its ownership of other securities, the Portfolio has the right to obtain,
without payment of additional consideration, securities equivalent in kind and
amount to the securities sold and, if the right is conditional, the sale is made
upon the same conditions, except that the Portfolio may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities and in connection with transactions involving forward foreign
currency exchange transactions, options, futures contracts and options on
futures contracts.
(c) Purchase a security if, as a result, (i) more than 10% of the
Portfolio's total assets would be invested in securities of investment
companies, (ii) such purchase would result in more than 3% of the total
outstanding voting securities of any one investment company being held by the
Portfolio, or (iii) more than 5% of the Portfolio's total assets would be
invested in any one investment company; provided, however, the Portfolio can
exceed such limitations in connection with a plan of merger or consolidation
with or acquisition of substantially all the assets of such other closed-end
investment company.
(d) Purchase securities of any issuer which, together with any
predecessor, has a record of less than three years' continuous operations prior
to the purchase if such purchase would cause investments of the Portfolio in all
such issuers to exceed 5% of the value of the total assets of the Portfolio.
(e) Invest for the purpose of exercising control over or management of any
company.
(f) Purchase warrants of any issuer, if, as a result of such purchases,
more than 2% of the value of the Portfolio's total assets would be invested in
warrants which are not listed on the New York Stock Exchange, the American Stock
Exchange or comparable international exchanges or more than 5% of the value of
the Portfolio's net assets would be invested in warrants, whether or not so
listed. For these purposes, warrants are to be valued at the lesser of cost or
market, but warrants acquired by the Portfolio in units with or attached to debt
securities shall be deemed to be without value.
16
<PAGE>
(g) Knowingly purchase or retain securities of an issuer if one or more
of the Trustees or officers of the Portfolio or directors or officers of the
Portfolio's Manager or any investment management subsidiary of such Manager
individually owns beneficially more than 1/2% and together own beneficially more
than 5% of the securities of such issuer.
(h) Purchase interests in oil, gas or other mineral leases or
exploration programs; however, this policy will not prohibit the acquisition of
securities of companies engaged in the production or transmission of oil, gas or
other minerals.
(i) Purchase any security which is illiquid, if more than 15% of the
net assets of the Portfolio, taken at market value, would be invested in such
securities. The Portfolio may not invest in repurchase agreements maturing in
more than seven days. The Portfolio currently intends to limit its investments
in illiquid securities to illiquid Rule 144A securities.
(j) Invest more than 5% of its total assets in restricted securities,
excluding Rule 144A securities; provided, however, the Portfolio may not invest
more than 15% of its total assets in restricted securities, including such Rule
144A securities.
(k) Write covered calls or put options with respect to more than 25% of
the value of its total assets or invest more than 5% of its total assets in
puts, calls, spreads, or straddles, other than protective put options.
(l) Invest in real estate limited partnerships.
(m) Real Estate Growth Portfolio may not invest more than 10% of its
total assets in shares of REITs that are not readily marketable.
Restrictions That Apply to America Income Portfolio
America Income Portfolio may not:
(1) borrow money, except from banks to meet redemptions in amounts not
exceeding 33 1/3% (taken at the lower of cost or current value) of its total
assets (including the amount borrowed). The Portfolio does not intend to borrow
money during the coming year, and will do so only as a temporary measure for
extraordinary purposes or to facilitate redemptions. The Portfolio will not
purchase securities while any borrowings are outstanding;
(2) purchase securities on margin;
(3) make loans to any person, except by (a) the purchase of a debt
obligation in which the Portfolio is permitted to invest and (b)
engaging in repurchase agreements;
(4) act as an underwriter, except as it may be deemed to be
an underwriter in a sale of restricted securities; or
(5) issue senior securities, except as permitted by restrictions nos. 2
and 4 above, and, for purposes of this restriction, the issuance of shares of
beneficial interest in multiple classes or series, the purchase or sale of
options, futures contracts and options on futures contracts, forward
commitments, forward foreign exchange contracts and repurchase agreements
entered into in accordance with the Portfolio's investment policies.
17
<PAGE>
The Trust, on behalf of America Income Portfolio, has agreed to adopt
certain additional investment restrictions which are not fundamental and may be
changed by a vote of the Trust's Board of Trustees and without shareholder
approval or notification. Pursuant to these additional restrictions, the
Portfolio may not:
(a) make short sales of securities, unless by virtue of its ownership
of other securities, the Portfolio has the right to obtain securities equivalent
in kind and amount to the securities sold and, if the right is conditional, the
sale is made upon the same terms and conditions, except that the Portfolio may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities;
(b) write, purchase or otherwise invest in any put, call, straddle
or spread options;
(c) invest in any security, including any repurchase agreement maturing
in more than seven days, which is illiquid, if more than 15% of the net assets
of the Portfolio, taken at market value, would be invested in such securities;
(d) pledge, mortgage or hypothecate its portfolio securities if at the
time of such action the value of the securities so pledged, mortgaged or
hypothecated would exceed 10% of the value of the Portfolio;
(e) invest in warrants;
(f) invest in oil, gas or other mineral leases or exploration or
development programs;
(g) purchase or sell real estate, including real estate limited
partnerships except that the Portfolio may (i) acquire or lease office space for
its own use, (ii) invest in securities of issuers that invest in real estate or
interests therein, (iii) invest in securities that are secured by real estate or
interests therein, (iv) purchase and sell mortgage-related securities and (v)
hold and sell real estate acquired by the Portfolio as a result of the ownership
or securities; and
(h) invest in assets, except in U.S. Government Securities and in
when-issued commitments and repurchase agreements with respect to
these securities;
Restrictions That Apply to Money Market Portfolio
Money Market Portfolio may not:
(1) except with respect to investments in obligations of (a) the U.S.
Government, its agencies, authorities or instrumentalities and (b) domestic
banks, purchase any security if, as a result (i) more than 5% of the assets of
the Portfolio would be invested in the securities of any one issuer, or (ii)
more than 25% of its assets would be invested in a particular industry;
(2) borrow money, except from banks to meet redemptions in amounts not
exceeding 33 1/3% (taken at the lower of cost or current value) of its total
assets (including the amount borrowed). The Portfolio does not intend to borrow
money during the coming year, and will do so only as a temporary measure for
extraordinary purposes or to facilitate redemptions. The Portfolio will not
purchase securities while any borrowings are outstanding;
(3) make short sales of securities;
(4) purchase securities on margin;
(5) write, purchase or otherwise invest in any put, call, straddle or
spread option or buy or sell real estate, commodities or commodity futures
contracts or invest in oil, gas or mineral exploration or development programs;
(6) make loans to any person, except by (a) the purchase of a debt
obligation in which the Portfolio is permitted to invest and (b)
engaging in repurchase agreements;
(7) knowingly purchase any security that is subject to legal or
contractual restrictions on resale or for which there is no
readily available market;
(8) purchase the securities of other investment companies or
investment trusts, unless they are acquired as part of a merger,
consolidation or acquisition of assets;
(9) purchase or retain the securities of any issuer if any officer or
Trustee of the Trust or the Portfolio or its investment adviser is an officer or
director of such issuer and beneficially owns more than 1/2 of 1% of the
securities of such issuer and all of the officers and the Trustees of the Trust
and the Portfolio's investment adviser together own more than 5% of the
securities of such issuer;
(10) act as an underwriter, except as it may be deemed to be an
underwriter in a sale of restricted securities;
(11) invest in companies for the purpose of exercising control or
management; or
(12) issue senior securities.
In addition, in order to comply with certain nonfundamental policies of
the Portfolio, the Portfolio will not (i) pledge, mortgage or hypothecate its
portfolio securities if at the time of such action the value of the securities
so pledged, mortgaged or hypothecated would exceed 10% of the value of the
Portfolio, (ii) will not commit more than 10% of its assets to illiquid
investments, such as repurchase agreements that mature in more than seven days,
(iii) invest more than 5% of its assets in companies which, including
predecessors, have a record of less than three years continuous operation, or
(iv) invest in warrants. The term "person" as used in Investment Restriction No.
6 includes institutions as well as individuals. Policies in this paragraph may
be changed by the Trustees without shareholder approval or notification.
Certain Additional Non-Fundamental Restrictions that apply to the Portfolios
Except with respect to the 300% asset coverage required with respect to
borrowings by each Portfolio, if a percentage restriction on investment or
utilization of assets as set forth above is adhered to at the time an investment
is made, a later change in percentage resulting from changes in the values of
the Portfolio's assets will not be considered a violation of the restriction.
In order to permit the sale of shares of the Portfolios in certain
states, the Trustees may, in their sole discretion, adopt restrictions on
investment policy more restrictive than those described above. Should the
Trustees determine that any such more restrictive policy is no longer in the
best interest of a Portfolio and its shareholders, the Portfolio may cease
offering shares in the state involved and the Trustees may revoke such
restrictive policy. Moreover, if the states involved shall no longer require any
such restrictive policy, the Trustees may, in their sole discretion, revoke such
policy.
Foreign Country Guidelines
(Applicable to International Growth Portfolio, Capital Growth
Portfolio, Real Estate Growth Portfolio and Balanced Portfolio)
A. Each Portfolio will be invested in a minimum of five different foreign
countries at all times. However, this minimum is reduced to four when
foreign country investments comprise less than 80% of the Portfolio's net
asset value; to three when less than 60% of such value; to two when less
than 20%.
B. Except as set forth in items C and D below, the Portfolio will have no
more than 20% of its net asset value invested in securities of issuers
located in any one country.
C. The Portfolio may have an additional 15% of its value invested in
securities of issuers located in any one of the following countries:
Australia, Germany, France, Japan or the United Kingdom.
D. The Portfolio's investments in U.S. issuers are not subject to the foreign
country diversification guidelines.
Borrowing Guidelines
(Applicable to all Portfolios other than Swiss Franc Bond Portfolio)
Pursuant to these guidelines, the borrowing limits for each Portfolio
are:
A. 10% of net asset value when borrowing for any general purposes; and
B. 25% of net asset value when borrowing as a temporary measure to facilitate
redemptions.
The net asset value of a Portfolio is the market value of all investments or
assets owned, less outstanding liabilities of the Portfolio at the time that any
new or additional borrowing is undertaken. Additionally, borrowing is not
acceptable for leveraging purposes.
2. MANAGEMENT OF THE TRUST
The Trust's Board of Trustees provides broad supervision over the
affairs of the Trust. The officers of the Trust are responsible for the Trust's
operations. The Trustees and executive officers of the Trust are listed below,
together with their principal occupations during the past five years. An
asterisk indicates those Trustees who are interested persons of the Trust within
the meaning of the 1940 Act.
18
<PAGE>
JOHN F. COGAN, JR.*, Chairman of the Board, President and Trustee, DOB: June
1926 President, Chief Executive Officer and a Director of The Pioneer Group,
Inc. ("PGI"); Chairman and a Director of Pioneering Management Corporation
("PMC") and Pioneer Funds Distributor, Inc. ("PFD"); Director of Pioneering
Services Corporation ("PSC"), Pioneer Capital Corporation ("PCC") and
Forest-Starma (a Russian timber joint venture); President and Director of
Pioneer Plans Corporation ("PPC"), Pioneer Investment Corp. ("PIC"),
Pioneer Metals and Technology, Inc. ("PMT"), Pioneer International Corp.
("Pintl"), Luscina, Inc., Pioneer First Russia, Inc. ("First Russia"),
Pioneer Omega, Inc. ("Omega"); and Theta Enterprises, Inc.; Chairman of the
Board and Director of Pioneer Goldfields Limited ("PGL") and Teberebie
Goldfields Limited; Chairman of the Supervisory Board of Pioneer Fonds
Marketing, GmbH ("Pioneer GmbH"); Member of the Supervisory Board of
Pioneer First Polish Trust Fund Joint Stock Company ("PFPT"); Chairman,
President and Trustee of all of the Pioneer mutual funds; and Partner, Hale
and Dorr LLP (counsel to the Fund).
RICHARD H. EGDAHL, M.D., Trustee, DOB: December 1926
Boston University Health Policy Institute, 53 Bay State Rd., Boston, MA 02115
Professor of Management, Boston University School of Management;
Professor of Public Health, Boston University School of Public Health; Professor
of Surgery, Boston University School of Medicine; Director, Boston University
Health Policy Institute and Boston University Medical Center; Executive Vice
President and Vice Chairman of the Board, University Hospital; Academic Vice
President for Health Affairs, Boston University; Director, Essex Investment
Management Company, Inc. (investment adviser), Health Payment Review, Inc.
(health care containment software firm), Mediplex Group, Inc. (nursing care
facilities firm), Peer Review Analysis, Inc. (health care facilities firm) and
Springer-Verlag New York, Inc. (publisher); Honorary Trustee, Franciscan
Children's Hospital; and Trustee of all of the Pioneer mutual funds.
MARGUERITE A. PIRET, Trustee, DOB: May 1948
One Boston Place, Suite 2635, Boston, MA 02108 President, Newbury, Piret &
Company, Inc. (merchant banking firm) and Trustee of all of the Pioneer
mutual funds.
DAVID D. TRIPPLE*, Trustee and Executive Vice President, DOB: February 1944
Executive Vice President and a Director of PGI; President, Chief
Investment Officer and a Director of PMC; Director of PFD, PCC, PIC, PIntl,
First Russia, Omega and Pioneer SBIC Corporation; and Executive Vice President
and Trustee of all of the Pioneer mutual funds.
STEPHEN K. WEST, Trustee, DOB: September 1928
125 Broad Street, New York, NY 10004
Partner, Sullivan & Cromwell (law firm); Trustee, The Winthrop Focus
Funds (mutual funds) and Trustee of all of the Pioneer mutual funds.
STEPHEN G. KASNET, Vice President, DOB: May 1945
Trustee and Vice President of Pioneer Real Estate Shares; Vice President
of PGI and President of Pioneer Real Estate Advisor, Inc. since 1995; Managing
Director, Winthrop Financial Associates and First Winthrop Corp. from 1991 to
1995; Executive Vice President, Cabot, Cabot & Forbes from 1989 to 1991.
WILLIAM H. KEOUGH, Treasurer, DOB: April 1937
Senior Vice President, Chief Financial Officer and Treasurer of PGI;
Treasurer of PFD, PMC, PSC, PCC, PIC, PIntl, PMT, PGL, First Russia, Omega and
Pioneer SBIC Corporation; Treasurer and Director of PPC; and Treasurer of all of
the Pioneer mutual funds.
JOSEPH P. BARRI, Secretary, DOB: August 1946
Secretary of PGI, PMC, PPC, PIC, PIntl, PMT, First Russia, Omega and PCC;
Clerk of PFD and PSC; Partner, Hale and Dorr LLP (counsel to the Fund); and
Secretary of all of the Pioneer mutual funds.
ERIC W. RECKARD, Assistant Treasurer, DOB: June 1956
Manager of Fund Accounting of PMC since May 1994; Manager of Auditing,
Compliance and Business Analysis for PGI prior to May 1994; and Assistant
Treasurer of all of the Pioneer mutual funds.
ROBERT P. NAULT, Assistant Secretary, DOB: March 1964
General Counsel and Assistant Secretary of PGI since 1995; Assistant
Secretary of PMC, PIntl, PGL, First Russia, Omega and all of the Pioneer mutual
funds; Assistant Clerk of PFD and PSC; and formerly of Hale and Dorr LLP
(counsel to the Fund) where he most recently served as junior partner.
19
<PAGE>
NORMAN KURLAND, Vice President, DOB: November 1949
Senior Vice President of PMC since 1993; Vice President of PMC from 1990
to 1993; Vice President of Pioneer Europe Fund, Pioneer Emerging Markets Fund,
Pioneer India Fund and Pioneer International Growth Fund.
J. RODMAN WRIGHT, Vice President, DOB: January 1961
Vice President of PMC and Pioneer Capital Growth Fund, since January 1997
and former analyst and assistant portfolio manager of the Fund; formerly an
analyst and a co-portfolio manager, focusing on small capitalization securities,
with another investment firm from November 1989 to July 1994.
ROBERT W. BENSON, Vice President, DOB: April 1947
Senior Vice President of PMC; Vice President of Pioneer Mid-Cap Fund and
Pioneer Real Estate Shares.
JOHN A. CAREY, Vice President, DOB: May 1949
Vice President of PMC, Pioneer Equity-Income Fund and Pioneer Fund.
WILLIAM C. FIELD, Vice President, DOB: September 1964
Vice President of PMC and Pioneer Balanced Fund. Research Analyst since
1991 and served as an assistant portfolio manager for certain instituttional
accounts since January 1996.
SHERMAN B. RUSS, Vice President, DOB: July 1937
Senior Vice President of PMC; Vice President of Pioneer Bond Fund,
Pioneer Money Market Trust, Pioneer America Income Trust and Pioneer Interest
Shares.
SALVATORE P. PRAMAS, Vice President, DOB: April 1963
Vice President of PMC.
JEFFREY B. POPPENHAGEN, Vice President, DOB: March 1962
Vice President of PMC and Pioneer Growth Shares, since February 1996;
formerly a portfolio manager for a number of equity portfolios.
