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PIONEER VISION(sm)
PIONEER VISION 2(sm)
VARIABLE ANNUITY
Pioneer Variable Contracts Trust
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
American Income Portfolio
Money Market Portfolio
Annual Report
December 31, 1997
<PAGE>
PIONEER VARIABLE CONTRACTS TRUST
Table of Contents
Letter from the Chairman 1
International Growth Portfolio
Portfolio Management Discussion 2
Portfolio and Performance Update 3
Capital Growth Portfolio
Portfolio Management Discussion 4
Portfolio and Performance Update 5
Growth Shares Portfolio
Portfolio Management Discussion 6
Portfolio and Performance Update 7
Real Estate Growth Portfolio
Portfolio Management Discussion 8
Portfolio and Performance Update 9
Growth and Income Portfolio
Portfolio Management Discussion 10
Portfolio and Performance Update 11
Equity-Income Portfolio
Portfolio Management Discussion 12
Portfolio and Performance Update 13
Balanced Portfolio
Portfolio Management Discussion 14
Portfolio and Performance Update 15
Swiss Franc Bond Portfolio
Portfolio Management Discussion 16
Portfolio and Performance Update 17
America Income Portfolio
Portfolio Management Discussion 18
Portfolio and Performance Update 19
Money Market Portfolio
Portfolio Management Discussion 1
Schedules of Investments and Financial Statements
International Growth Portfolio 20
Capital Growth Portfolio 32
Growth Shares Portfolio 41
Real Estate Growth Portfolio 47
Growth and Income Portfolio 52
Equity-Income Portfolio 59
Balanced Portfolio 69
Swiss Franc Bond Portfolio 75
America Income Portfolio 81
Money Market Portfolio 86
Notes to Financial Statements 91
Report of Independent Public Accountants 96
<PAGE>
PIONEER VARIABLE CONTRACTS TRUST
LETTER FROM THE CHAIRMAN 12/31/97
Dear Contract Owner,
I am pleased to introduce this newly expanded annual report for Pioneer
Variable Contracts Trust, covering the year ended December 31, 1997. On behalf
of all of us at Pioneer, I thank you for your interest and this opportunity to
comment briefly on today's investing environment.
Pioneer Variable Contracts Trust, the underlying funds for Pioneer Vision and
Pioneer Vision 2 variable annuities, now offers a selection of 10 investment
Portfolios. In 1997, we added Growth and Income Portfolio and Growth Shares
Portfolio, which are modeled after our Pioneer Fund and Pioneer Growth Shares
mutual funds, respectively. The array of investment options - and the added tax
and insurance benefits annuities offer - continues to have wide appeal. The
Portfolios had a total of $425 million in net assets by December 31.
All major U.S., and many international, stock markets rewarded investors with
positive returns in 1997. However, recent months demonstrated that a new level
of volatility and global connection appears to have entered world stock
markets. In late October, the Dow Jones Industrial Average posted - in the
space of two days - both its biggest one-day point drop and its biggest one-day
point gain. Asian markets plunged suddenly and repeatedly in the face of severe
currency changes and slowing economies, and we continue to feel reverberations
across the United States, Europe and Latin America. The increased volatility in
the world's stock markets prompted many investors to rethink their investment
strategy. Money poured into the U.S. bond market, driving prices up and yields
down.
In this environment, we think it is critical to adhere to disciplined
investment approaches with clear, long-term objectives and tested
methodologies, like those followed by the managers of the Portfolios in Pioneer
Variable Contracts Trust.
As you look over this report, you'll notice we have substantially expanded the
information on each Portfolio. Now, in addition to the Portfolio Management
Discussion, we are providing a graphical update, including performance, for
most Portfolios. We hope you find this new approach informative.
I encourage you to read on to learn more about Pioneer Variable Contracts
Trust. If you have questions about your investment, please contact your
investment professional.
Respectfully,
/s/ John F. Cogan, Jr.
John F. Cogan, Jr.,
Chairman and President
[side bar]
Money Market
Portfolio
Money Market Portfolio continued to provide
current income and a stable $1 share price.
The Portfolio generated a total of $0.045 per
share in dividends over the year ended
December 31, concluding 1997 with an
attractive 7-day yield of 4.93%. Overall,
total return was 4.64% for the year, at net
asset value - in line with the Portfolio's
conservative investment style.
Demand for High-Quality Securities
The Portfolio invests exclusively in
high-quality money market instruments.
Specifically, holdings are issued by the U.S.
government, corporations and banks; all are
given the highest rating by the two leading
nationally recognized securities rating
organizations, Standard & Poor's Investor
Services (A1) and Moody's Investor Services
(P1).
At fiscal year-end, the Portfolio's average
maturity was 26 days. In comparison to the
average money market fund, this is a
relatively conservative strategy but it gives
your Portfolio extra liquidity and mobility.
Heading Forward
Once again, our primary focus will be only
the highest-quality issues of the U.S.
government and corporations. Because we
understand that investors are looking for a
"safe harbor" in fast-moving markets, our
investment team will continue to seek the
liquidity and safety you have come to expect.
Respectfully,
/s/ Sherman B. Russ
Sherman B. Russ,
Portfolio Manager
Investments in Money Market Portfolio are not
insured or guaranteed by the U.S. government.
There can be no assurance the Portfolio will
be able to maintain a stable net asset value
of $1.00 per share.
[end sidebar]
1
<PAGE>
International Growth Portfolio PIONEER VARIABLE CONTRACTS TRUST
PORTFOLIO MANAGEMENT DISCUSSION 12/31/97
[sidebar]
International investing may involve special
risks, including differences in accounting
and currency as well as economic and
political instability.
The Portfolio's investment adviser,
Pioneering Management Corporation, reduced
its management fee and certain other
expenses; otherwise, returns would have been
lower. Past performance does not guarantee
future results. Return and principal
fluctuate so that your investment, when
redeemed, may be worth more or less than the
original cost.
[end sidebar]
International Growth Portfolio completed the year as markets worldwide worked
to regain their footing in the midst of a burgeoning financial crisis in
Southeast Asia. In this environment, the Portfolio's performance slowed from
the strength shown earlier in the year, but its 4.87% total return, at net
asset value with distributions reinvested, still bested the 1.78% return
offered by the Morgan Stanley Capital International (MSCI) EAFE (Europe,
Australasia, Far East) Index.
Performance Factors
Global market volatility at the end of October brought down stock prices around
the world and erased some gains made by the Portfolio earlier in the period. We
adjusted the Portfolio both before and in response to this turbulence. For
instance, we began to substantially lighten holdings in Japan around mid-year.
The strategy proved effective: Japan's economic and banking problems roiled its
stock market, but the Portfolio's lowered exposure helped reduce losses. The
emerging markets of Asia suffered to an extreme from currencies and stock
markets that fell substantially. Again, we reduced holdings in a timely manner,
dampening the downward effect. The Portfolio's large position in European
stocks made a significant positive contribution to total return, and Latin
American holdings also helped boost performance, despite their increased
volatility in the final quarter.
Performance by Region
European stocks proved to be among the Portfolio's strongest performers over
the year. Banking and financial stocks rose, helped by a recent trend of
increased equity investment by Europeans. Portfolio holdings in these areas
include commercial bank Skandia Enskilda Banken (Sweden) and financial services
provider Julius Baer Holding (Switzerland).
Japan's difficulties accelerated over the period. Recent steps to increase
economic growth were overshadowed by a weakening yen, an increase in sales tax
and investor concerns over the growing budget deficit. On the plus side, the
weaker yen made Japanese exports a better value to dollar-based buyers.
Companies in the Portfolio that export goods include consumer electronics
makers Sony, Canon and Nintendo, which all turned in a good year.
Asian emerging markets labored under slow economies hindered by declining
currencies, lagging corporate earnings growth and heavily regulated securities
markets - all of which drove down stock prices. A number of Latin American
stocks contributed gains for the year, most notably in telecommunications,
including Telefonica de Argentina and Telecomunicacoes Brasileiras.
Going Forward
The outlook for world stock markets varies by region, but we see plenty of
value and potential across the globe. We believe compelling values still exist
in the developed markets of Europe and that the economic fundamentals that
precipitated the Continent's rise in stock prices are still in place. Japan has
a long way to go toward economic recovery, but many Japanese companies are
restructuring, indicating a commitment to success. In Asia, emerging markets
have the potential to become very competitive; the key in this region is to
separate likely winners from losers. In Latin America, we think infrastructure
development offers tremendous investment potential. We are confident the
Portfolio can offer solid long-term performance to those who keep a long-term
perspective.
Respectfully,
/s/ Norman Kurland
Norman Kurland,
Portfolio Manager
2
<PAGE>
International Growth Portfolio PIONEER VARIABLE CONTRACTS TRUST
PORTFOLIO AND PERFORMANCE UPDATE 12/31/97
Portfolio Diversification
(As a percentage of total portfolio)
[Pie Chart]
International Common Stocks 79%
Depositary Receipts for International Stocks 11%
Short-Term Cash Equivalents 8%
International Preferred Stocks 2%
[End Pie Chart]
Geographical Distribution
(As a percentage of equity holding)
[Pie Chart]
Europe 59%
Asia 13%
Other 11%
Latin American 10%
Japan 7%
[End Pie Chart]
- --------------------------------------------------------------------------------
Five Largest Holdings
(As a percentage of equity holdings)
Schibsted ASA 1.87%
Telecom Italia SpA 1.84%
Arriva Plc 1.72%
SK Telecom Co., Ltd. 1.61%
Vodafone Group Plc 1.53%
Fund holdings will vary for other periods.
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/97 12/31/96
Net Asset Value per Share $12.23 $11.83
Accumulation Unit Value 1.2108 1.1708
Distributions per Share Income Short-Term Long-Term
(12/31/96 - 12/31/97) Dividends Capital Gains Capital Gains
$0.031 $ 0.154 $ 0.008
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the value of an investment made in International
Growth Portfolio, compared to the growth of the MSCI EAFE Index.
MSCI International
EAFE Growth
Date Index Portfolio*
3/95 10,000 10,000
9,990 10,624
6/95 10,350 10,701
9/95 11,040 11,147
12/95 11,042 11,598
3/96 11,396 11,933
6/96 11,834 12,122
9/96 11,580 12,107
12/96 11,985 12,300
3/97 12,502 12,107
6/97 13,874 13,678
9/97 14,110 13,582
12/97 12,569 12,518
The Morgan Stanley Capital International
(MSCI) EAFE (Europe, Australasia, Far East)
Index is an unmanaged, capitalization-
weighted index of international stock
markets. The Index includes Australia,
Austria, Belgium, Denmark, Finland, France,
Germany, Hong Kong, Ireland, Italy, Japan,
Malaysia, the Netherlands, New Zealand,
Norway, Singapore, Spain, Sweden, Switzerland
and the United Kingdom. Index returns are
calculated monthly, assume reinvestment of
dividends and, unlike Portfolio returns, do
not reflect any fees or expenses. Portfolio
returns are based on net asset value and do
not reflect any annuity-related costs. You
cannot invest directly in the Index.
[sidebar]
Average Annual Total Returns
(As of December 31, 1997)
Net Asset Value*
Period
Life-of-Portfolio 8.38%
1 Year 4.87
Accumulation Unit Value
Pioneer Vision 2
If If
Period Held** Redeemed***
Life-of- 6.89% 5.32%
Portfolio
1 Year 3.42 -1.85
Accumulation Unit Value
Pioneer Vision
If If
Period Held** Redeemed***
Life-of- 6.89% 4.67%
Portfolio
1 Year 3.42 -3.09
The Portfolio began operations on 3/1/95.
All total returns shown assume reinvestment of distributions at net asset
value.
* Reflects portfolio performance only. Does not reflect insurance fees or
surrender charges.
** Reflects deduction of a 1.25% mortality and expense risk charge and a 0.15%
administrative expense charge. Does not reflect surrender charges.
*** Reflects deduction of a 1.25% mortality and expense risk charge and a 0.15%
administrative expense charge, and the applicable contingent deferred sales
charge (CDSC), as if the contract were surrendered at the end of each
period. The maximum CDSC of 7% declines over seven years; it is deducted
only while the contract is in the surrender charge period. Returns do not
reflect a $30 annual contract fee; this fee is applied only until the
contract value reaches $50,000.
[end sidebar]
Past performance does not guarantee future results. Return and principal
fluctuate so that your investment, when redeemed, may be worth more or less than
the original cost.
3
<PAGE>
Capital Growth Portfolio PIONEER VARIABLE CONTRACTS TRUST
PORTFOLIO MANAGEMENT DISCUSSION 12/31/97
[sidebar]
Past performance does not guarantee future
results. Return and principal fluctuate so
that your investment, when redeemed, may be
worth more or less than the original cost.
[end sidebar]
Stock markets worldwide continued to demonstrate almost unprecedented volatility
as Capital Growth Portfolio completed its fiscal year. The major U.S. stock
market indexes advanced for the year overall, but most declined for the
three-month period ended December 31. For the year, the Portfolio generated a
24.69% total return at net asset value. The Portfolio's total return was strong
on an absolute basis, although it lagged the 33.29% return of the Standard &
Poor's (S&P) 500 Index, a broad measure of large U.S. stocks. Throughout the
year, investors generally preferred larger "growth" stocks; for the most part,
they outperformed small and mid-sized stocks like those in your Portfolio.
Value Comes in Many Sizes
For your Portfolio, we use an "aggressive value" style to invest in companies
of many sizes whose stocks are trading at prices substantially below what we
see as their true worth. We look for companies ready for turnaround, ripe for
takeover or whose stock price has been extremely, and undeservedly, beaten
down. We evaluate company fundamentals, such as quality of management, cash
flow, earnings growth and market share. Our style means we sometimes must wait
for other investors to recognize the potential we see, but the low prices of
these "value" stocks may also offer better price protection in a market
downturn.
Even though your Portfolio invests in a great many small stocks, we keep an
open mind about company size. This year, price declines in some larger stocks
presented buying opportunities, and we added several large companies, including
global fast-food giant McDonald's and entertainment conglomerate Viacom. These
larger stocks increased the Portfolio's ability to participate when S&P-type
stocks rally. However, as of December 31, smaller companies still represented a
significant portion of the Portfolio's stock holdings.
Patience as a Method
Patience is an important part of our strategy. Computer giant Unisys and
retailer Fingerhut Companies are examples of long-time holdings that performed
well in 1997. We bought many new positions, and added to them if the
opportunity arose; supermarket operator Great Atlantic & Pacific Tea is one
example. Portfolio mainstays retailer Tandy and telecommunications pioneer AT&T
further boosted Portfolio performance with exceptional price growth. Both
companies improved profitability by selling weak divisions.
There were also some disappointments in the year. Most notable was Levitz, the
mid-priced furniture retailer. Despite installing new management and making
significant changes to its business, it could not overcome the slow pace of
sales plaguing its portion of the furniture market. In September, the company
declared bankruptcy, and we sold the Portfolio's shares at a loss. However, a
relatively small position kept it from greatly hindering performance in the
second half of the year.
A Look Ahead
The Portfolio includes stocks of all sizes, likely to progress at different
paces. We are confident in the current mix of stocks, and think they offer
opportunities for results now and over the course of the next few years. We
designed the Portfolio to reward shareowners over the long-term, and we believe
this strategy can produce competitive returns in both up and down markets.
Respectfully,
/s/ J. Rodman Wright
J. Rodman Wright,
Portfolio Manager
4
<PAGE>
Capital Growth Portfolio PIONEER VARIABLE CONTRACTS TRUST
PORTFOLIO AND PERFORMANCE UPDATE 12/31/97
Portfolio Diversification
(As a percentage of total portfolio)
[pie chart]
U.S. Common Stocks 91%
Short-Term Cash Equivalents 6%
Depositary Receipts for International Stocks 2%
International Common Stocks 1%
[end pie chart]
Sector Distribution
(As a percentage of equity holdings)
[pie chart]
Consumer Cyclicals 21%
Comsumer Staples 15%
Technology 15%
Basic Materials 10%
Communication Services 9%
Financials 9%
Healthcare 8%
Capital Goods 7%
Energy 4%
Utilities 2%
[end pie chart]
- --------------------------------------------------------------------------------
Five Largest Holdings
(As a percentage of equity holdings)
Viacom, Inc. (Class B) (Non-voting) 2.72%
DST Systems, Inc. 2.37%
Telephone and Data Systems, Inc. 2.12%
NCR Corp. 2.11%
DSC Communications Corp. 1.96%
Fund holdings will vary for other periods.
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/97 12/31/96
Net Asset Value per Share $16.15 $13.05
Accumulation Unit Value 1.6153 1.3135
Distributions per Share Income Short-Term Long-Term
(12/31/96 - 12/31/97) Dividends Capital Gains Capital Gains
- $ 0.038 $ 0.076
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the value of an investment made in Capital Growth
Portfolio, compared to the growth of the Standard & Poor's (S&P) 500 Index.
Capital S&P
Growth 500
Portfolio* Index
3/95 10,000 10,000
9,910 10,338
6/95 10,650 11,321
9/95 11,980 12,218
12/95 11,713 12,951
3/96 12,624 13,646
6/96 13,527 14,527
9/96 13,141 14,694
12/96 13,473 15,917
3/97 14,268 16,347
6/97 15,541 19,195
9/97 17,559 20,630
12/97 16,800 21,220
The S&P 500 Index is a unmanaged measure of
500 widely held common stocks listed on the
New York Stock Exchange, American Stock
Exchange and over-the-counter market. Index
returns assume reinvestment of dividends and,
unlike Portfolio returns, do not reflect any
fees or expenses. Portfolio returns are based
on net asset value and do not reflect any
annuity-related costs. You cannot invest
directly in the Index.
[sidebar]
Average Annual Total Returns
(As of December 31, 1997)
Net Asset Value*
Period
Life-of-Portfolio 20.04%
1 Year 24.69
Accumulation Unit Value
Pioneer Vision 2
If If
Period Held** Redeemed***
Life-of- 18.39% 17.10%
Portfolio
1 Year 22.98 16.98
Accumulation Unit Value
Pioneer Vision
If If
Period Held** Redeemed***
Life-of- 18.39% 16.57%
Portfolio
1 Year 22.98 15.98
The Portfolio began operations on 3/1/95.
All total returns shown assume reinvestment of distributions at net asset
value.
* Reflects portfolio performance only.
Does not reflect insurance fees or
surrender charges.
** Reflects deduction of a 1.25% mortality
and expense risk charge and a 0.15%
administrative expense charge. Does not
reflect surrender charges.
*** Reflects deduction of a 1.25% mortality
and expense risk charge and a 0.15%
administrative expense charge, and the
applicable contingent deferred sales
charge (CDSC), as if the contract were
surrendered at the end of each period.
The maximum CDSC of 7% declines over
seven years; it is deducted only while
the contract is in the surrender charge
period. Returns do not reflect a $30
annual contract fee; this fee is applied
only until the contract value reaches
$50,000.
[end sidebar]
Past performance does not guarantee future results. Return and principal
fluctuate so that your investment, when redeemed, may be worth more or less than
the original cost. 5
<PAGE>
Growth Shares Portfolio PIONEER VARIABLE CONTRACTS TRUST
PORTFOLIO MANAGEMENT DISCUSSION 12/31/97
[sidebar]
The Portfolio's investment adviser,
Pioneering Management Corporation, reduced
its management fee and certain other
expenses; otherwise, returns would have been
lower. Past performance does not guarantee
future results. Return and principal
fluctuate so that your investment, when
redeemed, may be worth more or less than the
original cost.
[end sidebar]
Pioneer Growth Shares Portfolio completed its first two months of operation
with positive results. Since the Portfolio began operations on October 31,
1997, Pioneer's core growth management team has been diligently assembling
investments geared toward long-term growth of capital.
Building a Portfolio with Market Leaders
For the Portfolio, we seek a relatively small number of high-growth companies
with leadership positions in a variety of industries. We focus specifically on
"fortress franchises" with market dominance, brand recognition, strong
financial resources and talented management teams with a commitment to growing
their business. Many are positioning for the growing global demand for premium,
brand-name products. In some cases, they've made foreign acquisitions to
broaden product lines and power sales and earnings momentum. This focus on big,
multinational firms helps diversify the Portfolio. By positioning Portfolio
holdings across companies whose sales are derived from many countries, we are
less dependent on the strength of any single market.
Finding Businesses with Great Growth Potential
To select companies, we look for lead contenders positioned to benefit from
important long-term trends. For example, aging "baby boomers" are in peak
saving years, preparing for college costs and retirement. Franklin Resources,
which sells investments through full-service broker/dealers, and Charles
Schwab, which markets directly to the investor, capitalize on the popularity of
mutual funds and turned in strong performance in 1997.
Investing in healthcare and pharmaceutical stocks also taps into this market.
As baby boomers get older, they are likely to require more prescriptions and
doctor visits. Walgreen is the largest retailer of prescription drugs in the
country. It is benefiting from the rise of the prescription drug industry, as
well as the growth of health maintenance organizations (HMOs) and their
preference for a few national vendors. Also, pharmaceutical holdings, Merck &
Co. and Pfizer, are seasoned businesses. Merck has been under pressure over
concerns about expiring patents for key products. However, we believe the
company - long held to be the hallmark of the industry - will retain market
share with the help of new drugs, including an anti-inflammatory drug without
gastrointestinal side effects. Pfizer is a rising company with new blockbuster
drugs pending FDA approval. Monsanto, now the Portfolio's largest holding, is
widely recognized as an agricultural-biotech company, but also has a solid
presence with huge growth potential in the pharmaceutical industry.
Technology stocks play a significant role in your Portfolio. At year end this
group accounted for 25% of holdings. Dell Computer, the Portfolio's
third-largest stake has become the top provider of desktop computers to U.S.
businesses and government agencies. Other top-rated technology holdings include
software giant Microsoft and leading computer chip maker Intel. We are
confident both will remain a major force in the Information Age.
Looking Forward
As we enter 1998, we continue to focus on brand name companies with dominant
positions in their respective industries. Currently, these well-established
companies have a broad loyal customer base, and as more firms become global
players, we believe their dominance will spread. We look forward to managing
the Portfolio in the coming months, and are confident that a focus on large,
leading companies provides excellent potential to investors.
Respectfully,
/s/ Jeffrey Poppenhagen
Jeffrey Poppenhagen,
Portfolio Manager
6
<PAGE>
Growth Shares Portfolio PIONEER VARIABLE CONTRACTS TRUST
PORTFOLIO AND PERFORMANCE UPDATE 12/31/97
Portfolio Diversification
(As a percentage of total portfolio)
[pie chart]
U.S. Common Stocks 86%
Short-Term Cash Equivalents 11%
International Preferred Stocks 2%
International Common Stocks 1%
[end pie chart]
Sector Distribution
(As a percentage of equity holding)
[pie chart]
Technology 25%
Consumer Staples 20%
Basic Materials 19%
Financials 18%
Consumer Cyclicals 11%
Healthcare 6%
Capital Goods 1%
[end pie chart]
- --------------------------------------------------------------------------------
Five Largest Holdings
(As a percentage of equity holdings)
Monsanto Co. 6.82%
Pioneer Hi-Bred International, Inc. 5.19%
Dell Computer Corp. 5.07%
Progressive Corp. 4.86%
Minerals Technologies, Inc. 4.81%
Fund holdings will vary for other periods.
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/97 10/31/97
Net Asset Value per Share $15.34 $15.00
Accumulation Unit Value 1.0203 1.0000
Distributions per Share Income Short-Term Long-Term
(10/31/97 - 12/31/97) Dividends Capital Gains Capital Gains
- - -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the value of an investment made in Growth Shares
Portfolio, compared to the growth of the Standard & Poor's (S&P) 500 Index.
Growth S&P
Shares 500
Date Portfolio* Index
10/97 10,000 10,000
11/97 10,160 10,446
12/97 10,227 10,653
The S&P 500 Index is a unmanaged measure of
500 widely held common stocks listed on the
New York Stock Exchange, American Stock
Exchange and over-the-counter market. Index
returns assume reinvestment of dividends and,
unlike Portfolio returns, do not reflect any
fees or expenses. Portfolio returns are based
on net asset value and do not reflect any
annuity-related costs. You cannot invest
directly in the Index.
[side bar]
Cumulative Total Returns
(As of December 31, 1997)
Net Asset Value*
Period
Life-of-Portfolio 2.27%
Accumulation Unit Value
Pioneer Vision 2
If If
Period Held** Redeemed***
Life-of- 2.03% -4.04%
Portfolio
Accumulation Unit Value
Pioneer Vision
If If
Period Held** Redeemed***
Life-of- 2.03% -4.40%
Portfolio
The Portfolio began operations on 10/31/97.
All total returns shown assume reinvestment
of distributions at net asset value.
* Reflects portfolio performance only.
Does not reflect insurance fees or
surrender charges.
** Reflects deduction of a 1.25% mortality
and expense risk charge and a 0.15%
administrative expense charge. Does not
reflect surrender charges.
*** Reflects deduction of a 1.25% mortality
and expense risk charge and a 0.15%
administrative expense charge, and the
applicable contingent deferred sales
charge (CDSC), as if the contract were
surrendered at the end of each period.
The maximum CDSC of 7% declines over
seven years; it is deducted only while
the contract is in the surrender charge
period. Returns do not reflect a $30
annual contract fee; this fee is applied
only until the contract value reaches
$50,000.
[end side bar]
Past performance does not guarantee future results. Return and principal
fluctuate so that your investment, when redeemed, may be worth more or less
than the original cost. 7
<PAGE>
Real Estate Growth Portfolio PIONEER VARIABLE CONTRACTS TRUST
PORTFOLIO MANAGEMENT DISCUSSION 12/31/97
[sidebar]
Real-estate related investments involve
specific risks, including those related to
general and local economic conditions and
individual properties.
The Portfolio's investment adviser,
Pioneering Management Corporation, reduced
its management fee and certain other
expenses; otherwise, returns would have been
lower. Past performance does not guarantee
future results. Return and principal
fluctuate so that your investment, when
redeemed, may be worth more or less than the
original cost.
[end sidebar]
Real Estate Growth Portfolio rewarded shareowners for 1997, posting a total
return of 21.16% at net asset value and besting the 19.80% return realized by
the Wilshire Real Estate Securities Index. The Portfolio paid $0.54 per share
in income dividends and $0.027 in capital gains distributions per share for the
year ended December 31.
In 1997, perception and reality powerfully influenced the financial markets. At
various times, investors' belief that higher inflation was on its way put
considerable pressure on stock and bond prices. As official government reports
continually proved inflation was not a threat, however, rallies ensued. When
the Asian currency crisis came to a head in late October, markets worldwide
gyrated wildly.
The REIT Market
The market for real estate investment trusts (REITs) was strong, but it did
experience its own downward pressure and explosive momentum. However, the
hybrid nature of REITs - part income vehicle, part growth - meant their prices
again exhibited less volatility than broader stock market prices. When the Dow
Jones Industrial Average tumbled more than 6% in October, REITs declined only
half as much. When stocks recovered quickly, REITs came back more slowly.
