Pioneer Variable Contracts Trust
Capital Growth Portfolio
Real Estate Growth Portfolio
Prospectus
May 1, 1997
TABLE OF CONTENTS
PAGE
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I. HIGHLIGHTS 2
II. HOW THE FUND WORKS 5
III. RISK CONSIDERATIONS 6
IV. THE FUND AND THE PIONEER
ORGANIZATION 8
V. FUND MANAGEMENT FEES
AND OTHER EXPENSES 9
VI. PERFORMANCE 10
VII. DISTRIBUTIONS AND TAXES 10
VIII. SHAREHOLDER INFORMATION 11
IX. APPENDIX 13
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 following Portfolios are currently available to you:
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.
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 a 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.
<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, two
of which are available to you. 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, 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.
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
Refer to "How the Fund Works" for additional information on each Portfolio's
investment objective and policies.
<TABLE>
<CAPTION>
Portfolio Strategic Focus
<S> <C>
Capital Invests for capital appreciation
Growth through a diversified portfolio of
securities consisting primarily
of common stocks.
Real Estate Invests for long-term growth
Growth of capital primarily through
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.
</TABLE>
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 Highlight
Capital Growth Portfolio
Selected Data for a Share Outstanding for Each Period Presented
<TABLE>
<CAPTION>
March 1, 1995
For the Year (Commencement
Ended of Operations)
December 31, to December 31,
1996 1995
-------------- -----------------
<S> <C> <C>
Net asset value, beginning of period $ 11.57 $10.00
-------------- -----------------
Increase from investment operations:
Net investment income $ 0.03 $ 0.02
Net realized and unrealized gain (loss) on investments 1.71 1.69
-------------- -----------------
Total increase (decrease) from investment operations $ 1.74 $ 1.71
Distribution to shareholders from:
Net investment income (0.03) (0.02)
Tax return of capital -- --
Net realized gain (0.23) (0.12)
Net increase (decrease) in net asset value $ 1.48 $ 1.57
-----------------
Net asset value, end of period $ 13.05 $11.57
============== =================
Total return** 15.03% 17.13%***
Ratio of net operating expenses to average net assets + 0.93% 1.56%***
Ratio of net investment income to average net assets + 0.37% 0.48%
Portfolio turnover rate *** 41% 46%
Average commission rate paid(1) $0.0661 --
Net assets end of period (in thousands) $48,572 $9,357
Ratios assuming no waiver of management fees and no
assumption of expenses:
Net operating expenses *** 0.95% 3.95%
Net investment income (loss) *** 0.35% (1.91)%
Ratios assuming a waiver of management fees and
assumption of expenses by Pioneer and a reduction for
fees paid indirectly:
Net operating expenses *** 0.92% 1.49%
Net investment income (loss) *** 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.
1Amount represents the rate of commission paid per share on the Portfolio's
exchange listed securities transactions.
3
<PAGE>
Financial Highlights
Real Estate Growth Portfolio
Selected Data for a Share Outstanding for Each Period Presented
<TABLE>
<CAPTION>
March 1, 1995
For the Year (Commencement
Ended of Operations)
December 31, to December 31,
1996 1995
-------------- ----------------
<S> <C> <C>
Net asset value, beginning of period $ 11.23 $ 10.00
-------------- ----------------
Increase from investment operations:
Net investment income $ 0.54 $ 0.12
Net realized and unrealized gain (loss) on investments 3.34 1.55
-------------- ----------------
Total increase (decrease) from investment operations $ 3.88 $ 1.67
Distribution to shareholders from:
Net investment income (0.53) (0.23)
Tax return of capital -- (0.18)
Net realized gain (0.12) (0.03)
Net increase (decrease) in net asset value $ 3.23 $ 1.23
--------------- ----------------
Net asset value, end of period $ 14.46 $ 11.23
=============== ================
Total return** 35.73% 16.96%
Ratio of net operating expenses to average net assets + 1.34% 2.10%***
Ratio of net investment income to average net assets + 4.63% 2.68%***
Portfolio turnover rate *** 41% 1%
Average Commission Rate Paid(1) $0.0595 --
Net assets end of period (in thousands) $11,115 $ 512
Ratios assuming no waiver of management fees and no
assumption of expenses:
Net operatiing expenses *** 3.35% 45.96%
--------------- ----------------
Net investment income (loss)*** 2.62% (41.18)%
Ratios assuming a waiver of management fees and
assumption of expenses by Pioneer and a reduction for
fees paid indirectly:
Net expenses*** 1.24%* 1.57%
Net investment income (loss)*** 4.73%* 3.21%
</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.
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<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; the two
Portfolios currently available to you 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.
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.
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.
The Portfolio may invest up to 25% of its total assets in non- United States
(U.S.) securities, however, such investments 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."