The Trust's Agreement and Declaration of Trust provides that the
recordholders of two-thirds of its outstanding shares may vote to remove a
Trustee of the Trust at any special meeting of shareholders. The business
address of all officers is 60 State Street, Boston, Massachusetts 02109.
All of the outstanding capital stock of PMC, PFD and PSC is directly or
indirectly owned by PGI, a Delaware corporation. All of the outstanding capital
stock of PFD is owned by PMC. The table below lists all the Pioneer funds
currently offered to the public (other than the Portfolios) and the investment
adviser and principal underwriter for each fund.
20
<PAGE>
Investment Principal
Fund Name Adviser Underwriter
Pioneer Fund PMC PFD
Pioneer II PMC PFD
Pioneer Mid-Cap Fund PMC PFD
Pioneer Growth Shares PMC PFD
Pioneer Micro-Cap Fund PMC PFD
Pioneer Small Company Fund PMC PFD
Pioneer Capital Growth Fund PMC PFD
Pioneer Equity-Income Fund PMC PFD
Pioneer Gold Shares PMC PFD
Pioneer Real Estate Shares PMC PFD
Pioneer Balanced Fund PMC PFD
Pioneer Europe Fund PMC PFD
Pioneer World Equity Fund PMC PFD
Pioneer International Growth Fund PMC PFD
Pioneer Emerging Markets Fund PMC PFD
Pioneer India Fund PMC PFD
Pioneer Bond Fund PMC PFD
Pioneer America Income Trust PMC PFD
Pioneer Short-Term Income Trust PMC PFD
Pioneer Tax-Free Income Fund PMC PFD
Pioneer Intermediate Tax-Free Fund PMC PFD
Pioneer Cash Reserves Fund PMC PFD
Pioneer Interest Shares PMC *
- ------------------------------
* This fund is a closed-end investment company.
21
<PAGE>
PMC, the investment adviser to each Portfolio, also manages the
investments of certain institutional private accounts. To the knowledge of the
Trust, no officer or Trustee of the Trust owned 5% or more of the issued and
outstanding shares of PGI as of the date of this Statement of Additional
Information, except Mr. Cogan who then owned approximately 14% of such shares.
As of April 2, 1997, the officers and Trustees of the Trust held in the
aggregate less than 1% of the outstanding shares of each Portfolio.
As of April 2, 1997, the following record holder owned substantially
all the shares of each Portfolio: Allmerica Financial Life Insurance and Annuity
Company, 440 Lincoln Street, Worcester, MA 01653.
Compensation of Officers and Trustees
The Trust pays no salaries or compensation to any of its officers,
however, the Trust pays an annual trustee's fee to each Trustee who is not
affiliated with PMC, PGI, PFD or PSC consisting of two components: (a) a base
fee of $500 and (b) a variable fee, calculated on the basis of the average net
assets of the Trust. In addition, the Trust pays a per meeting fee of $100 to
each Trustee who is not affiliated with PMC, PGI, PFD or PSC. The Trust also
pays an annual committee participation fee to trustees who serve as members of
committees established to act on behalf of one or more of the Pioneer mutual
funds. Committee fees are allocated to the Trust on the basis of the Trust's
average net assets. Each Trustee who is a member of the Audit Committee for the
Pioneer mutual funds receives an annual fee equal to 10% of the aggregate annual
trustee's fee, except the Committee Chair who receive an annual trustee's fee
equal to 20% of the aggregate annual trustee's fee. Members of the Pricing
Committee for the Pioneer mutual funds, as well as any other committee which
renders material functional services to the Board of Trustees for the Pioneer
mutual funds, receive an annual fee equal to 5% of the annual trustee's fee,
except the Committee Chair who receives an annual trustee's fee equal to 10% of
the annual trustee's fee. Any such fees paid to affiliates or interested persons
of PGI, PMC, PFD or PSC are reimbursed to the Trust under its Management
Contract.
The following table sets forth the compensation of the Trustees from
the Trust and the other Pioneer Funds for the fiscal year of the Trust ending
December 31, 1996:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Pension or Total
Retirement Compensation
Benefits from Pioneer
Aggregate Accrued as Family of Funds
Compensation Part of (including
Name of Trustee From the Trust* Trust's Expenses Trust)**
John F. Cogan, Jr. $ 500 $0 $11,083
Richard H. Egdahl, M.D. $2,000 0 $59,858
Marguerite A. Piret $2,100 0 $79,842
David D. Tripple* $ 500 0 $11,083
Stephen K. West $2,100 0 $67,850
------ - -------
Total $7,200 $417,052
====== ========
* For the fiscal year ended December 31, 1996.
** For the calender year ended December 31, 1996 for all 21 Pioneer mutual
funds.
</TABLE>
3. INVESTMENT ADVISER
As stated in the Prospectus, PMC, 60 State Street, Boston,
Massachusetts, serves as the investment adviser to each Portfolio. Each of the
Trust's management contracts is renewable annually by the vote of a majority of
the Board of Trustees of the Trust (including a majority of the Board of
Trustees who are not parties to the contract or interested persons of any such
parties) cast in person at a meeting called for the purpose of voting on such
renewal. Each contract terminates if assigned and may be terminated with respect
to one or more Portfolios without penalty by either party by vote of its Board
of Directors or Trustees, as the case may be, or a majority of the affected
Portfolio's outstanding voting securities and the giving of sixty days' written
notice.
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<PAGE>
As compensation for the management services and expenses incurred, the
Manager is entitled to management fees at the annual rate of the applicable
Portfolio's average daily net assets set forth below.
Percentage of Average
Portfolio Daily Net Assets
International Growth Portfolio 1.00%
Real Estate Growth Portfolio 1.00%
Capital Growth Portfolio 0.65%
Growth Shares Portfolio 0.70%
Growth and Income Portfolio 0.65%
Equity-Income Portfolio 0.65%
Balanced Portfolio 0.65%
Swiss Franc Bond Portfolio 0.65%
America Income Portfolio 0.55%
Money Market Portfolio 0.50%
The above management fees are normally computed daily and paid monthly
in arrears. The Manager has voluntarily agreed not to impose a portion of its
management fee and to make other arrangements, if necessary, to limit certain
other expenses of the Portfolios to the extent necessary to reduce expenses to a
specified percentage of average daily net assets, as indicated below. As of the
date of this Statement of Additional Information, expense limitations are in
effect for International Growth Portfolio, Growth Shares Portfolio, Real estate
Growth Portfolio, Growth and Income Portfolio, Swiss Franc Bond Portfolio and
America Income Portfolio. PMC is waiving all or a portion of its management fees
for International Growth Portfolio, Real Estate Growth Portfolio and Swiss Franc
Bond Portfolio. Other Expenses may be reduced, as necessary for International
Growth Portfolio and Swiss Franc Bond Portfolio. Any such arrangements may be
terminated by the Manager at any time without notice.
Percentage of Portfolio's
Portfolio Average Daily Net Assets
International Growth Portfolio 1.50%
Growth Shares Portfolio 1.25%
Growth and Income Portfolio 1.25%
Real Estate Growth Portfolio 1.25%
Swiss Franc Bond Portfolio 1.25%
America Income Portfolio 1.25%
For the fiscal years ended December 31, 1995 and December 31, 1996, the
Portfolios would have incurred the following management fees had the expense
limitation agreements not been in place:
1995 1996
---- ----
International Growth Portfolio $ 8,341 $128,708
Capital Growth Portfolio $17,739 $178,068
Real Estate Growth Portfolio $ 1,879 $ 29,633
Equity-Income Portfolio $10,878 $161,879
Balanced Portfolio $ 3,924 $ 52,926
America Income Portfolio $ 127 $ 23,307
Swiss Franc Bond Portfolio $ 3,861 $ 33,183
Money Market Portfolio $ 4,972 $ 42,001
Real Estate Growth Portfolio Subadviser. Boston Financial Securities, Inc.
("BFS"), 101 Arch Street, Boston, Massachusetts, serves as the Real Estate
Growth Portfolio's subadviser. The subadvisory agreement among the Portfolio,
PMC and BFS expires on May 31, 1997 but is renewable annually after such date by
the vote of a majority of the Board of Trustees of the Portfolio (including a
majority of the Board of Trustees who are not parties to the contract or
interested persons of any such parties) cast in person at a meeting called for
the purpose of voting on such renewal. This contract terminates if assigned and
may be terminated without penalty by any party by vote of its Board of Directors
or Trustees, as the case may be, or a majority of its outstanding voting
securities and the giving of 60 days' written notice.
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<PAGE>
As compensation for its subadvisory services, PMC pays BFS a
subadvisory fee equal to 0.30% per annum of the Real Estate Growth Portfolio's
average daily net assets. The fee is normally computed daily and paid monthly.
The subadvisory fee payable by PMC to BFS will be reduced proportionally to the
extent that the management fee paid by the Portfolio to PMC is reduced under
PMC's voluntary expense limitation agreement or to the extent that PMC, after
written notice to BFS, elects to utilize a portion of the management fees paid
to PMC by the Portfolio to make payments to third parties.
As of December 31, 1996, the following individuals owned beneficially more than
10% of the outstanding common stock of BFS: Randolph G. Hawthorne (11.17%), Fred
N. Pratt, Jr. (12.98%), William B. Haynsworth (11.24%). The address for each of
these individuals is BFS, 101 Arch Street, Boston, Massachusetts 02110.
4.PRINCIPAL UNDERWRITER
Pioneer Funds Distributor, Inc., 60 State Street, Boston,
Massachusetts, serves as the principal underwriter for the Trust in connection
with the continuous offering of shares of the Portfolios. The Trust will not
generally issue shares for consideration other than cash. At the Trust's sole
discretion, however, it may issue shares for consideration other than cash in
connection with an acquisition of portfolio securities pursuant to a purchase of
assets, merger or other reorganization.
The redemption price of shares of beneficial interest of a Portfolio
may, at PMC's discretion, be paid in cash or portfolio securities. The Trust
has, however, elected to be governed by Rule 18f-1 under the 1940 Act pursuant
to which each Portfolio is obligated to redeem shares solely in cash up to the
lesser of $250,000 or 1% of the Portfolio's net asset value during any 90-day
period for any one shareholder. Should the amount of redemptions by any
shareholder exceed such limitation, the Trust will have the option of redeeming
the excess in cash or portfolio securities. In the latter case, the securities
are taken at their value employed in determining the Portfolio's net asset
value. A shareholder whose shares are redeemed in-kind may incur brokerage
charges in selling the securities received in-kind. The selection of such
securities will be made in such manner as the Board deems fair and reasonable.
5. CUSTODIAN
Brown Brothers Harriman & Co. (the "Custodian") is the custodian of
each Portfolio's assets. The Custodian's responsibilities include safekeeping
and controlling each Portfolio's cash and securities in the United States as
well as in foreign countries, handling the receipt and delivery of securities,
and collecting interest and dividends on the Portfolio's investments. The
Custodian fulfills its function in foreign countries through a network of
subcustodian banks located in the foreign countries (the "Subcustodians"). The
Custodian also provides fund accounting, bookkeeping and pricing assistance to
the Portfolios and assistance in arranging for forward currency exchange
contracts as described above under "Investment Policies and Restrictions."
The Custodian does not determine the investment policies of any
Portfolio or decide which securities it will buy or sell. Each Portfolio may
invest in securities issued by the Custodian or any of the Subcustodians,
deposit cash in the Custodian or any Subcustodian and deal with the Custodian or
any of the Subcustodians as a principal in securities transactions. Portfolio
securities may be deposited into the Federal Reserve-Treasury Department Book
Entry System or the Depository Trust Company in the United States or in
recognized central depositories in foreign countries. In selecting Brown
Brothers Harriman & Co. and its network of foreign subcustodians as the
custodians for foreign securities, the Board of Trustees made certain
determinations required by Rule 17f-5 promulgated under the 1940 Act. The
Trustees annually review and approve the continuations of its international
subcustodian arrangements.
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<PAGE>
6. INDEPENDENT PUBLIC ACCOUNTANT
Arthur Andersen LLP, 225 Franklin Street, Boston, MA 02110, is the
Trust's independent public accountant, providing audit services, tax return
review, and assistance and consultation with respect to the preparation of
filings with the SEC.
7. PORTFOLIO TRANSACTIONS
Money Market Portfolio
PMC intends to fully manage Money Market Portfolio by buying and
selling securities, as well as holding securities to maturity. In managing
Pioneer Money Market Portfolio, PMC seeks to take advantage of market
developments and yield disparities, which may include use of the following
strategies:
(1) shortening the average maturity of the Portfolio in anticipation of a
rise in interest rates so as to minimize depreciation of principal;
(2) lengthening the average maturity of the Portfolio in anticipation of a
decline in interest rates so as to maximize yield;
(3) selling one type of debt security and buying another when disparities
arise in the relative values of each; and
(4) changing from one debt security to an essentially similar debt security
when their respective yields appear distorted due to market factors.
All Portfolios
All orders for the purchase or sale of portfolio securities are placed
on behalf of a Portfolio by the Manager pursuant to authority contained in the
Management Contracts. The primary consideration in placing portfolio security
transactions is execution at the most favorable prices. Additionally, in
selecting brokers and dealers, the Manager considers other factors relating to
best execution, including, but not limited to, the size and type of the
transaction; the nature and character of the markets for the security to be
purchased or sold; the execution efficiency, settlement capability, and
financial condition of the dealer; the dealer's execution services rendered on a
continuing basis; and the reasonableness of any dealer spreads. Most
transactions in foreign equity securities are executed by broker-dealers in
foreign countries in which commission rates are fixed and, therefore, are not
negotiable (as such rates are in the United States) and are generally higher
than in the United States. In addition, debt securities are traded principally
in the over-the-counter market on a net basis through dealers acting for their
own account and not as brokers.
The cost of securities purchased from underwriters includes an
underwriter's commission or concession, and the prices at which securities are
purchased and sold from and to dealers include a dealer's mark-up or mark-down.
The Manager attempts to negotiate with underwriters to decrease the commission
or concession for the benefit of the Portfolios. The Manager normally seeks to
deal directly with the primary market makers unless, in its opinion, better
prices are available elsewhere.
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<PAGE>
In circumstances where two or more broker-dealers are in a position to
offer comparable prices and execution, the Manager may select broker-dealers
which provide brokerage and/or research services to the Portfolios and/or other
investment companies or accounts managed by the Manager. Such services may
include advice concerning the value of securities; the advisability of investing
in, purchasing or selling securities; the availability of securities or the
purchasers or sellers of securities; furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and performance of accounts; and effecting securities transactions and
performing functions incidental thereto (such as clearance and settlement). The
Manager maintains a listing of broker-dealers who provide such services on a
regular basis. However, because many transactions on behalf of the Portfolios
and other investment companies or accounts managed by the Manager are placed
with broker-dealers (including broker-dealers on the listing) without regard to
the furnishing of such services, it is not possible to estimate the proportion
of such transactions directed to such dealers solely because such services were
provided. Management believes that no exact dollar value can be calculated for
such services.
The research received from broker-dealers may be useful to the Manager
in rendering investment management services to a Portfolio as well as to other
investment companies or accounts managed by the Manager, although not all of
such research may be useful to the Portfolio. Conversely, such information
provided by brokers or dealers who have executed transaction orders on behalf of
such other accounts may be useful to the Manager in carrying out its obligations
to a Portfolio. The receipt of such research has not reduced the Manager's
normal independent research activities; however, it enables the Manager to avoid
the additional expenses which might otherwise be incurred if it were to attempt
to develop comparable information through its own staff.
In circumstances where two or more broker-dealers offer comparable
prices and executions, preference may be given to a broker-dealer which has sold
shares of other investment companies or accounts managed by the Manager. This
policy does not imply a commitment to execute all portfolio transactions through
all broker-dealers that sell shares of such investment companies and accounts.
In addition, if the Manager determines in good faith that the amount of
commissions charged by a broker is reasonable in relation to the value of the
brokerage and research services provided by such broker, a Portfolio may pay
commissions to such broker in an amount greater than the amount another firm may
charge.
In addition to serving as investment adviser to the Portfolios, the
Manager acts as investment adviser to other Pioneer mutual funds and certain
private accounts with investment objectives similar to those of the Portfolios.
As such, securities may meet investment objectives of a Portfolio, such other
funds and such private accounts. In such cases, the decision to recommend
purchases for one Portfolio, fund or account rather than another is based on a
number of factors. The determining factors in most cases are the amount of
securities of the issuer then outstanding, the value of those securities and the
market for them. Other factors considered in the investment recommendations
include other investments which each Portfolio, fund or account presently has in
a particular industry or country and the availability of investment funds in
each Portfolio, fund or account.
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<PAGE>
It is possible that, at times, identical securities will be held by
more than one Portfolio, fund and/or account. However, the position of any
Portfolio, fund or account in the same issue may vary and the length of time
that any Portfolio, fund or account may choose to hold its investment in the
same issue may likewise vary. To the extent that a Portfolio, another fund in
the Pioneer group or a private account managed by the Manager seeks to acquire
the same security at about the same time, the Portfolio may not be able to
acquire as large a position in such security as it desires or it may have to pay
a higher price for the security. Similarly, a Portfolio may not be able to
obtain as large an execution of an order to sell or as high a price for any
particular portfolio security if the Manager decides to sell on behalf of
another account the same portfolio security at the same time. On the other hand,
if the same securities are bought or sold at the same time by more than one
account, the resulting participation in volume transactions could produce better
executions for a Portfolio or other account. In the event that more than one
account purchases or sells the same security on a given date, the purchases and
sales will normally be made as nearly as practicable on a pro rata basis in
proportion to the amounts desired to be purchased or sold by each.