The driving forces behind positive REIT performance in 1997 were the real
estate industry's solid financial and business characteristics. Vacancy rates
were low. Lease rates climbed. Cash flows were generally positive. Demand for
real estate exceeded supply in most U.S. regions, and demand for REIT
securities themselves was strong. An ongoing trend of consolidation created
more financially sound, higher-quality and geographically diverse companies.
Emphasis on Office and Full-Service Hotels
The office and full-service hotel sectors were our primary focus. Mergers and
acquisitions boosted the performance of many holdings. Early in the period, for
example, the Portfolio owned both Beacon Properties and Equity Office
Properties Trust, two notable performers. Equity Office Properties Trust
acquired Beacon Properties, and both stocks rose. We also added new holdings to
this sector, including Glenborough Realty Trust and Brandywine Realty Trust.
The Portfolio holds a substantial position in hotel REITs because we believe
they have strong potential for appreciation. Despite a sector downturn in
December, many issues posted gains. Starwood Lodging Trust, the Portfolio's
second-largest holding, suffered during its bid to acquire ITT Sheraton, but
made a significant contribution to performance. Patriot American Hospitality,
another large holding, continues to make and benefit from major acquisitions.
Portfolio holdings in multi-family housing and residential REITs performed in
line with expectations. Retail holdings, however, remained limited and
generally disappointing.
Optimism Prevails for Early 1998
We believe the current fundamentals of the real estate industry will continue
to propel the sector forward in the months ahead. We expect further growth in
REIT market capitalization as more private owners turn to the public market to
securitize their assets. And we are now starting to see the acceleration of
dividend payouts from many companies, which should bolster investor demand for
the attractive income potential REITs offer.
Selectivity is becoming more crucial as the real estate cycle inevitably
matures and pockets of overbuilding emerge. We continue to rely on the research
capabilities and support of Boston Financial Securities as we focus on the
individual strengths of each potential holding to help us reward shareowners
with strong long-term results.
Respectfully,
/s/ Robert W. Benson
Robert W. Benson,
Portfolio Manager
8
<PAGE>
Real Estate Growth Portfolio PIONEER VARIABLE CONTRACTS TRUST
PORTFOLIO AND PERFORMANCE UPDATE 12/31/97
Portfolio Diversification
(As a percentage of total portfolio)
[pie chart]
U.S. Common Stocks 96%
Short-Term Cash Equivalents 4%
[end pie chart]
Sector Distribution
(As a percentage of equity holding)
[pie chart]
Real Estate Investments Trusts 86%
Real Estate Services 10%
Services 4%
[end pie chart]
- --------------------------------------------------------------------------------
Five Largest Holdings
(As a percentage of equity holdings)
Catellus Development Corp. 4.41%
Starwood Lodging Trust 4.26%
Patriot American Hospitality, Inc. 4.11%
Prentiss Properties Trust 4.11%
Apartment Investment & Management Co. 4.05%
Fund holdings will vary for other periods.
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/97 12/31/96
Net Asset Value per Share $16.90 $14.46
Accumulation Unit Value 1.8494 1.5477
Distributions per Share Income Short-Term Long-Term
(12/31/96 - 12/31/97) Dividends Capital Gains Capital Gains
$0.445 $ 0.096 $ 0.026
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the value of an investment made in Real Estate Growth
Portfolio, compared to the growth of the Standard & Poor's (S&P) 500 Index and
the Wilshire Real Estate Securities Index.
Wilshire
Real
Real Estate Estate
Growth Securities
Date Portfolio* S&P 500 Index Index
3/95 10,000 10,000 10,000
6/95 10,721 10,951 10,435
11,482 11,819 10,930
12/95 11,696 12,528 11,322
12,020 13,200 11,800
6/96 12,316 13,791 12,360
13,548 14,214 13,090
12/96 15,875 15,397 15,497
16,178 15,813 15,781
6/97 16,875 18,568 16,507
19,340 19,956 18,592
12/97 19,235 20,527 18,565
The S&P 500 Index is an unmanaged measure of
500 widely held common stocks listed on the
New York Stock Exchange, American Stock
Exchange and the over-the-counter market. The
Wilshire Real Estate Securities Index is a
market-capitalization weighted measure of the
performance of real estate securities. The
Index is 92% REITs (equity and hybrid) and 8%
real estate operating companies. Index
returns are calculated monthly, assume
reinvestment of dividends and, unlike
Portfolio returns, do not reflect any fees,
expenses or sales charges. You cannot invest
directly in the Indexes.
[side bar]
Average Annual Total Returns
(As of December 31, 1997)
Net Asset Value*
Period
Life-of-Portfolio 25.90%
1 Year 21.16
Accumulation Unit Value
Pioneer Vision 2
If If
Period Held** Redeemed***
Life-of- 24.16% 22.98%
Portfolio
1 Year 19.50 13.50
Accumulation Unit Value
Pioneer Vision
If If
Period Held** Redeemed***
Life-of- 24.16% 22.50%
Portfolio
1 Year 19.50 12.50
The Portfolio began operations on 3/1/95.
All total returns shown assume reinvestment
of distributions at net asset value.
* Reflects portfolio performance only.
Does not reflect insurance fees or
surrender charges.
** Reflects deduction of a 1.25% mortality
and expense risk charge and a 0.15%
administrative expense charge. Does not
reflect surrender charges.
*** Reflects deduction of a 1.25% mortality
and expense risk charge and a 0.15%
administrative expense charge, and the
applicable contingent deferred sales
charge (CDSC), as if the contract were
surrendered at the end of each period.
The maximum CDSC of 7% declines over
seven years; it is deducted only while
the contract is in the surrender charge
period. Returns do not reflect a $30
annual contract fee; this fee is applied
only until the contract value reaches
$50,000.
[end sidebar]
Past performance does not guarantee future results. Return and principal
fluctuate so that your investment, when redeemed, may be worth more or less
than the original cost.
9
<PAGE>
Growth and Income Portfolio PIONEER VARIABLE CONTRACTS TRUST
PORTFOLIO MANAGEMENT DISCUSSION 12/31/97
[sidebar]
The Portfolio's investment adviser,
Pioneering Management Corporation, reduced
its management fee and certain other
expenses; otherwise, returns would have been
lower. Past performance does not guarantee
future results. Return and principal
fluctuate so that your investment, when
redeemed, may be worth more or less than the
original cost.
[end sidebar]
Growth and Income Portfolio was just beginning to take shape by year's end,
barely two months after its inception on October 31, 1997. Initial investment
results were positive, with a gain of 5.43% through December 31, based on net
asset value and assuming reinvestment of the first quarterly income dividend
paid in December. As we write to you, assets in the portfolio are growing at a
brisk pace, and the Portfolio has a diversification of industries and companies
representative of our longer-term investment goals.
When selecting investments for the Portfolio, we are guided by the traditional
"value" style of investing that has characterized the model for this Portfolio,
Pioneer Fund, since its founding in 1928. For each individual company, we
analyze financial strength and business prospects, looking for hidden or
generally misunderstood assets. We give particular care to its balance sheet,
cash flow and quality of management, including whether management has a
personal stake in the company in the form of stock. In keeping with the
Portfolio's dual objective of growth and income, we pay attention to both a
stock's dividend income and potential for price appreciation.
The Portfolio contains a broad range of companies, spanning industries from
older sectors of the economy - railroads, banking and mining - to newer
groups - healthcare, pharmaceuticals and technology. Our strict screening
process and conservative policies usually result in a list of large,
high-quality companies. Many are probably well known to you because they
provide goods and services you use or are familiar with. Motorola,
Colgate-Palmolive, DuPont, Ford Motor, Wal-Mart Stores, H.J. Heinz and
International Business Machines are a few examples of Portfolio holdings.
Others illustrate our occasional search for value among little-known securities
and are probably less familiar to you. Good examples are Becton Dickinson, a
leader in hospital supplies, Teligent, a new provider of local telephone
services, and Harris, a supplier of communications and broadcasting gear. There
are also a few high-quality European stocks, including Bayer, Roche Holdings
and Nestle, although foreign holdings will be capped at 10% of total assets.
Our intent, as with Pioneer Fund, is to focus principally on the many
investment opportunities present in the United States.
We thank you for selecting Growth and Income Portfolio, and look forward to
working for you over the years to come.
Respectfully,
/s/ John A. Carey
John A. Carey,
Portfolio Manager
10
<PAGE>
Growth and Income Portfolio PIONEER VARIABLE CONTRACTS TRUST
PORTFOLIO AND PERFORMANCE UPDATE 12/31/97
Portfolio Diversification
(As a percentage of total portfolio)
[pie chart]
U.S. Common Stocks 76%
Short-Term Cash Equivalents 17%
Depositary Receipts for International Stocks 6%
International Common Stocks 1%
[end pie chart]
Sector Distribution
(As a percentage of equity holdings)
[pie chart]
Technology 24%
Financials 16%
Basic Materials 10%
Consumer Cyclicals 10%
Healthcare 10%
Comsumer Staples 9%
Communication Services 7%
Energy 7%
Utilities 4%
Other 3%
[end pie chart]
- --------------------------------------------------------------------------------
Five Largest Holdings
(As a percentage of equity holdings)
Teligent, Inc. 3.99%
Nestle SA (Sponsored A.D.R.) 3.27%
Colgate-Palmolive Co. 3.21%
Motorola, Inc. 2.93%
McGraw-Hill Co., Inc. 2.85%
Fund holdings will vary for other periods.
- --------------------------------------------------------------------------------
Prices and Distributions
Inception
12/31/97 10/31/97
Net Asset Value per Share $ 15.80 $ 15.00
Accumulation Unit Value 1.0525 1.0000
Distributions per Share Income Short-Term Long-Term
(10/31/97 - 12/31/97) Dividends Capital Gains Capital Gains
$ 0.014 - -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the value of an
investment made in Growth and Income
Portfolio, compared to the growth of the
Standard & Poor's (S&P) 500 Index.
Growth and
Income S&P 500
Date Portfolio* Index
10/97 10,000 10,000
11/97 10,473 10,446
12/97 10,543 10,653
The S&P 500 Index is a unmanaged measure of
500 widely held common stocks listed on the
New York Stock Exchange, American Stock
Exchange and over-the-counter market. Index
returns assume reinvestment of dividends and,
unlike Portfolio returns, do not reflect any
fees or expenses. Portfolio returns are based
on net asset value and do not reflect any
annuity-related costs. You cannot invest
directly in the Index.
[sidebar]
Cumulative Total Returns
(As of December 31, 1997)
Net Asset Value*
Period
Life-of-Portfolio 5.43%
Accumulation Unit Value
Pioneer Vision 2
If If
Period Held** Redeemed***
Life-of- 5.25% -1.01%
Portfolio
Accumulation Unit Value
Pioneer Vision
If If
Period Held** Redeemed***
Life-of- 5.25% -1.38%
Portfolio
The Portfolio began operations on 10/31/97.
All total returns shown assume reinvestment
of distributions at net asset value.
* Reflects portfolio performance only.
Does not reflect insurance fees or
surrender charges.
** Reflects deduction of a 1.25% mortality
and expense risk charge and a 0.15%
administrative expense charge. Does not
reflect surrender charges.
*** Reflects deduction of a 1.25% mortality
and expense risk charge and a 0.15%
administrative expense charge, and the
applicable contingent deferred sales
charge (CDSC), as if the contract were
surrendered at the end of each period.
The maximum CDSC of 7% declines over
seven years; it is deducted only while
the contract is in the surrender charge
period. Returns do not reflect a $30
annual contract fee; this fee is applied
only until the contract value reaches
$50,000.
[end sidebar]
Past performance does not guarantee future results. Return and principal
fluctuate so that your investment, when redeemed, may be worth more or less
than the original cost.
11
<PAGE>
Equity-Income Portfolio PIONEER VARIABLE CONTRACTS TRUST
PORTFOLIO MANAGEMENT DISCUSSION 12/31/97
[sidebar]
Past performance does not guarantee future
results. Return and principal fluctuate so
that your investment, when redeemed, may be
worth more or less than the original cost.
[end sidebar]
Equity-Income Portfolio showed a strong total return in 1997, keeping pace with
the overall stock market as measured by the Standard & Poor's (S&P) 500 Index.
The Portfolio's total return for the year was 35.23% at net asset value and
assuming reinvestment of all distributions, versus 33.29% for the S&P.
Focus on Dividend-Paying, U.S. Stocks
The Portfolio's conservative, income-oriented style paid off handsomely in
1997. Our emphasis on stocks that pay above-average dividends meant your
Portfolio was invested in several sectors - including banks and
telecommunications - that turned in above-average results. Pharmaceutical
holdings, including Schering-Plough and Warner-Lambert, also made exceptional
gains.
We added several holdings to the Portfolio over the course of 1997. New
entries, particularly in the second half of the year, were very much in keeping
with the kinds of well-established, dividend-paying stocks we have preferred
from the start. (Remember, the Portfolio only invests in U.S.-based companies.)
A sampling of new entries illustrates the Portfolio's diverse nature: American
Home Products is a leading pharmaceutical company; Colgate-Palmolive is a
worldwide supplier of toothpaste and soap; and Boston Edison is an electric
utility responding constructively to the new era of deregulation.
Moving Ahead
Portfolio assets grew throughout 1997, from both portfolio appreciation and new
investment dollars. By December 31, the Portfolio was the largest of the
Pioneer Variable Contracts Trust portfolios with more than $120 million in net
assets. Since our investment strategy for your Portfolio emphasizes large,
well-known "blue-chip" stocks, it has been quite easy to expand the Portfolio
and accommodate added assets.
That flexibility is likely to be important in 1998, whether it turns out to be
a good year or bad for U.S. stocks. In another good year, the Portfolio should
have no difficulty absorbing additional investments. If the stock market slows
its pace, stocks like those in the Portfolio should hold up relatively
well - our value discipline steers us toward fairly low-priced stocks.
Portfolio holdings tend to have a ready supply of buyers and sellers, and
market volatility tends to drive investors toward high-quality, dividend-paying
stocks like those in the Portfolio. Even if U.S. stocks experience a setback,
we remain optimistic about the long-term prospects for the American economy and
stock market.
Respectfully,
/s/ John A. Carey
John A. Carey,
Portfolio Manager
12
<PAGE>
Equity-Income Portfolio PIONEER VARIABLE CONTRACTS TRUST
PORTFOLIO AND PERFORMANCE UPDATE 12/31/97
Portfolio Diversification
(As a percentage of total portfolio)
[pie chart]
U.S. Common Stocks 96%
U.S. Convertible Securities 2%
Short-Term Cash Equivalents 2%
[end pie chart]
Sector Distribution
(As a percentage of equity holdings)
[pie chart]
Capital Goods 1%
Consumer Staples 6%
Technology 6%
Basic Materials 7%
Consumer Cyclicals 9%
Energy 10%
Utilities 11%
Healthcare 12%
Communication Services 18%
Financials 20%
[end pie chart]
- --------------------------------------------------------------------------------
Five Largest Holdings
(As a percentage of equity holdings)
<TABLE>
<S> <C>
Schering-Plough Corp. 4.52%
Sprint Corp. 4.10%
GTE Corp. 3.80%
Ford Motor Co. 3.80%
Chevron Corp. 3.18%
</TABLE>
Fund holdings will vary for other periods.
- --------------------------------------------------------------------------------
Prices and Distributions
<TABLE>
<CAPTION>
12/31/97 12/31/96
<S> <C> <C>
Net Asset Value per Share $18.14 $13.73
Accumulation Unit Value 1.8514 1.3881
</TABLE>
<TABLE>
<CAPTION>
Distributions per Share Income Short-Term Long-Term
(12/31/96 - 12/31/97) Dividends Capital Gains Capital Gains
<S> <C> <C> <C>
$0.368 - $ 0.012
</TABLE>
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the value of an investment made in Equity-Income
Portfolio, compared to the growth of the Standard & Poor's (S&P) 500 Index.
Equity-Income
Date Portfolio* S&P 500 Index
3/95 10,000 10,000
10,280 10,338
6/95 10,990 11,321
11,785 12,218
12/95 12,362 12,951
12,778 13,646
6/96 12,881 14,527
13,189 14,694
12/96 14,240 15,917
14,745 16,347
6/97 16,866 19,195
18,202 20,630
12/97 19,257 21,220
The S&P 500 Index is a unmanaged measure of
500 widely held common stocks listed on the
New York Stock Exchange, American Stock
Exchange and over-the-counter market. Index
returns assume reinvestment of dividends and,
unlike Portfolio returns, do not reflect any
fees or expenses. Portfolio returns are based
on net asset value and do not reflect any
annuity-related costs. You cannot invest
directly in the Index.
[sidebar]
Average Annual Total Returns
(As of December 31, 1997)
Net Asset Value*
<TABLE>
<S> <C>
Period
Life-of-Portfolio 25.95%
1 Year 35.23
</TABLE>
Accumulation Unit Value
Pioneer Vision 2
<TABLE>
<CAPTION>
If If
Period Held** Redeemed***
<S> <C> <C>
Life-of- 24.22% 23.04%
Portfolio
1 Year 33.37 27.37
</TABLE>
Accumulation Unit Value
Pioneer Vision
<TABLE>
<CAPTION>
If If
Period Held** Redeemed***
<S> <C> <C>
Life-of- 24.22% 22.56%
Portfolio
1 Year 33.37 26.37
</TABLE>
The Portfolio began operations on 3/1/95.
All total returns shown assume reinvestment
of distributions at net asset value.
* Reflects portfolio performance only.
Does not reflect insurance fees or
surrender charges.
** Reflects deduction of a 1.25% mortality
and expense risk charge and a 0.15%
administrative expense charge. Does not
reflect surrender charges.
*** Reflects deduction of a 1.25% mortality
and expense risk charge and a 0.15%
administrative expense charge, and the
applicable contingent deferred sales
charge (CDSC), as if the contract were
surrendered at the end of each period.
The maximum CDSC of 7% declines over
seven years; it is deducted only while
the contract is in the surrender charge
period. Returns do not reflect a $30
annual contract fee; this fee is applied
only until the contract value reaches
$50,000.
[end sidebar]
Past performance does not guarantee future results. Return and principal
fluctuate so that your investment, when redeemed, may be worth more or less than
the original cost.
13
<PAGE>
Balanced Portfolio PIONEER VARIABLE CONTRACTS TRUST
PORTFOLIO MANAGEMENT DISCUSSION 12/31/97
[sidebar]
Past performance does not guarantee future
results. Return and principal fluctuate so
that your investment, when redeemed, may be
worth more or less than the original cost.
[end sidebar]
Pioneer Balanced Portfolio weathered a variety of market conditions in both the
stock and bond market over the course of 1997. As measured by the Standard &
Poor's 500 Index, large stocks brushed off fourth-quarter volatility to end the
year with a 33.29% total return. Bonds were lifted by strong late-year demand,
and as measured by the Lehman Brothers Government/Corporate Bond Index, the bond
market returned a bold 9.75% for the year.
Your Portfolio posted a healthy total return of 17.62% at net asset value and
maintained a steady quarterly dividend. The year's performance landed as
anticipated, between the S&P 500 Index and the Lehman Brothers
Government/Corporate Bond Index.
A Dual Approach: Stocks for Growth and Income
The Portfolio's conservative "core value" holdings are geared toward a variety
of investors. We designed Balanced Portfolio to specifically allow broad
flexibility. By increasing or decreasing stock and bond allocations, the
Portfolio can adapt to fluctuating market conditions, while reducing overall
risk through diversification.
By year-end, 54% of the Portfolio was in stocks and 23% in bonds. Nearly 23%
was invested in short-term cash equivalents earmarked to purchase bonds early
in 1998. Normally, cash equivalents account for about 5% of holdings.
Financial Stocks Led a Diversified Portfolio
Holdings in financial and technology stocks played a major role in your
Portfolio's performance this year. By December 31, 1997, financial companies
were the largest group - 32% of long-term holdings. A continuing trend of
consolidation in the banking and financial sector led prices up for Portfolio
holdings Chase Manhattan and First Union. Technology stocks also posted strong
gains for the year after rebounding from earlier sell-offs. Holdings such as
Compaq Computer, manufacturer of personal computers, and Adaptec, developer of
computer network supplies, enjoyed substantial business growth and sharp gains
in their stock price.
Quality Bonds Performed
We focus on high-quality bonds with a conservative duration. (Duration measures
the sensitivity of bond prices in relation to movement in interest rates. The
longer the duration, the more a price will fluctuate with a change in interest
rates - up or down.) On December 31, the Portfolio's bonds had an average
quality rating of AA, and duration was in the medium range, 5.45 years. This
high-quality focus and conservative duration strategy help control risk by
maintaining a solid "core" portfolio of fixed-income securities.
Late in the year, falling Asian stock markets sent global investors on a
"flight to quality" away from volatile stocks and into historically more stable
investments. Demand for U.S. government and agency issues spiked, and prices
rocketed up as long-term interest rates fell. At year's end, U.S. government
securities accounted for 9% of the portfolio.
A Look Ahead
We are satisfied with the Portfolio's performance for 1997. Its diversified
blend of stocks and bonds is, we believe, well suited for long-term investors
looking for both growth potential and regular income. Because we use a value
strategy for stocks and focus on quality for bonds, the Portfolio isn't likely
to move as quickly, either up or down, as more aggressive investments - making
it a good choice for conservative investors.
Respectfully,
/s/ William C. Field
William C. Field,
Portfolio Manager
14
<PAGE>
Balanced Portfolio PIONEER VARIABLE CONTRACTS TRUST
PORTFOLIO AND PERFORMANCE UPDATE 12/31/97
Portfolio Diversification
(As a percentage of total portfolio)
[pie chart]
U.S. Convertible Securities 0.3%
Depositary Receipts for International Stocks 1.6%
U.S. Government Obligations 8.6%
Corporate Bonds 14.7%
Short-Term Cash Equivalents 22.9%
U.S. Common Stocks 51.9%
[end pie chart]
Sector Distribution
(As a percentage of long-term holdings)
[pie chart]
Other 5%
Consumer Services 2%
Consumer Cyclicals 3%
Communication Services 4%
Capital Goods 4%
Basic Materials 6%
Government Securities 11%
Healthcare 14%
Technology 19%
Financials 32%
[end pie chart]
Portfolio Maturity
(Effective life as a percentage
of total fixed-income holdings)
[pie chart]
10-20 Years 5%
7-10 Years 21%
5-7 Years 10%
2-5 Years 52%
0-2 Years 12%
[end pie chart]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Five Largest Holdings
(As a percentage of long-term holdings)
<TABLE>
<S> <C>
Monsanto Co. 3.52%
Allstate Corp. 3.27%
Merck & Co., Inc. 3.18%
U.S. Treasury Notes, 6.25%, 3/31/99 3.02%
U.S. Treasury Notes, 5.875%, 9/30/02 3.01%
</TABLE>
Fund holdings will vary for other periods.
- --------------------------------------------------------------------------------
Prices and Distributions
<TABLE>
<CAPTION>
12/31/97 12/31/96
<S> <C> <C>
Net Asset Value per Share $14.99 $13.19
Accumulation Unit Value 1.5161 1.3122
</TABLE>
<TABLE>
<CAPTION>
Distributions per Share Income Short-Term Long-Term
(12/31/96 - 12/31/97) Dividends Capital Gains Capital Gains
<S> <C> <C> <C>
$0.359 $ 0.061 $ 0.075
</TABLE>
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the value of an investment made in Balanced
Portfolio, compared to the growth of the Standard & Poor's (S&P) 500 Index and
the Lehman Brothers Government/Corporate Bond Index.
Lehman Brothers
Balanced Government/Corporate
Date Portfolio* S&P 500 Index Bond Index
3/95 10,000 10,000 10,000
10,200 10,338 10,067
6/95 10,810 11,321 10,720
11,655 12,218 10,925
12/95 12,084 12,951 11,434
12,450 13,646 11,170
6/96 12,686 14,527 11,222
12,954 14,694 11,421
12/96 13,806 15,917 11,770
13,794 16,347 11,668
6/97 15,180 19,195 12,092
16,442 20,630 12,516
12/97 16,239 21,220 12,918
The S&P 500 Index is a unmanaged mea sure of
500 widely held common stocks listed on the
New York Stock Exchange, American Stock
Exchange and over-the- counter market. The
Lehman Brothers Government/Corporate Bond
Index is an unmanaged measure of
investment-grade domestic and Yankee bonds.
Bonds in the Index must be publicly issued,
fixed-rate and non-convertible. Index returns
assume reinvestment of dividends and, unlike
Portfolio returns, do not reflect any fees or
expenses. Portfolio returns are based on net
asset value and do not reflect any
annuity-related costs. You cannot invest
directly in the Indexes.
[sidebar]
Average Annual Total Returns
(As of December 31, 1997)
Net Asset Value*
<TABLE>
<S> <C>
Period
Life-of-Portfolio 18.61%
1 Year 17.62
</TABLE>
Accumulation Unit Value
Pioneer Vision 2
<TABLE>
<CAPTION>
If If
Period Held** Redeemed***
<S> <C> <C>
Life-of- 16.81% 15.49%
Portfolio
1 Year 15.54 9.64
</TABLE>
Accumulation Unit Value
Pioneer Vision
<TABLE>
<CAPTION>
If If
Period Held** Redeemed***
<S> <C> <C>
Life-of- 16.81% 14.94%
Portfolio
1 Year 15.54 8.54
</TABLE>
The Portfolio began operations on 3/1/95.
All total returns shown assume reinvestment
of distributions at net asset value.
* Reflects portfolio performance only.
Does not reflect insurance fees or
surrender charges.
** Reflects deduction of a 1.25% mortality
and expense risk charge and a 0.15%
administrative expense charge. Does not
reflect surrender charges.
*** Reflects deduction of a 1.25% mortality
and expense risk charge and a 0.15%
administrative expense charge, and the
applicable contingent deferred sales
charge (CDSC), as if the contract were
surrendered at the end of each period.
The maximum CDSC of 7% declines over
seven years; it is deducted only while
the contract is in the surrender charge
period. Returns do not reflect a $30
annual contract fee; this fee is applied
only until the contract value reaches
$50,000.
[sidebar end]
Past performance does not guarantee future results. Return and principal
fluctuate so that your investment, when redeemed, may be worth more or less than
the original cost.
15
<PAGE>
Swiss Franc Bond Portfolio PIONEER VARIABLE CONTRACTS TRUST
PORTFOLIO MANAGEMENT DISCUSSION 12/31/97
[sidebar]
International investing may involve special risks, including differences in
accounting and currency as well as economic and political instability.
The Portfolio's investment adviser, Pioneering Management Corporation, reduced
its management fee and certain other expenses; otherwise, returns would have
been lower. Past performance does not guarantee future results. Return and
principal fluctuate so that your investment, when redeemed, may be worth more
or less than the original cost.
[end sidebar]
The Swiss franc declined in value versus the U.S. dollar in 1997, despite a
strong showing in comparison to many other currencies. The performance of Swiss
Franc Bond Portfolio reflects the relationship between the dollar and the Swiss
franc. As a result, on December 31, 1997, the Portfolio's net asset value (NAV)
was $12.50, down from $13.42 on December 31, 1996. The change meant a -6.86%
12-month total return at NAV.