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 the equity securities of 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.
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.
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<PAGE>
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.
III. RISK CONSIDERATIONS
Risks of International Investments
Capital Growth and Real Estate Growth Portfolios may make non-U.S.
investments. Pioneer limits the amount of Capital Growth 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.
Foreign Currencies. Currency exchange rates may affect Capital Growth 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. 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.
Currency Management. The performance of Capital Growth and Real Estate Growth
Portfolios may be affected by the relative performance of foreign currencies.
Pioneer may manage Capital Growth and Real Estate Growth 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, Capital Growth Portfolio 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. Capital Growth and Real
Estate Growth 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. Capital Growth Portfolio may engage in
currency management strategies only to the extent that it invests 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
Capital Growth and Real Estate Growth 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 Portfolio may invest up to 5% of its net assets in lower
rated debt securities. 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
6
<PAGE>
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 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 Portfolio 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. 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.
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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 may
fail to recoup fully its investments in mortgage-backed securities
notwithstanding any direct or indirect governmental or agency guarantee. When
Real Estate Growth 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 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
$16 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 and chairs a committee of Pioneer's equity
managers which reviews Pioneer's research and portfolio operations, including
those of the Portfolios. Mr. Tripple joined Pioneer in 1974.
Capital Growth Portfolio. Research and management for the Portfolio is the
responsibility of a team of portfolio managers and analysts focusing on
domestic equity securities, including special equities and smaller companies.
Members of the team meet regularly to discuss holdings, prospective
investments and portfolio composition.
Day-to-day management of the Portfolio has been the responsibility of J.
Rodman Wright since January 15, 1997. Mr. Wright, a Vice President of the
Fund and Pioneer, joined Pioneer in 1994 and has nine years of investment
experience.
Real Estate Growth Portfolio. Research and management for the Portfolio is
the responsibility of a team consisting of a Pioneer portfolio manager and
analysts from Boston Financial Securities, Inc. ("BFS"), the Portfolio's
subadviser. Members of the team meet regularly to discuss holdings,
prospective investments and portfolio composition.
Day-to-day management of the Portfolio has been the responsiblity of Robert
W. Benson since Portfolio's inception. Mr. Benson, a Vice President of the
Fund and Pioneer, joined Pioneer in 1974 and has 23 years of investment
experience.
The Real Estate Growth Portfolio Subadviser. 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 busi-
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ness 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. Mr.
Howard-Johnson has worked as a real estate analyst since September 1996.
The executive office of BFS is located at 101 Arch Street, Boston,
Massachusetts 02110. BFS also serves as the investment subadviser to Pioneer
Real Estate Growth Shares.
Each Portfolio has an investment objective and policies similar to those of
an existing Pioneer retail mutual fund. Capital Growth Portfolio is most
similar to Pioneer Capital Growth Fund and Real Estate Growth Portfolio to
Pioneer Real Estate Shares. 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 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. 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:
<TABLE>
<CAPTION>
Management fee as a percentage
of Portfolio's average daily
Portfolio net assets
<S> <C>
Capital Growth Portfolio 0.65%
Real Estate Growth Portfolio 1.00%
</TABLE>
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.
<TABLE>
<CAPTION>
Percentage of Portfolio's
Portfolio average daily net assets
<S> <C>
Real Estate Growth Portfolio 1.25%
</TABLE>
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
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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.
VI. PERFORMANCE
Each Portfolio's performance may be quoted in advertising in terms of 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.
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 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.
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
and to qualify for such treatment for each taxable year. 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. Capital Growth Portfolio distributes
its dividends, if any, each year. Real Estate Growth Portfolio distributes
its dividends, if any, quarterly. Normally, net realized capital gains, if
any, are distributed each year for the Portfolios. Dividends from income
and/or capital gains 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.
The Portfolios make dividend and capital gain distributions on a per-share
basis. After every distribution from each Portfolio, 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.
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In addition to the above, each Portfolio also follows certain portfolio
diversification requirements imposed by the IRS on 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 Capital Growth Portfolio by the 1940 Act (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 currently
calculated daily as of the regular close of the NYSE (normally 4:00 p.m.,
Eastern time).
The investments of each 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 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.
For each Portfolio, 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
forwarded by bank wire to the redeeming insurance company
11
<PAGE>
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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<PAGE>
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 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. 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 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 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% 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. Each Portfolio 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 fluctuations in the value of securities denominated
in a different currency. 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.
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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 Portfolio 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 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. 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 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.
Options and Futures Contracts provide a way for Capital Growth and Real
Estate Growth 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.
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. Capital Growth and Real Estate Growth 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.
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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. Capital Growth and Real Estate Growth 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.
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0497-4188