The Trustees periodically review the Manager's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Portfolios.
For the fiscal periods ended December 31, 1995 and December 31, 1996,
the Portfolios paid or owed aggregate brokerage commissions as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Aggregate Brokerage Commissions
1995 1996
International Growth Portfolio $13,538 $104,003
Capital Growth Portfolio $29,663 $112,179
Real Estate Growth Portfolio $ 1,049 $ 22,788
Equity-Income Portfolio $ 6,890 $ 45,921
Balanced Portfolio $ 2,646 $ 16,275
America Income Portfolio $ 0 $ 0
Swiss Franc Bond Portfolio $ 0 $ 0
Money Market Portfolio $ 0 $ 0
</TABLE>
8. TAX STATUS
Each Portfolio is treated as a separate entity for federal income tax
purposes. It is each Portfolio's policy to meet the requirements of Subchapter M
of the Code, for qualification as a regulated investment company. These
requirements relate to the sources of a Portfolio's income, the diversification
of its assets and the distribution of its income to shareholders. If a Portfolio
meets all such requirements and distributes to its shareholders, in accordance
with the Code's timing requirements, all investment company taxable income and
net capital gain, if any, which it earns, the Portfolio will be relieved of the
necessity of paying federal income tax.
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<PAGE>
In order to qualify as a regulated investment company under Subchapter
M, a Portfolio must, among other things, derive at least 90% of its annual gross
income from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock, securities or foreign
currencies, or other income (including gains from options, futures and forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "90% income test"), limit its gains from the sale
of stock, securities and certain other positions held for less than three months
to less than 30% of its annual gross income (the "30% test") and satisfy certain
annual distribution and quarterly diversification requirements. For purposes of
the 90% income test, income a Portfolio earns from equity interests in certain
entities that are not treated as corporations (e.g., are treated as partnerships
or trusts) for U.S. tax purposes will generally have the same character for the
Portfolio as in the hands of such entities; consequently, a Portfolio may be
required to limit its equity investments in such entities that earn fee income,
rental income, or other nonqualifying income.
As noted in the Prospectus, each Portfolio must, and intends to, comply
with the diversification requirements imposed by Section 817(h) of the Code and
the regulations thereunder. These requirements, which are in addition to the
diversification requirements imposed on a Portfolio by the Investment Company
Act and Subchapter M of the Code, place certain limitations on the assets of
each separate account. Section 817(h) and these regulations treat the assets of
the Portfolios as assets of the related separate accounts and, among other
things, limit the assets of a Portfolio that may be invested in securities of a
single issuer. Specifically, the regulations provide that, except as permitted
by the "safe harbor" described below, as of the end of each calendar quarter or
within 30 days thereafter no more than 55% of the total assets of a Portfolio
may be represented by any one investment, no more than 70% by any two
investments, no more than 80% by any three investments and no more than 90% by
any four investments. For this purpose, all securities of the same issuer are
considered a single investment, and each U.S. Government agency and
instrumentality is considered a separate issuer for this purpose. Section 817(h)
provides, as a safe harbor, that a separate account will be treated as being
adequately diversified if the diversification requirements under Subchapter M
are satisfied and no more than 55% of the value of the account's total assets
are cash and cash items (including receivables), U.S. Government securities and
securities of other regulated investment companies. Failure by a Portfolio to
both qualify as a regulated investment company and satisfy the Section 817(h)
requirements would generally result in adverse treatment of the variable
contract holders, differing from the treatment described in the applicable
variable contract prospectus, by causing the contracts to lose their favorable
tax status and requiring a contract holder to include in ordinary income any
income accrued under the contracts for the current and all prior taxable years.
Any such failure may also result in adverse tax consequences for the insurance
company issuing the contracts.
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<PAGE>
Dividends from investment company taxable income, which includes net
investment income, net short-term capital gain in excess of net long-term
capital loss, and certain net foreign exchange gains, are treated as ordinary
income, whether received in cash or reinvested in additional shares. Dividends
from net long-term capital gain in excess of net short-term capital loss, if
any, whether received in cash or reinvested in additional shares, are treated as
long-term capital gains for federal income tax purposes without regard to the
length of time shares of the Portfolio have been held. The federal income tax
status of all distributions will be reported to shareholders annually.
Any dividend declared by a Portfolio in October, November or December
as of a record date in such a month and paid during the following January will
be treated for federal income tax purposes as received by shareholders on
December 31 of the calendar year in which it is declared.
Foreign exchange gains and losses realized by a Portfolio in connection
with certain transactions involving foreign currency-denominated debt
securities, certain options and futures contracts relating to foreign currency,
foreign currency forward contracts, foreign currencies, or payables or
receivables denominated in a foreign currency are subject to Section 988 of the
Code, which generally causes such gains and losses to be treated as ordinary
income and losses and may affect the amount, timing and character of
distributions to shareholders. Any such transactions that are not directly
related to a Portfolio's investments in stock or securities (or its options or
futures contracts with respect to stock or securities) may need to be limited in
order to enable the Portfolio to satisfy the limitations described in the second
paragraph above that are applicable to the income or gains recognized by a
regulated investment company. If the net foreign exchange loss for a year were
to exceed a Portfolio's investment company taxable income (computed without
regard to such loss), the resulting ordinary loss for such year would not be
deductible by the Portfolio or its shareholders in future years.
If a Portfolio acquires any equity interest (under proposed
regulations, generally including not only stock but also an option to acquire
stock) in certain foreign corporations that receive at least 75% of their annual
gross income from passive sources (such as interest, dividends, rents, royalties
or capital gain) or hold at least 50% of their assets in investments producing
such passive income ("passive foreign investment companies"), the Portfolio
could be subject to federal income tax and additional interest charges on
"excess distributions" received from such companies or gain from the sale of
stock in such companies, even if all income or gain actually received by the
Portfolio is timely distributed to its shareholders. The Portfolio would not be
able to pass through to its shareholders any credit or deduction for such a tax.
Certain elections may, if available, ameliorate these adverse tax consequences,
but any such election would require the applicable Portfolio to recognize
taxable income or gain without the concurrent receipt of cash. A Portfolio may
limit and/or manage its holdings in passive foreign investment companies to
minimize its tax liability or maximize its return from these investments.
29
<PAGE>
Growth Shares Portfolio, Real Estate Growth Portfolio, Growth and
Income Portfolio and Equity-Income Portfolio may invest in debt obligations that
are in the lowest rating categories or are unrated, including debt obligations
of issuers not currently paying interest or who are in default. International
Growth Portfolio may hold such securities only as a result of credit quality
downgrades. Investments in debt obligations that are at risk of or in default
present special tax issues for the Portfolios. Tax rules are not entirely clear
about issues such as when a Portfolio may cease to accrue interest, original
issue discount, or market discount, when and to what extent deductions may be
taken for bad debts or worthless securities, how payments received on
obligations in default should be allocated between principal and income, and
whether exchanges of debt obligations in a workout context are taxable. These
and other issues will be addressed by a Portfolio, in the event it invests in
such securities, in order to seek to ensure that it distributes sufficient
income to preserve its status as a regulated investment company and does not
become subject to federal income tax.
If a Portfolio invests in certain pay-in-kind securities ("PIKs"), zero
coupon securities, deferred interest securities or, in general, any other
securities with original issue discount (or with market discount if a Portfolio
elects to include market discount in income currently), the Portfolio must
accrue income on such investments for each taxable year, which generally will be
prior to the receipt of the corresponding cash payments. However, the Portfolio
must distribute, at least annually, all or substantially all of its net income,
including such accrued income, to shareholders to qualify as a regulated
investment company under the Code and avoid Federal income tax. Therefore, the
Portfolio may have to dispose of its portfolio securities under disadvantageous
circumstances to generate cash, or may have to leverage itself by borrowing the
cash, to satisfy distribution requirements.
For federal income tax purposes, each Portfolio is permitted to carry
forward a net capital loss for any year to offset its own capital gains, if any,
during the eight years following the year of the loss. To the extent subsequent
capital gains are offset by such losses, they would not result in federal income
tax liability to the Portfolio and therefore are not expected to be distributed
as such to shareholders. At December 31, 1996, America Income Portfolio had
aggregate capital loss carryforwards of $72,758 which will expire in 2004 if not
utilized. As of December 31, 1996, International Growth Portfolio, Capital
Growth Portfolio, Real Estate Growth Portfolio, Equity-Income Portfolio,
Balanced Portfolio, Swiss Franc Bond Portfolio and Money Market Portfolio had no
capital loss carryforwards.
Redemptions and exchanges are taxable events for any shareholder that
is subject to tax with respect to its investment in a Portfolio. Any loss
realized by a shareholder upon the redemption, exchange or other disposition of
shares with a tax holding period of six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain with respect to such shares. Losses on redemptions or
other dispositions of shares may be disallowed under "wash sale" rules in the
event of other investments in the same Portfolio (including those made pursuant
to reinvestment of dividends and/or capital gain distributions) within a period
of 61 days beginning 30 days before and ending 30 days after a redemption or
other disposition of shares. In such a case, the disallowed portion of any loss
would be included in the federal tax basis of the shares acquired in the other
investments.
Options written or purchased and futures contracts entered into by a
Portfolio on certain securities, indices and foreign currencies, as well as
certain foreign currency forward contracts, may cause the Portfolio to recognize
gains or losses from marking-to-market at the end of its taxable year even
though such options may not have lapsed, been closed out, or exercised or such
futures or forward contracts may not have been performed or closed out. The tax
rules applicable to these contracts may affect the characterization as long-term
or short-term of some capital gains and losses realized by the Portfolios.
Certain options, futures and forward contracts relating to foreign currency may
be subject to Section 988, as described above, and may accordingly produce
ordinary income or loss. Losses on certain options, futures or forward contracts
and/or offsetting positions (portfolio securities or other positions with
respect to which a Portfolio's risk of loss is substantially diminished by one
or more options, futures or forward contracts) may also be deferred under the
tax straddle rules of the Code, which may also affect the characterization of
capital gains or losses from straddle positions and certain successor positions
as long-term or short-term. Certain tax elections may be available that would
enable a Portfolio to ameliorate some adverse effects of the tax rules described
in this paragraph. The tax rules applicable to options, futures or forward
contracts and straddles may affect the amount, timing and character of a
Portfolio's income and losses and hence of its distributions to shareholders.
Each Portfolio that may invest in foreign countries may be subject to
withholding and other taxes imposed by foreign countries, including taxes on
interest, dividends and capital gain, with respect to its investments in those
countries. Tax conventions between certain countries and the U.S. may reduce or
eliminate such taxes in some cases. The Portfolios do not expect to pass through
to their shareholders their pro rata shares of qualified foreign taxes paid by
the Portfolios.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions, and certain prohibited transactions, is accorded to accounts held
by trustees of qualified pension or retirement plans. These shareholders should
consult their tax advisers for more information.
If, as anticipated, each Portfolio qualifies as a regulated investment
company under the Code, it will not be required to pay any Massachusetts income,
corporate excise or franchise taxes or any Delaware corporation income tax.
The description above relates solely to U.S. federal income tax law as
it applies to the Portfolios and to certain aspects of their distributions. It
does not address special tax rules applicable to certain classes of investors,
such as tax-exempt entities and insurance companies. Shareholders should consult
their own tax advisers on these matters and on state, local and other applicable
tax laws.
9. DESCRIPTION OF SHARES
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<PAGE>
The Trust's Agreement and Declaration of Trust permits the Board of
Trustees to authorize the issuance of an unlimited number of full and fractional
shares of beneficial interest (without par value) which may be divided into such
separate series as the Trustees may establish. Currently, the Trust consists of
ten Portfolios. The Trustees may establish additional portfolios of shares in
the future, and may divide or combine the shares into a greater or lesser number
of shares without thereby changing the proportionate beneficial interests. Each
share of a Portfolio represents an equal proportionate interest in the
Portfolio. The shares of each Portfolio participate equally in the earnings,
dividends and assets of the Portfolio, and are entitled to vote separately to
approve investment advisory agreements or changes in investment restrictions,
but shareholders of all Portfolios vote together in the election and selection
of Trustees and accountants. Upon liquidation of a Portfolio, the Portfolio's
shareholders are entitled to share pro rata in the Portfolio's net assets
available for distribution to shareholders.
Shareholders are entitled to one vote for each share held and may vote
in the election of Trustees and on other matters submitted to meetings of
shareholders. Although Trustees are not elected annually by the shareholders,
shareholders have, under certain circumstances, the right to remove one or more
Trustees. No amendment adversely affecting the rights of shareholders may be
made to the Trust's Agreement and Declaration of Trust without the affirmative
vote of a majority of its shares. Shares have no preemptive or conversion
rights. Shares are fully paid and non-assessable by the Trust, except as stated
below.
The rights, if any, of Variable Contract holders to vote the shares of
a Portfolio are governed by the relevant Variable Contract. For information on
such voting rights, see the prospectus describing such Variable Contract.
10. CERTAIN LIABILITIES
As a Delaware business trust, the Trust's operations are governed by
its Agreement and Declaration of Trust dated September 16, 1994, as amended
January 25, 1995. A copy of the Trust's Certificate of Trust, also dated
September 16, 1994, as amended February 3, 1995, is on file with the Office of
the Secretary of State of the State of Delaware. Generally, Delaware business
trust shareholders are not personally liable for obligations of a Delaware
business trust under Delaware law. The Delaware Business Trust Act (the
"Delaware Act") provides that a shareholder of a Delaware business trust shall
be entitled to the same limitation of liability extended to shareholders of
private for-profit corporations. The Trust's Agreement and Declaration of Trust
expressly provides that the Trust has been organized under the Delaware Act and
that the Agreement and Declaration of Trust is to be governed by Delaware law.
It is nevertheless possible that a Delaware business trust, such as the Trust,
might become a party to an action in another state whose courts refused to apply
Delaware law, in which case the Trust's shareholders could be subject to
personal liability.
To guard against this risk, the Agreement and Declaration of Trust (i)
contains an express disclaimer of shareholder liability for acts or obligations
of the Trust and provides that notice of such disclaimer may be given in each
agreement, obligation and instrument entered into or executed by the Trust or
its Trustees, (ii) provides for the indemnification out of Trust or Portfolio
property of any shareholders held personally liable for any obligations of the
Trust or of such Portfolio and (iii) provides that the Trust shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of the Trust and satisfy any judgment thereon. Thus, the risk
of a Trust shareholder incurring financial loss beyond his or her investment
because of shareholder liability with respect to a Portfolio is limited to
circumstances in which all of the following factors are present: (1) a court
refused to apply Delaware law; (2) the liability arose under tort law or, if
not, no contractual limitation of liability was in effect; and (3) the Portfolio
itself would be unable to meet its obligations. In the light of Delaware law,
the nature of the Trust's business and the nature of its assets, the risk of
personal liability to a Trust shareholder is remote.
The Agreement and Declaration of Trust further provides that the Trust
shall indemnify each of its Trustees and officers against liabilities and
expenses reasonably incurred by them, in connection with, or arising out of, any
action, suit or proceeding, threatened against or otherwise involving such
Trustee or officer, directly or indirectly, by reason of being or having been a
Trustee or officer of the Trust. The Agreement and Declaration of Trust does not
authorize the Trust or any Portfolio to indemnify any Trustee or officer against
any liability to which he or she would otherwise be subject by reason of or for
willful misfeasance, bad faith, gross negligence or reckless disregard of such
person's duties.
11. DETERMINATION OF NET ASSET VALUE
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<PAGE>
The net asset value per share of each Portfolio is determined as of the
close of regular trading (currently 4:00 p.m., Eastern Time) on each day on
which the New York Stock Exchange (the "Exchange") is open for trading. As of
the date of this Statement of Additional Information, the Exchange is open for
trading every weekday except for the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The net asset value per share of each
Portfolio is also determined on any other day in which the level of trading in
its portfolio securities is sufficiently high so that the current net asset
value per share might be materially affected by changes in the value of its
portfolio securities. No Portfolio is required to determine its net asset value
per share on any day in which no purchase orders for the shares of the Portfolio
become effective and no shares of the Portfolio are tendered for redemption.
The net asset value per share of each Portfolio is computed by taking
the value of all of the Portfolio's assets less the Portfolio's liabilities, and
dividing it by the number of outstanding shares of the Portfolio. For purposes
of determining net asset value, expenses of each Portfolio are accrued daily.