A Specialty Portfolio
We designed Swiss Franc Bond Portfolio to provide income by investing in debt
obligations denominated in Swiss francs. This means the Portfolio's performance
will reflect both the strength of the U.S. dollar in relation to the Swiss
franc and the value of the underlying investments. As of December 31, 1997, the
franc:dollar exchange rate was fr1.462:$1, compared to fr1.339:$1 one year
earlier. The strength of the dollar and continued positive performance in the
U.S. stock market combined to diminish the appeal of the Swiss franc to
investors looking for a safe-haven currency.
As part of our investment strategy, we seek the best values we can find in
franc-denominated bonds: The Portfolio usually contains issues from a variety
of sources. On December 31, 1997, there were 24 securities in the Portfolio
representing 16 countries, with an average quality rating of AA. The
Portfolio's average effective maturity was 3.45 years.
Looking Ahead
By design, the Portfolio offers an opportunity for investors seeking to take
advantage of the relationship between the strength of the Swiss franc and the
U.S. dollar. Our overall strategy continues to center on finding opportunities
we think will deliver a strong income stream and attractive returns to
Portfolio investors over the long term.
Respectfully,
/s/ Salvatore Pramas
Salvatore Pramas,
Portfolio Manager
16
<PAGE>
Swiss Franc Bond Portfolio PIONEER VARIABLE CONTRACTS TRUST
PORTFOLIO AND PERFORMANCE UPDATE 12/31/97
Portfolio Diversification
(As a percentage of total portfolio)
[pie chart]
Foreign Corporate Bonds 69%
Foreign Government Bonds 25%
Short-Term Cash Equivalents 6%
[end pie chart]
Geographical Distribution
(As a percentage of fixed-income holdings)
[pie chart]
Europe 62%
Asia 21%
North America 17%
[end pie chart]
- --------------------------------------------------------------------------------
Five Largest Holdings
(As a percentage of debt holdings)
Bayrische Vereinsbank, 4.25%, 2/21/07 10.38%
Merrill Lynch & Co., 3.0%, 4/08/02 9.54%
Republic of Ireland, 6.5%, 1/15/01 6.35%
Rhone-Alpes, 6.375%, 11/25/02 5.38%
Statoil, 4.125%, 9/20/01 5.32%
Fund holdings will vary for other periods.
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/97 12/31/96
Net Asset Value per Share $12.50 $13.42
Accumulation Unit Value 0.8083 0.8806
Distributions per Share Income Short-Term Long-Term
(12/31/96 - 12/31/97) Dividends Capital Gains Capital Gains
- - -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the value of an investment made in Swiss Franc Bond
Portfolio, compared to the growth of the Merrill Lynch Global Bond Index.
Merrill Lynch
Swiss Franc Global
Date Bond Portfolio* Bond Index
11/95 10,000 10,000
12/95 10,040 10,206
9,833 10,202
6/96 9,242 10,070
9,442 10,343
12/96 8,955 10,597
8,421 10,190
6/97 8,401 10,507
8,395 10,650
12/97 8,335 10,692
The Merrill Lynch Global Bond Index is an
unmanaged measure of nearly 3,000 global
government securities and Eurobonds. Index
returns are calculated monthly, assume
reinvestment of dividends and, unlike
Portfolio returns, do not reflect any fees or
expenses. Portfolio returns are based on net
asset value and do not reflect any
annuity-related costs. You cannot invest
directly in the Index.
Average Annual Total Returns
(As of December 31, 1997)
Net Asset Value*
Period
Life-of-Portfolio -8.05%
1 Year -6.86
Accumulation Unit Value
Pioneer Vision 2
If If
Period Held** Redeemed***
Life-of- -9.34% -11.15%
Portfolio
1 Year -8.21 -12.89
Accumulation Unit Value
Pioneer Vision
If If
Period Held** Redeemed***
Life-of- -9.34% -12.04%
Portfolio
1 Year -8.21 -14.00
The Portfolio began operations on 11/1/95.
All total returns shown assume reinvestment
of distributions at net asset value.
* Reflects portfolio performance only.
Does not reflect insurance fees or
surrender charges.
** Reflects deduction of a 1.25% mortality
and expense risk charge and a 0.15%
administrative expense charge. Does not
reflect surrender charges.
*** Reflects deduction of a 1.25% mortality
and expense risk charge and a 0.15%
administrative expense charge, and the
applicable contingent deferred sales
charge (CDSC), as if the contract were
surrendered at the end of each period.
The maximum CDSC of 7% declines over
seven years; it is deducted only while
the contract is in the surrender charge
period. Returns do not reflect a $30
annual contract fee; this fee is applied
only until the contract value reaches
$50,000.
Past performance does not guarantee future results. Return and principal
fluctuate so that your investment, when redeemed, may be worth more or less
than the original cost. 17
<PAGE>
America Income Portfolio PIONEER VARIABLE CONTRACTS TRUST
PORTFOLIO MANAGEMENT DISCUSSION 12/31/97
[sidebar]
The Portfolio's investment adviser, Pioneering Management Corporation, reduced
its management fee and certain other expenses; otherwise, returns would have
been lower. Past performance does not guarantee future results. Return and
principal fluctuate so that your investment, when redeemed, may be worth more
or less than the original cost.
[end sidebar]
United States government bonds posted attractive gains in 1997, as interest
rates fell dramatically. News of continued low inflation, a healthy economic
environment and a declining federal budget deficit drove interest rates down
and bond prices up. Foreign demand for U.S. bonds was steady throughout most of
the year, particularly in the fourth quarter, when turmoil in Asian financial
markets sent investors looking for a safe haven and fueled a "flight to
quality" in the U.S. bond market.
The bond market's strength erased weakness that occurred early in the year when
investors were concerned that stronger-than-expected economic growth would
reignite inflation. In an effort to prevent an increase in inflationary
pressures, the Federal Reserve raised the federal funds rate from 5.25% to
5.50% in March. (The federal funds rate is the rate at which banks lend to each
other overnight and the benchmark for short-term interest rates.) Interest
rates rose until the second quarter, then reversed course as the economy began
to show signs of slowing.
America Income Portfolio produced an attractive level of income and a solid
total return over the past 12 months in this mostly positive environment. The
Portfolio paid a total of $0.539 per share in income dividends in 1997. The
increase in share price plus the reinvestment of dividends generated a total
return of 8.44% for the year, based on NAV.
Emphasis on Quality
Throughout the year, our strategies reflected the Portfolio's extremely high
standards for credit quality and diversification. At year-end, 66% of the
Portfolio was invested in U.S. Treasury and agency securities, 31% in
mortgage-backed securities and 3% in cash equivalents. This structure resulted
in an average portfolio quality of AAA as of December 31. We positioned the
Portfolio to take advantage of opportunities that become available from shifts
in long-term and short-term interest rates. We did this by "barbelling" the
maturity profile, investing 51% of assets in bonds with maturities of five
years or less and 41% of assets in the seven- to 20-year maturity range. This
balance reflects our economic and interest-rate outlook and includes maturities
we believe provided the best relative value.
Going Forward
We believe many of the trends that pushed bond prices higher over the past year
- - including low inflation and a declining federal budget deficit - can
continue. However, the development of the Asia situation, and its effect on the
U.S. economy, creates uncertainty with regard to the future direction of
interest rates.
The U.S economy, highlighted by brisk employment growth and a high level of
consumer confidence, remains strong. Typically, this could rekindle investors'
fears about future inflation, which would drive interest rates higher and bond
prices lower. We believe the slowdown in Asia, however, could dampen U.S.
economic growth and reduce inflation from its already minimal level. That kind
of outcome would calm investors' concerns about inflation.
The Portfolio's emphasis on high-quality securities should continue to benefit
investors, particularly in light of the unfolding situation in Asia. We will
monitor developments in both international and domestic arenas, structuring the
Portfolio to take advantage of the opportunities changing environments often
create.
Respectfully,
/s/ Sherman B. Russ
Sherman B. Russ,
Portfolio Manager
18
<PAGE>
America Income Portfolio PIONEER VARIABLE CONTRACTS TRUST
PORTFOLIO AND PERFORMANCE UPDATE 12/31/97
- --------------------------------------------------------------------------------
[Graphic Pie]
Portfolio Diversification
(As a percentage of total portfolio)
[pie chart]
U.S. Government Agency Obligations 60%
U.S. Treasury Obligations 37%
Short-Term Cash Equivalents 3%
[end chart]
Portfolio Maturity
(Effective life as a percentage of total
investment portfolio)
[pie chart]
2-5 Years 30.7%
7-10 Years 27.7%
0-2 Years 20.2%
10-20 Years 13.4%
5-7 Years 8.0%
[end chart]
- --------------------------------------------------------------------------------
Five Largest Holdings
(As a percentage of debt holdings)
U.S. Treasury Bonds, 7.25%, 5/15/16 18.02%
U.S. Treasury Notes, 7.0%, 7/15/06 6.21%
U.S. Treasury Notes, 7.125%, 2/29/00 4.89%
Federal Home Loan Mortgage Corp., 6.54%, 11/6/07 4.35%
U.S. Treasury Notes, 6.625%, 5/15/07 3.81%
Fund holdings will vary for other periods.
- --------------------------------------------------------------------------------
Prices and Distributions
12/31/97 12/31/96
Net Asset Value per Share $10.04 $9.78
Accumulation Unit Value 1.1141 1.0417
Distributions per Share Income Short-Term Long-Term
(12/31/96 - 12/31/97) Dividends Capital Gains Capital Gains
$0.539 - -
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the value of an investment made in America Income
Portfolio, compared to the growth of the Lehman Brothers Government Bond Index.
America Lehman Brothers
Income Government
Date Portfolio* Bond Index
3/1/95 10,000 10,000
3/31/95 9,994 10,063
6/30/95 10,103 10,687
10,201 10,876
12/31/95 10,568 11,373
10,314 11,116
6/30/96 10,333 11,169
10,473 11,357
12/31/96 10,705 11,688
10,609 11,593
6/30/97 10,960 11,995
11,282 12,397
12/31/97 11,609 12,809
The Lehman Brothers Government Bond Index is
an unmanaged performance measure of U.S.
Treasury debt, all publicly issued debt of
U.S. government agencies and quasi-federal
corporations and corporate debt guaranteed by
the U.S. government. Index returns are
calculated monthly, assume reinvestment of
dividends and, unlike Portfolio returns, do
not reflect any fees or expenses. Portfolio
returns are based on net asset value and do
not reflect any annuity-related costs. You
cannot invest directly in the Index.
[side bar]
Average Annual Total Returns
(As of December 31, 1997)
Net Asset Value*
Period
Life-of-Portfolio 5.39%
1 Year 8.44
- ---------------------------------------
Accumulation Unit Value
Pioneer Vision 2
If If
Period Held** Redeemed***
Life-of- 4.01% 2.43%
Portfolio
1 Year 6.95 1.50
- ---------------------------------------
Accumulation Unit Value
Pioneer Vision
If If
Period Held** Redeemed***
Life-of- 4.01% 1.67%
Portfolio
1 Year 6.95 0.21
The Portfolio began operations on 3/1/95.
All total returns shown assume reinvestment
of distributions at net asset value.
* Reflects portfolio performance only.
Does not reflect insurance fees or
surrender charges.
** Reflects deduction of a 1.25% mortality
and expense risk charge and a 0.15%
administrative expense charge. Does not
reflect surrender charges.
*** Reflects deduction of a 1.25% mortality
and expense risk charge and a 0.15%
administrative expense charge, and the
applicable contingent deferred sales
charge (CDSC), as if the contract were
surrendered at the end of each period.
The maximum CDSC of 7% declines over
seven years; it is deducted only while
the contract is in the surrender charge
period. Returns do not reflect a $30
annual contract fee; this fee is applied
only until the contract value reaches
$50,000.
[end side bar]
Past performance does not guarantee future results. Return and principal
fluctuate so that your investment, when redeemed, may be worth more or less
than the original cost. 19
<PAGE>
International Growth Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
INVESTMENT IN SECURITIES - 92.1%
PREFERRED STOCKS - 3.2%
1,130 Bau Holdings AG $ 51,260
6,700 Centrais Electricas Brasileiras SA (Sponsored A.D.R.) 172,525
500 Hermann Kronseder Maschinenfabrik AG 155,642
1,850,000 Petroleo Brasileiro SA 432,642
160 Suedzucker AG 78,266
5,060 Telecomunicacoes Brasileiras SA (Sponsored A.D.R.) 589,174
17,250 Usinas Siderurgicas de Minas Gerais SA 102,012
----------
TOTAL PREFERRED STOCKS (Cost $1,593,192) $1,581,521
----------
COMMON STOCKS - 88.9%
BASIC MATERIALS - 5.1%
Construction (Cement and Aggregates) - 0.1%
1,100 Siam Cement Public Co., Ltd. $ 8,956
27,732 Siam City Cement Co., Ltd. 30,896
----------
$ 39,852
----------
Containers and Packaging (Paper) - 1.0%
24,200 Gerresheimer Glas AG $ 336,971
5,000 Malaysian Pacific Industries Bhd. 12,020
310 Viag AG 166,976
----------
$ 515,967
----------
Gold and Precious Metals Mining - 0.7%
2,500 Kloof Gold Mining Co., Ltd. $ 8,374
158,700 Orogen Minerals Ltd. 310,298
300 Vaal Reefs Exploration & Mining Co., Ltd. 12,021
----------
$ 330,693
----------
Iron and Steel - 1.3%
6,650 Boehler-Uddeholm AG $ 389,845
12,000 Pohang Iron & Steel Co. Ltd. (Sponsored A.D.R.) 209,250
2,800 Usinor Sacilor 40,429
----------
$ 639,524
----------
Metals Mining - 0.2%
125,000 M.I.M. Holdings Ltd. $ 76,581
----------
Paper and Forest Products - 1.8%
10,300 Metsa Tissue Oyj * $ 99,203
197,000 PT Indah Kiat Pulp & Paper Corp. 34,923
21,600 NV Koninklijke KNP BT 497,482
42,000 PT Pabrik Kertas Tjiwi Kimia 10,309
13,000 UPM-Kymmene Corp. 262,340
----------
$ 904,257
----------
TOTAL BASIC MATERIALS $2,506,874
----------
CAPITAL GOODS - 10.9%
Electrical Equipment - 1.5%
4,300 Aiwa Corporation Ltd. $ 108,348
1,050 Felten & Guillaume Energietechnik AG* 85,798
52,000 GP Batteries International Ltd. 135,129
3,500 Mabuchi Motor Co., Ltd. 177,721
13,000 Matsushita Electric Industrial Co., Ltd. 190,166
1,900 Samsung Display Devices Co. 35,870
----------
$ 733,032
----------
Engineering and Construction - 1.3%
20,000 Gujarat Ambuja Cements Ltd. (G.D.R.) $ 142,500
1,700 L.G. Construction Ltd. 4,353
24,500 Larsen & Toubro (G.D.R.) 271,950
36,000 Leighton Holdings Ltd. 125,762
6,700 Sho-Bond Corp. 121,100
----------
$ 665,665
----------
Machinery (Diversified) - 1.6%
19,000 Charter Plc $ 233,723
535 GEA AG 202,223
25,000 Valmet Corp. 344,435
----------
$ 780,381
----------
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
International Growth Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Manufacturing (Diversified) - 3.5%
31,000 ALFA, SA de CV $ 208,574
45,000 Email Ltd. 106,287
668,150 Metro Pacific Corp. 18,477
1,775 Plettac AG 245,678
2,580 Pohang Iron & Steel Co. 72,660
2,850 Schmalbach Lubeca AG 469,719
49,000 TT Group Plc 221,307
67,517 Wassall Plc 369,252
----------
$1,711,954
----------
Manufacturing (Specialized) - 0.2%
2,150 Heidelberger Druckmaschinen AG $ 118,316
----------
Metal Fabricators - 1.0%
13,500 Hunter Douglas NV $ 472,715
----------
Office Equipment and Supplies - 1.3%
14,000 Canon, Inc. $ 325,955
4,585 Esselte AB (Series B) 92,972
4,300 Samas-Groep NV 200,192
----------
$ 619,119
----------
Trucks and Parts - 0.5%
160 Bucher Holding AG $ 139,021
6,300 Svedala Industri AB 103,943
----------
$ 242,964
----------
TOTAL CAPITAL GOODS $5,344,146
----------
COMMUNICATION SERVICES - 13.2%
Cellular/Wireless Telecommunications - 3.5%
1,000 Advanced Service Co., Ltd. $ 4,928
2,470 SK Telecom Co., Ltd. 726,282
23,520 SK Telecom Co., Ltd. (A.D.R.) 152,881
900 Telecel-Comunicacaoes Pessoais, SA* 95,892
54,500 United Communication Industry Public Co., Ltd. 22,769
95,500 Vodafone Group Plc 690,115
----------
$1,692,867
----------
Telephone - 9.7%
500 Hellenic Telecommunication Organization SA $ 10,252
500 PT Indonesian Satellite Corporation (Sponsored A.D.R.) 9,656
21,200 Mahanagar Telephone Nigam Ltd. (G.D.R.)* 327,540
14,600 Royal PTT Nederland NV (Orders) 609,158
455,000 Technology Resources Industries Berhad 269,058
5,800 Telecom Argentina SA (Sponsored A.D.R.) 207,350
130,077 Telecom Italia SpA 830,905
160,000 Telecom Italia Mobile SpA 454,946
355,000 TelecomAsia Public Co., Ltd.* 66,931
4,492,000 Telecomunicacoes Brasileiras SA 456,827
17,350 Telefonica de Argentina SA (Class B) (Sponsored A.D.R.) 646,288
5,300 Telefonica de Espana 151,329
4,100 Telefonica del Peru SA (Class B) (Sponsored A.D.R.) 95,325
6,000 Telefonos de Mexico SA (L Shares) (Sponsored A.D.R.) 336,375
50,000 PT Telekomunikasi Indonesia 26,591
19,100 Videsh Sanchar Nigam Ltd. (G.D.R.) 267,878
----------
$4,766,409
----------
TOTAL COMMUNICATIONS SERVICES $6,459,276
----------
CONSUMER CYCLICALS - 15.3%
Auto Parts and Equipment - 1.1%
1,000 Autobacs Seven Co., Ltd. $ 28,720
400 BERU AG * 8,071
5,300 Sylea 506,355
12,000 Thai Rung Union Car Public Co. Ltd. 3,407
----------
$ 546,553
----------
Automobiles - 0.1%
3,000 Edaran Otomobile Nasional Bhd. $ 6,132
19,200 Renault Argentina SA 26,885
----------
$ 33,017
----------
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
International Growth Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Building Materials - 3.1%
21,900 Asko OY $ 389,712
50,000 Cemex, SA (Class B)* 266,402
5,800 Koramic Building Products SA 349,086
2,900 Lafarge SA 190,282
38,000 Williams Plc 210,943
814 Zardoya Otis SA 94,838
----------
$1,501,263
----------
Consumer (Jewelry, Novelties & Gifts) - 0.2%
1,370 TAG Heuer International SA (Registered)* $ 119,037
----------
Homebuilding - 0.4%
4,466,000 DMCI Holdings Inc.* $ 132,326
205,000 Land & House Public Co., Ltd. (Foreign) 39,529
11,800 Property Perfect Public Co., Ltd. (Foreign)* 303
----------
$ 172,158
----------
Household Furniture and Appliances - 1.3%
500 Forbo Holding AG $ 204,221
5,000 Sony Corp. 444,206
----------
$ 648,427
----------
Leisure Time (Products) - 0.7%
12,000 Baja Auto Ltd. (G.D.R.) $ 240,900
750 KTM Motorradholding AG 37,881
800 Nintendo Corp., Ltd. 78,425
----------
$ 357,206
----------
Lodging-Hotels - 0.1%
16,500 Overseas Union Enterprise Ltd. $ 39,549
----------
Publishing - 0.1%
3,500 Grupo Anaya SA $ 64,326
----------
Publishing (Newspapers) - 0.2%
105,000 Star Publications $ 119,861
----------
Retail (Deptartment Stores) - 0.5%
936,000 PT Matahari Putra Prima $ 76,582
41,000 Storehouse Plc 158,914
----------
$ 235,496
----------
Retail (Discounters) - 0.1%
5,000 Makro Atacadista SA (G.D.R.) $ 40,000
----------
Retail (Specialty - Apparel) - 1.0%
1,404,000 Giordano International Ltd. $ 484,669
----------
Retail (Specialty) - 4.0%
6,500 Aldeasa SA * $ 137,808
138,000 Arriva Plc 777,389
38,000 Carpetright Plc 287,083
3,600 Castorama Dubois Investisse 436,654
78,700 MFI Furniture Group Plc 155,750
100,000 Sa Sa International Holdings Ltd. 20,648
750 The Selecta Group * 100,571
4,000 Xebio Co, Ltd. 31,860
----------
$1,947,763
----------
Services (Commercial and Consumer) - 1.4%
500 Falck AS $ 23,169
18,000 Hays Plc 239,611
4,000 ISS International Service System AS (Class B)* 147,112
137,500 Jasmine International Public Co. Ltd. (Local) 27,102
30,000 Jasmine International Public Co., Ltd. (Foreign) 5,913
12,000 Select Appointments Holdings Plc 110,366
3,200 Stork NV 110,473
----------
$ 663,746
----------
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
International Growth Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Textiles (Apparel) - 0.4%
15 Hugo Boss AG $ 18,510
8,900 Fila Holding SpA (Sponsored A.D.R.) 179,113
----------
$ 197,623
----------
Textiles (Home Furnishings) - 0.6%
3,000 Chargeurs International SA $ 179,447
6,000 Industrie Natuzzi SpA (Sponsored A.D.R.) 123,750
----------
$ 303,197
----------
TOTAL CONSUMER CYCLICALS $7,473,891
----------
CONSUMER STAPLES - 12.0%
Beverages (Non-Alcoholic) - 0.9%
14,700 Louis Dreyfus Citrus $ 449,414
----------
Broadcasting (Television/Radio/Cable) - 4.5%
102,600 Benpres Holdings Corp. (G.D.R.)* $ 279,842
19,800 Central European Media Enterprises Ltd* 499,950
49,400 Schibsted ASA 846,097
5,750 Societe Television Francaise 587,563
----------
$2,213,452
----------
Distributors (Food and Health) - 0.0%
110,880 PT Wicaksana Overseas International $ 4,032
----------
Entertainment - 1.6%
1,370 Pathe SA $ 265,874
12,700 Pearson Plc 164,985
7,000 PolyGram NV 334,870
----------
$ 765,729
----------
Foods - 1.4%
4,400 Delta Dairy SA $ 49,914
125,000 Grupo Industrial Maseca SA de CV 129,174
6,400 Huhtamaki OY (Series I) 264,174
967,000 JG Summit Holding Inc. 78,793
900 Raision Group OY 106,495
262,500 Universal Robina Corp. 32,083
----------
$ 660,633
----------
Household Products (Non-Durables) - 0.4%
750 Benckiser NV (B Shares)* $ 31,033
600 Nu Skin Asia Pacific Inc.* 10,950
11,000 Shiseido Co., Ltd. 149,958
----------
$ 191,941
----------
Restaurants - 0.5%
14,200 Compass Group Plc $ 174,677
35,000 Kentucky Fried Chicken Bhd. 56,691
----------
$ 231,368
----------
Retail Stores (Food Chains) - 1.8%
6,100 Circle K Japan Co. Ltd. $ 291,989
9,400 Delhaize-Le Lion, SA 476,964
28,500 Kwik Save Group Plc 137,144
----------
$ 906,097
----------
Services (Facilities and Environment) - 0.9%
3,900 Brisa-Auto Estradas de Portugal, SA* $ 139,705
250,000 PT Citra Marga Nusaphala Persada 27,273
18,000 Jaakko Poyry Group* 194,828
11,500 Munters AB* 99,214
----------
$ 461,020
----------
TOTAL CONSUMER STAPLES $5,883,686
----------
ENERGY - 1.6%
Oil and Gas (Drilling and Equipment) - 0.2%
120,000 Ocean Rig ASA* $ 126,730
----------
Oil and Gas (Exploration/Production) - 0.3%
60,000 Cultus Petroleum NL* $ 102,846
200 Elf Gabon 32,633
----------
$ 135,479
----------
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
International Growth Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Oil and Gas (Refining and Marketing) - 1.1%
18,000 ENI SpA $ 102,058
10,000 Repsol SA (L Shares) 426,649
----------
$ 528,707
----------
TOTAL ENERGY $ 790,916
----------
FINANCIAL - 12.6%
Banks (Major Regional) - 7.1%
72,000 Ashtead Group Plc $ 227,038
14,500 Banca Popolare di Brescia 135,246
4,500 Banco Wiese Ltd. (Sponsored A.D.R.) 22,500
165,500 PT Bank Bira 9,780
45,000 Bangkok Bank Ltd. 115,694
835,000 Bank International Indonesia 49,341
1,400 Credit Suisse Group 216,468
1,168 Daegu Bank* 2,632
3,600 DePfa-Bank 213,319
26,600 Development Bank of Singapore Ltd. 227,256
1,250 DEX 144,762
390,000 Dhana Siam Finance Public Co. 76,872
20,000 Finance One Public Co., Ltd.* 719
25,800 First Bangkok City Bank Public Co., Ltd. 5,196
13,750 Housing & Commercial Bank (G.D.R.) 72,119
6,800 HSBC Holding Plc 176,454
29,000 Industrial Credit & Investment Corp. of India Ltd.
(A.D.R.) 377,000
365,000 JCG Holdings Ltd. 156,617
126 Julius Baer Holding AG 233,613
138,200 National Finance Public Co., Ltd. 26,352
51,200 Overseas-Chinese Banking Corp., Ltd. 297,692
58,000 PT Pan Indonesia Bank TBK 7,118
141,700 Siam City Bank Public Co., Ltd. 9,411
17,000 Skandia Enskilda Banken 215,179
3,500 Societe Generale 476,863
----------
$3,495,241
----------
Financial (Diversified) - 2.0%
2,235,000 C & P Homes, Inc. $ 130,237
4,400 Cheung Kong Holdings Ltd. 28,817
5,000 DBS Land Ltd. 7,654
95,600 HKR International Ltd. 70,321
7,300 Hutchinson Whampoa Ltd. 45,784
4,800 Nichiei Co., Ltd. 510,990
600 Shohkoh Fund 182,890
----------
$ 976,693
----------
Insurance (Life/Health) - 0.8%
34,500 Alleanza Assicurazioni $ 277,341
4,500 Assicurazioni Generali 110,529
----------
$ 387,870
----------
Insurance (Property- Casualty) - 2.3%
1,500 Catalana Occidente SA $ 76,403
228,200 Malaysian Assurance Alliance Bhd. 261,672
1,800 Mediolanum SpA 33,884
44,621 Reinsurance Australia Corp. 116,327
40,500 Royal & Sun Alliance Group Plc 407,738
5,000 Skandia Forsakrings AB 235,834
----------
$1,131,858
----------
Investment Banking/Brokerage - 0.1%
10,000 Daiwa Securities Co. Ltd. $ 34,464
660,000 PT Lippo Securities 27,000
----------
$ 61,464
----------
Savings and Loan Companies - 0.3%
137,000 Hong Leong Finance Ltd. $ 146,307
----------
TOTAL FINANCIAL $6,199,433
----------
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
International Growth Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
HEALTH CARE - 5.7%
Health Care (Diversified) - 1.1%
11,500 Teva Pharmaceutical Industries Ltd. (Sponsored A.D.R.) $ 544,094
----------
Health Care (Drugs/ Major Pharmaceuticals) - 3.9%
33,666 Astra AB $ 583,014
4,200 Fabrica Espanola de Productos Quimicos y Far 186,912
119,000 Medeva Plc 316,612
260 Novartis AG 421,578
141,000 PT Tempo Scan Pacific 10,895
5,032 Rhone-Poulenc 225,410
8 Roche Holdings AG 79,390
105,000 SkyePharma Plc* 92,259
----------
$1,916,070
----------
Healthcare (Medical Products/Supplies) - 0.3%
5,000 Hoya Corp. $ 157,004
----------
Healthcare (Specialized Services) - 0.4%
12,200 Nobel Biocare $ 159,801
----------
TOTAL HEALTHCARE $2,776,969
----------
TECHNOLOGY - 6.9%
Communications Equipment - 2.1%
20,300 ECI Telecommunications Ltd. $ 517,650
255,000 Nanjing Posts & Telecommunications Equipment Co. Ltd.