Money Market Portfolio
Except as set forth in the following paragraph, Money Market
Portfolio's investments are valued on each business day on the basis of
amortized cost, if the Board of Trustees determines in good faith that the
method approximates fair value. This technique involves valuing an instrument at
its cost and, thereafter, assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. While this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price such Portfolio would receive
if it sold the investment. During periods of declining interest rates, the yield
on shares of Money Market Portfolio computed as described below may tend to be
higher than a like computation made by a fund with identical investments
utilizing a method of valuation based upon market prices and estimates of market
prices for all of its portfolio investments. Thus, if the use of amortized cost
by Money Market Portfolio resulted in a lower aggregate portfolio value on a
particular day, a prospective investor in the Portfolio would be able to obtain
a somewhat higher yield than would result from investment in a fund utilizing
solely market values. The converse would apply in a period of rising interest
rates.
In determining Money Market Portfolio's net asset value, "when-issued"
securities will be valued at the value of the security at the time the
commitment to purchase is entered into.
The valuation of Money Market Portfolio's investments based upon their
amortized cost and the concomitant maintenance of the Portfolio's per share net
asset value of $1.00 is permitted in accordance with Rule 2a-7 under the 1940
Act, pursuant to which the Portfolio must adhere to certain conditions which are
described in detail in the Prospectus. Money Market Portfolio must maintain a
dollar-weighted average portfolio maturity of 90 days or less. The maturities of
variable rate demand instruments held by the Portfolio will be deemed to be the
longer of the demand period or the period remaining until the next interest rate
adjustment, although stated maturities may be in excess of one year. The
Trustees have established procedures designed to stabilize, to the extent
reasonably possible, the price per share of Money Market Portfolio for the
purpose of maintaining sales and redemptions at a single value. Such procedures
will include review of the Portfolio's holdings by the Trustees, at such
intervals as they may deem appropriate, to determine whether the Portfolio's net
asset value calculated by using available market quotations deviates from $1.00
per share and, if so, whether such deviation may result in material dilution or
is otherwise unfair to existing shareholders. In the event the Trustees
determine that such a deviation exists, they have agreed to take such corrective
action as they regard as necessary and appropriate, including: (i) the sale of
portfolio instruments prior to maturity to realize capital gains or losses or to
shorten average portfolio maturity; (ii) withholding dividends; (iii) redeeming
shares in kind; or (iv) establishing a net asset value per share by using
available market quotations. It is the intention of the Trust to maintain Money
Market Portfolio's per-share net asset value at $1.00 but there can be no
assurance of this.
32
<PAGE>
All Other Portfolios
Securities which have not traded on the date of valuation or securities
for which sales prices are not generally reported are valued at the mean between
the last bid and asked prices. Securities for which no market quotations are
readily available (including those the trading of which has been suspended) will
be valued at fair value as determined in good faith by the Trust's Board of
Trustees, although the actual computations may be made by persons acting
pursuant to the direction of the Board.
12. INVESTMENT RESULTS
Each Portfolio's average annual total return quotations and yield
quotations as they may appear in the Prospectus, this Statement of Additional
Information or in advertising are calculated by standard methods prescribed by
the SEC.
Quotations, Comparisons, and General Information
From time to time, in advertisements, in sales literature, or in
reports to shareholders, the past performance of a Portfolio may be illustrated
and/or compared with that of other mutual funds with similar investment
objectives, and to other relevant indices. In addition, the performance of a
Portfolio may be compared to alternative investment or savings vehicles and/or
to indices or indicators of economic activity, e.g., inflation or interest
rates. Performance rankings and listings reported in newspapers or national
business and financial publications, such as Barron's, Business Week, Consumers
Digest, Consumer Reports, Financial World, Forbes, Fortune, Investors Business
Daily, Kiplinger's Personal Finance Magazine, Money Magazine, New York Times,
Personal Investor, Smart Money, USA Today, U.S. News and World Report, The Wall
Street Journal, and Worth may also be cited (if the Portfolio is listed in such
publications) or used for comparisons, as well as performance listings and
rankings from various other sources including CDA/Weisenberger Investment
Companies Service, Donoghue's Mutual Fund Almanac, Investment Company Data,
Inc., Ibbotson Associates, Johnson's Charts, Kanon Block Carre and Co., Lipper
Analytical Services, Micropal, Inc., Morningstar, Inc., Schabacker Investment
Management and Towers Data Systems, Inc.
In addition, from time to time quotations from articles from financial
publications such as those listed above may be used in advertisements, in sales
literature or in reports to Trust shareholders.
One of the primary methods used to measure the performance of each
Portfolio is "total return." Total return will normally represent the percentage
change in value of an account, or of a hypothetical investment in a Portfolio,
over any period up to the lifetime of that Portfolio. Total return calculations
will usually assume the reinvestment of all dividends and capital gains
distributions and will be expressed as a percentage increase or decrease from an
initial value, for the entire period or for one or more specified periods within
the entire period. Total return percentages for periods of less than one year
will usually be annualized; total return percentages for periods longer than one
year will usually be accompanied by total return percentages for each year
within the period and/or by the average annual compounded total return for the
period. The income and capital components of a given return may be separated and
portrayed in a variety of ways in order to illustrate their relative
significance. Performance may also be portrayed in terms of cash or investment
values, without percentages. Past performance cannot guarantee any particular
future result.
33
<PAGE>
The Trust may also present, from time to time, historical information
depicting the value of a hypothetical account in a Portfolio since the
Portfolio's inception.
In presenting investment results, the Trust may also include references
to certain financial planning concepts, including (a) an investor's need to
evaluate his financial assets and obligations to determine how much to invest;
(b) his need to analyze the objectives of various investments to determine where
to invest; and (c) his need to analyze his time frame for future capital needs
to determine how long to invest. The investor controls these three factors, all
of which affect the use of investments in building assets.
Standardized Average Annual Total Return Quotations
Average annual total return quotations for shares of the Portfolios are
computed by finding the average annual compounded rates of return that would
cause a hypothetical investment made on the first day of a designated period
(assuming all dividends and distributions are reinvested) to equal the ending
redeemable value of such hypothetical investment on the last day of the
designated period in accordance with the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1000
initial payment made at the
beginning of the designated period (or fractional
portion thereof)
For purposes of the above computation, it is assumed that all dividends and
distributions made by a Portfolio are reinvested at net asset value during the
designated period. The average annual total return quotation is determined to
the nearest 1/100 of 1%.
In determining the average annual total return (calculated as provided
above), recurring fees, if any, that are charged to all shareholder accounts are
taken into consideration. For any account fees that vary with the size of the
account, the account fee used for purposes of the above computation is assumed
to be the fee that would be charged to the mean account size.
34
<PAGE>
Standardized Yield Quotations
The yield of a Portfolio is computed by dividing the Portfolio's net
investment income per share during a base period of 30 days, or one month, by
the maximum offering price per share of the Portfolio on the last day of such
base period in accordance with the following formula:
a-b
YIELD = 2[ ( ------ +1)6-1]
cd
Where: a = interest earned during the period
b = net expenses accrued for the period
c = the average daily number of shares outstanding during the
period that were entitled
to receive dividends
d = the maximum offering price per share on the last day of
the period
For purposes of calculating interest earned on debt obligations as provided in
item "a" above:
(i) The yield to maturity of each obligation held by the
Portfolio is computed based on the market value of the obligation (including
actual accrued interest, if any) at the close of business each day during the
30-day base period, or, with respect to obligations purchased during the month,
the purchase price (plus actual accrued interest, if any) on settlement date,
and with respect to obligations sold during the month the sale price (plus
actual accrued interest, if any) between the trade and settlement dates.
(ii) The yield to maturity of each obligation is then divided
by 360 and the resulting quotient is multiplied by the market value of the
obligation (including actual accrued interest, if any) to determine the interest
income on the obligation for each day. The yield to maturity calculation has
been made on each obligation during the 30-day base period.
(iii) Interest earned on all debt obligations during
the 30-day or one month period is then totaled.
(iv) The maturity of an obligation with a call provision(s) is
the next call date on which the obligation reasonably may be expected to be
called or, if none, the maturity date.
With respect to the treatment of discount and premium on mortgage or
other receivables-backed obligations which are expected to be subject to monthly
payments of principal and interest ("pay downs"), each Portfolio accounts for
gain or loss attributable to actual monthly pay downs as an increase or decrease
to interest income during the period. In addition, a Portfolio may elect (i) to
amortize the discount or premium on a remaining security, based on the cost of
the security, to the weighted average maturity date, if such information is
available, or to the remaining term of the security, if the weighted average
maturity date is not available, or (ii) not to amortize the discount or premium
on a remaining security.
For purposes of computing a Portfolio's yield, interest income is
recognized by accruing 1/360 of the stated interest rate of each obligation held
by the Portfolio each day that the obligation is held by the Portfolio.
35
<PAGE>
Yield Quotations for Money Market Portfolio
Money Market Portfolio's yield quotations are computed as follows: the
net change, exclusive of capital changes (i.e., realized gains and losses from
the sale of securities and unrealized appreciation and depreciation), in the
value of a hypothetical pre-existing account having a balance of one share of
the Portfolio at the beginning of the seven-day base period is determined by
subtracting a hypothetical charge reflecting expense deductions from the
hypothetical account, and dividing the net change in value by the value of the
share at the beginning of the base period. This base period return is then
multiplied by 365/7 with the resulting yield figure carried to the nearest 100th
of 1%. The determination of net change in account value reflects the value of
additional shares purchased with dividends from the original share, dividends
declared on both the original share and any such additional shares, and all fees
that are charged to the Portfolio, in proportion to the length of the base
period and the Portfolio's average account size (with respect to any fees that
vary with the size of an account).
Money Market Portfolio may also advertise quotations of effective
yield. Effective yield is computed by compounding the unannualized base period
return determined as in the preceding paragraph by adding 1 to the base period
return, raising the sum to a power equal to 365 divided by 7, and subtracting
one from the result, according to the following formula:
Effective Yield = (base period return +1) 365/7 - 1
The Portfolios' average annual total returns for the year ended
December 31, 1996 and for the periods from commencement of operations to
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Average Annual Total Return (%)
<S> <C> <C> <C> <C> <C>
One Year Five Years Ten Years Commencement
International Growth 10.24 N/A N/A 8.54*
Capital Growth 17.59 N/A N/A 15.03*
Real Estate Growth 35.73 N/A N/A 28.55*
Equity-Income 21.18 N/A N/A 21.18*
Balanced 14.26 N/A N/A 19.16*
America Income 1.30 N/A N/A 3.77*
Swiss Franc Bond -10.88 N/A N/A -9.06**
* Commencement of operations, March 1, 1995.
** Commencement of operations, November 1, 1995.
</TABLE>
13. FINANCIAL STATEMENTS
The Trust's financial statements for the fiscal period ended December
31, 1996 are included in the Trust's Annual Report to Shareholders, which report
is incorporated by reference into and is attached to this Statement of
Additional Information. The Trust's Annual Report to Shareholders is so
incorporated and attached in reliance upon the report of Arthur Andersen LLP,
independent public accountants, as experts in accounting and auditing. A copy of
the Trust's Annual Report may be obtained without charge by calling your
insurance company.
36
<PAGE>
Investment Illustrations
to 12/31/96
Note: Illustrations show the value of units held based on $10,000 total value
at investment date, but do not account for additional costs of investing.
Pioneer Vision International Growth AUV
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Date Initial Investment Unit Value Units Purchased Intitial Total Value
3/1/95 $10,000.00 $ 1.002063 9,979.412 $10,000
Date Cumulative Unit Value Units Held Total Value Guaranteed Minimum
Investment Death Benefit
12/31/95 $10,000.00 $ 1.093958 9,979.412 $10,917.06 $10,000.00
12/31/96 10,000.00 1.170756 9,979.412 11,683.46 10,000.00
</TABLE>
37
<PAGE>
Investment Illustrations
to 12/31/96
Note: Illustrations show the value of units held based on $10,000 total value
at investment date, but do not account for additional costs of investing.
Pioneer Vision Capital Growth AUV
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Date Initial Investment Unit Value Units Purchased Intitial Total Value
3/1/95 $10,000.00 $ 1.000038 9,999.620 $10,000
Date Cumulative Unit Value Units Held Total Value Guaranteed Minimum
Investment Death Benefit
12/31/95 $10,000.00 $ 1.158080 9,999.620 $11,580.36 $10,000.00
12/31/96 10,000.00 1.313525 9,999.620 13,134.75 10,000.00
38
<PAGE>
Investment Illustrations
to 12/31/96
Note: Illustrations show the value of units held based on $10,000 total value at investment date, but do not account for
additional costs of investing.
Pioneer Vision Real Estate Growth AUV
<S> <C> <C> <C> <C> <C>
Date Initial Investment Unit Value Units Purchased Intitial Total Value
3/1/95 $10,000.00 $ 1.000227 9,997.731 $10,000
Date Cumulative Unit Value Units Held Total Value Guaranteed Minimum
Investment Death Benefit
12/31/95 $10,000.00 $ 1.156319 9,997.731 $11,560.57 $10,000.00
12/31/96 10,000.00 1.547672 9,997.731 15,473.21 10,000.00
39
<PAGE>
Investment Illustrations
to 12/31/96
Note: Illustrations show the value of units held based on $10,000 total value at investment date, but do not account for
additional costs of investing.
Pioneer Vision Equity Income AUV
<S> <C> <C> <C> <C> <C>
Date Initial Investment Unit Value Units Purchased Intitial Total Value
3/1/95 $10,000.00 $ 1.000037 9,999.630 $10,000
Date Cumulative Unit Value Units Held Total Value Guaranteed Minimum Death
Investment Benefit
12/31/95 $10,000.00 $ 1.222215 9,999.630 $12,221.70 $10,000.00
12/31/96 10,000.00 1.388129 9,999.630 13,880.78 10,000.00
40
<PAGE>
Investment Illustrations
to 12/31/96
Note: Illustrations show the value of units held based on $10,000 total value at investment date, but do not account for
additional costs of investing.
Pioneer Vision Balanced AUV
<S> <C> <C> <C> <C> <C>
Date Initial Investment Unit Value Units Purchased Intitial Total Value
3/1/95 $10,000.00 $ 0.975073 10,255.642 $10,000
Date Cumulative Unit Value Units Held Total Value Guaranteed Minimum Death
Investment Benefit
12/31/95 $10,000.00 $ 1.164800 10,255.642 $11,945.77 $10,000.00
12/31/96 10,000.00 1.312218 10,255.642 13,457.64 10,000.00
41
<PAGE>
Investment Illustrations
to 12/31/96
Note: Illustrations show the value of units held based on $10,000 total value at investment date, but do not account for
additional costs of investing.
Pioneer Vision Swiss Franc AUV
<S> <C> <C> <C> <C> <C>
Date Initial Investment Unit Value Units Purchased Intitial Total Value
11/1/95 $10,000.00 $ 1.000000 10,000.000 $10,000
Date Cumulative Unit Value Units Held Total Value Guaranteed Minimum
Investment Death Benefit
12/31/95 $10,000.00 $ 1.001476 10,000.000 $10,014.76 $10,000.00
12/31/96 10,000.00 0.880598 10,000.000 8,805.98 10,000.00
42
<PAGE>
Investment Illustrations
to 12/31/96
Note: Illustrations show the value of units held based on $10,000 total value at investment date, but do not account for
additional costs of investing.
Pioneer Vision America Income AUV
<S> <C> <C> <C> <C> <C>
Date Initial Investment Unit Value Units Purchased Intitial Total Value
3/1/95 $10,000.00 $ 0.996465 10,035.475 $10,000
Date Cumulative Unit Value Units Held Total Value Guaranteed Minimum
Investment Death Benefit
12/31/95 $10,000.00 $ 1.043081 10,035.475 $10,467.81 $10,000.00
12/31/96 10,000.00 1.041725 10,035.475 10,454.21 10,000.00
43
<PAGE>
Investment Illustrations
to 12/31/96
Note: Illustrations show the value of units held based on $10,000 total value at investment date, but do not account for
additional costs of investing.
Pioneer Vision Money Market AUV
<S> <C> <C> <C> <C> <C>
Date Initial Investment Unit Value Units Purchased Intitial Total Value
3/1/95 $10,000.00 $ 1.000076 9,999.240 $10,000
Date Cumulative Unit Value Units Held Total Value Guaranteed Minimum Death
Investment Benefit
12/31/95 $10,000.00 $ 1.031243 9,999.240 $10,311.65 $10,000.00
12/31/96 10,000.00 1.062621 9,999.240 10,625.40 10,000.00
</TABLE>
44
<PAGE>
APPENDIX A
MOODY'S CORPORATE BOND RATINGS
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be greater amplitude or there may be other elements present which make the
long term risks appear somewhat larger than in Aaa securities.
A
Bonds which are rated A posses many favorable investment attributes are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
other good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
45
<PAGE>
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicated that the security ranks in the higher end of its generic
rating category; the modifier 2 indicated a mid-range ranking and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
46
<PAGE>
STANDARD AND POOR'S RATINGS GROUP CORPORATE BOND RATINGS
AAA
Debt rated AAA has the highest rating assigned by Standard and Poor's. Capacity
to pay interest and repay principal is extremely strong.
AA
Debt rated AA has a very strong capacity to pay interest and repay principal and
differs from the higher rated issues only in small degree.
A
Debt rated A has a strong capacity to pay interest and repay principal although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB
Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions of changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB
Debt rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB-rating.
B
Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
47
<PAGE>
CCC
Debt rated CCC has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC
The rating CC is typically applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating.
C
The C rating is typically applied to debt subordinated to senior debt which is
assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI
The rating CI is reserved for income bonds on which no interest is being paid.
D
Debt rated D is in payment default. The D rating category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-)
The rating from AAA to CCC may be modified by the addition of a plus or minus
sign to show relative standing within the major categories.
48
<PAGE>
APPENDIX B
COMPARATIVE PERFORMANCE
INDEX DESCRIPTIONS
The following securities indices are well-known, unmanaged measures of market
performance. Advertisements and sales literature for the Fund may refer to these
indices or may present comparisons between the performance of the Fund and one
or more of the indices. Other indices may be used, if appropriate. The indices
are not available for direct investment. The data presented is not meant to be
indicative of the performance of the Fund, reflects past performance and does
not guarantee future results.
S&P 500
This index is a readily available, carefully constructed, market value weighted
benchmark of common stock performance. Currently, the S&P Composite Index
includes 500 of the largest stocks (in terms of stock market value) in the
United States; prior to March 1957 it consisted of 90 of the largest stocks.
DOW JONES INDUSTRIAL AVERAGE
This is a total return index based on the performance of 30 blue chip stocks.
U.S. SMALL STOCK INDEX
This index is a market value weighted index of the ninth and tenth deciles of
the New York Stock Exchange (NYSE), plus stocks listed on the American Stock
Exchange (AMEX) and over-the-counter (OTC) with the same or less capitalization
as the upper bound of the NYSE ninth decile.
U.S. INFLATION
The Consumer Price Index for All Urban Consumers (CPI-U), not seasonally
adjusted, is used to measure inflation, which is the rate of change of consumer
goods prices. Unfortunately, the inflation rate as derived by the CPI is not
measured over the same period as the other asset returns. All of the security
returns are measured from one month-end to the next month-end. CPI commodity
prices are collected during the month. Thus, measured inflation rates lag the
other series by about one-half month. Prior to January 1978, the CPI (as
compared with CPI-U) was used. Both inflation measures are constructed by the
U.S. Department of Labor, Bureau of Labor Statistics, Washington, DC.
S&P/BARRA INDEXES
The S&P/BARRA Growth and Value Indexes are constructed by dividing the stocks in
the S&P 500 Index according to price-to-book ratios. The Growth Index contains
stocks with higher price-to-book ratios, and the Value Index contains stocks
with lower price-to-book ratios. Both indexes are market capitalization
weighted.
-49-
<PAGE>
COMPARATIVE PERFORMANCE
INDEX DESCRIPTIONS
LONG-TERM U.S. GOVERNMENT BONDS
The total returns on long-term government bonds from 1977 to 1991 are
constructed with data from The Wall Street Journal. Over 1926-1976, data are
obtained from the Government bond file at the Center for Research in Security
Prices (CRSP), Graduate School of Business, University of Chicago. Each year, a
one-bond portfolio with a term of approximately 20 years and a reasonably
current coupon was used, and whose returns did not reflect potential tax
benefits, impaired negotiability, or special redemption or call privileges.
Where callable bonds had to be used, the term of the bond was assumed to be a
simple average of the maturity and first call dates minus the current date. The
bond was "held" for the calendar year and returns were computed. Total returns
for 1977-1991 are calculated as the change in the flat price or and-interest
price.
INTERMEDIATE-TERM U.S. GOVERNMENT BONDS
Total returns of the intermediate-term government bonds for 1977-1991 are
calculated from The Wall Street Journal prices, using the change in flat price.
Returns from 1934-1986 are obtained from the CRSP Government Bond File.
Each year, one-bond portfolios are formed, the bond chosen is the shortest
noncallable bond with a maturity not less than 5 years, and this bond is "held"
for the calendar year. Monthly returns are computed. (Bonds with impaired
negotiability or special redemption privileges are omitted, as are partially or
fully tax-exempt bonds starting with 1943.) From 1934-1942, almost all bonds
with maturities near 5 years were partially or full tax-exempt and were selected
using the rules described above. Personal tax rates were generally low in that
period, so that yields on tax-exempt bonds were similar to yields on taxable
bonds. From 1926-1933, there are few bonds suitable for construction of a series
with a 5-year maturity. For this period, five year bond yield estimates are
used.
MSCI
Morgan Stanley Capital International Indices, developed by the Capital
International S.A., are based on share prices of some 1470 companies listed on
the stock exchanges around the world.
Countries in the MSCI EAFE Portfolio are:
Australia; Austria; Belgium; Denmark; Finland; France; Germany; Hong Kong;
Italy; Japan; Netherlands; N. Zealand; Norway; Singapore/Malaysia; Spain;
Sweden; Switzerland; United Kingdom.
Countries in the MSCI EMERGING MARKET FREE INDEX are: Argentina, Brazil, Chile,
China, Czech Republic, Colombia, Greece, Hungary, India, Indonesia, Israel,
Jordan, Korea Free (at 50%), Malaysia, Mexico Free, Pakistan, Peru, Philippines
Free, Poland, Portugal, South Africa, Sri Lanka, Taiwan, Thailand, Turkey,
Venezuela Free
-50-
<PAGE>
COMPARATIVE PERFORMANCE
INDEX DESCRIPTIONS
6 MONTH CDs
Data sources include the Federal Reserve Bulletin and The Wall Street Journal.
LONG-TERM U.S. CORPORATE BONDS
For 1969-1991, corporate bond total returns are represented by the Salomon
Brothers Long-Term High-Grade Corporate Bond Index. Since most large corporate
bond transactions take place over the counter, a major dealer is the natural
source of these data. The index includes nearly all Aaa- and Aa-rated bonds. If
a bond is downgraded during a particular month, its return for the month is
included in the index before removing the bond from future portfolios.
Over 1926-1968 the total returns were calculated by summing the capital
appreciation returns and the income returns. For the period 1946-1968, Ibbotson
and Sinquefield backdated the Salomon Brothers' index, using Salomon Brothers'
monthly yield data with a methodology similar to that used by Salomon for
1969-1991. Capital appreciation returns were calculated from yields assuming (at
the beginning of each monthly holding period) a 20-year maturity, a bond price
equal to par, and a coupon equal to the beginning-of-period yield. For the
period 1926-1945, the Standard and Poor's monthly High-Grade Corporate Composite
yield data were used, assuming a 4 percent coupon and a 20-year maturity. The
conventional present-value formula for bond price for the beginning and
end-of-month prices was used. (This formula is presented in Ross, Stephen A.,
and Randolph W. Westerfield, Corporate Finance, Times Mirror/Mosby, St. Louis,
1990, p. 97 ["Level-Coupon Bonds"].) The monthly income return was assumed to be
one-twelfth the coupon.
U.S. (30 DAY) TREASURY BILLS
For the U.S. Treasury bill index, data from The Wall Street Journal are used for
1977-1991; the CRSP U.S. Government Bond File is the source until 1976. Each
month a one-bill portfolio containing the shortest-term bill having not less
than one month to maturity is constructed. (The bill's original term to maturity
is not relevant.) To measure holding period returns for the one-bill portfolio,
the bill is priced as of the last trading day of the previous month-end and as
of the last trading day of the current month.
NAREIT-EQUITY INDEX
All of the data is based upon the last closing price of the month for all
tax-qualified REITs listed on the NYSE, AMSE and the NASDAQ. The data is
market-value-weighted. Prior to 1987 REITs were added to the index the January
following their listing. Since 1987 Newly formed or listed REITs are added to
the total shares outstanding figure in the month that the shares are issued.
Only common shares issued by the REIT are included in the index. The total
return calculation is based upon the weighing at the beginning of the period.
Only those REITs listed for the entire period are
-51-
<PAGE>
COMPARATIVE PERFORMANCE
INDEX DESCRIPTIONS
used in the total return calculation. Dividends are included in the month based
upon their payment date. There is no smoothing of income. Liquidating dividends,
whether full or partial, are treated as income.
RUSSELL 2000 SMALL STOCK INDEX
Index of the 2,000 smallest stocks in the Russell 3000 Index (TM); the smallest
company has a market capitalization of approximately $13 million. The Russell
3000 is comprised of the 3,000 largest US companies as determined by market
capitalization representing approximately 98% of the US equity market. The
largest company in the index has a market capitalization of $67 billion. The
Russell Indexes (TM) are reconstituted annually as of June 1st, based on May 31
market capitalization rankings.
WILSHIRE REAL ESTATE SECURITIES INDEX
The Wilshire Real Estate Securities Index is a market capitalization-weighted
index which measures the performance of more than 85 securities.
The index contains performance data on five major categories of property;
office, retail, industrial, apartment and miscellaneous. Additionally, the Index
has real estate portfolio encumbered by 16% third party mortgages. The companies
in the WRESEC are 79% equity and hybrid REIT's and 21% real estate operating
companies. The capitalization is 47% NYSE, 33% AMEX and 20% OTC."
STANDARD & POOR'S MIDCAP 400 INDEX
The Standard and Poor's MidCap 400 Index is a market-value-weighted index. The
performance data for the MidCap 400 Index were calculated by taking the stocks
presently in the MidCap 400 Index and tracking them backwards in time as long as
there were prices reported. No attempt was made to determine what stocks "might
have been" in the MidCap 400 Index five or ten years ago had it existed.
Dividends are reinvested on a monthly basis prior to June 30, 1991, and are
reinvested daily thereafter.
The S&P MidCap 400 Index and the S&P 500 together represent approximately 85% of
the total market capitalization of stocks traded in the United States.
LIPPER BALANCED FUNDS INDEX
Equally-weighted performance indices, adjusted for capital gains distributions
and income dividends of approximately 30 of the largest funds with a primary
objective of conserving principal by maintaining at all times a balanced
portfolio of stocks and bonds. Typically, the stock/bond ratio ranges around
60%/40%.
-52-
<PAGE>
COMPARATIVE PERFORMANCE
INDEX DESCRIPTIONS
BANK SAVINGS ACCOUNT
Data sources include the U.S. League of Savings Institutions Sourcebook; average
annual yield on savings deposits in FSLIC [FDIC] insured savings institutions
for the years 1963-1987 and The Wall Street Journal for the years 1988-1994.
Source: Ibbotson Associates
-53-
<PAGE>
PERFORMANCE STATISTICS - TOTAL RETURN PERCENT
S&P 500 Dow U.S. Small S&P/ S&P/
Jones Stock U.S. BARRA BARRA
Industrials Index Inflation Growth Value
- --------------------------------------------------------------------------------
Dec 1928 43.61 55.38 39.69 -0.97 N/A N/A
Dec 1929 -8.42 -13.64 -51.36 0.20 N/A N/A
Dec 1930 -24.90 -30.22 -38.15 -6.03 N/A N/A
Dec 1931 -43.34 -49.03 -49.75 -9.52 N/A N/A
Dec 1932 -8.19 -16.88 -5.39 -10.30 N/A N/A
Dec 1933 53.99 73.71 142.87 0.51 N/A N/A
Dec 1934 -1.44 8.07 24.22 2.03 N/A N/A
Dec 1935 47.67 43.77 40.19 2.99 N/A N/A
Dec 1936 33.92 30.23 64.80 1.21 N/A N/A
Dec 1937 -35.03 -28.88 -58.01 3.10 N/A N/A
Dec 1938 31.12 33.16 32.80 -2.78 N/A N/A
Dec 1939 -0.41 1.31 0.35 -0.48 N/A N/A
Dec 1940 -9.78 -7.96 -5.16 0.96 N/A N/A
Dec 1941 -11.59 -9.88 -9.00 9.72 N/A N/A
Dec 1942 20.34 14.12 44.51 9.29 N/A N/A
Dec 1943 25.90 19.06 88.37 3.16 N/A N/A
Dec 1944 19.75 17.19 53.72 2.11 N/A N/A
Dec 1945 36.44 31.60 73.61 2.25 N/A N/A
Dec 1946 -8.07 -4.40 -11.63 18.16 N/A N/A
Dec 1947 5.71 7.61 0.92 9.01 N/A N/A
Dec 1948 5.50 4.27 -2.11 2.71 N/A N/A
Dec 1949 18.79 20.92 19.75 -1.80 N/A N/A
Dec 1950 31.71 26.40 38.75 5.79 N/A N/A
Dec 1951 24.02 21.77 7.80 5.87 N/A N/A
Dec 1952 18.37 14.58 3.03 0.88 N/A N/A
Dec 1953 -0.99 2.02 -6.49 0.62 N/A N/A
Dec 1954 52.62 51.25 60.58 -0.50 N/A N/A
Dec 1955 31.56 26.58 20.44 0.37 N/A N/A
Dec 1956 6.56 7.10 4.28 2.86 N/A N/A
Dec 1957 -10.78 -8.63 -14.57 3.02 N/A N/A
Dec 1958 43.36 39.31 64.89 1.76 N/A N/A
Dec 1959 11.96 20.21 16.40 1.50 N/A N/A
Dec 1960 0.47 -6.14 -3.29 1.48 N/A N/A
Dec 1961 26.89 22.60 32.09 0.67 N/A N/A
Dec 1962 -8.73 -7.43 -11.90 1.22 N/A N/A
Dec 1963 22.80 20.83 23.57 1.65 N/A N/A
Dec 1964 16.48 18.85 23.52 1.19 N/A N/A
Dec 1965 12.45 14.39 41.75 1.92 N/A N/A
Dec 1966 -10.06 -15.78 -7.01 3.35 N/A N/A
Dec 1967 23.98 19.16 83.57 3.04 N/A N/A
Dec 1968 11.06 7.93 35.97 4.72 N/A N/A
-54-
<PAGE>
PERFORMANCE STATISTICS - TOTAL RETURN PERCENT
S&P 500 Dow U.S. Small S&P/ S&P/
Jones Stock U.S. BARRA BARRA
Industrials Index Inflation Growth Value
- --------------------------------------------------------------------------------
Dec 1969 -8.50 -11.78 -25.05 6.11 N/A N/A
Dec 1970 4.01 9.21 -17.43 5.49 N/A N/A
Dec 1971 14.31 9.83 16.50 3.36 N/A N/A
Dec 1972 18.98 18.48 4.43 3.41 N/A N/A
Dec 1973 -14.66 -13.28 -30.90 8.80 N/A N/A
Dec 1974 -26.47 -23.58 -19.95 12.20 N/A N/A
Dec 1975 37.20 44.75 52.82 7.01 31.72 43.38
Dec 1976 23.84 22.82 57.38 4.81 13.84 34.93
Dec 1977 -7.18 -12.84 25.38 6.77 -11.82 -2.57
Dec 1978 6.56 2.79 23.46 9.03 6.78 6.16
Dec 1979 18.44 10.55 43.46 13.31 15.72 21.16
Dec 1980 32.42 22.17 39.88 12.40 39.40 23.59
Dec 1981 -4.91 -3.57 13.88 8.94 -9.81 0.02
Dec 1982 21.41 27.11 28.01 3.87 22.03 21.04
Dec 1983 22.51 25.97 39.67 3.80 16.24 28.89
Dec 1984 6.27 1.31 -6.67 3.95 2.33 10.52
Dec 1985 32.16 33.55 24.66 3.77 33.31 29.68
Dec 1986 18.47 27.10 6.85 1.13 14.50 21.67
Dec 1987 5.23 5.48 -9.30 4.41 6.50 3.68
Dec 1988 16.81 16.14 22.87 4.42 11.95 21.67
Dec 1989 31.49 32.19 10.18 4.65 36.40 26.13
Dec 1990 -3.17 -0.56 -21.56 6.11 0.20 -6.85
Dec 1991 30.55 24.19 44.63 3.06 38.37 22.56
Dec 1992 7.67 7.41 23.35 2.90 5.07 10.53
Dec 1993 9.99 16.94 20.98 2.75 1.68 18.60
Dec 1994 1.31 5.06 3.11 2.78 3.13 -0.64
Dec 1995 37.43 36.84 34.46 2.74 38.13 36.99
Dec 1996 23.07 28.84 17.62 3.58 23.96 21.99
-55-
<PAGE>
PERFORMANCE STATISTICS - TOTAL RETURN PERCENT
Intermediate MSCI Long-
Long-Term -Term U.S. EAFE 6 Term U.S. U.S.