(B Shares)* 82,598
13,000 Tadiran Telecommunications Ltd. 180,375
7,200 Tadiran Telecommunications Ltd. (Sponsored A.D.R.) 254,700
----------
$1,035,323
----------
Computers (Software and Services) - 0.1%
3,000 Intentia International AB (Class B)* $ 64,988
----------
Electronics (Component Distributors) - 2.1%
1,520 Barco Industries $ 278,967
1,300 Delta Electronics (Thailand) Public Co., Ltd 11,141
21,000 GSS Array Technology Public Co., Ltd.* 35,994
14,000 Hana Microelectronics Public Co., Ltd. 31,044
91,900 KCE Electronics Public Co., Ltd. 252,024
2,500 K.R. Precision Plc 9,748
5,800 Kyocera Corp. 262,970
87,000 Varitronix International Ltd. 149,322
----------
$1,031,210
----------
Electronics (Instrumentation) - 0.3%
29,200 Elec & Eltek International Co. Ltd. $ 133,736
----------
Electronics (Semiconductors) - 0.5%
950 Austria Micro Systeme International AG $ 48,133
2,000 Rohm Co., Ltd. 203,721
----------
$ 251,854
----------
Equipment (Semiconductors) - 0.6%
418,000 ASM Pacific Technology Ltd. $ 264,318
----------
Services (Computer Systems) - 0.1%
181,400 Loxley Public Co., Ltd. $ 23,707
----------
Services (Data Processing) - 1.1%
15,900 Merkantildata ASA $ 546,806
2,500 Shinawatra Computer Co., Plc 8,570
----------
$ 555,376
----------
TOTAL TECHNOLOGY $3,360,512
----------
TRANSPORTATION - 1.5%
Air Freight - 0.0%
145,000 International Container Terminal Services, Inc.* $ 17,901
----------
Airlines - 0.4%
5,200 Flughafen Wien AG $ 206,658
----------
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
International Growth Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Shipping - 0.6%
3,950 Finnlines OY $ 156,522
29,000 FrontLine Ltd.* 117,008
-----------
$ 273,530
-----------
Truckers - 0.5%
18,000 Stagecoach Holdings Plc $ 246,845
-----------
TOTAL TRANSPORTATION $ 744,934
-----------
UTILITIES - 4.1%
Electric Companies - 3.6%
7,700,000 Centrais Electricas Brasileiras SA $ 382,912
18,500 Electrcidade de Portugal, SA* 350,299
17,675 Iberdrola SA 232,611
64,350 Scottish Power Plc 568,585
12,000 Shandong Huaneng Power Co., Ltd. (N Shares) 82,500
450,000 Zhejiang Southeast Electric Power (B Shares)* 144,900
-----------
$ 1,761,807
-----------
Natural Gas - 0.5%
68,000 Fletcher Challenge Energy $ 238,090
-----------
TOTAL UTILITIES $ 1,999,897
-----------
TOTAL COMMON STOCKS (Cost $47,289,300) $43,540,534
-----------
WARRANTS AND RIGHTS - 0.0%
5,032 Rhone-Poulenc (India) Ltd., 11/05/01* $ 17,307
138,200 National Finance Public Co., Ltd., 01/23/98* --
-----------
TOTAL WARRANTS AND RIGHTS (Cost $96,759) $ 17,307
-----------
TOTAL INVESTMENT IN SECURITIES (Cost $48,979,251)(b) $45,139,362
-----------
Principal
Amount
---------
TEMPORARY CASH INVESTMENTS - 7.9%
Commercial Paper - 7.9%
$1,228,000 American General Financial Corp., 5.65%, 01/05/98 $ 1,228,000
1,331,000 American Express Co., 6.28%, 01/02/98 1,331,000
1,300,000 Ford Motor Credit Co., 6.01%, 01/05/98 1,300,000
-----------
TOTAL TEMPORARY CASH INVESTMENTS (Cost $3,859,000) $ 3,859,000
-----------
TOTAL INVESTMENT IN SECURITIES AND TEMPORARY
CASH INVESTMENTS - 100% (Cost $52,838,251)(a) $48,998,362
===========
* Non-income producing security.
(a) At December 31, 1997, the net unrealized loss on investments
based on cost for federal income tax purposes of $53,220,819 was as
follows:
Aggregate gross unrealized gain for all investments
in which an excess of value over tax cost $ 3,716,476
Aggregate gross unrealized loss for all investments
in which there is an excess of tax cost over value (7,938,933)
------------
Net unrealized loss $ (4,222,457)
============
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
International Growth Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
(b) Distribution of investments by country, as a percentage of total
equity holdings, is as follows:
United Kingdom 13.2%
France 7.9
Japan 7.3
Italy 5.0
Netherlands 5.0
Brazil 4.8
Germany 4.7
Finland 4.0
India 3.6
Norway 3.6
Sweden 3.4
Switzerland 3.4
Israel 3.3
Spain 3.0
South Korea 2.8
Hong Kong 2.7
Belgium 2.4
Singapore 2.2
Argentina 2.1
Mexico 2.0
Australia 1.9
Austria 1.8
Thailand 1.6
Malaysia 1.6
Philippines 1.5
Portugal 1.3
Bermuda 1.1
Others (individually less than 1%) 2.8
-----
100.0%
=====
Purchases and sales of securities (excluding temporary cash
investments) for the year ended December 31, 1997 aggregated
$72,499,715 and $46,589,983, respectively.
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
International Growth Portfolio
Balance Sheet
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investment in securities, at value (including temporary cash investments of
$3,859,000) (cost $52,838,251) $ 48,998,362
Cash 40
Foreign currencies, at value 14,832
Receivables--
Investment securities sold 697,729
Dividends, interest and foreign taxes withheld 64,020
Forward foreign currency settlement contracts open--net 1,622
Other 3,707
------------
Total assets $ 49,780,312
------------
Liabilities:
Payables--
Investment securities purchased $ 31,359
Fund shares repurchased 229,564
Due to affiliates 33,927
Accrued expenses 73,183
------------
Total liabilities $ 368,033
------------
Net Assets:
Paid-in capital $ 49,124,001
Accumulated undistributed net investment income 852,169
Accumulated undistributed net realized gain on investments and foreign
currency transactions 3,275,898
Net unrealized loss on investments (3,839,889)
Net unrealized gain on forward currency contracts and other assets and
liabilities denominated in foreign currencies 100
------------
Total net assets $ 49,412,279
============
Net Asset Value Per Share:
(Unlimited number of shares authorized)
Based on $49,412,279/4,041,085 shares $ 12.23
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
International Growth Portfolio
Statement of Operations
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income:
Dividends (net of foreign taxes withheld of $52,532) $ 675,232
Interest (net of foreign taxes withheld of $758) 231,830
------------
Total investment income $ 907,062
------------
Expenses:
Management fees $ 399,296
Transfer agent fees 56
Accounting 65,143
Custodian fees 178,594
Registration fees 112
Professional fees 14,342
Printing 6,662
Fees and expenses of nonaffiliated trustees 542
Miscellaneous 18,525
------------
Total expenses $ 683,272
Less management fees waived by Pioneering
Management Corporation (86,523)
Less fees paid indirectly (3,866)
------------
Net expenses $ 592,883
------------
Net investment income $ 314,179
------------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency
Transactions:
Net realized gain from:
Investments $ 3,300,535
Forward foreign currency contracts and other assets
and liabilities denominated in foreign currencies 537,924 $ 3,838,459
------------ ------------
Change in net unrealized gain from:
Investments $ (4,309,376)
Forward foreign currency contracts and other assets
and liabilities denominated in foreign currencies (312) $ (4,309,688)
------------ ------------
Net loss on investments and foreign currency transactions $ (471,229)
------------
Net decrease in net assets resulting from operations $ (157,050)
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
International Growth Portfolio
Statements of Changes in Net Assets
For the Years Ended December 31, 1997 and December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
------------------- ------------------
<S> <C> <C> <C> <C>
From Operations:
Net investment income $ 314,179 $ 104,040
Net realized gain on investments and foreign
currency transactions 3,838,459 446,589
Change in net unrealized gain on investments and
foreign currency transactions (4,309,688) 432,427
------------ -----------
Net increase (decrease) in net assets resulting
from operations $ (157,050) $ 983,056
------------ -----------
Distributions to Shareholders:
Net investment income ($0.03 and $0.00 per
share, respectively) $ (91,398) $ --
Net realized gain ($0.16 and $0.03 per share,
respectively) (479,245) (34,412)
------------ -----------
Total distributions to shareholders $ (570,643) $ (34,412)
------------ -----------
From Fund Share Transactions: '97 Shares '96 Shares
---------- ----------
Net proceeds from sale of shares 2,153,395 1,896,992 $ 27,923,006 $21,695,298
Reinvestment of distributions 42,649 2,934 570,643 34,412
Cost of shares repurchased (248,981) (77,398) (3,123,621) (875,145)
---------- ---------- ------------ -----------
Net increase in net assets resulting from fund
share transactions 1,947,063 1,822,528 $ 25,370,028 $20,854,565
========== ========== ------------ -----------
Net increase in net assets $ 24,642,335 $21,803,209
Net Assets:
Beginning of year 24,769,944 2,966,735
------------ -----------
End of year (including accumulated undistributed
net investment income of $852,169 and $91,464,
respectively) $ 49,412,279 $24,769,944
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
International Growth Portfolio
Financial Highlights
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended March 1, 1995 to
December 31, 1997 December 31, 1996 December 31, 1995
------------------- ------------------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 11.83 $ 10.93 $ 10.00
------- -------- --------
Increase from investment operations:
Net investment income $ 0.06 $ 0.05 $ --
Net realized and unrealized gain on investments
and foreign currency transactions 0.53 0.88 1.04
------- -------- ----------
Net increase from investment operations $ 0.59 $ 0.93 $ 1.04
Distributions to shareholders:
Net investment income (0.03) -- --
In excess of net investment income -- -- (0.02)
Net realized gain (0.16) (0.03) (0.09)
--------- ---------- ----------
Net increase in net asset value $ 0.40 $ 0.90 $ 0.93
--------- ---------- ----------
Net asset value, end of period $ 12.23 $ 11.83 $ 10.93
========= ========== ==========
Total return* 4.87% 8.54% 10.42%
Ratio of net expenses to average net assets 1.49%+ 1.52%+ 2.10%**+
Ratio of net investment income (loss) to average net
assets 0.78%+ 0.78%+ (0.25%)**+
Portfolio turnover rate 133% 115% 139%**
Average brokerage commission per share $0.0034 $0.0033 --
Net assets, end of period (in thousands) $49,412 $24,770 $2,967
Ratio assuming no waiver of management fees and
assumption of expenses by PMC and no reduction
for fees paid indirectly:
Net expenses 1.71% 3.04% 17.22%**
Net investment income (loss) 0.56% (0.74%) (15.37%)**
Ratio assuming waiver of management fees and
assumption of expenses by PMC and reduction for
fees paid indirectly:
Net expenses 1.48% 1.50% 1.75%**
Net investment income 0.79% 0.80% 0.10%**
</TABLE>
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of distributions and the complete redemption of the
investment at net asset value at the end of each period.
** Annualized.
+ Ratio assuming no reduction for fees paid indirectly.
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
Capital Growth Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
INVESTMENT IN SECURITIES - 93.5%
PREFERRED STOCK - 0.6%
41,450 Aracruz Cellulose SA (Sponsored A.D.R.) $ 595,844
----------
TOTAL PREFERRED STOCK (Cost $739,411) $ 595,844
----------
COMMON STOCKS - 92.9%
BASIC MATERIALS - 9.1%
Chemicals - 1.6%
36,100 The Geon Co. $ 843,837
29,800 Georgia Gulf Corp. 912,625
----------
$1,756,462
----------
Chemicals (Specialty) - 1.4%
95,200 Agrium, Inc. $1,160,250
30,000 Borden Chemicals & Plastics, L.P. 249,375
3,400 NL Industries, Inc.* 46,325
----------
$1,455,950
----------
Gold & Precious Metals Mining - 0.9%
30,000 Newmont Mining Corp. $ 881,250
35,000 TVX Gold Inc.* 118,125
----------
$ 999,375
----------
Iron & Steel - 0.9%
50,000 Armco, Inc.* $ 246,875
70,000 LTV Corp. 682,500
----------
$ 929,375
----------
Metals & Mining - 0.8%
20,000 Freeport-McMoRan Copper & Gold, Inc. $ 306,250
21,000 Penn Engineering & Manufacturing Corp. 504,000
----------
$ 810,250
----------
Paper & Forest Products - 3.5%
40,000 Bowater, Inc. $1,777,500
8,600 Consolidated Papers, Inc. 459,025
20,000 Jefferson Smurfit Corp.* 282,500
60,000 Louisiana-Pacific Corp. 1,140,000
----------
$3,659,025
----------
TOTAL BASIC MATERIALS $9,610,437
----------
CAPITAL GOODS - 6.7%
Electrical Equipment - 1.6%
12,000 Belden, Inc. $ 423,000
55,000 Vishay Intertechnology, Inc.* 1,299,375
----------
$1,722,375
----------
Engineering & Construction - 1.6%
110,000 Morrison Knudsen Corp.* $1,072,500
45,700 Salient 3 Communications Inc. 565,537
----------
$1,638,037
----------
Machinery (Diversified) - 0.6%
49,500 Brown & Sharpe Manufacturing Co.* $ 504,281
40,000 Interlake Corp.* 187,500
----------
$ 691,781
----------
Manufacturing (Diversified) - 0.6%
22,500 U.S. Industries, Inc. $ 677,812
----------
Manufacturing (Specialized) - 0.3%
39,000 Insteel Industries, Inc. $ 268,125
----------
Metal Fabricators - 2.0%
40,000 Brush Wellman, Inc. $ 980,000
55,000 CommScope, Inc.* 739,062
40,000 N N Ball & Roller, Inc. 355,000
----------
$2,074,062
----------
TOTAL CAPITAL GOODS $7,072,192
----------
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
Capital Growth Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMUNICATION SERVICES - 8.5%
Telecommunications (Long Distance) - 2.3%
18,000 AT&T Corp. $1,102,500
23,000 Sprint Corp. 1,348,375
----------
$2,450,875
----------
Telephone - 6.2%
7,457 Bell Atlantic Corp. $ 678,587
35,290 Citizens Utilities Co. (Class B)* 339,666
70,000 Frontier Corp. 1,684,375
34,000 GTE Corp. 1,776,500
45,000 Telephone and Data Systems, Inc. 2,095,312
----------
$6,574,440
----------
TOTAL COMMUNICATION SERVICES $9,025,315
----------
CONSUMER CYCLICALS - 19.3%
Automobiles - 0.7%
20,000 Chrysler Corp. $ 703,750
----------
Auto Parts & Equipment - 1.2%
40,000 ITT Industries $1,255,000
----------
Consumer (Jewelry, Novelties & Gifts) - 0.6%
30,000 Jostens, Inc. $ 691,875
----------
Distributors (Durables) - 0.4%
30,000 Industrial Distribution Group, Inc.* $ 470,625
----------
Household Furniture & Appliances - 1.5%
18,100 Harman International Industries, Inc. $ 768,119
22,000 Maytag Corp. 820,875
----------
$1,588,994
----------
Leisure Time (Products) - 1.9%
50,300 Arctic Cat, Inc. $ 487,281
45,000 Hasbro, Inc. 1,417,500
110,000 Meridian Sports, Inc.* 82,500
----------
$1,987,281
----------
Publishing - 1.0%
31,800 PRIMEDIA, Inc.* $ 401,475
29,000 Readers Digest Association, Inc. (Non-voting) 685,125
----------
$1,086,600
----------
Retail (Computers & Electronics) - 1.5%
40,000 Tandy Corp. $1,542,500
----------
Retail (General Merchandise) - 0.8%
70,000 Kmart Corp.* $ 809,375
----------
Retail (Home Shopping) - 1.2%
35,000 Creative Computers, Inc.* $ 347,812
45,000 Fingerhut Companies, Inc. 961,875
----------
$1,309,687
----------
Retail (Specialty) - 3.0%
18,100 Cole National Corp.* $ 541,869
35,000 Pep Boys - Manny, Moe & Jack 835,625
10,000 Toys "R" Us, Inc.* 314,375
75,000 Woolworth Corp.* 1,528,125
----------
$3,219,994
----------
Services (Advertising/Marketing) - 0.5%
21,100 ACNielsen Corp.* $ 514,312
----------
Services (Commercial & Consumer) - 0.6%
24,000 Regis Corp. $ 603,000
----------
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
Capital Growth Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Textiles (Apparel) - 3.6%
39,000 Fruit of the Loom, Inc.* $ 999,375
35,000 Justin Industries 476,875
15,000 Oshkosh B'Gosh, Inc. 495,000
30,000 Reebok International Ltd. 864,375
60,000 Stride-Rite Corp. 720,000
57,000 Tultex Corp.* 231,562
-----------
$ 3,787,187
-----------
Textiles (Specialty) - 0.8%
46,000 Wellman, Inc. $ 897,000
-----------
TOTAL CONSUMER CYCLICALS $20,467,180
-----------
CONSUMER STAPLES - 14.3%
Distributors (Food & Health) - 1.2%
45,000 Richfood Holdings, Inc. $ 1,271,250
-----------
Entertainment - 2.5%
65,000 Viacom, Inc. (Class B) (Non-voting)* $ 2,693,437
-----------
Foods - 1.1%
60,000 Tyson Foods, Inc. $ 1,230,000
-----------
Household Products (Non-Durables) - 1.2%
38,000 Dial Corp. $ 790,875
39,000 The Rival Co. 511,875
-----------
$ 1,302,750
-----------
Housewares - 1.2%
46,000 Tupperware Corp. $ 1,282,250
-----------
Restaurants - 3.0%
34,000 Darden Restaurants $ 425,000
40,000 McDonald's Corp. 1,910,000
30,000 Sbarro, Inc. 789,375
-----------
$ 3,124,375
-----------
Retail Stores (Food Chains) - 1.4%
4,300 Arden Group, Inc.* $ 438,600
35,000 The Great Atlantic & Pacific Tea Co., Inc. 1,039,063
-----------
$ 1,477,663
-----------
Services (Employment) - 1.1%
10,000 The Loewen Group, Inc. $ 258,125
25,000 Manpower, Inc. 881,250
-----------
$ 1,139,375
-----------
Specialty Printing - 1.6%
20,000 Cadmus Communications Corp. $ 410,000
60,000 John H. Harland Co. 1,260,000
-----------
$ 1,670,000
-----------
TOTAL CONSUMER STAPLES $15,191,100
-----------
ENERGY - 4.2%
Oil (Domestic Integrated) - 1.7%
22,000 Atlantic Richfield Co. $ 1,762,750
-----------
Oil & Gas (Production & Exploration) - 2.5%
16,700 Crystal Oil Co.* $ 730,625
20,000 Oryx Energy Co.* 510,000
24,700 Seagull Energy Corp.* 509,438
20,000 Union Pacific Resources Group, Inc. 485,000
22,000 Union Texas Petroleum Holdings, Inc. 457,875
-----------
$ 2,692,938
-----------
TOTAL ENERGY $ 4,455,688
-----------
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
Capital Growth Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
FINANCIAL - 8.0%
Financial (Diversified) - 1.2%
66,450 Bluegreen Corp.* $ 290,719
19,700 Equitable Companies, Inc. 980,075
----------
$1,270,794
----------
Insurance (Life/Health) - 1.6%
42,200 American Annuity Group, Inc. $ 928,400
26,000 Western National Corp. 770,250
----------
$1,698,650
----------
Insurance (Property-Casualty) - 2.2%
20,000 Financial Security Assurance Holdings Ltd. $ 965,000
3,000 IPC Holdings Ltd. 96,563
50,000 20th Century Industries 1,300,000
----------
$2,361,563
----------
Investment Management - 3.0%
55,000 DST Systems, Inc.* $2,347,813
33,000 United Asset Management Corp. 806,438
----------
$3,154,251
----------
TOTAL FINANCIAL $8,485,258
----------
HEALTH CARE - 7.3%
Biotechnology - 0.5%
14,000 Sepracor, Inc.* $ 560,875
----------
Health Care (Diversified) - 1.5%
35,000 IVAX Corp.* $ 236,250
25,000 Mallinckrodt, Inc. 950,000
30,000 Medeva Plc (Sponsored A.D.R.) 330,000
----------
$1,516,250
----------
Health Care (Hospital Management) - 2.3%
63,000 Columbia/HCA Healthcare Corp. $1,866,375
31,000 Sun Healthcare Group, Inc.* 600,625
----------
$2,467,000
----------
Health Care (Long Term Care) - 1.2%
40,000 Integrated Health Services, Inc. $1,247,500
----------
Health Care (Managed Care) - 1.8%
60,000 Mid Atlantic Medical Services, Inc.* $ 765,000
22,500 PacifiCare Health Systems, Inc.* 1,178,438
----------
$1,943,438
----------
TOTAL HEALTH CARE $7,735,063
----------
TECHNOLOGY - 14.1%
Communications Equipment - 3.6%
40,000 Alcatel Alsthom, Inc. (Sponsored A.D.R.) $1,012,500
81,000 DSC Communications Corp.* 1,944,000
50,000 NextLevel Systems, Inc.* 893,750
----------
$3,850,250
----------
Computers (Hardware) - 2.0%
75,000 NCR Corp.* $2,085,938
----------
Computers (Software & Services) - 1.5%
23,000 Broderbund Software, Inc.* $ 589,375
7,000 Marcam Solutions, Inc.* 50,750
70,000 Unisys Corp.* 971,250
----------
$1,611,375
----------
Computers (Peripherals) - 0.9%
35,000 Intergraph Corp.* $ 350,000
30,000 Seagate Technology, Inc.* 577,500
----------
$ 927,500
----------
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
Capital Growth Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Electronics (Component Distributors) - 2.1%
20,000 Amphenol Corp.* $ 1,113,750
35,000 Marshall Industries* 1,050,000
------------
$ 2,163,750
------------
Electronics (Defense) - 0.2%
20,000 Whittaker Corp.* $ 220,000
------------
Equipment (Semiconductor) - 1.2%
19,000 Lam Research Corp.* $ 555,750
22,000 Teradyne, Inc.* 704,000
------------
$ 1,259,750
------------
Photography/ Imaging - 1.8%
10,000 Eastman Kodak Co. $ 608,125
80,000 Imation Corp.* 1,280,000
------------
$ 1,888,125
------------
Services (Data Processing) - 0.8%
30,000 First Data Corp. $ 877,500
------------
TOTAL TECHNOLOGY $ 14,884,188
------------
UTILITIES - 1.4%
Electric Companies - 1.4%
7,000 Boston Edison Co. $ 265,125
20,000 Dominion Resources, Inc. 851,250
11,000 DTE Energy Co. 381,563
------------
$ 1,497,938
------------
TOTAL UTILITIES $ 1,497,938
------------
TOTAL COMMON STOCKS (Cost $90,561,005) $ 98,424,359
------------
TOTAL INVESTMENT IN SECURITIES (Cost $91,300,416) $ 99,020,203
------------
Principal
Amount
------
TEMPORARY CASH INVESTMENTS- 6.5%
Commercial Paper - 6.5%
$3,572,000 American Express Co., 6.25%, 1/02/98 $ 3,572,000
3,344,000 Ford Motor Credit Co., 6.0%, 1/05/98 3,344,000
------------
TOTAL TEMPORARY CASH INVESTMENTS (Cost $6,916,000) $ 6,916,000
------------
TOTAL INVESTMENT IN SECURITIES AND TEMPORARY CASH
INVESTMENTS - 100% (Cost $98,216,416)(a) $105,936,203
============
* Non-income producing security.
(a) At December 31, 1997, the net unrealized gain on investments
based on cost for federal income tax purposes of $98,217,282
was as follows:
Aggregate gross unrealized gain for all investments
in which there is an excess of value over tax cost $13,265,919
Aggregate gross unrealized loss for all investments
in which there is an excess of tax cost over value (5,546,998)
-----------
Net unrealized gain $ 7,718,921
============
Purchases and sales of securities (excluding temporary cash
investments) for the year ended December 31, 1997 aggregated
$78,336,174 and $34,026,424, respectively.
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
Capital Growth Portfolio
Balance Sheet
December 31, 1997
- --------------------------------------------------------------------------------
Assets:
Investment in securities, at value (including temporary
cash investments of $6,916,000)(cost $98,216,416) $ 105,936,203
Cash 691
Receivables--
Investment securities sold 102,184
Fund shares sold 228,952
Dividends and interest 103,199
Other 4,264
-------------
Total assets $ 106,375,493
-------------
Liabilities:
Payables--
Investment securities purchased $ 809,468
Due to affiliates 65,208
Accrued expenses 24,581
-------------
Total liabilities $ 899,257
-------------
Net Assets:
Paid-in capital $ 89,333,547
Accumulated undistributed net investment income 798,678
Accumulated undistributed net realized gain on investments 7,624,224
Net unrealized gain on investments 7,719,787
-------------
Total net assets $ 105,476,236
=============
Net Asset Value Per Share:
(Unlimited number of shares authorized)
Based on $105,476,236/6,532,147 shares $ 16.15
=============
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
Capital Growth Portfolio
Statement of Operations
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of foreign taxes withheld of $5,120) $938,835
Interest 460,043
--------
Total investment income $ 1,398,878
-----------
Expenses:
Management fees $498,117
Transfer agent fees 1,209
Accounting 36,489
Custodian fees 31,737
Professional fees 16,714
Printing 7,690
Fees and expenses of nonaffiliated trustees 615
Miscellaneous 17,978
--------
Total expenses $ 610,549
Less fees paid indirectly (1,220)
-----------
Net expenses $ 609,329
-----------
Net investment income $ 789,549
-----------
Realized and Unrealized Gain on Investments:
Net realized gain on investments $ 7,625,055
Change in net unrealized gain on investments 6,236,718
-----------
Net gain on investments $13,861,773
-----------
Net increase in net assets resulting from operations $14,651,322
===========
The accompanying notes are an integral part of these financial statements.
38
<PAGE>
Capital Growth Portfolio
Statements of Changes in Net Assets
For the Years Ended December 31, 1997 and December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
------------------- ------------------
<S> <C> <C> <C> <C>
From Operations:
Net investment income $ 789,549 $ 103,975
Net realized gain on investments 7,625,055 1,120,540
Change in net unrealized gain on investments 6,236,718 1,521,356
------------ ------------
Net increase in net assets resulting from
operations $ 14,651,322 $ 2,745,871
------------ ------------
Distributions To Shareholders:
Net investment income ($0.00 and $0.03 per
share, respectively) $ -- $ (98,466)
Net realized gain ($0.11 and $0.23 per share,
respectively) (556,650) (707,881)
------------ ------------
Total distributions to shareholders $ (556,650) $ (806,347)
------------ ------------
From Fund Share Transactions: '97 Shares '96 Shares
---------- ----------
Net proceeds from sale of shares 3,048,885 3,190,793 $ 46,594,217 $ 40,709,119
Reinvestment of distributions 36,889 61,965 556,650 806,347
Cost of shares repurchased (275,697) (339,671) (4,341,358) (4,239,869)
---------- ---------- ------------ ------------
Net increase in net assets resulting from
fund share transactions 2,810,077 2,913,087 $ 42,809,509 $ 37,275,597
========== ========== ------------ ------------
Net increase in net assets $ 56,904,181 $ 39,215,121
Net Assets:
Beginning of year 48,572,055 9,356,934
------------ ------------
End of year (including accumulated undistributed
net investment income of $798,678 and $5,509,
respectively) $105,476,236 $ 48,572,055
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
39
<PAGE>
Capital Growth Portfolio
Financial Highlights
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended March 1, 1995 to
December 31, 1997 December 31, 1996 December 31, 1996
------------------- ------------------- ------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 13.05 $ 11.57 $10.00
-------- ------- ------
Increase from investment operations:
Net investment income $ 0.12 $ 0.03 $ 0.02
Net realized and unrealized gain on investments 3.09 1.71 1.69
-------- ------- ------
Net increase from investment operations $ 3.21 $ 1.74 $ 1.71
Distributions to shareholders:
Net investment income -- (0.03) (0.02)
Net realized gain (0.11) (0.23) (0.12)
-------- ------- ------
Net increase in net asset value $ 3.10 $ 1.48 $ 1.57
-------- ------- ------
Net asset value, end of period $ 16.15 $ 13.05 $11.57
======== ======= ======
Total return* 24.69% 15.03% 17.13%
Ratio of net expenses to average net assets 0.80%+ 0.93%+ 1.56%**+
Ratio of net investment income to average net assets 1.02%+ 0.37%+ 0.48%**+
Portfolio turnover rate 50% 41% 46%**
Average brokerage commission per share $ 0.0556 $0.0661 --
Net assets, end of period (in thousands) $105,476 $48,572 $9,357
Ratio assuming no waiver of management fees by
PMC and no reduction for fees paid indirectly
Net expenses 0.80% 0.95% 3.95%**
Net investment income (loss) 1.02% 0.35% (1.91)%**
Ratio assuming waiver of management fees by
PMC and reduction for fees paid indirectly
Net expenses 0.79% 0.92% 1.49%**
Net investment income 1.03% 0.38% 0.55%**
</TABLE>
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of distributions and the complete redemption of the
investment at net asset value at the end of each period.
** Annualized.
+ Ratio assuming no reduction for fees paid indirectly.
The accompanying notes are an integral part of these financial statements.
40
<PAGE>
Growth Shares Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
INVESTMENT IN SECURITIES - 89.4%
PREFERRED STOCK - 1.8%
260 SAP AG (Non-voting) $ 85,053
--------
TOTAL PREFERRED STOCK (Cost $83,859) $ 85,053
--------
COMMON STOCKS - 87.6%
BASIC MATERIALS - 16.5%
Agricultural Products - 4.6%
2,044 Pioneer Hi-Bred International, Inc. $219,219
--------
Chemicals (Diversified) - 6.1%
6,856 Monsanto Co. $287,952
--------
Chemicals (Specialty) - 5.8%
4,472 Minerals Technologies, Inc. $203,196
1,872 OM Group, Inc. 68,562
--------
$271,758
--------
TOTAL BASIC MATERIALS $778,929
--------
CAPITAL GOODS - 1.1%
Manufacturing (Specialized) - 1.1%
1,084 Briggs & Stratton Corp. $ 52,642
--------
TOTAL CAPITAL GOODS $ 52,642
--------
CONSUMER CYCLICALS - 9.9%
Auto Parts & Equipment - 0.8%
603 Magna International, Inc. $ 37,876
--------
Retail (General Merchandise) - 3.5%
4,510 Fred Meyer, Inc.* $164,051
--------
Retail Specialty - 1.7%
2,411 Barnes & Noble, Inc.* $ 80,467
--------
Textiles (Apparel) - 3.9%
4,706 Nike, Inc. $184,711
--------
TOTAL CONSUMER CYCLICALS $467,105
--------
CONSUMER STAPLES - 18.2%
Beverages (Non-alcoholic) - 3.9%
2,757 The Coca-Cola Co. $183,685
--------
Entertainment - 1.6%
764 The Walt Disney Co. $ 75,684
--------
Foods - 3.6%
2,148 Wrigley (Wm.) Jr. Co. $170,900
--------
Personal Care - 2.9%
1,372 Gillette Co. $137,800
--------
Restaurants - 3.3%
3,241 McDonald's Corp. $154,758
--------
Retail (Drug Stores) - 2.9%
4,417 Walgreen Co. $138,583
--------
TOTAL CONSUMER STAPLES $861,410
--------
FINANCIAL - 16.4%
Banks (Major Regional) - 1.6%
223 Wells Fargo & Co. $ 75,695
--------
Consumer Finance - 1.7%
1,893 Countrywide Credit Industries, Inc. $ 81,162
--------
Insurance (Multi-line) - 2.7%
1,164 American International Group, Inc. $126,585
--------
Insurance (Property-Casualty) - 5.1%
1,713 Progressive Corp. $205,346
1,363 20th Century Industries 35,438
--------
240,784
--------
The accompanying notes are an integral part of these financial statements.
41
<PAGE>
Growth Shares Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Investment Bank/Brokerage - 2.9%
3,255 Charles Schwab Corp. $ 136,507
----------
Investment Management - 2.4%
1,323 Franklin Resources, Inc. $ 115,018
----------
TOTAL FINANCIAL $ 775,751
----------
HEALTHCARE - 5.3%
Healthcare (Drugs/Major Pharmaceuticals) - 5.3%
1,078 Merck & Co., Inc. $ 114,537
1,811 Pfizer, Inc. 135,033
----------
TOTAL HEALTHCARE $ 249,570
----------
TECHNOLOGY - 20.2%
Communications Equipment - 1.7%
2,722 Molex, Inc. $ 78,258
----------
Computers (Hardware) - 4.5%
2,549 Dell Computer Corp.* $ 214,116
----------
Computers (Networking) - 2.2%
1,848 Cisco System, Inc.* $ 103,026
----------
Computers (Software & Services) - 3.4%
1,226 Microsoft Corp.* $ 158,461
----------
Electronics (Semiconductors) - 3.7%
449 Etec Systems, Inc.* $ 20,878
2,212 Intel Corp. 155,393
----------
$ 176,271
----------
Equipment (Semiconductors) - 1.9%
2,906 Applied Materials, Inc.* $ 87,543
----------
Services (Data Processing) - 2.8%
4,563 First Data Corp. $ 133,468
----------
TOTAL TECHNOLOGY $ 951,143
----------
TOTAL COMMON STOCKS (Cost $4,112,975) $4,136,550
----------
TOTAL INVESTMENT IN SECURITIES (Cost $4,196,834) $4,221,603
----------
Principal
Amount
---------
TEMPORARY CASH INVESTMENT - 10.6%
Repurchase Agreement - 10.6%
$500,000 Aubrey Lanston, 1/2/98, 5.75%, repurchase price of
$500,000 plus accrued interest on 1/2/98,
collateralized by $509,000 U.S. Treasury Notes,
6.25%, 6/30/98 $ 500,000
----------
TOTAL TEMPORARY CASH INVESTMENT (Cost $500,000) $ 500,000
----------
TOTAL INVESTMENT IN SECURITIES AND TEMPORARY
CASH INVESTMENT - 100% (Cost $4,696,834)(a) $4,721,603
==========
* Non-income producing security.
(a) At December 31, 1997, the net unrealized gain on investments,
based on cost for federal income tax purposes of $4,700,932,
was as follows:
Aggregate gross unrealized gain for all investments
in which there is an excess of value over tax cost $ 97,154
Aggregate gross unrealized loss for all investments
in which there is an excess of tax cost over value (76,483)
----------
Net unrealized gain $ 20,671
=========
Purchases and sales of securities (excluding temporary cash
investments) for the period ended December 31, 1997 aggregated
$4,267,266 and $66,374 respectively.
The accompanying notes are an integral part of these financial statements.
42
<PAGE>
Growth Shares Portfolio
Balance Sheet
December 31, 1997
- --------------------------------------------------------------------------------
Assets:
Investment in securities, at value (including temporary
cash investment of $500,000)(cost $4,696,834) $4,721,603
Cash 72,316
Receivables--
Fund shares sold 146,230
Dividends, interest and foreign taxes withheld 1,441
Due from Pioneering Management Corporation 2,450
----------
Total assets $4,944,040
----------
Liabilities:
Payables--
Investment securities purchased $ 291,117
Forward foreign currency settlement contracts--net 217
Due to affiliates 305
Accrued expenses 5,917
----------
Total liabilities $ 297,556
----------
Net Assets:
Paid-in capital $4,624,000
Accumulated undistributed net investment income 1,773
Accumulated net realized loss on investments and foreign currency
transactions (4,058)
Net unrealized gain on investments 24,769
----------
Total net assets $4,646,484
==========
Net Asset Value Per Share:
(Unlimited number of shares authorized)
Based on $4,646,484/302,920 shares $ 15.34
==========
The accompanying notes are an integral part of these financial statements.
43
<PAGE>
Growth Shares Portfolio
Statement of Operations
For the Period from October 31, 1997 (Commencement of Operations) to December
31, 1997
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of foreign taxes withheld of $21) $ 2,019
Interest 3,526
-------
Total investment income $ 5,545
---------
Expenses:
Management fees $ 1,995
Transfer agent fees 305
Accounting 6,100
Custodian fees 6,566
Professional fees 3,355
Printing 610
Fees and expenses of nonaffiliated trustees 122
Miscellaneous 610
-------
Total expenses $ 19,663
Less management fees waived and expenses reimbursed
by Pioneering Management Corporation (15,891)
---------
Net expenses $ 3,772
---------
Net investment income $ 1,773
---------
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss from investments $ (4,058)
Net unrealized gain on investments 24,769
---------
Net gain on investments and foreign currency transactions $ 20,711
---------
Net increase in net assets resulting from operations $ 22,484
=========
The accompanying notes are an integral part of these financial statements.
44
<PAGE>
Growth Shares Portfolio
Statements of Changes in Net Assets
For the Period from October 31, 1997 (Commencement of Operations) to December
31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 31, 1997 to
December 31, 1997
--------------------
<S> <C> <C>
From Operations:
Net investment income $ 1,773
Net realized loss on investments and foreign currency transactions (4,058)
Net unrealized gain on investments 24,769
----------
Net increase in net assets resulting from operations $ 22,484
----------
From Fund Share Transactions: '97 Shares
----------
Net proceeds from sale of shares 302,450 $4,620,514
Cost of shares repurchased (6,196) (96,514)
------- ----------
Net increase in net assets resulting from fund share transactions 296,254 $4,524,000
======= ----------
Net increase in net assets $4,546,484
Net Assets:
Beginning of period (initial capitalization--6,666 shares) 100,000
----------
End of period (including accumulated undistributed
net investment income of $1,773) $4,646,484
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
45
<PAGE>
Growth Shares Portfolio
Financial Highlights
December 31, 1997
- --------------------------------------------------------------------------------
October 31, 1997 to
December 31, 1997
-------------------
Net asset value, beginning of period $ 15.00
-------
Increase from investment operations:
Net investment income $ 0.01
Net realized and unrealized gain on investments and foreign
currency transactions 0.33
-------
Net increase in net asset value $ 0.34
-------
Net asset value, end of period $ 15.34
=======
Total return* 2.27%
Ratio of net expenses to average net assets 1.25%**
Ratio of net investment income to average net assets 0.60%**
Portfolio turnover rate 16%**
Average brokerage commission per share $0.0595
Net assets, end of period (in thousands) $ 4,646
Ratio assuming no waiver of management fees and assumption
of expenses by PMC:
Net expenses 6.57%**
Net investment loss (4.72)%**
* Assumes initial investment at net asset value at the beginning of the period,
reinvestment of distributions and the complete redemption of the investment
at net asset value at the end of the period.
** Annualized.
The accompanying notes are an integral part of these financial statements.
46
<PAGE>
Real Estate Growth Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
INVESTMENT IN SECURITIES - 95.9%
REAL ESTATE INVESTMENTS TRUSTS - 82.3%
50,000 Amli Residential Properties Trust $ 1,112,500
45,000 Apartment Investment & Mangement Co. 1,653,750
70,000 Bedford Property Investors, Inc. 1,531,250
60,000 Brandywine Realty Trust 1,507,500
37,500 Charles E. Smith Residential Realty 1,331,250
47,100 Cousins Properties, Inc. 1,380,619
35,000 Developers Diversified Realty Corp. 1,338,750
40,157 Equity Office Properties Trust 1,267,455
24,700 Equity Residential Property Trust 1,248,894
7,000 Excel Realty Trust 220,500
30,000 Felcor Suite Hotels Inc. 1,065,000
35,000 Franchise Finance Corporation of America 945,000
55,000 Glenborough Realty Trust 1,629,375
35,000 Highwoods Properties, Inc. 1,301,563
35,000 Irvine Apartment Communities, Inc. 1,113,438
45,000 Liberty Property Trust 1,285,313
42,400 Macerich Co. 1,208,400
35,000 Mack-Cali Realty Corp. 1,435,000
35,000 National Golf Properties, Inc. 1,148,437
22,300 Pacific Gulf Properties Inc. 529,625
58,199 Patriot American Hospitality, Inc. 1,676,859
60,000 Prentiss Properties Trust 1,676,250
35,000 Public Storage, Inc. 1,028,125
35,000 Simon DeBartolo Group, Inc. 1,144,062
30,000 Spieker Properties, Inc. 1,286,250
30,000 Starwood Lodging Trust 1,736,250
45,000 Storage Trust Realty 1,184,062
18,300 Sun Communities, Inc. 657,656
14,900 Tower Realty Trust 366,912
-----------
TOTAL REAL ESTATE INVESTMENTS TRUSTS $35,010,045
-----------
REAL ESTATE SERVICES - 10.1%
45,000 Amresco, Inc.* $ 1,361,250
90,000 Catellus Development Corp.* 1,800,000
50,000 Trizec Hahn Corp. 1,159,375
-----------
TOTAL REAL ESTATE SERVICES $ 4,320,625
-----------
SERVICES - 3.5%
Hotels & Restaurants - 3.5%
75,000 Host Marriott Corp.* $ 1,471,875
-----------
TOTAL SERVICES $ 1,471,875
-----------
TOTAL INVESTMENT IN SECURITIES (Cost $35,246,311) $40,802,545
-----------
Principal
Amount
---------
TEMPORARY CASH INVESTMENT - 4.1%
Commercial Paper - 4.1%
$1,731,000 American Express Co., 6.65%, 01/02/98 $ 1,731,000
-----------
TOTAL TEMPORARY CASH INVESTMENT (Cost $1,731,000) $ 1,731,000
-----------
TOTAL INVESTMENT IN SECURITIES AND TEMPORARY CASH
INVESTMENT - 100% (Cost $36,977,311)(a) $42,533,545
===========
* Non-income producing security.
(a) At December 31, 1997, the net unrealized gain on
investments based on cost for federal income tax
of $36,977,311 was as follows:
Aggregate gross unrealized gain for all investments
in which there is an excess of value over tax cost $5,591,698
Aggregate gross unrealized loss for all investments
in which there is an excess of tax cost over value (35,464)
----------
Net unrealized gain $5,556,234
==========
Purchases and sales of securities (excluding temporary cash
investments) for the year ended December 31, 1997 aggregated
$32,720,831 and $6,874,751, respectively.
The accompanying notes are an integral part of these financial statements.
47
<PAGE>
Real Estate Growth Portfolio
Balance Sheet
December 31, 1997
- --------------------------------------------------------------------------------
Assets:
Investment in securities, at value (including temporary
cash investment of $1,731,000) (cost $36,977,311) $ 42,533,545
Cash 838
Receivables--
Fund shares sold 121,869
Dividends and interest 170,055
Other 3,657
------------
Total assets $ 42,829,964
------------
Liabilities:
Payables--
Investment securities purchased $ 561,059
Fund shares repurchased 20,370
Due to affiliates 38,158
Accrued expenses 23,665
------------
Total liabilities $ 643,252
------------
Net Assets:
Paid-in capital $ 36,383,507
Accumulated undistributed net investment income 31,066
Accumulated undistributed net realized gain 215,905
Net unrealized gain on investments 5,556,234
------------
Total Net Assets $ 42,186,712
============
Asset Value Per Share:
(Unlimited number of shares authorized)
Based on $42,186,712/2,496,825 shares $ 16.90
============
The accompanying notes are an integral part of these financial statements.
48
<PAGE>
Real Estate Growth Portfolio
Statement of Operations
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income:
Dividends $1,067,322
Interest 54,441
----------
Total investment income $1,121,763
----------
Expenses:
Management fees $ 253,190
Transfer agent fees 1,252
Accounting 35,558
Custodian fees 26,531
Professional fees 13,233
Printing 6,908
Fees and expenses of nonaffiliated trustees 966
Miscellaneous 10,339
----------
Total expenses $ 347,977
Less management fees waived by Pioneering Management Corporation (29,815)
Less fees paid indirectly (1,671)
----------
Net expenses $ 316,491
----------
Net investment income $ 805,272
----------
Realized and Unrealized Gain on Investments:
Net realized gain on investments $ 423,094
Change in net unrealized gain on investments 4,120,591
----------
Net gain on investments $4,543,685
----------
Net increase in net assets resulting from operations $5,348,957
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
49
<PAGE>
Real Estate Growth Portfolio
Statements of Changes in Net Assets
For the Years Ended December 31, 1997 and December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
------------------- ------------------
<S> <C> <C> <C> <C>
From Operations:
Net investment income $ 805,272 $ 141,516
Net realized gain on investments 423,094 121,049
Change in net unrealized gain on investments 4,120,591 1,403,021
------------ -----------
Net increase in net assets resulting from operations $ 5,348,957 $ 1,665,586
------------ -----------
Distributions to Shareholders:
Net investment income ($0.45 and $0.53 per share,
respectively) $ (754,106) $ (137,792)
Net realized gain ($0.12 and $0.12 per share,
respectively) (269,649) (82,413)
------------ -----------
$ (1,023,755) $ (220,205)
------------ -----------
Total distributions to shareholders
From Fund Share Transactions: '97 Shares '96 Shares
---------- ----------
Net proceeds from sale of shares 1,842,009 722,084 $ 28,581,231 $ 9,135,087
Reinvestment of distributions 64,684 16,943 1,023,755 220,206
Cost of shares repurchased (178,423) (16,103) (2,858,890) (197,756)
---------- ------- ------------ -----------
Net increase in net assets resulting from
fund share transactions 1,728,270 722,924 $ 26,746,096 $ 9,157,537
========== ======= ------------ -----------
Net increase in net assets $ 31,071,298 $10,602,918
Net Assets:
Beginning of year 11,115,414 512,496
------------ -----------
End of year (including accumulated undistributed
net investment income of $31,066 and $0,
respectively) $ 42,186,712 $11,115,414
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
50
<PAGE>
Real Estate Growth Portfolio
Financial Highlights
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended March 31, 1995 to
December 31, 1997 December 31, 1996 December 31, 1995
------------------- ------------------- ------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 14.46 $ 11.23 $ 10.00
------- ------- -------
Increase from investment operations:
Net investment income $ 0.47 $ 0.54 $ 0.12
Net realized and unrealized gain on investments 2.54 3.34 1.55
------- ------- -------
Net increase from investment operations $ 3.01 $ 3.88 $ 1.67
Distributions to shareholders:
Net investment income (0.45) (0.53) (0.23)
Tax return of capital -- -- (0.18)
Net realized gain (0.12) (0.12) (0.03)
------- ------- -------
Net increase in net asset value $ 2.44 $ 3.23 $ 1.23
------- ------- -------
Net asset value, end of period $ 16.90 $ 14.46 $ 11.23
======= ======= =======
Total return* 21.16% 35.73% 16.96%
Ratio of net expenses to average net assets 1.25%+ 1.34%+ 2.10%* *+
Ratio of net investment income to average net assets 3.16%+ 4.63%+ 2.68%* *+
Portfolio turnover rate 28% 41% 1%**
Average brokerage commission per share $0.0597 $0.0595 --
Net assets, end of period (in thousands) $42,187 $11,115 $512
Ratio assuming no waiver of management fees and
assumption of expenses by PMC and no reduction
for fees paid indirectly:
Net expenses 1.37% 3.35% 45.96%**
Net investment income (loss) 3.04% 2.62% (41.18)%**
Ratio assuming waiver of management fees and
assumption of expenses by PMC and reduction for
fees paid indirectly:
Net expenses 1.24% 1.24% 1.57%**
Net investment income 3.17% 4.73% 3.21%**
</TABLE>
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of distributions and the complete redemption of the
investment at net asset value at the end of each period.
** Annualized.
+ Ratio assuming no reduction for fees paid indirectly.
The accompanying notes are an integral part of these financial statements.
51
<PAGE>
Growth and Income Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - 82.9%
BASIC MATERIALS - 8.5%
Aluminum - 2.1%
1,400 Aluminum Co. of America $ 98,525
--------
Chemicals - 3.3%
1,500 E.I. du Pont de Nemours and Co. $ 90,094
1,800 Bayer AG (Sponsored A.D.R.) 66,881
--------
$156,975
--------
Gold & Precious Metals Mining - 1.3%
2,000 Newmont Mining Corp. $ 58,750
--------
Iron & Steel - 0.3%
900 Steel Dynamics, Inc.* $ 14,400
--------
Metals & Mining - 1.5%
1,100 Phelps Dodge Corp. $ 68,475
--------
TOTAL BASIC MATERIALS $397,125
--------
CAPITAL GOODS - 2.0%
Machinery (Diversified) - 2.0%
1,100 Caterpillar, Inc. $ 53,419
700 Deere & Co. 40,819
--------
TOTAL CAPITAL GOODS $ 94,238
--------
COMMUNICATION SERVICES - 5.9%
Telecommunications (Long Distance) - 1.5%
1,200 Sprint Corp. $ 70,350
--------
Telephone - 4.4%
500 Bell Atlantic Corp. $ 45,500
600 BellSouth Corp. 33,787
1,500 GTE Corp. 78,375
1,100 U.S. West Communication Group 49,638
--------
$207,300
--------
TOTAL COMMUNICATION SERVICES $277,650
--------
CONSUMER CYCLICALS - 8.2%
Automobiles - 2.6%
2,000 Chrysler Corp. $ 70,375
1,100 Ford Motor Co. 53,556
--------
$123,931
--------
Publishing - 2.4%
1,500 McGraw-Hill Co., Inc. $111,000
--------
Retail (Dept. Stores) - 2.2%
2,000 May Department Stores Co. $105,375
--------
Retail (General Merchandise) - 1.0%
200 Dayton Hudson Corp. $ 13,500
800 Wal-Mart Stores, Inc. 31,550
--------
$ 45,050
--------
TOTAL CONSUMER CYCLICALS $385,356
--------
CONSUMER STAPLES - 7.6%
Foods - 5.0%
700 ConAgra, Inc. $ 22,969
200 CPC International, Inc. 21,550
1,200 H.J. Heinz Co. 60,975
1,700 Nestle SA (Sponsored A.D.R.) 127,181
--------
$232,675
--------
Household Products (Non-Durables) - 2.6%
1,700 Colgate-Palmolive Co. $124,950
--------
TOTAL CONSUMER STAPLES $357,625
--------
The accompanying notes are an integral part of these financial statements.
52
<PAGE>
Growth and Income Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
ENERGY - 5.4%
International Integrated - 5.4%
800 Chevron Corp. $ 61,600
1,400 Exxon Corp. 85,662
1,500 Mobil Corp. 108,281
--------
TOTAL ENERGY $255,543
--------
FINANCIAL - 13.0%
Banks (Major Regional) - 4.6%
1,100 The Bank of New York Co., Inc. $ 63,594
300 Comerica, Inc. 27,075
1,400 National City Corp. 92,050
600 State Street Boston Corp. 34,913
--------
$217,632
--------
Banks (Regional) - 1.9%
1,300 First Tennessee National Corp. $ 86,775
--------
Insurance (Brokers) - 1.3%
800 Marsh & McLennan Co., Inc. $ 59,650
--------
Insurance (Life/Health) - 1.9%
2,200 ReliaStar Financial Corp. $ 90,612
--------
Insurance (Property-Casualty) - 3.0%
1,400 Chubb Corp. $105,875
700 Partnerre Ltd. 32,463
--------
$138,338
--------
Investment Banking/Brokerage - 0.3%
200 Merrill Lynch & Co., Inc. $ 14,588
--------
TOTAL FINANCIAL $607,595
--------
HEALTH CARE - 8.0%
Health Care (Diversified) - 3.7%
1,200 Abbott Laboratories $ 78,675
750 Warner-Lambert Co. 93,000
--------
$171,675
--------
Health Care (Drugs/Major Pharmaceuticals) - 3.3%
700 Roche Holdings AG (Sponsored A.D.R.) $ 69,650
1,400 Schering-Plough Corp. 87,062
--------
$156,712
--------
Health Care (Medical Products/Supplies) - 1.0%
900 Becton, Dickinson & Co. $ 45,000
--------
TOTAL HEALTH CARE $373,387
--------
TECHNOLOGY - 19.7%
Communications Equipment - 3.7%
1,300 Harris Corp. $ 59,637
2,000 Motorola, Inc. 114,125
--------
$173,762
--------
Computers (Hardware) - 6.1%
1,600 Compaq Computer Corp. $ 90,300
1,700 Hewlett-Packard Co. 106,250
700 International Business Machines Corp. 73,194
400 Sun Microsystems, Inc.* 15,950
--------
$285,694
--------
Computers (Networking) - 3.3%
6,300 Teligent, Inc.* $155,137
--------
Computers (Software & Services) - 0.5%
700 Aspen Technology, Inc.* $ 23,975
--------
Electronics (Semiconductors) - 3.0%
1,500 Intel Corp. $105,375
800 Texas Instruments, Inc. 36,000
--------
$141,375
--------
The accompanying notes are an integral part of these financial statements.