U.S. Gov't Government - Net of MONTH Corporate (30 Day)
Bonds Bonds Taxes CDs Bonds T- Bill
- --------------------------------------------------------------------------------
Dec 1925 N/A N/A N/A N/A N/A N/A
Dec 1926 7.77 5.38 N/A N/A 7.37 3.27
Dec 1927 8.93 4.52 N/A N/A 7.44 3.12
Dec 1928 0.1 0.92 N/A N/A 2.84 3.56
Dec 1929 3.42 6.01 N/A N/A 3.27 4.75
Dec 1930 4.66 6.72 N/A N/A 7.98 2.41
Dec 1931 -5.31 -2.32 N/A N/A -1.85 1.07
Dec 1932 16.84 8.81 N/A N/A 10.82 0.96
Dec 1933 -0.07 1.83 N/A N/A 10.38 0.30
Dec 1934 10.03 9.00 N/A N/A 13.84 0.16
Dec 1935 4.98 7.01 N/A N/A 9.61 0.17
Dec 1936 7.52 3.06 N/A N/A 6.74 0.18
Dec 1937 0.23 1.56 N/A N/A 2.75 0.31
Dec 1938 5.53 6.23 N/A N/A 6.13 -0.02
Dec 1939 5.94 4.52 N/A N/A 3.97 0.02
Dec 1940 6.09 2.96 N/A N/A 3.39 0.00
Dec 1941 0.93 0.50 N/A N/A 2.73 0.06
Dec 1942 3.22 1.94 N/A N/A 2.60 0.27
Dec 1943 2.08 2.81 N/A N/A 2.83 0.35
Dec 1944 2.81 1.80 N/A N/A 4.73 0.33
Dec 1945 10.73 2.22 N/A N/A 4.08 0.33
Dec 1946 -0.10 1.00 N/A N/A 1.72 0.35
Dec 1947 -2.62 0.91 N/A N/A -2.34 0.50
Dec 1948 3.40 1.85 N/A N/A 4.14 0.81
Dec 1949 6.45 2.32 N/A N/A 3.31 1.10
Dec 1950 0.06 0.70 N/A N/A 2.12 1.20
Dec 1951 -3.93 0.36 N/A N/A -2.69 1.49
Dec 1952 1.16 1.63 N/A N/A 3.52 1.66
Dec 1953 3.64 3.23 N/A N/A 3.41 1.82
Dec 1954 7.19 2.68 N/A N/A 5.39 0.86
Dec 1955 -1.29 -0.65 N/A N/A 0.48 1.57
Dec 1956 -5.59 -0.42 N/A N/A -6.81 2.46
Dec 1957 7.46 7.84 N/A N/A 8.71 3.14
Dec 1958 -6.09 -1.29 N/A N/A -2.22 1.54
Dec 1959 -2.26 -0.39 N/A N/A -0.97 2.95
Dec 1960 13.78 11.76 N/A N/A 9.07 2.66
Dec 1961 0.97 1.85 N/A N/A 4.82 2.13
Dec 1962 6.89 5.56 N/A N/A 7.95 2.73
Dec 1963 1.21 1.64 N/A N/A 2.19 3.12
Dec 1964 3.51 4.04 N/A 4.18 4.77 3.54
Dec 1965 0.71 1.02 N/A 4.68 -0.46 3.93
-56-
<PAGE>
PERFORMANCE STATISTICS - TOTAL RETURN PERCENT
Intermediate MSCI Long-
Long-Term -Term U.S. EAFE 6 Term U.S. U.S.
U.S. Gov't Government - Net of MONTH Corporate (30 Day)
Bonds Bonds Taxes CDs Bonds T- Bill
- --------------------------------------------------------------------------------
Dec 1966 3.65 4.69 N/A 5.75 0.20 4.76
Dec 1967 -9.18 1.01 N/A 5.48 -4.95 4.21
Dec 1968 -0.26 4.54 N/A 6.44 2.57 5.21
Dec 1969 -5.07 -0.74 N/A 8.71 -8.09 6.58
Dec 1970 12.11 16.86 -11.66 7.06 18.37 6.52
Dec 1971 13.23 8.72 29.59 5.36 11.01 4.39
Dec 1972 5.69 5.16 36.35 5.38 7.26 3.84
Dec 1973 -1.11 4.61 -14.92 8.60 1.14 6.93
Dec 1974 4.35 5.69 -23.16 10.20 -3.06 8.00
Dec 1975 9.20 7.83 35.39 6.51 14.64 5.80
Dec 1976 16.75 12.87 2.54 5.22 18.65 5.08
Dec 1977 -0.69 1.41 18.06 6.12 1.71 5.12
Dec 1978 -1.18 3.49 32.62 10.21 -0.07 7.18
Dec 1979 -1.23 4.09 4.75 11.90 -4.18 10.38
Dec 1980 -3.95 3.91 22.58 12.33 -2.76 11.24
Dec 1981 1.86 9.45 -2.28 15.50 -1.24 14.71
Dec 1982 40.36 29.1 -1.86 12.18 42.56 10.54
Dec 1983 0.65 7.41 23.69 9.65 6.26 8.80
Dec 1984 15.48 14.02 7.38 10.65 16.86 9.85
Dec 1985 30.97 20.33 56.16 7.82 30.09 7.72
Dec 1986 24.53 15.14 69.44 6.30 19.85 6.16
Dec 1987 -2.71 2.90 24.63 6.58 -0.27 5.47
Dec 1988 9.67 6.10 28.27 8.15 10.70 6.35
Dec 1989 18.11 13.29 10.54 8.27 16.23 8.37
Dec 1990 6.18 9.73 -23.45 7.85 6.78 7.81
Dec 1991 19.3 15.46 12.13 4.95 19.89 5.60
Dec 1992 8.05 7.19 -12.17 3.27 9.39 3.51
Dec 1993 18.24 11.24 32.56 2.88 13.19 2.90
Dec 1994 -7.77 -5.14 7.78 5.40 -5.76 3.90
Dec 1995 31.67 16.8 11.21 5.21 26.39 5.60
Dec 1996 -0.93 2.10 6.05 5.21 1.40 5.21
-57-
<PAGE>
PERFORMANCE STATISTICS - TOTAL RETURN PERCENT
<TABLE>
<CAPTION>
RUSSELL LIPPER MSCI EMERGING
2000 WILSHIRE REAL S&P MIDCAP BALANCED MARKETS FREE BANK
NAREIT-EQUITY INDEX ESTATE 400 FUND INDEX SAVINGS ACCOUNT
SECURITIES INDEX INDEX
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dec 1925 N/A N/A N/A N/A N/A N/A N/A
Dec 1926 N/A N/A N/A N/A N/A N/A N/A
Dec 1927 N/A N/A N/A N/A N/A N/A N/A
Dec 1928 N/A N/A N/A N/A N/A N/A N/A
Dec 1929 N/A N/A N/A N/A N/A N/A N/A
Dec 1930 N/A N/A N/A N/A N/A N/A 5.30
Dec 1931 N/A N/A N/A N/A N/A N/A 5.10
Dec 1932 N/A N/A N/A N/A N/A N/A 4.10
Dec 1933 N/A N/A N/A N/A N/A N/A 3.40
Dec 1934 N/A N/A N/A N/A N/A N/A 3.50
Dec 1935 N/A N/A N/A N/A N/A N/A 3.10
Dec 1936 N/A N/A N/A N/A N/A N/A 3.20
Dec 1937 N/A N/A N/A N/A N/A N/A 3.50
Dec 1938 N/A N/A N/A N/A N/A N/A 3.50
Dec 1939 N/A N/A N/A N/A N/A N/A 3.40
Dec 1940 N/A N/A N/A N/A N/A N/A 3.30
Dec 1941 N/A N/A N/A N/A N/A N/A 3.10
Dec 1942 N/A N/A N/A N/A N/A N/A 3.00
Dec 1943 N/A N/A N/A N/A N/A N/A 2.90
Dec 1944 N/A N/A N/A N/A N/A N/A 2.80
Dec 1945 N/A N/A N/A N/A N/A N/A 2.50
Dec 1946 N/A N/A N/A N/A N/A N/A 2.20
Dec 1947 N/A N/A N/A N/A N/A N/A 2.30
Dec 1948 N/A N/A N/A N/A N/A N/A 2.30
Dec 1949 N/A N/A N/A N/A N/A N/A 2.40
Dec 1950 N/A N/A N/A N/A N/A N/A 2.50
Dec 1951 N/A N/A N/A N/A N/A N/A 2.60
Dec 1952 N/A N/A N/A N/A N/A N/A 2.70
Dec 1953 N/A N/A N/A N/A N/A N/A 2.80
Dec 1954 N/A N/A N/A N/A N/A N/A 2.90
Dec 1955 N/A N/A N/A N/A N/A N/A 2.90
Dec 1956 N/A N/A N/A N/A N/A N/A 3.00
Dec 1957 N/A N/A N/A N/A N/A N/A 3.30
Dec 1958 N/A N/A N/A N/A N/A N/A 3.38
Dec 1959 N/A N/A N/A N/A N/A N/A 3.53
Dec 1960 N/A N/A N/A N/A 5.77 N/A 3.86
Dec 1961 N/A N/A N/A N/A 20.59 N/A 3.90
Dec 1962 N/A N/A N/A N/A -6.80 N/A 4.08
Dec 1963 N/A N/A N/A N/A 13.10 N/A 4.17
Dec 1964 N/A N/A N/A N/A 12.36 N/A 4.19
Dec 1965 N/A N/A N/A N/A 9.80 N/A 4.23
Dec 1966 N/A N/A N/A N/A -5.86 N/A 4.45
Dec 1967 N/A N/A N/A N/A 15.09 N/A 4.67
Dec 1968 N/A N/A N/A N/A 13.97 N/A 4.68
Dec 1969 N/A N/A N/A N/A -9.01 N/A 4.80
Dec 1970 N/A N/A N/A N/A 5.62 N/A 5.14
Dec 1971 N/A N/A N/A N/A 13.90 N/A 5.30
-58-
<PAGE>
PERFORMANCE STATISTICS - TOTAL RETURN PERCENT
RUSSELL LIPPER MSCI EMERGING
2000 WILSHIRE REAL S&P MIDCAP BALANCED MARKETS FREE BANK
NAREIT-EQUITY INDEX ESTATE 400 FUND INDEX SAVINGS ACCOUNT
SECURITIES INDEX INDEX
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dec 1972 8.01 N/A N/A N/A 11.13 N/A 5.37
Dec 1973 -15.52 N/A N/A N/A -12.24 N/A 5.51
Dec 1974 -21.40 N/A N/A N/A -18.71 N/A 5.96
Dec 1975 19.30 N/A N/A N/A 27.10 N/A 6.21
Dec 1976 47.59 N/A N/A N/A 26.03 N/A 6.23
Dec 1977 22.42 N/A N/A N/A -0.72 N/A 6.39
Dec 1978 10.34 N/A 13.04 N/A 4.80 N/A 6.56
Dec 1979 35.86 43.09 70.81 N/A 14.67 N/A 7.29
Dec 1980 24.37 38.58 22.08 N/A 19.70 N/A 8.78
Dec 1981 6.00 2.03 7.18 N/A 1.86 N/A 10.71
Dec 1982 21.60 24.95 24.47 22.68 30.63 N/A 11.19
Dec 1983 30.64 29.13 27.61 26.10 17.44 N/A 9.71
Dec 1984 20.93 -7.30 20.64 1.18 7.46 N/A 9.92
Dec 1985 19.10 31.05 22.20 35.58 29.83 N/A 9.02
Dec 1986 19.16 5.68 20.30 16.21 18.43 N/A 7.84
Dec 1987 -3.64 -8.77 -7.86 -2.03 4.13 N/A 6.92
Dec 1988 13.49 24.89 24.18 20.87 11.18 40.43 7.20
Dec 1989 8.84 16.24 2.37 35.54 19.70 64.96 7.91
Dec 1990 -15.35 -19.51 -33.46 -5.12 0.66 10.55 7.80
Dec 1991 35.70 46.05 20.03 50.10 25.83 59.91 4.61
Dec 1992 14.59 18.41 7.36 11.91 7.46 11.40 2.89
Dec 1993 19.65 18.91 15.24 13.96 11.95 74.83 2.73
Dec 1994 3.17 -1.82 1.64 -3.57 -2.05 7.32 4.96
Dec 1995 15.27 28.44 13.65 30.94 24.89 5.21 5.24
Dec 1996 35.26 16.53 36.87 19.20 13.01 6.03 4.95
</TABLE>
Source: Lipper
-59-
<PAGE>
APPENDIX C
ADDITIONAL PIONEER INFORMATION
The Pioneer group of mutual funds was established in 1928 with the
creation of Pioneer Fund. Pioneer is one of the oldest and most experienced
money managers in the United States.
As of December 31, 1996, PMC employed a professional investment staff
of 53, with a combined average of twelve years' experience in the financial
services industry.
Total assets of all Pioneer mutual funds at December 31, 1996, were
approximately $15.8 billion representing 1,086,554 shareholder accounts, 722,661
non-retirement accounts and 363,893 retirement accounts.
60
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
The financial highlights of the Registrant for the fiscal year
ended December 31, 1996 are included in Part A of the
Registration Statement and the financial statements of the
Registrant are incorporated by reference into Part B of the
Registration Statement from the 1996 Annual Report to
Shareholders for dated December 31, 1996 (filed electronically
on February 25, 1997; file no. 811-08786; accession number
0000930709 97 000004).
(b) Exhibits:
1.1 Amended Agreement and Declaration of Trust of the
Registrant.*
1.2 Amended Certificate of Trust of the
Registrant.*
1.3 Amendment to the Amended Agreement and
Declaration of Trust of the
Registrant.1
2. Amended By-Laws of the Registrant.*
3. None.
4. None.
5.1 Management Contract between the Registrant, on behalf of each of its
series other than Real Estate Growth Portfolio and Swiss Franc Bond
Portfolio, and Pioneering Management Corporation.*
5.2 Interim Management Contract between the Registrant, on behalf of Real
Estate Growth Portfolio, and Pioneering Management Corporation.*
5.3 Management Contract between the Registrant, on behalf of Real Estate
Growth Portfolio, and Pioneering Management Corporation.*
5.4 Form of Management Contract between the Registrant, on behalf of Swiss
Franc Bond Portfolio, and Pioneering Management Corporation.*
5.5 Subadvisory Agreement among Pioneering Management Corporation, Boston
Financial Securities, Inc. and the Registrant on behalf of Real Estate
Growth Portfolio.*
5.6 Form of Management Contract between the Registrant, on behalf of Growth
Shares Portfolio, and Pioneering Management Corporation.1
5.7 Form of Management Contract between the Registrant, on behalf of Growth
and Income Portfolio, and Pioneering Management Corporation.1
6. Underwriting Agreement between the Registrant and Pioneer Funds
Distributor, Inc.*
7. None.
8. Custodian Agreement between the Registrant and Brown Brothers Harriman &
Co.*
9. Form of Investment Company Service Agreement between the Registrant and
Pioneering Services Corporation.*
10. Not Applicable.
11. Consent of Independent Public Accountants.1
12. None.
13. Share Purchase Agreement.*
14. None.
15 None.
16. None.
17. Financial Data Schedule.*
18. None.
19. Powers of Attorney.*
- --------------
* Previously filed. Incorporated by reference from exhibits filed with
previous amendments to the Registrant's Registration Statement.
1 Filed herewith.
Item 25. Persons Controlled By or Under
Common Control With Registrant.
Percent State/Country
of of
Company Owned By Shares Incorporation
Pioneering Management Corp. (PMC) PGI 100% DE
Pioneering Services Corp. (PSC) PGI 100% MA
Pioneer Capital Corp. (PCC) PGI 100% MA
Pioneer Fonds Marketing GmbH (GmbH) PGI 100% MA
Pioneer SBIC Corp. (SBIC) PGI 100% MA
Pioneer Associates, Inc. (PAI) PGI 100% MA
Pioneer International Corp. (PInt) PGI 100% MA
Pioneer Plans Corp. (PPC) PGI 100% MA
Pioneer Goldfields Ltd (PGL) PGI 100% MA
Pioneer Investments Corp. (PIC) PGI 100% MA
Pioneer Metals and Technology,
Inc. (PMT) PGI 100% DE
Pioneer First Polish Trust Fund
Joint Stock Co. (First Polish) PGI 100% Poland
Teberebie Goldfields Ltd. (TGL) PGI 90% Ghana
Pioneer Funds Distributor, Inc.
(PFD) PMC 100% MA
SBIC's outstanding capital stock PCC 100% MA
THE FUNDS: All are parties to management contracts with PMC.
BUSINESS
FUND TRUST
Pioneer International Growth Fund MA
Pioneer World Equity Fund DE
Pioneer Europe Fund MA
Pioneer Emerging Markets Fund DE
Pioneer India Fund DE
Pioneer Growth Trust MA
Pioneer Mid-Cap Fund DE
Pioneer Growth Shares DE
Pioneer Small Company Fund DE
Pioneer Fund MA
Pioneer II MA
Pioneer Real Estate Shares DE
Pioneer Short-Term Income Fund MA
Pioneer America Income Trust MA
Pioneer Bond Fund MA
Pioneer Income Fund DE
Pioneer Intermediate Tax-Free Fund MA
Pioneer Tax-Free Income Fund DE
Pioneer Money Market Trust DE
Pioneer Variable Contracts Trust DE
Pioneer Interest Shares DE
OTHER:
. SBIC is the sole general partner of Pioneer Ventures Limited Partnership, a
Massachusetts limited partnership.
. Kotari Pioneer AMC Ltd. (Kotari Pioneer)(Indian Corp.), is a joint venture
between PMC and Investment Trust of India Ltd. (ITI) (Indian Corp.)
. ITI and PMC own approximately 46% and 49%,
respectively, of the total equity capital of Kotari Pioneer.
JOHN F. COGAN, JR.