53
<PAGE>
Growth and Income Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Equipment (Semiconductors) - 0.9%
1,400 Applied Materials, Inc.* $ 42,175
----------
Services (Data Processing) - 1.6%
1,200 Automatic Data Processing, Inc. $ 73,650
----------
Photography/Imaging - 0.6%
500 Eastman Kodak Co. $ 30,406
----------
TOTAL TECHNOLOGY $ 926,174
----------
TRANSPORTATION - 1.0%
Railroads - 1.0%
1,500 Norfolk Southern Corp. $ 46,219
----------
TOTAL TRANSPORTATION $ 46,219
----------
UTILITIES - 3.6%
Electric Companies - 0.6%
1,000 DPL, Inc. $ 28,750
----------
Natural Gas - 1.4%
2,000 Indiana Energy, Inc. $ 65,875
----------
Water Utilities - 1.6%
2,700 American Water Works Co., Inc. $ 73,744
----------
TOTAL UTILITIES $ 168,369
----------
TOTAL COMMON STOCKS (Cost $3,818,524) $3,889,281
----------
Principal
Amount
- ----------
TEMPORARY CASH INVESTMENT - 17.1%
Repurchase Agreement - 17.1%
$800,000 Aubrey Lanston, 12/31/97, 5.75%, repurchase price of
$800,000 plus accrued interest on 1/2/98, collateralized
by $814,000 U.S. Treasury Note, 6.25%, 6/30/98 $ 800,000
----------
TOTAL TEMPORARY CASH INVESTMENT (Cost $800,000) $ 800,000
----------
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $4,618,524)(a) $4,689,281
==========
* Non-income producing security.
(a) At December 31, 1997, the net unrealized gain on
investments based on cost for federal income tax
purposes of $4,618,524 was as follows:
Aggregate gross unrealized gain for all investments
in which there is an excess of value over tax cost $119,005
Aggregate gross unrealized loss for all investments
in which there is an excess of tax cost over value (48,248)
---------
Net unrealized gain $ 70,757
=========
Purchases and sales of securities (excluding temporary
cash investments) for the period ended December 31, 1997,
aggregated $3,818,524 and $0, respectively.
The accompanying notes are an integral part of these financial statements.
54
<PAGE>
Growth and Income Portfolio
Balance Sheet
December 31, 1997
- --------------------------------------------------------------------------------
Assets:
Investment in securities, at value (including temporary cash
investment of $800,000) (cost $4,618,524) $ 4,689,281
Cash 45,479
Receivables--
Fund shares sold 191,450
Dividends and interest 3,006
Due from Pioneering Management Corporation 2,573
-----------
Total assets $ 4,931,789
-----------
Liabilities:
Payables--
Investment securities purchased $ 432,280
Due to affiliates 295
Accrued expenses 5,723
-----------
Total liabilities $ 438,298
-----------
Net Assets:
Paid-in capital $ 4,422,734
Net unrealized gain on investments 70,757
-----------
Total net assets $ 4,493,491
===========
Net Asset Value Per Share:
(Unlimited number of shares authorized)
Based on $4,493,491/284,378 shares $ 15.80
===========
The accompanying notes are an integral part of these financial statements.
55
<PAGE>
Growth and Income Portfolio
Statement of Operations
For the Period from October 31, 1997 (Commencement of Operations) to
December 31, 1997
- --------------------------------------------------------------------------------
Investment Income:
Dividends $3,237
Interest 3,025
------
Total investment income $ 6,262
---------
Expenses:
Management fees $1,791
Transfer agent fees 295
Accounting 5,900
Custodian fees 1,770
Professional fees 3,245
Printing 590
Fees and expenses of nonaffliated trustees 118
Miscellaneous 590
------
Total expenses $ 14,299
Less management fees waived and expenses reimbursed
by Pioneering Management Corporation (10,854)
---------
Net expenses $ 3,445
---------
Net investment income $ 2,817
---------
Net Unrealized Gain On Investments:
Net unrealized gain on investments $ 70,757
---------
Net increase in net assets resulting from operations $ 73,574
=========
The accompanying notes are an integral part of these financial statements.
56
<PAGE>
Growth and Income Portfolio
Statement of Changes in Net Assets
For the Period from October 31, 1997 (Commencement of Operations) to
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 31, 1997 to
December 31, 1997
--------------------
<S> <C> <C>
From Operations:
Net investment income $ 2,817
Net unrealized gain on investments 70,757
----------
Net increase in net assets resulting from operations $ 73,574
----------
Distributions To Shareholders:
Net investment income ($0.01 per share) $ (2,870)
----------
Total distributions to shareholders $ (2,870)
----------
From Fund Share Transactions: '97 Shares
----------
Net proceeds from sale of shares 277,558 $4,320,369
Reinvestment of distributions 183 2,870
Cost of shares repurchased (29) (452)
------- ----------
Net increase in net assets resulting from fund share transactions 277,712 $4,322,787
======= ----------
Net increase in net assets $4,393,491
Net Assets:
Beginning of period (initial capitalization--6,666 shares) 100,000
----------
End of period (including accumulated undistributed
net investment income of $0) $4,493,491
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
57
<PAGE>
Growth and Income Portfolio
Financial Highlights
December 31, 1997
- --------------------------------------------------------------------------------
October 31, 1997 to
December 31, 1997
--------------------
Net asset value, beginning of period $ 15.00
-------
Increase from investment operations:
Net investment income $ 0.01
Net unrealized gain on investments 0.80
-------
Total increase from investment operations $ 0.81
Distributions to shareholders:
Net investment income (0.01)
-------
Net increase in net asset value $ 0.80
-------
Net asset value, end of period $ 15.80
=======
Total return* 5.43%
Ratio of net expenses to average net assets 1.25%**
Ratio of net investment income to average net assets 1.07%**
Portfolio turnover rate 0%
Average brokerage commission per share $0.0421
Net assets, end of period (in thousands) $ 4,493
Ratio assuming no waiver of management fees and
assumption of expenses by PMC:
Net expenses 5.30%**
Net investment loss (2.98)%**
* Assumes initial investment at net asset value at the beginning of the period,
reinvestment of distributions and the complete redemption of the investment
at net asset value at the end of the period.
** Annualized.
The accompanying notes are an integral part of these financial statements.
58
<PAGE>
Equity-Income Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
INVESTMENT IN SECURITIES - 98.1%
COVERTIBLE CORPORATE BONDS - 0.7%
$500,000 Family Golf Centers, Inc., 5.75%, 10/15/04 (144A) $ 531,600
250,000 Phototronics Inc., 6.0%, 6/1/04 282,550
-----------
TOTAL CONVERTIBLE CORPORATE BONDS (Cost $750,000) $ 814,150
-----------
Shares
- --------
CONVERTIBLE PREFERRED STOCKS - 1.3%
570 Sprint Corp., 8.25%, 3/31/00 $ 25,508
10,000 AirTouch Communications, Inc., 4.25%, 8/16/16 623,125
20,000 Rouse Co., 3.00% (Series B) 1,010,000
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $1,461,269) $ 1,658,633
-----------
COMMON STOCKS - 96.1%
BASIC MATERIALS - 6.6%
Aluminum - 0.9%
15,400 Aluminum Co. of America $ 1,083,775
-----------
Chemicals (Diversified) - 0.6%
15,441 ARCO Chemical Co. $ 720,902
-----------
Chemicals - 2.7%
19,000 Dow Chemical Co. $ 1,928,500
10,200 E.I. du Pont de Nemours and Co. 612,637
15,000 Eastman Chemical Co. 893,438
-----------
$ 3,434,575
-----------
Chemicals (Specialty) - 1.4%
46,000 Borden Chemicals & Plastics, L.P. $ 382,375
100,000 Ethyl Corp. 768,750
15,000 Nalco Chemical Co. 593,437
-----------
$ 1,744,562
-----------
Iron & Steel - 0.2%
10,300 Roanoke Electric Steel Corp. $ 274,238
-----------
Metals & Mining - 0.8%
15,400 Phelps Dodge Corp. $ 958,650
-----------
TOTAL BASIC MATERIALS $ 8,216,702
-----------
CAPITAL GOODS - 0.5%
Machinery (Diversified) - 0.1%
7,000 The Gorman-Rupp Co. $ 147,875
-----------
Manufacturing (Specialized) - 0.4%
9,000 Diebold, Inc. $ 455,625
-----------
TOTAL CAPITAL GOODS $ 603,500
-----------
COMMUNICATION SERVICES - 17.7%
Telecommunications (Long Distance) - 5.7%
34,500 AT&T Corp. $ 2,113,125
85,000 Sprint Corp. 4,983,125
-----------
$ 7,096,250
-----------
Telephone - 12.0%
34,800 Aliant Communications, Inc. $ 1,091,850
12,600 Ameritech Corp. 1,014,300
38,422 Bell Atlantic Corp. 3,496,402
41,200 BellSouth Corp. 2,320,075
88,500 GTE Corp. 4,624,125
17,706 SBC Communication Group 1,296,965
21,000 U.S. West Communication Group 947,625
-----------
$14,791,342
-----------
TOTAL COMMUNICATION SERVICES $21,887,592
-----------
CONSUMER CYCLICALS - 8.9%
Automobiles - 5.6%
60,000 Chrysler Corp. $ 2,111,250
94,800 Ford Motor Co. 4,615,575
2,500 General Motors Corp. 151,562
-----------
$ 6,878,387
-----------
The accompanying notes are an integral part of these financial statements.
59
<PAGE>
Equity-Income Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Consumer (Jewelry, Novelties & Gifts) - 0.3%
14,200 Stanhome, Inc. $ 364,763
-----------
Publishing - 0.6%
10,600 McGraw-Hill Co., Inc. $ 784,400
-----------
Retail (Dept. Stores) - 2.4%
10,550 May Department Stores Co. $ 555,853
39,450 Mercantile Stores Co., Inc. 2,401,519
-----------
$ 2,957,372
-----------
TOTAL CONSUMER CYCLICALS $10,984,922
-----------
CONSUMER STAPLES - 5.5%
Beverages (Non-Alcoholic) - 0.4%
15,000 PepsiCo, Inc. $ 546,562
-----------
Entertainment - 1.7%
79,200 Cedar Fair, L.P. $ 2,049,300
-----------
Foods - 2.3%
4,100 CPC International, Inc. $ 441,775
17,000 General Mills, Inc. 1,217,625
23,000 H.J. Heinz Co. 1,168,687
-----------
$ 2,828,087
-----------
Household Products (Non-Durables) - 1.1%
19,000 Colgate-Palmolive Co. $ 1,396,500
-----------
TOTAL CONSUMER STAPLES $ 6,820,449
-----------
ENERGY - 9.5%
Oil (Domestic Integrated) - 1.5%
24,000 Atlantic Richfield Co. $ 1,923,000
-----------
Oil (International Integrated) - 8.0%
19,680 Amoco Corp. $ 1,675,260
50,300 Chevron Corp. 3,873,100
40,000 Exxon Corp. 2,447,500
26,000 Mobil Corp. 1,876,875
-----------
$ 9,872,735
-----------
TOTAL ENERGY $11,795,735
-----------
FINANCIAL - 19.1%
Banks (Major Regional) - 3.8%
39,400 The Bank of New York Co., Inc. $ 2,277,812
36,000 National City Corp. 2,367,000
-----------
$ 4,644,812
-----------
Banks (Regional) - 2.2%
20,400 First Security Corp. $ 854,250
10,400 First Tennessee National Corp. 694,200
28,370 Old Kent Financial Corp. 1,124,161
-----------
$ 2,672,611
-----------
Financial (Diversified) - 0.5%
10,000 Equitable Companies, Inc. $ 497,500
4,705 Rouse Co. 154,089
-----------
$ 651,589
-----------
Insurance (Life/Health) - 6.3%
24,000 American National Insurance Co. $ 2,232,000
29,000 AmerUs Life Holdings, Inc. 1,069,375
40,500 Hartford Life, Inc. 1,835,156
65,200 ReliaStar Financial Corp. 2,685,425
-----------
$ 7,821,956
-----------
Insurance (Property-Casualty) - 2.6%
19,000 Chubb Corp. $ 1,436,875
15,400 Safeco Corp. 750,750
12,000 St. Paul Companies, Inc. 984,750
-----------
$ 3,172,375
-----------
Investment Management - 1.1%
35,600 Alliance Capital Management L.P. $ 1,417,325
-----------
The accompanying notes are an integral part of these financial statements.
60
<PAGE>
Equity-Income Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Savings & Loans Companies - 2.6%
30,000 H.F. Ahmanson & Co. $ 2,008,125
22,376 Astoria Financial Corp. 1,247,462
------------
$ 3,255,587
------------
TOTAL FINANCIAL $ 23,636,255
------------
HEALTH CARE - 11.5%
Health Care (Diversified) - 5.9%
12,000 Abbott Laboratories $ 786,750
25,000 American Home Products Corp. 1,912,500
10,400 Bristol-Myers Squibb Co. 984,100
29,000 Warner-Lambert Co. 3,596,000
------------
$ 7,279,350
------------
Health Care (Drugs/Major Pharmaceuticals) - 4.4%
88,400 Schering-Plough Corp. $ 5,497,375
------------
Health Care (Medical Products/Supplies) - 1.2%
31,000 Becton, Dickinson & Co. $ 1,550,000
------------
TOTAL HEALTH CARE $ 14,326,725
------------
TECHNOLOGY - 5.7%
Communications Equipment - 1.6%
44,000 Harris Corp. $ 2,018,500
------------
Computers (Hardware) - 3.0%
39,000 Hewlett-Packard Co. $ 2,437,500
12,000 IBM Corp. 1,254,750
------------
$ 3,692,250
------------
Electronics (Defense) - 0.1%
3,100 General Motors Corp. (Class H) $ 114,506
1,903 Raytheon Co. 94,075
------------
$ 208,581
------------
Equipment (Semiconductors) - 0.5%
30,000 Helix Technology Corp. $ 585,000
------------
Photography/Imaging - 0.5%
10,000 Eastman Kodak Co. $ 608,125
------------
TOTAL TECHNOLOGY 7,112,456
------------
UTILITIES - 11.1%
Electric Companies - 5.1%
70,000 Allegheny Energy, Inc. $ 2,275,000
20,000 Baltimore Gas & Electric Co. 681,250
50,000 Boston Edison Co. 1,893,750
50,000 DPL, Inc. 1,437,500
------------
$ 6,287,500
------------
Natural Gas - 6.0%
14,750 Consolidated Natural Gas Co. $ 892,375
15,000 El Paso Natural Gas Co. 997,500
15,600 KeySpan Energy Corp. 574,275
37,500 NICOR, Inc. 1,582,032
18,900 People's Energy Corp. 744,187
19,000 Public Service Co. of North Carolina, Inc. 439,375
27,300 Questar Corp. 1,218,263
2,500 Santa Fe Pacific Pipeline Partners, L.P. 114,375
20,000 Sonat, Inc. 915,000
------------
$ 7,477,382
------------
TOTAL UTILITIES $ 13,764,882
------------
TOTAL COMMON STOCKS (Cost $94,883,869) $119,149,218
------------
TOTAL INVESTMENT IN SECURITIES (Cost $97,095,138) $121,622,001
------------
The accompanying notes are an integral part of these financial statements.
61
<PAGE>
Equity-Income Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT - 1.9%
Commercial Paper - 1.9%
$2,351,000 American Express Co., 6.65% 01/02/98 $ 2,351,000
------------
TOTAL TEMPORARY CASH INVESTMENT (Cost $2,351,000) $ 2,351,000
------------
TOTAL INVESTMENT IN SECURITIES AND TEMPORARY CASH
INVESTMENT - 100% (Cost $99,446,138)(a) $123,973,001
============
144A Security is exempt from registration under Rule 144A of the
Securities Act of 1933. Such securities may be resold normally to
qualified institutional buyers in a transaction exempt from
registration. At December 31, 1997, the value of this security was
$531,600 or 0.4% of total net assets.
(a) At December 31, 1997, the net unrealized gain on investments
based on cost for federal income income tax purposes of $99,446,138
was as follows:
Aggregrate gross unrealized gain for all investments
in which there is an excess of value over tax cost $25,364,559
Aggregrate gross unrealized loss for all investments
in which there is an excess of tax cost over value (837,696)
----------
Net unrealized gain $24,526,863
===========
Purchases and sales of securities (excluding temporary cash
investments) for the year ended December 31, 1997 aggregated
$65,474,113 and $12,343,828, respectively.
The accompanying notes are an integral part of these financial statements.
62
<PAGE>
Equity-Income Portfolio
Balance Sheet
December 31, 1997
- --------------------------------------------------------------------------------
Assets:
Investment in securities, at value (including temporary
cash investment of $2,351,000) (cost $99,446,138) $ 123,973,001
Cash 131,259
Receivables--
Fund shares sold 411,424
Dividends and interest 255,558
Other 7,552
-------------
Total assets $ 124,778,794
-------------
Liabilities:
Payables--
Investment securities purchased $ 465,996
Due to affiliates 73,109
Accrued expenses 26,388
-------------
Total liabilities $ 565,493
-------------
Net Assets:
Paid-in capital $ 97,636,874
Accumulated undistributed net investment income 51,245
Accumulated undistributed net realized gain on investments 1,998,319
Net unrealized gain on investments 24,526,863
-------------
Total net assets $ 124,213,301
=============
Net Asset Value Per Share:
(Unlimited number of shares authorized)
(based on $124,213,301/6,845,784 shares) $ 18.14
=============
The accompanying notes are an integral part of these financial statements.
63
<PAGE>
Equity-Income Portfolio
Statement of Operations
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
Investment Income:
Dividends $2,455,945
Interest 91,810
----------
Total investment income $ 2,547,755
-----------
Expenses:
Management fees $ 536,869
Transfer agent fees 1,250
Accounting 32,430
Custodian fees 27,647
Professional fees 18,592
Printing 5,502
Fees and expenses of nonaffliated trustees 180
Miscellaneous 11,893
----------
Total expenses $ 634,363
Less fees paid indirectly (459)
-----------
Net expenses $ 633,904
-----------
Net investment income $ 1,913,851
-----------
Realized and Unrealized Gain on Investments:
Net realized gain on investments $ 2,027,178
Change in net unrealized gain on investments 20,621,558
-----------
Net gain on investments $22,648,736
-----------
Net increase in net assets resulting from operations $24,562,587
===========
The accompanying notes are an integral part of these financial statements.
64
<PAGE>
Equity-Income Portfolio
Statements of Changes in Net Assets
For the Years Ended December 31, 1997 and December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
------------------- ------------------
<S> <C> <C> <C> <C>
From Operations:
Net investment income $ 1,913,851 $ 671,663
Net realized gain on investments 2,027,178 60,190
Change in net unrealized gain on
investments 20,621,558 3,551,636
------------ ------------
Net increase in net assets resulting from
operations $ 24,562,587 $ 4,283,489
------------ ------------
Distributions to Shareholders:
Net investment income
($0.37 and $0.27 per share, respectively) $ (1,974,930) $ (590,580)
Net realized gain
($0.01 and $0.00 per share, respectively) (60,378) --
------------ ------------
Total distributions to shareholders $ (2,035,308) $ (590,580)
------------ ------------
From Fund Transactions: '97 Shares '96 Shares
------------ -----------
Net proceeds from sale of shares 3,870,768 3,015,546 $ 61,680,376 $ 38,450,404
Reinvestment of distributions 123,265 45,688 2,035,308 590,580
Cost of shares repurchased (561,300) (216,188) (8,900,852) (2,776,392)
---------- ---------- ------------ ------------
Net increase in net assets resulting from
fund share transactions 3,432,733 2,845,046 $ 54,814,832 $ 36,264,592
========== ========== ------------ ------------
Net increase in net assets $ 77,342,111 $ 39,957,501
Net Assets:
Beginning of year 46,871,190 6,913,689
------------ ------------
End of year (including accumulated
undistributed net investment income of
$51,245 and $67,945, respectively) $124,213,301 $ 46,871,190
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
65
<PAGE>
Equity-Income Portfolio
Financial Highlights
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended March 1, 1995 to
December 31, 1997 December 31, 1996 December 31,1995
------------------- ------------------- -------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 13.73 $ 12.17 $ 10.00
------- ------- --------
Increase from investment operations:
Net investment income $ 0.35 $ 0.29 $ 0.19
Net realized and unrealized gain on investments 4.44 1.54 2.16
------- ------- --------
Net increase from investment operations $ 4.79 $ 1.83 $ 2.35
Distributions to shareholders:
Net investment income (0.37) (0.27) (0.18)
Net realized gain (0.01) -- --
------- ------- --------
Net increase in net asset value $ 4.41 $ 1.56 $ 2.17
------- ------- --------
Net asset value, end of period $ 18.14 $ 13.73 $ 12.17
======= ======= ========
Total return* 35.23% 15.19% 23.62%
Ratio of net expenses to average net assets 0.77%+ 0.96%+ 1.63%**+
Ratio of net investment income to average net assets 2.31%+ 2.67%+ 2.89%**+
Portfolio turnover rate 15% 18% --
Average brokerage commission per share $ 0.0574 $0.0583 --
Net assets, end of period (in thousands) $124,213 $46,871 $6,914
Ratio assuming no waiver of management fees and
assumption of expenses by PMC and no reduction
for fees paid indirectly:
Net expenses 0.77% 0.98% 5.32%**
Net investment income (loss) 2.31% 2.65% (0.80%)**
Ratio assuming waiver of management fees and
assumption of expenses by PMC and reduction for
fees paid indirectly:
Net expenses 0.77% 0.95% 1.47%**
Net investment income 2.31% 2.68% 3.05%**
</TABLE>
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of each period.
** Annualized
+ Ratio assuming no reduction for fees paid indirectly.
The accompanying notes are an integral part of these financial statements.
66
<PAGE>
Balanced Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
INVESTMENT IN SECURITIES - 77.1%
CONVERTIBLE PREFERRED STOCK - 0.3%
2,780 Sprint Corp., 8.25%, 3/31/00 $ 124,405
----------
TOTAL CONVERTIBLE PREFERRED STOCK (Cost $107,402) $ 124,405
----------
COMMON STOCKS - 53.5%
BASIC MATERIALS - 2.7%
Chemicals (Diversified) - 2.7%
28,000 Monsanto Co. $1,176,000
----------
TOTAL BASIC MATERIALS $1,176,000
----------
CAPITAL GOODS - 1.7%
Aerospace/Defense - 0.3%
3,000 Boeing Co. $ 146,812
----------
Machinery (Diversified) - 1.4%
20,000 AGCO Corp. $ 585,000
----------
TOTAL CAPITAL GOODS $ 731,812
----------
COMMUNICATION SERVICES - 1.6%
Telephone - 1.6%
3,000 Bellsouth Corp. $ 168,938
10,000 GTE Corp. 522,500
----------
TOTAL COMMUNICATION SERVICES $ 691,438
----------
CONSUMER CYCLICALS - 2.2%
Auto Parts & Equiptment - 0.7%
5,000 Magna International Inc. $ 314,063
----------
Homebuilding - 0.8%
20,000 Clayton Homes, Inc. $ 360,000
----------
Retail (Dept. Stores) - 0.7%
7,000 Nike, Inc. $ 274,750
----------
TOTAL CONSUMER CYCLICALS $ 948,813
----------
CONSUMER SERVICES - 1.9%
Household Products (Non-Durables) - 1.2%
20,000 First Brands Corp. $ 538,750
----------
Textiles (Apparel) - 0.7%
5,000 J.C. Penney Co., Inc. $ 301,562
----------
TOTAL CONSUMER SERVICES $ 840,312
----------
ENERGY - 1.5%
Oil & Gas (Refining & Marketing) - 1.0%
10,000 Sun Company, Inc. $ 420,625
----------
Oil (International Integrated) - 0.5%
3,000 Amoco Corp. $ 255,375
----------
TOTAL ENERGY $ 676,000
----------
FINANCIAL - 15.8%
Banks (Major Regional) - 1.9%
5,000 The Bank of New York Co., Inc. $ 289,062
10,000 First Union Corp. 512,500
----------
$ 801,562
----------
Banks (Money Center) - 1.8%
7,000 The Chase Manhattan Corp. $ 766,500
----------
Consumer Finance - 1.6%
7,000 Countrywide Credit Industries, Inc. $ 300,125
35,000 Long Beach Financial Corp.* 406,875
----------
$ 707,000
----------
The accompanying notes are an integral part of these financial statements.
67
<PAGE>
Balanced Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Financial (Diversified) - 2.7%
8,000 Franchise Finance Corp. of America $ 216,000
10,000 Mack-Cali Realty Corp. 410,000
10,000 Ocwen Asset Investment Corp. 205,000
25,000 Prime Retail, Inc. 354,687
----------
$1,185,687
----------
Insurance (Property-Casualty) - 3.3%
12,000 Allstate Corp. $1,090,500
7,000 Safeco Corp. 341,250
----------
$1,431,750
----------
Insurance (Life/Health) - 1.6%
15,000 Conseco, Inc. $ 681,563
----------
Savings & Loan - 2.9%
3,500 H. F. Ahmanson & Co. $ 234,281
15,000 Bank Plus Corp.* 189,375
6,300 Charter One Financial, Inc. 397,687
4,200 Washington Federal, Inc. 132,038
5,000 Washington Mutual, Inc. 319,063
----------
$1,272,444
----------
TOTAL FINANCIAL $6,846,506
----------
HEALTH CARE - 10.3%
Health Care (Hospital Mgt.) - 0.3%
5,000 Columbia/HCA Healthcare Corp. $ 148,125
----------
Health Care (Long Term Care) - 2.2%
30,806 Intergrated Health Services, Inc. $ 960,762
----------
Health Care (Medical Products/Supplies) - 1.9%
15,000 Beckman Instruments, Inc. $ 600,000
4,000 Becton, Dickinson & Co. 200,000
----------
$ 800,000
----------
Health Care (Drugs/Major Pharmaceuticals) - 5.9%
10,000 American Home Products Corp. $ 765,000
10,000 Merck & Co., Inc. 1,062,500
15,000 Teva Pharmaceutical Industries Ltd. (A.D.R.) 709,688
----------
$2,537,188
----------
TOTAL HEALTH CARE $4,446,075
----------
TECHNOLOGY - 14.6%
Communications Equipment - 1.2%
15,000 DSC Communications Corp.* $ 360,000
2,000 Lucent Technologies, Inc. 159,750
----------
$ 519,750
----------
Computers (Hardware) - 1.5%
7,500 Compaq Computer Corp. $ 423,281
2,000 International Business Machines Corp. 209,125
----------
$ 632,406
----------
Computers (Networking) - 0.6%
10,000 Ascend Communications, Inc.* $ 245,000
----------
Electronics (Component Distributors) - 2.1%
12,000 Adaptec, Inc.* $ 445,500
7,000 Avnet, Inc. 462,000
----------
$ 907,500
----------
Electronics (Semiconductors) - 2.0%
10,000 Etec Systems, Inc.* $ 465,000
6,000 Intel Corp. 421,500
----------
$ 886,500
----------
Equipment (Semiconductors) - 6.2%
20,000 Applied Materials, Inc.* $ 602,500
The accompanying notes are an integral part of these financial statements.
68
<PAGE>
Balanced Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
S&P/Moody's
Ratings
Shares (unaudited) Value
- --------------------------------------------------------------------------------
Equipment (Semiconductor) - (Continued)
20,000 Helix Technology Corp. $ 390,000
25,000 Lam Research Corp.* 731,250
40,000 Photronics, Inc.* 970,000
-----------
$ 2,693,750
-----------
Services (Data Processing) - 1.0%
15,000 First Data Corp. $ 438,750
-----------
TOTAL TECHNOLOGY $ 6,323,656
-----------
UTILITIES - 1.2%
Electric Companies - 1.2%
12,000 Dominion Resources, Inc. $ 510,750
-----------
TOTAL UTILITIES $ 510,750
-----------
TOTAL COMMON STOCKS (Cost $21,140,357) $23,191,362
-----------
Principal
Amount
- ---------
DEBT OBLIGATIONS - 23.3%
CORPORATE BONDS - 14.7%
BASIC MATERIALS - 2.0%
$150,000 BBB+/A3 Lockheed Martin Corp., 6.85%, 5/15/01 $ 152,976
135,000 A/A2 Phelps Dodge Corp., 7.75%, 1/1/02 142,903
500,000 BBB-/Baa1 Tosco Corp., 9.625%, 3/15/02 558,635
-----------
TOTAL BASIC MATERIALS $ 854,514
-----------
CAPITAL GOODS - 1.2%
500,000 A-/A3 Waste Management Inc., 6.625%, 7/15/02 $ 500,430
-----------
TOTAL CAPITAL GOODS $ 500,430
-----------
COMMUNICATION SERVICES - 0.9%
400,000 A/A2 Lucent Technologies, Inc., 6.9%, 7/15/01 $ 410,180
-----------
TOTAL COMMUNICATION SERVICES $ 410,180
-----------
FINANCIAL - 8.9%
200,000 AA-/Aa3 Associates Corp., N.A., 6.0%, 3/15/99 $ 200,158
210,000 (N/A)/Aa3 Chase Manahattan Corp., 5.5%, 2/15/01 205,718
500,000 A/A1 Citicorp, 7.25%, 9/1/08 525,895
250,000 A/A2 First Data Corp., 6.625%, 4/1/03 253,920
511,000 A-/A3 General Motors Acceptance Corp., 5.625%,
2/15/01 503,350
300,000 A/A2 Hartford Financial Services Group Inc.,
6.375%, 11/1/02 300,195
200,000 A-/Baa2 Hertz Corp., 7.0%, 7/15/03 205,458
220,000 A+/Aa3 Merrill Lynch & Co., Inc., 6.375%, 9/8/06 218,964
200,000 A-/A2 Nationsbank Corp., 6.5%, 3/15/06 200,278
200,000 A-/A2 Nationsbank Corp., 7.5%, 9/15/06 213,574
200,000 BBB/Baa1 Salomon Inc., 7.0%, 6/15/03 205,222
500,000 BBB/A3 Washington Mutual Inc., 7.25%, 8/15/05 523,390
300,000 A-/Baa1 Western National Corp., 7.125%, 2/15/04 309,411
-----------
TOTAL FINANCIAL $ 3,865,533
-----------
HEALTH CARE - 0.5%
200,000 AA-/A1 Warner-Lambert Co., 6.625%, 9/15/02 $ 204,578
-----------
TOTAL HEALTH CARE $ 204,578
-----------
TRANSPORTATION - 1.2%
500,000 BBB-/Baa2 Kansas City Southern Industries, Inc.,
7.875%, 07/01/02 $ 525,360
-----------
TOTAL TRANSPORTATION $ 525,360
-----------
TOTAL CORPORATE BONDS $ 6,360,595
-----------
The accompanying notes are an integral part of these financial statements.
69
<PAGE>
Balanced Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
S&P/Moody's
Principal Ratings
Amount (unaudited) Value
- --------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS - 8.6%
$1,000,000 U.S. Treasury Notes, 6.25%, 3/31/99 $ 1,007,320
775,000 U.S. Treasury Notes, 5.25%, 1/31/01 765,592
1,000,000 U.S. Treasury Notes, 5.875%, 9/30/02 1,005,960
945,000 U.S. Treasury Notes, 5.625%, 2/15/06 934,614
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS $ 3,713,486
-----------
TOTAL DEBT OBLIGATIONS
(Cost $9,858,843) $10,074,081
-----------
TOTAL INVESTMENT IN SECURITIES
(Cost $31,106,602) $33,389,848
-----------
TEMPORARY CASH INVESTMENTS - 22.9%
Commercial Paper - 22.9%
1,459,000 American Express Co., 6.15%, 1/6/98 $ 1,459,000
1,489,000 American General Finance Corp.,
5.90%, 1/9/98 1,489,000
1,320,000 Ford Motor Credit Co., 6.10%, 1/2/98 1,320,000
1,429,000 General Electric Credit Corp.,
5.75% ,1/8/98 1,429,000
1,574,000 Household Financial Corp., 6.10%, 1/7/98 1,574,000
1,500,000 Prudential Funding Corp., 6.10%, 1/5/98 1,500,000
1,140,000 Travelers Property Casualty Corp.,
6.11%, 1/2/98 1,140,000
-----------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $9,911,000) $ 9,911,000
-----------
TOTAL INVESTMENT IN SECURITIES AND TEMPORARY
CASH INVESTMENTS - 100%
(Cost $41,017,602)(a) $43,300,848
===========
* Non-income producing security.
(a) At December 31, 1997, the net unrealized gain on investments
based on cost for federal income tax purposes of $41,017,602 was
as follows:
Aggregate gross unrealized gain for all investments
in which there is an excess of value over tax cost $2,998,130
Aggregate gross unrealized loss for all investments
in which there is an excess of tax cost over value (714,884)
----------
Net unrealized gain $2,283,246
==========
Purchases and sales of securities (excluding temporary cash
investments) for the year ended December 31, 1997 were as follows:
Purchases Sales
----------- -----------
Long-term U.S. Government $ 1,992,227 $ --
Other Long-term Securities 27,984,209 15,911,810
The accompanying notes are an integral part of these financial statements.
70
<PAGE>
Balanced Portfolio
Balance Sheet
December 31, 1997
- --------------------------------------------------------------------------------
Assets:
Investment in securities, at value (including temporary
cash investments of $9,911,000)(cost $41,017,602) $ 43,300,848
Cash 2,810
Receivables--
Investment securities sold 1,464,211
Fund shares sold 138,524
Dividends and interest 258,052
Other 404
------------
Total assets $ 45,164,849
------------
Liabilities:
Payables--
Investment securities purchased $ 1,111,789
Fund shares repurchased 435
Due to affiliates 27,022
Accrued expenses 17,943
------------
Total liabilities $ 1,157,189
------------
Net Assets:
Paid-in capital $ 39,776,606
Accumulated undistributed net investment income 12,375
Accumulated undistributed net realized gain 1,935,433
Net unrealized gain on investments 2,283,246
------------
Total net assets $ 44,007,660
============
Net Asset Value Per Share:
(Unlimited number of shares authorized)
Based on $44,007,660/2,935,922 shares $ 14.99
============
The accompanying notes are an integral part of these financial statements.
71
<PAGE>
Balanced Portfolio
Statement of Operations
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of foreign taxes withheld of $436) $286,727
Interest 752,039
--------
Total investment income $1,038,766
----------
Expenses:
Management fees $187,536
Transfer agent fees 1,269
Accounting 31,111
Custodian fees 23,243
Professional fees 13,806
Printing 4,190
Fees and expenses of nonaffiliated trustees 683
Miscellaneous 15,851
--------
Total expenses $ 277,689
Less management fees waived by
Pioneering Management Corporation (101)
Less fees paid indirectly (2,580)
----------
Net expenses $ 275,008
----------
Net investment income $ 763,758
----------
Realized and Unrealized Gain on Investments:
Net realized gain on investments $1,950,534
Change in net unrealized gain on investments 1,459,896
----------
Net gain on investments $3,410,430
----------
Net increase in net assets resulting from operations $4,174,188
==========
The accompanying notes are an integral part of these financial statements.
72
<PAGE>
Balanced Portfolio
Statements of Changes in Net Assets
For the Years Ended December 31, 1997 and December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C> <C> <C>
From Operations:
Net investment income $ 763,758 $ 235,901
Net realized gain on investments 1,950,534 340,937
Change in net unrealized gain on investments 1,459,896 712,764
----------- -----------
Net increase in net assets resulting from
operations $ 4,174,188 $ 1,289,602
----------- -----------
Distributions to Shareholders:
Net investment income ($0.36 and $0.29 per
share, respectively) $ (768,655) $ (232,851)
Net realized gain ($0.14 and $0.07 per share,
respectively) (262,435) (81,104)
----------- -----------
Total distributions to shareholders $(1,031,090) $ (313,955)
----------- -----------
From Fund Share Transactions: '97 Shares '96 Shares
---------- ----------
Net proceeds from sale of shares 1,712,892 1,080,147 $24,796,670 $13,535,523
Reinvestment of distributions 71,377 24,566 1,031,090 313,955
Cost of shares repurchased (121,009) (56,270) (1,746,636) (702,950)
---------- ---------- ----------- -----------
Net increase in net assets resulting from fund
share transactions 1,663,260 1,048,443 $24,081,124 $13,146,528
========== ========== ----------- -----------
Net increase in net assets $27,224,222 $14,122,175
Net Assets:
Beginning of year 16,783,438 2,661,263
----------- -----------
End of year (including accumulated undistributed
net investment income of $12,375 and $2,480,
respectively) $44,007,660 $16,783,438
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
73
<PAGE>
Balanced Portfolio
Financial Highlights
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended March 1, 1995 to
December 31, 1997 December 31, 1996 December 31, 1995
------------------- ------------------- ------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 13.19 $ 11.87 $ 10.00
------- ------- -------
Increase from investment operations:
Net investment income $ 0.36 $ 0.29 $ 0.20
Net realized and unrealized gain on investments 1.94 1.39 1.87
------- ------- -------
Net increase from investment operations $ 2.30 $ 1.68 $ 2.07
Distributions to shareholders:
Net investment income (0.36) (0.29) (0.20)
Net realized gain (0.14) (0.07) --
------- ------- -------
Net increase in net asset value $ 1.80 $ 1.32 $ 1.87
------- ------- -------
Net asset value, end of period $ 14.99 $ 13.19 $ 11.87
======= ======= =======
Total return* 17.62% 14.26% 20.84%
Ratio of net expenses to average net assets 0.96%+ 1.20%+ 1.76%**+
Ratio of net investment income to average net assets 2.63%+ 2.83%+ 2.99%**+
Portfolio turnover rate 63% 74% --
Average brokerage commission per share $0.0567 $0.0582 --
Net assets, end of period (in thousands) $44,008 $16,783 $2,661
Ratio assuming no waiver of management fees and
assumption of expenses by PMC and no reduction
for fees paid indirectly:
Net expenses 0.96% 1.58% 14.77%**
Net investment income (loss) 2.63% 2.45% (10.02)%**
Ratio assuming waiver of management fees and
assumption of expenses by PMC and reduction for
fees paid indirectly:
Net expenses 0.95% 1.15% 1.45%**
Net investment income 2.64% 2.88% 3.30%**
</TABLE>
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of distributions and the complete redemption of the
investment at net asset value at the end of each period.
** Annualized.
+ Ratio assuming no reduction for fees paid indirectly.
The accompanying notes are an integral part of these financial statements.
74
<PAGE>
Swiss Franc Bond Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P/Moody's
Principal Ratings
Amount (Unaudited) Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEBT OBLIGATIONS - 94.0%
Australia - 3.4%
$1,000,000 NR/NR Shell Australia, 6.0%, 1/14/00 $ 731,023
-----------
Austria - 11.1%
1,000,000 NR/NR Autobahn Schnell AG, 3.0%, 11/12/01 $ 703,657
1,000,000 AAA/Aaa City of Vienna, 4.25%, 1/31/00 710,156
1,400,000 AAA/Aa1 Deutsche Finance BV, 3.50%, 02/19/03 991,345
-----------
$ 2,405,158
-----------
Belgium - 8.3%
1,400,000 NR/NR Kingdom of Belgium, 7.125%, 6/1/99 $ 1,022,954
1,000,000 NR/NR Societe Nationale Credit a d'Investissement, 7.25%, 10/2/00 767,968
-----------
$ 1,790,922
-----------
Canada - 2.0%
600,000 AA-/Aa3 Province of Ontario, 4.0%, 6/29/01 $ 430,199
-----------
Denmark - 5.7%
600,000 AA+/Aa1 Great Belt AS, 4.25%, 9/24/04 $ 434,509
1,340,000 Aa1/AA+ Kingdom of Denmark, 0.0%, 2/17/02 814,094
-----------
$ 1,248,603
-----------
France - 5.1%
1,400,000 NR/NR Rhone-Alpes, 6.375%, 11/25/02 $ 1,095,748
-----------
Germany - 9.8%
3,000,000 NR/Aa2 Bayerische Vereinsbank, 4.25%, 2/21/07 $ 2,113,536
-----------
Ireland - 6.0%
1,700,000 AA/Aa2 Republic of Ireland, 6.5%, 1/15/01 $ 1,292,170
-----------
Netherlands - 6.5%
1,000,000 Aaa/NR Helaba Finance, 3.75%, 12/28/00 $ 715,629
1,000,000 AA-/Aa3 De Nationale Investeringsbank NV, 3.25%, 12/20/99 699,894
-----------
$ 1,415,523
-----------
New Zealand - 4.0%
1,200,000 AA+/Aa1 Transpower Finance Ltd., 4.25%, 6/10/04 $ 875,175
-----------
Norway - 5.0%
1,500,000 AA+/Aa2 Statoil, 4.125%, 9/20/01 $ 1,083,963
-----------
South Korea - 4.7%
1,750,000 AA-/A1 Korea Development Bank, 4.25%, 3/29/01 $ 1,020,679
-----------
Sweden - 2.0%
100,000 A/A2 City of Gothenberg, 6.375%, 12/10/99 $ 73,444
500,000 AA+/Aa3 Swedish Export Credit, 4.25%, 1/31/06 360,894
-----------
$ 434,338
-----------
Philippines - 4.2%
1,250,000 AAA/Aaa Asian Development Bank, 7.375%,11/27/00 $ 913,779
-----------
United Kingdom - 1.6%
500,000 AA/Aa2 Abbey National Treasury Services, 4.0%, 12/30/99 $ 353,881
-----------
United States - 14.6%
300,000 AAA/Aaa General Electric Capital Corp., 3.5%, 5/29/00 $ 210,789
2,800,000 Aa3/AA- Merrill Lynch & Co., 3.0%, 4/08/02 1,942,462
1,500,000 AA+/Aa2 Morgan (JP) & Co., 2.0%, 12/27/01 1,005,200
-----------
$ 3,158,451
-----------
TOTAL DEBT OBLIGATIONS (Cost $21,932,173) $20,363,148
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
75
<PAGE>
Swiss Franc Bond Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P/Moody's
Principal Ratings
Amount (Unaudited) Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT - 6.0%
Repurchase Agreement - 6.0%
$1,300,000 Chase Manhattan Corp., 12/31/97, 6.05%, repurchase price of
$1,300,000 plus accrued interest on 1/1/98, collateralized by
$1,321,000 U.S. Treasury Notes, 6.00%, 6/30/99 $ 1,300,000
-----------
TOTAL TEMPORARY CASH INVESTMENT (Cost $1,300,000) $ 1,300,000
-----------
TOTAL INVESTMENT IN SECURITIES - 100% (Cost $23,232,173)(a)(b) $21,663,148
===========
</TABLE>
(a) At December 31, 1997, the net unrealized loss on investments
based on cost for federal income tax purposes of $23,232,173
was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized gain for all investments in which there
is an excess of value over tax cost $ 22,711
Aggregate gross unrealized loss for all investments in which there
is an excess of tax cost over value (1,591,736)
------------
Net unrealized loss $ (1,569,025)
============
</TABLE>
(b) At December 31, 1997, the Portfolio had a capital loss
carryforward of $5,280 which will expire in 2005 if not utilized.
Purchases and sales of securities (excluding temporary cash
investments) for the year ended December 31, 1997 aggregated
$13,245,721 and $2,655,681, respectively.
The accompanying notes are an integral part of these financial statements.
76
<PAGE>
Swiss Franc Bond Portfolio
Balance Sheet
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investment in securities, at value (including temporary cash investment of
$1,300,000)(cost $23,232,173) $ 21,663,148
Cash 5,570
Foreign currencies, at value 856,357
Receivables--
Fund shares sold 140,720
Interest and foreign taxes withheld 463,129
Forward foreign currency portfolio hedge contracts, open--net 1,329
Other 4,037
------------
Total assets $ 23,134,290
------------
Liabilities:
Payables--
Investment securities purchased $ 1,005,829
Fund shares repurchased 353
Forward foreign currency portfolio hedge contracts, closed--net 1,151
Due to affiliates 17,121
Accrued expenses 21,913
------------
Total liabilities $ 1,046,367
------------
Net Assets:
Paid-in capital $ 23,672,819
Accumulated net investment loss (5,627)
Accumulated net realized loss on investments (16,574)
Net unrealized loss on investments (1,569,025)
Net unrealized gain on forward foreign currency contracts and other assets
and liabilities denominated in foreign currencies 6,330
------------
Total net assets $ 22,087,923
============
Net Asset Value Per Share:
(Unlimited number of shares authorized)
(based on $22,087,923/1,767,469 shares) $ 12.50
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
77
<PAGE>
Swiss Franc Bond Portfolio
Statement of Operations
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income:
Interest (net of foreign taxes withheld of $5) $ 783,008
------------
Total investment income $ 783,008
------------
Expenses:
Management fees $ 114,187
Transfer agent fees 1,252
Accounting 37,698
Custodian fees 21,100
Professional fees 25,810
Printing 6,863
Fees and expenses of nonaffiliated trustees 631
Miscellaneous 12,422
------------
Total expenses $ 219,963
Less management fees waived by Pioneering Management Corporation (2,594)
Less fees paid indirectly (2,567)
------------
Net expenses $ 214,802
------------
Net investment income $ 568,206
------------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized loss from:
Investments $ (190,816)
Forward foreign currency contracts and other assets and liabilities
denominated in foreign currencies (449,610) $ (640,426)
------------ ------------
Change in net unrealized loss from:
Investments $ (1,031,475)
Forward foreign currency contracts and other assets and liabilities
denominated in foreign currencies 116,360 $ (915,115)
------------ ------------
Net loss on investments and foreign currency transactions $ (1,555,541)
------------
Net decrease in net assets resulting from operations $ (987,335)
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
78
<PAGE>
Swiss Franc Bond Portfolio
Statements of Changes in Net Assets
For the Years Ended December 31, 1997 and December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
------------------- ------------------
<S> <C> <C> <C> <C>
From Operations:
Net investment income $ 568,206 $ 175,710
Net realized loss on investments and foreign
currency transactions (640,426) (125,670)
Change in net unrealized gain or loss on
investments and foreign currency transactions (915,115) (647,374)
------------ -----------
Net decrease in net assets resulting from
operations $ (987,335) $ (597,334)
------------ -----------
Distibutions to Shareholders:
Net investment income ($0.00 and $0.00 per
share, respectively) $ -- $ (558)
------------ -----------
Total distributions to shareholders $ -- $ (558)
------------ -----------
From Fund Share Transactions: '97 Shares '96 Shares
---------- ----------
Net proceeds from sale of shares 979,273 1,011,347 $ 12,351,838 $14,177,025
Reinvestment of dividends -- 40 -- 558
Cost of shares repurchased (186,177) (49,589) (2,355,859) (689,737)
-------- --------- ------------ -----------
Net increase in net assets resulting from fund
share transactions 793,096 961,798 $ 9,995,979 $13,487,846
======== ========= ------------ -----------
Net increase in net assets $ 9,008,644 $12,889,954
Net Assets:
Beginning of year 13,079,279 189,325
------------ -----------
End of year (including accumulated net investment
income (loss) of $(5,627) and $50,019,
respectively) $ 22,087,923 $13,079,279
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
79
<PAGE>
Swiss Franc Bond Portfolio
Financial Highlights
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended November 1, 1995 to
December 31, 1997 December 31, 1996 December 31, 1995
------------------- ------------------- --------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 13.42 $ 15.06 $ 15.00
------- -------- -------
Increase (decrease) from investment operations:
Net investment income $ 0.30 $ 0.14 $ 0.04
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (1.22) (1.78) 0.02
------- -------- -------
Net increase (decrease) in net asset value $ (0.92) $ (1.64) $ 0.06
------- -------- -------
Net asset value, end of period $ 12.50 $ 13.42 $ 15.06
======= ======== =======
Total return* (6.92)% (10.88)% 0.40%
Ratio of net expenses to average net assets 1.23%+ 1.20%+ 2.25%**+
Ratio of net investment income to average net assets 3.22%+ 3.37%+ 1.70%**+
Portfolio turnover rate 17% 39% --
Net assets, end of period (in thousands) $22,088 $ 13,079 $ 189
Ratio assuming no waiver of management fees and
assumption of expenses by PMC and no reduction
for fees paid indirectly:
Net expenses 1.25% 2.58% 69.22%**
Net investment income (loss) 3.20% 1.99% (65.27)%**
Ratio assuming waiver of management fees and
assumption of expenses by PMC and reduction for
fees paid indirectly:
Net expenses 1.22% 1.15% 1.25%**
Net investment income 3.23% 3.42% 2.70%**
</TABLE>
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of distributions and the complete redemption of the
investment at net asset value at the end of each period.
** Annualized.
+ Ratio assuming no reduction for fees paid indirectly.
The accompanying notes are an integral part of these financial statements.
80
<PAGE>
America Income Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT IN SECURITIES - 97.2%
U.S. Government and Agency Obligations - 97.2%
$ 250,000 Federal Farm Credit Bank, Medium Term Note, 7.15%, 2001 $ 252,038
300,000 Federal Farm Credit Bank, Medium Term Note, 6.38%, 2006 307,536
250,000 Federal Home Loan Bank, 6.90%, 2000 251,075
300,000 Federal Home Loan Bank, 6.455%, 2002 302,502
350,000 Federal Home Loan Bank, 7.00%, 2007 354,053
110,000 Federal Home Loan Mortgage Corp., 6.55%, 2000 111,527
300,000 Federal Home Loan Mortgage Corp., 7.125%, 2002 315,519
600,000 Federal Home Loan Mortgage Corp., 6.54%, 2007 605,220
249,415 Federal Home Loan Mortage Corp., 7.00%, 2027 251,569
250,000 Federal Home Loan Mortgage Corp., REMIC Series 1142H, 7.95%, 2020 257,265
250,000 Federal National Mortgage Association, 6.70%, 2001 252,312
225,000 Federal National Mortgage Association, 6.80%, 2003 233,689
100,000 Federal National Mortgage Association, 6.85%, 2004 104,541
200,000 Federal National Mortgage Association, Medium Term Note, 7.17%, 2001 201,452
360,000 Federal National Mortgage Association, Medium Term Note, 6.82%, 2006 364,385
300,000 Federal National Mortgage Association, Medium Term Note, 7.53%, 2006 307,518
300,000 Federal National Mortgage Association, Medium Term Note, 6.44%, 2007 308,082
350,000 Federal National Mortgage Association, Medium Term Note, 6.56%, 2007 351,449
300,000 Federal National Mortgage Association, Medium Term Note, 6.84%, 2007 307,677
265,419 Government National Mortgage Association, 8.0%, 2008 277,729
231,146 Government National Mortgage Association, 7.5%, 2022 to 2023 238,656
1,199,155 Government National Mortgage Association, 7.0%, 2025 to 2027 1,211,898
78,175 Government National Mortgage Association II, 8.0%, 2025 80,872
247,120 Government National Mortgage Association II, 7.5%, 2027 252,171
100,000 Private Export Funding, 6.24%, 2002 101,362
250,000 Private Export Funding, 7.30%, 2002 262,688
250,000 Private Export Funding, 6.90%, 2003 260,755
200,000 Student Loan Marketing Association, 7.5%, 2000 206,828
250,000 Tennessee Valley Authority, Global Bond, 6.375%, 2005 255,685
2,200,000 U.S. Treasury Bonds, 7.25%, 2016 2,505,404
660,000 U.S. Treasury Notes, 7.125%, 2000 679,193
500,000 U.S. Treasury Notes, 6.5%, 2001 512,460
200,000 U.S. Treasury Notes, 7.875%, 2004 223,622
800,000 U.S. Treasury Notes, 7.0%, 2006 863,656
500,000 U.S. Treasury Notes, 6.625%, 2007 529,320
-----------
TOTAL INVESTMENT IN SECURITIES (Cost $13,676,821) $13,901,708
-----------
TEMPORARY CASH INVESTMENT - 2.8%
REPURCHASE AGREEMENT - 2.8%
400,000 Chase Manhattan Bank, 1/2/98, 6.05%, repurchase price of $400,000 plus accrued
interest on 1/2/98, collateralized by $407,000 U.S. Treasury Note, 6.00%, 6/30/99 $ 400,000
-----------
TOTAL TEMPORARY CASH INVESTMENT (Cost $400,000) $ 400,000
-----------
TOTAL INVESTMENT IN SECURITIES AND TEMPORARY CASH
INVESTMENT - 100% (Cost $14,076,821) (a) (b) $14,301,708
===========
</TABLE>
(a) At December 31, 1997, the net unrealized gain on investments
based on cost for federal income tax purposes of $14,076,821
was a follows:
<TABLE>
<S> <C>
Aggregate gross unrealized gain of all investments in which there is an excess
of tax cost over value $241,724
Aggregate gross unrealized loss of all investments in which there is an excess
of tax cost under value (16,837)
--------
Net unrealized gain $224,887
========
</TABLE>
(b) At December 31, 1997, the Portfolio had a capital loss
carryforward of $67,031 which will expire in 2004 if not
utilized. Note: The Portfolio's investments in mortgage-backed
securities of the Government National Mortgage Association (GNMA)
are interests in separate pools of mortgages. All separate
investments in this issuer which have the same coupon rate have
been aggregated for the purpose of presentation in the schedule
of investments. Purchases and sales of securities (excluding
temporary cash investments) for the year ended December 31, 1997
were $8,175,296 and $908,456, respectively.
The accompanying notes are an integral part of these financial statements.