Owns approximately 14% of the outstanding shares of PGI.
TRUSTEE/
ENTITY CHAIRMAN PRESIDENT DIRECTOR OTHER
Pioneer Family
of Mutual Funds X X X
PGL X X X
PGI X X X
PPC X X
PIC X X
Pintl X X
PMT X X
PCC X
PSC X
PMC X X
PFD X X
TGL X X
First Polish X Member of
Supervisory
Board
Hale and Dorr LLP Partner
GmbH Chairman of Supervisory
Board
Item 26. Number of Holders of Securities.
As of July 31, 1997, the number of record holders of securities of each
series of the Registrant were as follows:
Number of
Title of Class Record Holders
International Growth Portfolio 2
Capital Growth Portfolio 2
Real Estate Growth Portfolio 2
Equity-Income Portfolio 2
Balanced Portfolio 2
Swiss Franc Bond Portfolio 2
America Income Portfolio 2
Money Market Portfolio 2
Item 27. Indemnification.
Except for the Agreement and Declaration of Trust dated
September 16, 1994, as amended January 25, 1995 (the "Declaration"),
establishing the Registrant as a business trust under Delaware law, there is no
contract, arrangement or statute under which any director, officer, underwriter
or affiliated person of the Registrant is insured or indemnified. The
Declaration provides that no Trustee or officer will be indemnified against any
liability to which the Registrant would otherwise be subject by reason of or for
willful misfeasance, bad faith, gross negligence or reckless disregard of such
person's duties.
Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended (the "Act"), may be available to trustees,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser.
The business and other connections of the officers and directors of the
Registrant's investment manager, Pioneering Management Corporation, are listed
on the Form ADV of Pioneering Management Corporation as currently on file with
the Commission (File No. 801-8255). The business and other connections of the
officers and directors of Real Estate Growth Portfolio's subadviser, Boston
Financial Securities Inc., are listed on the Form ADV of Boston Financial
Securities, Inc. as currently on file with the Commission (File No. 801-3170).
The following sections of both such Form ADVs are incorporated herein by
reference:
(a) Items 1 and 2 of Part 2;
(b) Section 6, Business Background, of Schedule
D.
Item 29. Principal Underwriter
(a) See Item 25 above.
(b) Directors and Officers of PFD:
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
- ---- ---------------- ---------------
John F. Cogan, Jr. Director and Chairman Chairman of the Board,
President and Trustee
Robert L. Butler Director and President None
David D. Tripple Director Executive Vice President and
Trustee
Steven M. Graziano Senior None
Vice President
Stephen W. Long Senior None
Vice President
John W. Drachman Vice President None
Barry G. Knight Vice President None
William A. Misata Vice President None
Anne W. Patenaude Vice President None
Elizabeth B. Bennett Vice President None
Gail A. Smyth Vice President None
Constance D. Spiros Vice President None
Marcy L. Supovitz Vice President None
Mary Kleeman Vice President None
Steven R. Berke Assistant None
Vice President
Mary Sue Hoban Assistant None
Vice President
William H. Keough Treasurer Treasurer
Roy P. Rossi Assistant Treasurer None
Joseph P. Barri Clerk Secretary
Robert P. Nault Assistant Clerk Assistant Secretary
(c) Not applicable.
Item 30. Location of Accounts and Records
The accounts and records are maintained at the Registrant's
office at 60 State Street, Boston, Massachusetts; contact the Treasurer.
Item 31. Management Services
The Registrant is not a party to any management-related
service contract, except as described in the Prospectus and the Statement of
Additional Information.
Item 32. Undertakings
(a) Not applicable.
(b) The Registrant undertakes to file an additional
post-effective amendment, using financial statements for Growth Shares Portfolio
and Growth and Income Portfolio which need not be certified, within four to six
months from the later of the effective date of this Registration Statement or
the commencement of operations.
(c) The Registrant undertakes to deliver, or cause to be
delivered, with the Registrant's prospectus to each person to whom such
prospectus is sent or given a copy of the Registrant's report to shareholders
furnished pursuant to and meeting the requirements of Rule 30d-1 under the
Investment Company Act of 1940, as amended, from which the specified information
is incorporated by reference, unless such person currently holds securities of
the Registrant and otherwise has received a copy of such report, in which case
the Registrant shall state in its prospectus that it will furnish, without
charge, a copy of such report on request, and the name, address and telephone
number of the person to whom such a request should be directed.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this registration statement pursuant to
Rule 485(a) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment No. 6 to its Registration Statement on Form N-1A to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Boston and The Commonwealth of Massachusetts, on the 15th day of August,
1997.
PIONEER VARIABLE CONTRACTS TRUST
By: /s/John F. Cogan, Jr.
John F. Cogan, Jr.
Chairman of the Board
and President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 5 to the Registrant's Registration Statement on
Form N-1A has been signed below by the following persons in the capacities and
on the date indicated:
<PAGE>
Signature Title Date
/s/John F. Cogan, Jr. Chairman of the Board ) Aug. 15, 1997
- -------------------------
John F. Cogan, Jr. and President )
(Principal Executive )
Officer) )
)
)
William H. Keough* Treasurer (Principal)
- -----------------------------
William H. Keough Financial and Accounting)
Officer))
)
Trustees: )
)
)
)
/s/John F. Cogan, Jr. )
John F. Cogan, Jr. )
)
)
Richard H. Egdahl, M.D.* )
Richard H. Egdahl, M.D. )
)
)
Marguerite A. Piret* )
Marguerite A. Piret )
)
)
David D. Tripple* )
David D. Tripple )
)
)
Stephen K. West* )
Stephen K. West )
- ------------------
*By: /s/John F. Cogan, Jr. Dated: August 15, 1997
--------------------------------
John F. Cogan, Jr.
Attorney-in-fact
<PAGE>
Exhibit Index
Exhibit
Number Document Title
1.3 Amendment to the Amended Agreement and Declaration of Trust of the
Registrant.
5.6 Form of Management Contract between the Registrant, on behalf of Growth
Shares Portfolio, and Pioneering Management Corporation.
5.7 Form of Management Contract between the Registrant, on behalf of Growth
and Income Portfolio, and Pioneering Management Corporation.
11. Consent of Independent Public Accountants.
AMENDMENT TO THE AMENDED AGREEMENT AND DECLARATION OF TRUST
OF
PIONEER VARIABLE CONTRACTS TRUST
The undersigned, being at least a majority of the Trustees of
Pioneer Variable Contracts Trust, a Delaware business trust (the "Trust"),
acting pursuant to Article IX, Section 8 of the Agreement and Declaration of
Trust dated September 16, 1994, as amended as of January 25, 1995 (the
"Declaration"), do hereby amend the Declaration as follows, such amendment to
become effective on the date hereof:
The following are added to the list of the series of the Trust set
forth at the end of the second sentence of Article 5, Section 1:
"Growth and Income Portfolio; and
Growth Shares Portfolio."
<PAGE>
IN WITNESS WHEREOF, the undersigned being all the Trustees of the Trust
have executed this instrument as of August 5, 1997.
John F. Cogan, Jr.
As Trustee and not individually
Richard H. Egdahl
As Trustee and not individually
Marguerite A. Piret
As Trustee and not individually
David D. Tripple
As Trustee and not individually
Stephen K. West
As Trustee and not individually
MANAGEMENT CONTRACT
THIS AGREEMENT dated this day of October, 1997 between Pioneer Variable
Contracts Trust, a Delaware business trust (the "Trust"), on behalf of Growth
Shares Portfolio (the "Portfolio"), and Pioneering Management Corporation, a
Delaware corporation (the "Manager").
W I T N E S S E T H
WHEREAS, the Trust is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), and has filed with the Securities and Exchange
Commission (the "Commission") a registration statement (the "Registration
Statement") for the purpose of registering its shares for public offering under
the Securities Act of 1933, as amended (the "1933 Act"),
WHEREAS, the parties hereto deem it mutually advantageous that the
Manager should be engaged, subject to the supervision of the Trust's Board of
Trustees and officers, to manage the Trust.
NOW, THEREFORE, in consideration of the mutual covenants and benefits
set forth herein, the Trust, on behalf of the Portfolio, and the Manager do
hereby agree as follows:
1 (a) The Manager will regularly provide the Portfolio with investment
research, advice and supervision and will furnish continuously an
investment program for the Portfolio, consistent with the investment
objectives and policies of the Portfolio. The Manager will determine from
time to time what securities shall be purchased for the Portfolio, what
securities shall be held or sold by the Portfolio and what portion of the
Portfolio's assets shall be held uninvested as cash, subject always to the
provisions of the Trust's Certificate of Trust, Agreement and Declaration
of Trust, By-Laws and its registration statements under the 1940 Act and
under the 1933 Act covering the Trust's shares, as filed with the
Securities and Exchange Commission, and to the investment objectives,
policies and restrictions of the Portfolio, as each of the same shall be
from time to time in effect, and subject, further, to such policies and
instructions as the Board of Trustees of the Trust may from time to time
establish. To carry out such determinations, the Manager will exercise full
discretion and act for the Portfolio in the same manner and with the same
force and effect as the Portfolio itself might or could do with respect to
purchases, sales or other transactions, as well as with respect to all
other things necessary or incidental to the furtherance or conduct of such
purchases, sales or other transactions.
(b) The Manager will, to the extent reasonably required in the conduct
of the business of the Portfolio and upon the Trust's request, furnish to
the Portfolio research, statistical and advisory reports upon the
industries, businesses, corporations or securities as to which such
requests shall be made, whether or not the Portfolio shall at the time have
any investment in such industries, businesses, corporations or securities.
The Manager will use its best efforts in the preparation of such reports
and will endeavor to consult the persons and sources believed by it to have
information available with respect to such industries, businesses,
corporations or entities.
(c) The Manager will maintain all books and records with respect to
the Portfolio's securities transactions required by sub-paragraphs (b)(5),
(6), (9) and (10) and paragraph (f) of Rule 31a-1 under the 1940 Act (other
than those records being maintained by the custodian or transfer agent
appointed by the Trust) and preserve such records for the periods
prescribed therefor by Rule 31a-2 under the 1940 Act. The Manager will also
provide to the Board of Trustees such periodic and special reports as the
Board may reasonably request.
2 (a) Except as otherwise provided herein, the Manager, at its own
expense, shall furnish to the Trust office space in the offices of the
Manager or in such other place as may be agreed upon from time to time, and
all necessary office facilities, equipment and personnel for managing the
Portfolio's affairs and investments, and shall arrange, if desired by the
Trust, for members of the Manager's organization to serve as officers or
agents of the Trust.
(b) The Manager shall pay directly or reimburse the Trust for: (i) the
compensation (if any) of the Trustees who are affiliated with, or
"interested persons" (as defined in the 1940 Act) of, the Manager and all
officers of the Trust as such; and (ii) all expenses not hereinafter
specifically assumed by the Trust where such expenses are incurred by the
Manager or by the Trust in connection with the management of the affairs
of, and the investment and reinvestment of the assets of, the Portfolio.
(c) The Trust, on behalf of the Portfolio, shall assume and shall pay:
(i) charges and expenses for fund accounting, pricing and appraisal
services and related overhead, including, to the extent such services are
performed by personnel of the Manager, or its affiliates, office space and
facilities and personnel compensation, training and benefits; (ii) the
charges and expenses of auditors; (iii) the charges and expenses of any
custodian, transfer agent, plan agent, dividend disbursing agent and
registrar appointed by the Trust with respect to the Trust; (iv) issue and
transfer taxes chargeable to the Trust in connection with securities
transactions to which the Trust is a party; (v) insurance premiums,
interest charges, dues and fees for membership in trade associations and
all taxes and corporate fees payable by the Trust to federal, state or
other governmental agencies; (vi) fees and expenses involved in registering
and maintaining registrations of the Trust and/or its shares with the
Commission, state or blue sky securities agencies and foreign countries,
including the preparation of Prospectuses and Statements of Additional
Information for filing with the Commission; (vii) all expenses of
shareholders' and Trustees' meetings and of preparing, printing and
distributing prospectuses, notices, proxy statements and all reports to
shareholders and to governmental agencies; (viii) charges and expenses of
legal counsel to the Trust and the Trustees; (ix) any distribution fees
paid by the Portfolio in accordance with Rule 12b-1 promulgated by the
Commission pursuant to the 1940 Act; (x) compensation of those Trustees of
the Trust who are not affiliated with or interested persons of the Manager,
the Trust (other than as Trustees), The Pioneer Group, Inc. or Pioneer
Trusts Distributor, Inc.; (xi) the cost of preparing and printing share
certificates; and (xii) interest on borrowed money, if any.
(d) In addition to the expenses described in Section 2(c) above, the
Trust, on behalf of the Portfolio, shall pay all brokers' and underwriting
commissions chargeable to the Trust in connection with securities
transactions to which the Portfolio is a party.
3. (a) The Trust, on behalf of the Portfolio, shall pay to the Manager,
as compensation for the Manager's services and expenses assumed hereunder,
a fee at the annual rate of 0.70% of the Portfolio's average daily net
assets. Management fees payable hereunder shall be computed daily and paid
monthly in arrears. In the event of termination of this Agreement, the fee
provided in this Section shall be computed on the basis of the period
ending on the last business day on which this Agreement is in effect
subject to a pro rata adjustment based on the number of days elapsed in the
current month as a percentage of the total number of days in such month.
(b) If the operating expenses of the Portfolio in any year exceed the
limits set by state securities laws or regulations in states in which
shares of the Portfolio are sold, the amount payable to the Manager under
subsection (a) above will be reduced (but not below $0), and the Manager
shall make other arrangements concerning expenses but, in each instance,
only as and to the extent required by such laws or regulations. If amounts
have already been advanced to the Manager under this Agreement, the Manager
will return such amounts to the Trust to the extent required by the
preceding sentence.
(c) In addition to the foregoing, the Manager may from time to time
agree not to impose all or a portion of its fee otherwise payable hereunder
(in advance of the time such fee or a portion thereof would otherwise
accrue) and/or undertake to pay or reimburse the Portfolio for all or a
portion of its expenses not otherwise required to be borne or reimbursed by
the Manager. Any such fee reduction or undertaking may be discontinued or
modified by the Manager at any time.
4. It is understood that the Manager may employ one or more
sub-investment advisers (each a "Subadviser") to provide investment
advisory services to the Portfolio by entering into a written agreement
with each such Subadviser; provided, that any such agreement first shall be
approved by the vote of a majority of the Trustees, including a majority of
the Trustees who are not "interested persons" (as defined in the 1940 Act)
of the Trust, the Manager or any such Subadviser, at a meeting of Trustees
called for the purpose of voting on such approval and by the affirmative
vote of a "majority of the outstanding voting securities" (as defined in
the 1940 Act) of the Portfolio. The authority given to the Manager in
Sections 1 through 6 hereof may be delegated by it under any such
agreement; provided, that any Subadviser shall be subject to the same
restrictions and limitations on investments and brokerage discretion as the
Manager. The Trust agrees that the Manager shall not be accountable to the
Portfolio or the Portfolio's shareholders for any loss or other liability
relating to specific investments directed by any Subadviser, even though
the Manager retains the right to reverse any such investment, because, in
the event a Subadviser is retained, the Trust and the Manager will rely
almost exclusively on the expertise of such Subadviser for the selection
and monitoring of specific investments.
5. The Manager will not be liable for any error of judgment or mistake
of law or for any loss sustained by reason of the adoption of any
investment policy or the purchase, sale, or retention of any security on
the recommendation of the Manager, whether or not such recommendation shall
have been based upon its own investigation and research or upon
investigation and research made by any other individual, firm or
corporation, but nothing contained herein will be construed to protect the
Manager against any liability to the Trust or its shareholders by reason of
willful misfeasance, bad faith or gross negligence in the performance of
its duties or by reason of its reckless disregard of its obligations and
duties under this Agreement.
6. (a) Nothing in this Agreement will in any way limit or restrict the
Manager or any of its officers, Trustees, or employees from buying, selling
or trading in any securities for its or their own accounts or other
accounts. The Manager may act as an investment advisor to any other person,
firm or corporation, and may perform management and any other services for
any other person, association, corporation, firm or other entity pursuant
to any contract or otherwise, and take any action or do any thing in
connection therewith or related thereto; and no such performance of
management or other services or taking of any such action or doing of any
such thing shall be in any manner restricted or otherwise affected by any
aspect of any relationship of the Manager to or with the Trust or deemed to
violate or give rise to any duty or obligation of the Manager to the Trust
except as otherwise imposed by law. The Trust recognizes that the Manager,
in effecting transactions for its various accounts, may not always be able
to take or liquidate investment positions in the same security at the same
time and at the same price.
(b) In connection with purchases or sales of securities for the
account of the Trust, neither the Manager nor any of its Trustees, officers
or employees will act as a principal or agent or receive any commission
except as permitted by the 1940 Act. The Manager shall arrange for the
placing of all orders for the purchase and sale of securities for the
Portfolio's account with brokers or dealers selected by the Manager. In the
selection of such brokers or dealers and the placing of such orders, the
Manager is directed at all times to seek for the Portfolio the most
favorable execution and net price available except as described herein. It
is also understood that it is desirable for the Portfolio that the Manager
have access to supplemental investment and market research and security and
economic analyses provided by brokers who may execute brokerage
transactions at a higher cost to the Portfolio than may result when
allocating brokerage to other brokers on the basis of seeking the most
favorable price and efficient execution. Therefore, the Manager is
authorized to place orders for the purchase and sale of securities for the
Portfolio with such brokers, subject to review by the Trust's Trustees from
time to time with respect to the extent and continuation of this practice.
It is understood that the services provided by such brokers may be useful
to the Manager in connection with its or its affiliates' services to other
clients.
(c) On occasions when the Manager deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other
clients, the Manager, to the extent permitted by applicable laws and
regulations, may aggregate the securities to be sold or purchased in order
to obtain the best execution and lower brokerage commissions, if any. In
such event, allocation of the securities so purchased or sold, as well as
the expenses incurred in the transaction, will be made by the Manager in
the manner it considers to be the most equitable and consistent with its
fiduciary obligations to the Portfolio and to such clients.
7. This Agreement shall become effective on the date hereof and shall
remain in force until May 31, 1998 and from year to year thereafter, but
only so long as its continuance is approved annually by a vote of the
Trustees of the Trust voting in person, including a majority of its
Trustees who are not parties to this Agreement or "interested persons" (as
defined in the 1940 Act) of any such parties, at a meeting of Trustees
called for the purpose of voting on such approval or by a vote of a
"majority of the outstanding voting securities" (as defined in the 1940
Act) of the Portfolio, subject to the right of the Trust and the Manager to
terminate this contract as provided in Section 8 hereof.
8. Either party hereto may, without penalty, terminate this Agreement
by vote of its Board of Trustees or Directors, as the case may be, or by
vote of a "majority of its outstanding voting securities" (as defined in
the 1940 Act) and the giving of 60 days' written notice to the other party.
9. This Agreement shall automatically terminate in the event of its
assignment. For purposes of this Agreement, the term "assignment" shall
have the meaning given it by Section 2(a)(4) of the 1940 Act.
10. The Trust agrees that in the event that neither the Manager nor
any of its affiliates acts as an investment adviser to the Portfolio, the
name of the Trust will be changed to one that does not contain the name
"Pioneer" or otherwise suggest an affiliation with the Manager.
11. The Manager is an independent contractor and not an employee of
the Trust for any purpose. If any occasion should arise in which the
Manager gives any advice to its clients concerning the shares of the Trust,
the Manager will act solely as investment counsel for such clients and not
in any way on behalf of the Trust or any series thereof.
12. This Agreement states the entire agreement of the parties hereto,
and is intended to be the complete and exclusive statement of the terms
hereof. It may not be added to or changed orally, and may not be modified
or rescinded except by a writing signed by the parties hereto and in
accordance with the 1940 Act, when applicable.
13. This Agreement and all performance hereunder shall be governed by
and construed in accordance with the laws of The Commonwealth of
Massachusetts.
14. Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms or provisions of
this Agreement or affecting the validity or enforceability of any of the
terms or provisions of this Agreement in any other jurisdiction.
15. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers and their seal to be hereto affixed
as of the day and year first above written.
ATTEST: PIONEER VARIABLE CONTRACTS TRUST
on behalf of
Growth Shares Portfolio
By:
Joseph P. Barri John F. Cogan, Jr.
Secretary Chairman and President
ATTEST: PIONEERING MANAGEMENT CORPORATION
By:
Joseph P. Barri David D. Tripple
Secretary President
MANAGEMENT CONTRACT
THIS AGREEMENT dated this day of October, 1997 between Pioneer Variable
Contracts Trust, a Delaware business trust (the "Trust"), on behalf of Growth
and Income Portfolio (the "Portfolio"), and Pioneering Management Corporation, a
Delaware corporation (the "Manager").
W I T N E S S E T H
WHEREAS, the Trust is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), and has filed with the Securities and Exchange
Commission (the "Commission") a registration statement (the "Registration
Statement") for the purpose of registering its shares for public offering under
the Securities Act of 1933, as amended (the "1933 Act"),
WHEREAS, the parties hereto deem it mutually advantageous that the
Manager should be engaged, subject to the supervision of the Trust's Board of
Trustees and officers, to manage the Trust.
NOW, THEREFORE, in consideration of the mutual covenants and benefits
set forth herein, the Trust, on behalf of the Portfolio, and the Manager do
hereby agree as follows:
1. (a) The Manager will regularly provide the Portfolio with
investment research,advice and supervision and will furnish continuously an
investment program for the Portfolio, consistent with the investment
objectives and policies of the Portfolio. The Manager will determine from
time to time what securities shall be purchased for the Portfolio, what
securities shall be held or sold by the Portfolio and what portion of the
Portfolio's assets shall be held uninvested as cash, subject always to the
provisions of the Trust's Certificate of Trust, Agreement and Declaration
of Trust, By-Laws and its registration statements under the 1940 Act and
under the 1933 Act covering the Trust's shares, as filed with the
Securities and Exchange Commission, and to the investment objectives,
policies and restrictions of the Portfolio, as each of the same shall be
from time to time in effect, and subject, further, to such policies and
instructions as the Board of Trustees of the Trust may from time to time
establish. To carry out such determinations, the Manager will exercise full
discretion and act for the Portfolio in the same manner and with the same
force and effect as the Portfolio itself might or could do with respect to
purchases, sales or other transactions, as well as with respect to all
other things necessary or incidental to the furtherance or conduct of such
purchases, sales or other transactions.
(b) The Manager will, to the extent reasonably required in the conduct
of the business of the Portfolio and upon the Trust's request, furnish to
the Portfolio research, statistical and advisory reports upon the
industries, businesses, corporations or securities as to which such
requests shall be made, whether or not the Portfolio shall at the time have
any investment in such industries, businesses, corporations or securities.
The Manager will use its best efforts in the preparation of such reports
and will endeavor to consult the persons and sources believed by it to have
information available with respect to such industries, businesses,
corporations or entities.
(c) The Manager will maintain all books and records with respect to
the Portfolio's securities transactions required by sub-paragraphs (b)(5),
(6), (9) and (10) and paragraph (f) of Rule 31a-1 under the 1940 Act (other
than those records being maintained by the custodian or transfer agent
appointed by the Trust) and preserve such records for the periods
prescribed therefor by Rule 31a-2 under the 1940 Act. The Manager will also
provide to the Board of Trustees such periodic and special reports as the
Board may reasonably request.
2.(a) Except as otherwise provided herein, the Manager, at its own
expense, shall furnish to the Trust office space in the offices of the
Manager or in such other place as may be agreed upon from time to time, and
all necessary office facilities, equipment and personnel for managing the
Portfolio's affairs and investments, and shall arrange, if desired by the
Trust, for members of the Manager's organization to serve as officers or
agents of the Trust.
(b) The Manager shall pay directly or reimburse the Trust for: (i) the
compensation (if any) of the Trustees who are affiliated with, or
"interested persons" (as defined in the 1940 Act) of, the Manager and all
officers of the Trust as such; and (ii) all expenses not hereinafter
specifically assumed by the Trust where such expenses are incurred by the
Manager or by the Trust in connection with the management of the affairs
of, and the investment and reinvestment of the assets of, the Portfolio.
(c) The Trust, on behalf of the Portfolio, shall assume and shall pay:
(i) charges and expenses for fund accounting, pricing and appraisal
services and related overhead, including, to the extent such services are
performed by personnel of the Manager, or its affiliates, office space and
facilities and personnel compensation, training and benefits; (ii) the
charges and expenses of auditors; (iii) the charges and expenses of any
custodian, transfer agent, plan agent, dividend disbursing agent and
registrar appointed by the Trust with respect to the Trust; (iv) issue and
transfer taxes chargeable to the Trust in connection with securities
transactions to which the Trust is a party; (v) insurance premiums,
interest charges, dues and fees for membership in trade associations and
all taxes and corporate fees payable by the Trust to federal, state or
other governmental agencies; (vi) fees and expenses involved in registering
and maintaining registrations of the Trust and/or its shares with the
Commission, state or blue sky securities agencies and foreign countries,
including the preparation of Prospectuses and Statements of Additional
Information for filing with the Commission; (vii) all expenses of
shareholders' and Trustees' meetings and of preparing, printing and
distributing prospectuses, notices, proxy statements and all reports to
shareholders and to governmental agencies; (viii) charges and expenses of
legal counsel to the Trust and the Trustees; (ix) any distribution fees
paid by the Portfolio in accordance with Rule 12b-1 promulgated by the
Commission pursuant to the 1940 Act; (x) compensation of those Trustees of
the Trust who are not affiliated with or interested persons of the Manager,
the Trust (other than as Trustees), The Pioneer Group, Inc. or Pioneer
Trusts Distributor, Inc.; (xi) the cost of preparing and printing share
certificates; and (xii) interest on borrowed money, if any.
(d) In addition to the expenses described in Section 2(c) above, the
Trust, on behalf of the Portfolio, shall pay all brokers' and underwriting
commissions chargeable to the Trust in connection with securities
transactions to which the Portfolio is a party.
3. (a) The Trust, on behalf of the Portfolio, shall pay to the
Manager, as compensation for the Manager's services and expenses assumed
hereunder, a fee at the annual rate of 0.65% of the Portfolio's average
daily net assets. Management fees payable hereunder shall be computed daily
and paid monthly in arrears. In the event of termination of this Agreement,
the fee provided in this Section shall be computed on the basis of the
period ending on the last business day on which this Agreement is in effect
subject to a pro rata adjustment based on the number of days elapsed in the
current month as a percentage of the total number of days in such month.
(b) If the operating expenses of the Portfolio in any year exceed the
limits set by state securities laws or regulations in states in which
shares of the Portfolio are sold, the amount payable to the Manager under
subsection (a) above will be reduced (but not below $0), and the Manager
shall make other arrangements concerning expenses but, in each instance,
only as and to the extent required by such laws or regulations. If amounts
have already been advanced to the Manager under this Agreement, the Manager
will return such amounts to the Trust to the extent required by the
preceding sentence.
(c) In addition to the foregoing, the Manager may from time to time
agree not to impose all or a portion of its fee otherwise payable hereunder
(in advance of the time such fee or a portion thereof would otherwise
accrue) and/or undertake to pay or reimburse the Portfolio for all or a
portion of its expenses not otherwise required to be borne or reimbursed by
the Manager. Any such fee reduction or undertaking may be discontinued or
modified by the Manager at any time.
4. It is understood that the Manager may employ one or more
sub-investment advisers (each a "Subadviser") to provide investment
advisory services to the Portfolio by entering into a written agreement
with each such Subadviser; provided, that any such agreement first shall be
approved by the vote of a majority of the Trustees, including a majority of
the Trustees who are not "interested persons" (as defined in the 1940 Act)
of the Trust, the Manager or any such Subadviser, at a meeting of Trustees
called for the purpose of voting on such approval and by the affirmative
vote of a "majority of the outstanding voting securities" (as defined in
the 1940 Act) of the Portfolio. The authority given to the Manager in
Sections 1 through 6 hereof may be delegated by it under any such
agreement; provided, that any Subadviser shall be subject to the same
restrictions and limitations on investments and brokerage discretion as the
Manager. The Trust agrees that the Manager shall not be accountable to the
Portfolio or the Portfolio's shareholders for any loss or other liability
relating to specific investments directed by any Subadviser, even though
the Manager retains the right to reverse any such investment, because, in
the event a Subadviser is retained, the Trust and the Manager will rely
almost exclusively on the expertise of such Subadviser for the selection
and monitoring of specific investments.
5. The Manager will not be liable for any error of judgment or mistake
of law or for any loss sustained by reason of the adoption of any
investment policy or the purchase, sale, or retention of any security on
the recommendation of the Manager, whether or not such recommendation shall
have been based upon its own investigation and research or upon
investigation and research made by any other individual, firm or
corporation, but nothing contained herein will be construed to protect the
Manager against any liability to the Trust or its shareholders by reason of
willful misfeasance, bad faith or gross negligence in the performance of
its duties or by reason of its reckless disregard of its obligations and
duties under this Agreement.
6. (a) Nothing in this Agreement will in any way limit or restrict the
Manager or any of its officers, Trustees, or employees from buying, selling
or trading in any securities for its or their own accounts or other
accounts. The Manager may act as an investment advisor to any other person,
firm or corporation, and may perform management and any other services for
any other person, association, corporation, firm or other entity pursuant
to any contract or otherwise, and take any action or do any thing in
connection therewith or related thereto; and no such performance of
management or other services or taking of any such action or doing of any
such thing shall be in any manner restricted or otherwise affected by any
aspect of any relationship of the Manager to or with the Trust or deemed to
violate or give rise to any duty or obligation of the Manager to the Trust
except as otherwise imposed by law. The Trust recognizes that the Manager,
in effecting transactions for its various accounts, may not always be able
to take or liquidate investment positions in the same security at the same
time and at the same price.
(b) In connection with purchases or sales of securities for the
account of the Trust, neither the Manager nor any of its Trustees, officers
or employees will act as a principal or agent or receive any commission
except as permitted by the 1940 Act. The Manager shall arrange for the
placing of all orders for the purchase and sale of securities for the
Portfolio's account with brokers or dealers selected by the Manager. In the
selection of such brokers or dealers and the placing of such orders, the
Manager is directed at all times to seek for the Portfolio the most
favorable execution and net price available except as described herein. It
is also understood that it is desirable for the Portfolio that the Manager
have access to supplemental investment and market research and security and
economic analyses provided by brokers who may execute brokerage
transactions at a higher cost to the Portfolio than may result when
allocating brokerage to other brokers on the basis of seeking the most
favorable price and efficient execution. Therefore, the Manager is
authorized to place orders for the purchase and sale of securities for the
Portfolio with such brokers, subject to review by the Trust's Trustees from
time to time with respect to the extent and continuation of this practice.
It is understood that the services provided by such brokers may be useful
to the Manager in connection with its or its affiliates' services to other
clients.
(c) On occasions when the Manager deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other
clients, the Manager, to the extent permitted by applicable laws and
regulations, may aggregate the securities to be sold or purchased in order
to obtain the best execution and lower brokerage commissions, if any. In
such event, allocation of the securities so purchased or sold, as well as
the expenses incurred in the transaction, will be made by the Manager in
the manner it considers to be the most equitable and consistent with its
fiduciary obligations to the Portfolio and to such clients.
7. This Agreement shall become effective on the date hereof and shall
remain in force until May 31, 1998 and from year to year thereafter, but
only so long as its continuance is approved annually by a vote of the
Trustees of the Trust voting in person, including a majority of its
Trustees who are not parties to this Agreement or "interested persons" (as
defined in the 1940 Act) of any such parties, at a meeting of Trustees
called for the purpose of voting on such approval or by a vote of a
"majority of the outstanding voting securities" (as defined in the 1940
Act) of the Portfolio, subject to the right of the Trust and the Manager to
terminate this contract as provided in Section 8 hereof.
8. Either party hereto may, without penalty, terminate this Agreement
by vote of its Board of Trustees or Directors, as the case may be, or by
vote of a "majority of its outstanding voting securities" (as defined in
the 1940 Act) and the giving of 60 days' written notice to the other party.
9. This Agreement shall automatically terminate in the event of its
assignment. For purposes of this Agreement, the term "assignment" shall
have the meaning given it by Section 2(a)(4) of the 1940 Act.
10. The Trust agrees that in the event that neither the Manager nor
any of its affiliates acts as an investment adviser to the Portfolio, the
name of the Trust will be changed to one that does not contain the name
"Pioneer" or otherwise suggest an affiliation with the Manager.
11. The Manager is an independent contractor and not an employee of
the Trust for any purpose. If any occasion should arise in which the
Manager gives any advice to its clients concerning the shares of the Trust,
the Manager will act solely as investment counsel for such clients and not
in any way on behalf of the Trust or any series thereof.
12. This Agreement states the entire agreement of the parties hereto,
and is intended to be the complete and exclusive statement of the terms
hereof. It may not be added to or changed orally, and may not be modified
or rescinded except by a writing signed by the parties hereto and in
accordance with the 1940 Act, when applicable.
13. This Agreement and all performance hereunder shall be governed by
and construed in accordance with the laws of The Commonwealth of
Massachusetts.
14. Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms or provisions of
this Agreement or affecting the validity or enforceability of any of the
terms or provisions of this Agreement in any other jurisdiction.
15. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers and their seal to be hereto affixed
as of the day and year first above written.
ATTEST: PIONEER VARIABLE CONTRACTS TRUST
on behalf of
Growth and Income Portfolio
By:
Joseph P. Barri John F. Cogan, Jr.
Secretary Chairman and President
ATTEST: PIONEERING MANAGEMENT CORPORATION
By:
Joseph P. Barri David D. Tripple
Secretary President
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated February 3, 1997 included in Pioneer Variable Contracts
Trust's 1996 Annual Report (and to all references to our firm) included in
or made a part of the Pioneer Variable Contracts Trust Post-Effective
Amendment No. 6 to Registration Statement File 33-84546 and Amendment No. 7
to Registration File No. 811-8786.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
August 15, 1997