81
<PAGE>
America Income Portfolio
Balance Sheet
December 31, 1997
- --------------------------------------------------------------------------------
Assets:
Investment in securities, at value (including temporary cash $14,301,708
investment of $400,000) (cost $14,076,821)
Cash 57,141
Receivables--
Fund shares sold 66
Interest 192,904
Other 3,743
-----------
Total assets $14,555,562
-----------
Liabilities:
Payables--
Fund shares repurchased $ 8,930
Due to affiliates 8,329
Accrued expenses 19,416
-----------
Total liabilities $ 36,675
-----------
Net Assets:
Paid-in capital $14,361,031
Accumulated net realized loss on investments (67,031)
Net unrealized gain on investments 224,887
-----------
Total net assets $14,518,887
===========
Net Asset Value Per Share:
(Unlimited number of shares authorized)
Based on $14,518,887/1,446,593 shares $ 10.04
===========
The accompanying notes are an integral part of these financial statements.
82
<PAGE>
America Income Portfolio
Statement of Operations
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
Investment Income:
Interest $ 611,405
---------
Expenses:
Management fees $49,978
Transfer agent fees 561
Accounting 29,536
Custodian fees 18,975
Professional fees 15,261
Printing 4,745
Fees and expenses of nonaffiliated trustees 772
Miscellaneous 10,737
-------
Total expenses $ 130,565
Less management fees waived by Pioneering Management
Corporation (15,684)
Less fees paid indirectly (3,115)
---------
Net expenses $ 111,766
---------
Net investment income $ 499,639
---------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments $ 5,727
Change in net unrealized loss on investments 283,024
---------
Net gain on investments $ 288,751
---------
Net increase in net assets resulting from operations $ 788,390
=========
The accompanying notes are an integral part of these financial statements.
83
<PAGE>
America Income Portfolio
Statements of Changes in Net Assets
For the Years Ended December 31, 1997 and December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
------------------- ------------------
<S> <C> <C> <C> <C>
From Operations:
Net investment income $ 499,639 $ 225,843
Net realized gain (loss) on investments 5,727 (72,430)
Change in net unrealized gain or loss on investments 283,024 (108,636)
------------ ------------
Net increase in net assets resulting from
operations $ 788,390 $ 44,777
------------ ------------
Distributions to Shareholders:
Net investment income ($0.54 and $0.52 per
share, respectively) $ (499,639) $ (225,843)
In excess of net investment income ($0.00 and
$0.00 per share, respectively) -- (130)
------------ ------------
Total distributions to shareholders $ (499,639) $ (225,973)
------------ ------------
From Fund Share Transactions: '97 Shares '96 Shares
---------- ----------
Net proceeds from sale of shares 943,506 799,366 $ 9,298,835 $ 7,875,427
Reinvestment of distributions 50,797 23,018 499,639 225,549
Cost of shares repurchased (250,594) (464,797) (2,440,624) (4,561,786)
-------- -------- ------------ ------------
Net increase in net assets resulting from fund
share transactions 743,709 357,587 $ 7,357,850 $ 3,539,190
======== ======== ------------ ------------
Net increase in net assets $ 7,646,601 $ 3,357,994
Net Assets:
Beginning of year 6,872,286 3,514,292
------------ ------------
End of year (including accumulated undistributed
net investment income of $0 and $0,
respectively) $ 14,518,887 $ 6,872,286
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
84
<PAGE>
America Income Portfolio
Financial Highlights
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended March 1, 1995 to
December 31, 1997 December 31, 1996 December 31, 1995
------------------- ------------------- ------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.78 $ 10.18 $ 10.00
------- ------- --------
Increase (decrease) from investment operations:
Net investment income $ 0.54 $ 0.52 $ 0.38
Net realized and unrealized gain (loss) on
investments 0.26 (0.40) 0.18
------- ------- --------
Net increase from investment operations $ 0.80 $ 0.12 $ 0.56
Distributions to shareholders:
Net investment income (0.54) (0.52) (0.38)
------- ------- --------
Net increase (decrease) in net asset value $ 0.26 $ (0.40) $ 0.18
------- ------- --------
Net asset value, end of period $ 10.04 $ 9.78 $ 10.18
======= ======= ========
Total return* 8.44% 1.30% 5.68%
Ratio of net expenses to average net assets 1.26%+ 1.31%+ 1.12%**+
Ratio of net investment income to average net assets 5.46%+ 5.25%+ 5.22%**+
Portfolio turnover rate 11% 60% 96%**
Net assets, end of period (in thousands) $14,519 $ 6,872 $ 3,514
Ratio assuming no waiver of management fees and
assumption of expenses by PMC and no reduction
for fees paid indirectly:
Net expenses 1.43% 2.24% 11.86%**
Net investment income (loss) 5.29% 4.32% (5.52)%**
Ratio assuming waiver of management fees and
assumption of expenses by PMC and reduction for
fees paid indirectly:
Net expenses 1.23% 1.25% 0.99%**
Net investment income 5.49% 5.31% 5.35%**
</TABLE>
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of distributions and the complete redemption of the
investment at net asset value at the end of each period.
** Annualized.
+ Ratio assuming no reduction for fees paid indirectly.
The accompanying notes are an integral part of these financial statements.
85
<PAGE>
Money Market Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
COMMERCIAL PAPER - 66.8%
$ 570,000 American Express Credit Corp., 6.15%, 1/6/98 $ 569,611
500,000 American General Finance Corp, 5.82%, 1/8/98 499,515
590,000 AVCO Financial Services Inc., 5.68%, 1/29/98 587,487
530,000 BancOne Corp., 5.75%, 1/28/98 527,799
515,000 Bankers Trust Co., 5.52%, 1/12/98 514,210
520,000 Beneficial Corp., 5.68%, 1/26/98 518,031
500,000 Corestates Capital Corp., 5.65%, 2/6/98 497,253
400,000 Deere (John) Credit Corp., 5.65% 1/23/98 398,682
500,000 E.I. duPont Co., 5.68%, 1/16/98 498,896
550,000 Gannett Co., 5.65%, 1/22/98 548,274
600,000 Hershey Foods Corp., 5.61%, 1/30/98 597,382
420,000 Household Finance Corp., 5.82%, 1/5/98 419,796
500,000 JC Penney Co., 5.66%, 1/29/98 497,877
600,000 JP Morgan & Company., Inc. 5.69%, 3/17/98 592,982
500,000 Kimberly-Clark Corp., 5.73%, 1/28/98 497,931
570,000 Prudential Funding Corp., 5.81%, 1/13/98 568,988
550,000 Texaco Inc., 5.83%, 1/7/98 549,555
600,000 Xerox Credit Corp., 5.73%, 1/9/98 599,466
-----------
TOTAL COMMERCIAL PAPER $ 9,483,735
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 10.6%
500,000 Federal Farm Credit Bank, 5.65%, 2/2/98 $ 500,000
500,000 Federal Farm Credit Bank, 5.55%, 3/2/98 500,000
500,000 Federal Farm Credit Bank, 5.62%, 4/1/98 500,000
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS $ 1,500,000
-----------
REPURCHASE AGREEMENT - 22.6%
3,200,000 Chase Manhattan, 1/2/98, 6.05%, repurchase price
of $3,200,000 plus accrued interest on 1/2/97,
collateralized by $3,252,000 U.S. Treasury Notes,
6.0%, 6/30/99 $ 3,200,000
-----------
TOTAL REPURCHASE AGREEMENT $ 3,200,000
-----------
TOTAL INVESTMENT IN SECURITIES - 100.0% $14,183,735
===========
The accompanying notes are an integral part of these financial statements.
86
<PAGE>
Money Market Portfolio
Balance Sheet
December 31, 1997
- --------------------------------------------------------------------------------
Assets:
Investment in securities, at value based on amortized cost $ 14,183,735
Cash 1,161
Receivables--
Fund shares sold 68,787
Interest 8,142
Other 4,045
------------
Total assets $ 14,265,870
------------
Liabilities:
Payables--
Investment securities purchased $ 500,000
Funds shares repurchased 79
Due to affiliates 4,242
Accrued expenses 22,211
------------
Total liabilities $ 526,532
------------
Net Assets:
Fund shares $ 13,739,338
------------
Total net assets $ 13,739,338
============
Net Asset Value Per Share:
(Unlimited number of shares authorized)
Based on $13,739,338/13,739,338 shares $ 1.00
============
The accompanying notes are an integral part of these financial statements.
87
<PAGE>
Money Market Portfolio
Statement of Operations
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income:
Interest $ 693,939
---------
Expenses:
Management fees $62,428
Transfer agent fees 449
Accounting 26,744
Custodian fees 28,327
Registration fees 81
Professional fees 14,469
Printing 3,482
Fees and expenses of nonaffiliated trustees 1,020
Miscellaneous 9,044
-------
Total expenses $ 146,044
Less management fees waived by Pioneering Management Corporation (20,550)
Less fees paid indirectly (1,248)
---------
Net expenses $ 124,246
---------
Net investment income $ 569,693
---------
Net increase in net assets resulting from operations $ 569,693
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
88
<PAGE>
Money Market Portfolio
Statements of Changes in Net Assets
For the Years Ended December 31, 1997 and December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
------------------- ------------------
<S> <C> <C>
From Operations:
Net investment income $ 569,693 $ 373,559
------------- -------------
Net increase in net assets resulting from operations $ 569,693 $ 373,559
------------- -------------
Distributions to Shareholders:
Net investment income ($0.05 and $0.04 per share,
respectively) $ (569,693) $ (373,559)
------------- -------------
From Fund Share Transactions (at $1.00 per share):
Net proceeds from sale of shares $ 39,298,007 $ 38,210,804
Reinvestment of distributions 569,693 373,559
Cost of shares repurchased (37,872,664) (30,255,633)
------------- -------------
Net increase in net assets resulting from fund share
transactions $ 1,995,036 $ 8,328,730
------------- -------------
Net increase in net assets $ 1,995,036 $ 8,328,730
Net Assets:
Beginning of year 11,744,302 3,415,572
------------- -------------
End of year $ 13,739,338 $ 11,744,302
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
89
<PAGE>
Money Market Portfolio
Financial Highlights
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended March 1, 1995 to
December 31, 1997 December 31, 1996 December 31, 1995
------------------- ------------------- ------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
------- ------ --------
Increase from investment operations:
Net investment income $ 0.05 $ 0.04 $ 0.04
------- ------ --------
Distributions to shareholders:
Net investment income (0.05) (0.04) (0.04)
------- ------ --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
======= ====== ========
Total return* 4.64% 4.51% 4.35%
Ratio of net expenses to average net assets 1.00%+ 0.97%+ 0.81%**+
Ratio of net investment income to average net assets 4.55%+ 4.43%+ 5.00%**+
Net assets, end of period (in thousands) $13,739 $11,744 $ 3,416
Ratio assuming no waiver of fees and assumption of
expenses by PMC and no reduction for fees paid
indirectly:
Net expenses 1.17% 1.29% 8.34%**
Net investment income (loss) 4.38% 4.11% (2.53%)**
Ratio assuming waiver of fees and assumption of
expenses by PMC and reduction for fees paid
indirectly:
Net expenses 0.99% 0.96% 0.74%**
Net investment income 4.56% 4.44% 5.07%**
</TABLE>
+ Ratios assuming no reduction for fees paid indirectly.
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of each period.
** Annualized.
The accompanying notes are an integral part of these financial statements.
90
<PAGE>
Notes to Financial Statements - December 31, 1997
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies - Pioneer Variable
Contracts Trust (the Trust) is a Delaware business trust registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The Trust consists of ten separate portfolios (collectively, the
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. Shares of each Portfolio
may be only purchased by insurance companies for the purpose of funding
variable annuity or variable life insurance contracts.
Each Portfolio has its own distinct investment objective. International
Growth Portfolio seeks long-term capital growth. Capital Growth Portfolio seeks
capital growth. Growth Shares Portfolio seeks appreciation of capital. Real
Estate Growth Portfolio pursues long-term capital growth, with income as a
secondary objective. Growth and Income Portfolio seeks reasonable income and
growth of capital. Equity-Income Portfolio seeks current income and long-term
capital growth. Balanced Portfolio's investment objectives are capital growth
and current income. Swiss Franc Bond Portfolio invests to approximate the
performance of the Swiss franc relative to the U.S. dollar while earning
reasonable income. America Income Portfolio seeks a high level of current
income as consistent with preservation of capital. Money Market Portfolio
invests for current income consistent with preserving capital and providing
liquidity.
The Trust's financial statements have been prepared in conformity with
generally accepted accounting principles that require the management of the
Trust to, among other things, make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates. The following is a summary of significant
accounting policies consistently followed by the Trust, which are in conformity
with those generally accepted in the investment company industry:
A. Security Valuation - Security transactions are recorded on trade date.
Each day, equity securities are valued at the last sale price on the principal
exchange where they are traded. Securities that have not traded on the date of
valuation, or securities for which sale prices are not generally reported, are
valued at the mean between the last bid and asked prices. Trading in foreign
equity securities is substantially completed each day at various times prior to
the close of the New York Stock Exchange. The value of such securities used in
computing the net asset value of the Portfolio's shares are determined as of
such times.
Taxable fixed income securities are valued based on valuations furnished
by independent pricing services that utilize matrix systems. These matrix
systems reflect such factors as security prices, yields, maturities, and
ratings and are supplemented by dealer and exchange quotations and fair market
value information from other sources, as required. Market discount and premium
are accreted and amortized daily on a straight-line basis.
Securities for which market quotations are not readily available are
valued at their fair values as determined by, or under the direction of, the
Board of Trustees. Dividend income is recorded on the ex-dividend date, except
that certain dividends from foreign securities where the ex-dividend date may
have passed are recorded as soon as the Portfolio is informed of the
ex-dividend data in the exercise of reasonable diligence. Income is recorded on
the accrual basis, net of unrecoverable foreign taxes withheld at the
applicable country rates. Temporary cash investments are valued at amortized
cost.
Gains and losses from sales on investments are calculated on the
identified cost method for both financial reporting and federal income tax
purposes. It is the Trust's practice to first select for sale those securities
that have the highest cost and also qualify for long-term capital gain or loss
treatment for tax purposes. In addition, net realized gains on securities in
certain countries give rise to capital gains taxes. It is the Trust's policy to
provide a reserve against net unrealized gains for capital gains taxes on
certain foreign securities held by the Trust. During the year ended December
31, 1997, no capital gains taxes realized on the sale of certain foreign
securities were paid.
Because the Real Estate Growth Portfolio may invest a substantial portion
of its assets in Real Estate Investment Trusts (REITs), the Portfolio may be
subject to certain risks associated with direct investments in REITs. REITs may
be affected by changes in the value of their underlying properties and by
defaults by borrowers or tenants. REITs depend generally on their ability to
generate cash flow to make distributions to shareholders, and certain REITs
have self-liquidation provisions by which mortgages held may be paid in full
and distributions of capital returns may be made at any time. In addition, the
performance of a REIT may be affected by its failure to qualify for tax-free
pass-through of income under the Internal Revenue Code or its failure to
maintain exemption from registration under the Investment Company Act of 1940.
91
<PAGE>
Notes to Financial Statements - December 31, 1997
- --------------------------------------------------------------------------------
The International Growth Portfolio's investments in emerging markets or
countries with limited or developing markets may subject the Portfolio to a
greater degree of risk than in a developed market. Risks associated with these
developing markets include political, social or economic factors and may affect
the price of the Portfolio's investments and income generated by these
investments, as well as the Portfolio's ability to repatriate such amounts. In
addition, delays are common in registering transfers of securities in certain
foreign countries, such as India, and the Portfolio may be unable to sell
portfolio securities until the registration process is completed.
B. Foreign Currency Translation - The books and records of Portfolios are
maintained in U.S. dollars. Amounts denominated in foreign currencies are
translated into U.S. dollars using current exchange rates.
Net realized gains and losses on foreign currency transactions represent,
among other things, the net realized gains and losses on foreign currency
contracts, disposition of foreign currencies, and the difference between the
amount of income accrued and the U.S. dollar actually received. Further, the
effects of changes in foreign currency exchange rates on investments are not
segregated in the statement of operations from the effects of changes in market
price of those securities but are included with the net realized and unrealized
gain or loss on investments.
C. Forward Foreign Currency Contracts - Certain Portfolios are authorized to
enter into forward foreign currency contracts (contracts) for the purchase or
sale of a specific foreign currency at a fixed price on a future date as a
hedge or cross-hedge against either specific investment transactions
(settlement hedges) or portfolio positions (portfolio hedges). All contracts
are marked to market daily at the applicable exchange rates, and any resulting
unrealized gains or losses are recorded in the Portfolios' financial
statements. The Portfolios record realized gains and losses at the time a
portfolio hedge is offset by entry into a closing transaction or extinguished
by delivery of the currency. Risks may arise upon entering into these contracts
from the potential inability of counterparties to meet the terms of the
contract and from unanticipated movements in the value of foreign currencies
relative to the U.S. dollar (see Note 5).
D. Taxes - It is the Trust's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and net realized capital gains, if any, to
its shareholders. Therefore, no federal income tax provision is required. In
addition to the requirements of the Internal Revenue Code, the Trust may also
be required to pay local taxes on net realized capital gains in certain
countries. The required capital gains taxes, if any, are determined in
accordance with local tax laws. In determining daily net asset value, the Trust
estimates the reserve for capital gains taxes, if any, associated with net
unrealized gains on certain portfolio securities. The estimated reserve for
capital gains taxes, if any, is based on the holding periods of such securities
and the related tax rates, tax loss carryforward (if applicable) and other such
factors. During the year ended December 31, 1997, none of the Portfolios paid
capital gains taxes on the sale of certain foreign securities.
The characterization of distributions to shareholders for financial
reporting purposes is determined in accordance with income tax rules.
Therefore, the source of each Portfolio's distributions may be shown in the
accompanying financial statements as either from or in excess of net investment
income or net realized gain on investment transactions, or from paid-in
capital, depending on the type of book/tax differences that may exist.
A portion of the dividend income recorded by the Real Estate Growth
Portfolio is from distributions by publicly traded real estate investment
trusts (REITs), and such distributions for tax purposes may also consist of
capital gains and return of capital. The actual return of capital and capital
gains portions of such distributions will be determined by formal notifications
from the REITs subsequent to the calendar year-end. Distributions received from
the REITs that are determined to be a return of capital are recorded by the
Trust as a reduction of the cost basis of the securities held.
At December 31, 1997, certain Portfolios made reclassifications as
described below. These reclassifications have no impact on the net asset values
of the respective Portfolios and are designed to present the Portfolios'
capital accounts on a tax basis.
92
<PAGE>
Notes to Financial Statements - December 31, 1997
- --------------------------------------------------------------------------------
Accumulated Accumulated
Net Investment Net Realized Paid-in
Portfolio Income/Loss Gain/Loss Capital
- -------------------------------- ---------------- -------------- --------
International Growth Portfolio $ 537,924 $ (537,924) $ --
Capital Growth Portfolio 3,620 (3,620) --
Real Estate Growth Portfolio (20,100) 20,100 --
Growth and Income Portfolio 53 -- (53)
Equity-Income Portfolio 44,379 (44,379) --
Balanced Portfolio 14,792 (14,792) --
Swiss Franc Bond Portfolio (623,852) 623,852 --
In order to comply with federal income tax regulations, the Portfolios
have desigated the following amounts as capital gain dividends for purposes of
the dividend paid deduction.
<TABLE>
<CAPTION>
Subject to Subject to Subject to
Maximum Federal Maximum Federal Maximum Federal
Capital Gain Income Tax Rate of Income Tax Rate of Income Tax Rate of
Portfolio Dividend 28% 25% 20%
- -------------------------- -------------- -------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
International Growth
Portfolio $ 679,567 $ 416,897 -- $ 262,670
Capital Growth Portfolio 2,744,350 1,056,390 -- 1,687,960
Real Estate Growth
Portfolio 53,662 20,471 5,065 28,126
Equity-Income Portfolio 990,699 352,795 -- 637,904
Balanced Portfolio 683,376 537,012 -- 146,364
</TABLE>
E. Fund Shares - The Portfolios record sales and repurchases of their fund
shares on trade date. Net losses, if any, as a result of cancellations are
absorbed by Pioneer Funds Distributor, Inc. (PFD), the principal underwriter
for the Trust and an indirect subsidiary of The Pioneer Group, Inc (PGI). The
America Income Portfolio and Money Market Portfolio declare as daily dividends
substantially all of their respective net investment income. All dividends are
paid on a monthly basis. Short-term capital gain distributions, if any, may be
declared with the daily dividends. Dividends and distributions to shareholders
are recorded as of the ex-dividend date.
F. Repurchase Agreements - With respect to repurchase agreements entered into
by the Portfolios, the value of the underlying securities (collateral),
including accrued interest received from counterparties, is required to be at
least equal to or in excess of the value of the repurchase agreement at the
time of purchase. The collateral for all repurchase agreements is held in
safekeeping in the customer-only account of the Trust's custodian, or
subcustodians. The Trust's investment adviser, Pioneering Management
Corporation (PMC), is responsible for determining that the value of the
collateral remains at least equal to the repurchase price.
2. Management Agreement - PMC manages the Portfolios and is a wholly owned
subsidiary of PGI. Management fees are calculated daily at the following annual
rates:
Management Fee as a Percentage
of each Portfolio's Average
Portfolio Daily Net Assets
- -------------------------------- -------------------------------
International Growth Portfolio 1.00%
Capital Growth Portfolio 0.65%
Growth Shares Portfolio 0.70%
Real Estate Growth Portfolio 1.00%
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%
93
<PAGE>
Notes to Financial Statements - December 31, 1997
- --------------------------------------------------------------------------------
PMC has agreed not to impose a portion of its management fees and to
assume other operating expenses for certain Portfolios to the extent necessary
to limit expenses of each Portfolio to the following percentage of its average
daily net assets:
Expense Limitation as a
Percentage of each Portfolio's
Portfolio Average Daily Net Assets
- --------------------------------------------------------------------------------
International Growth Portfolio 1.50%
Growth Shares Portfolio 1.25%
Real Estate Growth Portfolio 1.25%
Growth and Income Portfolio 1.25%
Swiss Franc Bond Portfolio 1.25%
America Income Portfolio 1.25%
Money Market Portfolio 1.00%
In addition, under the management agreements, certain other services and
costs, including accounting, regulatory reporting and insurance premiums, are
paid by the Portfolios. At December 31, 1997, the following amounts were
payable to PMC related to management fees and certain other services:
Portfolio Amount
- --------------------------------------------------------------------------------
International Growth Portfolio 33,725
Capital Growth Portfolio 65,104
Real Estate Growth Portfolio 38,052
Equity-Income Portfolio 73,004
Balanced Portfolio 26,898
Swiss Franc Bond Portfolio 17,015
America Income Portfolio 8,329
Money Market Portfolio 4,192
3. Transfer Agent - Pioneering Services Corporation, a wholly owned
subsidiary of PGI, provides substantially all transfer agent and shareholder
services to the Trust at negotiated rates. At December 31, 1997 the following
transfer agent fees payable to PSC were included in due to affiliates:
Portfolio Amount
- --------------------------------------------------------------------------------
International Growth Portfolio 202
Capital Growth Portfolio 104
Growth Shares Portfolio 305
Real Estate Growth Portfolio 106
Growth and Income Portfolio 295
Equity-Income Portfolio 105
Balanced Portfolio 124
Swiss Franc Bond Portfolio 106
Money Market Portfolio 50
4. Expense Reductions - The Trust has entered into certain expense offset
arrangements resulting in a reduction in the Portfolios' total expenses. For
the year ended December 31, 1997, the Portfolios' expenses were reduced under
such arrangements as follows:
Portfolio Amount
- --------------------------------------------------------------------------------
International Growth Portfolio 3,866
Capital Growth Portfolio 1,220
Real Estate Growth Portfolio 1,671
Equity-Income Portfolio 459
Balanced Portfolio 2,580
Swiss Franc Bond Portfolio 2,567
America Income Portfolio 3,115
Money Market Portfolio 1,248
94
<PAGE>
Notes to Financial Statements - December 31, 1997
- --------------------------------------------------------------------------------
5. Forward Foreign Currency Contracts - At December 31, 1997, certain
Portfolios had entered into various contracts that obligate the Portfolios to
deliver currencies at specified future dates. At the maturity of a contact, the
Portfolios must make delivery of the foreign currency. Alternatively, prior to
the settlement date of a portfolio hedge, the Portfolio may close out such
contracts by entering into an offsetting hedge contract. As of December 31,
1997, the Swiss Franc Bond Portfolio open portfolio hedges were as follows:
In Net
Contracts Exchange Settlement Unrealized
Currency to Receive For Date Value Loss
- --------------------------------------------------------------------------------
CHF 1,800,000 $1,239,945 2/17/98 $1,239,230 $(715)
In Net
Contracts Exchange Settlement Unrealized
Currency to Deliver For Date Value Gain
- --------------------------------------------------------------------------------
CHF 170,050 $118,584 1/15/98 $116,540 $2,044
Included in the Swiss Franc Bond Portfolio's accumulated net realized loss
on forward currency contracts and other assets and liabilities denominated in
foreign currencies is $1,151 which represents the realized loss on closed but
unsettled portfolio hedges totaling $2,379,499.
The International Growth Portfolio's gross forward foreign currency
settlement contracts receivable and payable were $682,036 and $680,414,
respectively, resulting in a net receivable of $1,622.
95
<PAGE>
Pioneer Variable Contracts Trust
Report of Independent Public Accountants
- --------------------------------------------------------------------------------
To the Shareholders and the Board of Trustees of Pioneer Variable Contracts
Trust:
We have audited the accompanying balance sheets, including the schedules of
investments, of Pioneer Variable Contracts Trust (comprising, respectively, the
International Growth Portfolio, the Capital Growth Portfolio, the Growth Shares
Portfolio, the Real Estate Growth Portfolio, the Equity-Income Portfolio, the
Growth and Income Portfolio, the Balanced Portfolio, the Swiss Franc Bond
Portfolio, the America Income Portfolio, and the Money Market Portfolio),
including the schedules of investments, as of December 31, 1997, and the
related statements of operations, the statements of changes in net assets and
the financial highlights for the periods presented. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Portfolios comprising the Pioneer Variable Contracts Trust as
of December 31, 1997, the results of their operations, the changes in their net
assets, and the financial highlights for the periods presented, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 2, 1998
96
<PAGE>
[PIONEER LOGO] PIONEER VISION(SM)
PIONEER VISION 2(SM)
VARIABLE ANNUITY
Pioneer Variable Contracts Trust
Officers
John F. Cogan, Jr., Chairman and President
David D. Tripple, Executive Vice President
Stephen G. Kasnet, Vice President
William H. Keough, Treasurer
Joseph P. Barri, Secretary
Trustees
John F. Cogan, Jr.
Richard H. Egdahl, M.D.
Marguerite A. Piret
David D. Tripple
Stephen K. West
Investment Adviser
Pioneering Management Corporation
Custodian
Brown Brothers Harriman & Co.
Legal Counsel
Hale and Dorr LLP
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life
Insurance Company,
Contract Form A3025-96 GRC
General Distributor
Allmerica Investments, Inc.
440 Lincoln Street
Worcester, MA 01653
This report must be preceded or accompanied by a prospectus for Pioneer Vision
and/or Pioneer Vision 2 Variable Annuity, which includes more information about
charges and expenses. Please read the prospectus carefully before you invest or
send money.
0298-4629
(C) Pioneer Funds Distributor, Inc.
