STATEMENT OF ADDITIONAL INFORMATION
May 1, 1997
(revised March 6, 1998)
PIONEER VARIABLE CONTRACTS TRUST
consisting of ten portfolios)
International Growth Portfolio
Capital Growth Portfolio
Growth Shares Portfolio
Real Estate Growth Portfolio
Growth and Income Portfolio
Equity-Income Portfolio
Balanced Portfolio
Swiss Franc Bond Portfolio
America Income Portfolio
Money Market Portfolio
60 State Street
Boston, Massachusetts 02109
This Statement of Additional Information is not a Prospectus, but should be
read in conjunction with the Prospectus (the "Prospectus") dated May 1, 1997, as
amended and/or supplemented from time to time, of Pioneer Variable Contracts
Trust (the "Trust"). A copy of the Prospectus can be obtained free of charge
from your insurance company. The most recent Annual Report to shareholders is
attached to this Statement of Additional Information and is hereby incorporated
by reference.
TABLE OF CONTENTS
Page
1. Investment Policies and Restrictions.......................... 2
2. Management of the Trust....................................... 18
3. Investment Adviser............................................ 22
4. Principal Underwriter......................................... 24
5. Custodian..................................................... 24
6. Independent Public Accountant................................. 25
7. Portfolio Transactions........................................ 25
8. Tax Status.................................................... 27
9. Description of Shares......................................... 30
10. Certain Liabilities........................................... 31
11. Determination of Net Asset Value.............................. 31
12. Investment Results............................................ 33
13. Financial Statements.......................................... 36
APPENDIX A - Description of Bond Ratings................... 46
APPENDIX B - Index Descriptions and Performance Statistics. 50
APPENDIX C - Other Pioneer Information..................... 61
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A
PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
<PAGE>
1. INVESTMENT POLICIES AND RESTRICTIONS
The Trust consists of separate portfolios, each of which is an
investment vehicle for variable annuity and variable life insurance contracts
(the "Variable Contracts") offered by the separate accounts (the "Accounts") of
various insurance companies ("Participating Insurance Companies"). As described
in the Prospectus, the portfolios also may be offered to certain qualified
pension and retirement plans (the "Qualified Plans"). The Trust currently
consists of the following ten distinct portfolios: International Growth
Portfolio, Capital Growth Portfolio, Growth Shares Portfolio, Real Estate Growth
Portfolio, Growth and Income Portfolio, Equity-Income Portfolio, Balanced
Portfolio, Swiss Franc Bond Portfolio, America Income Portfolio and Money Market
Portfolio (each a "Portfolio"). Your Variable Contract or qualified plan may not
offer all Portfolios of the Fund. The terms and conditions of the Variable
Contracts and any limitations upon the Portfolios in which the Accounts may be
invested are set forth in a separate prospectus and statement of additional
information relating to the Variable Contracts. The terms and conditions of a
Qualified Plan and any limitations upon the Portfolios in which such Plan may be
invested are set forth in such Plan's governing documents. The Trust reserves
the right to limit the types of Accounts and the types of Qualified Plans that
may invest in any Portfolio.
Qualified Plans and Participating Insurance Companies are the record
holders and beneficial owners of shares of beneficial interest in each Portfolio
of the Trust. In accordance with any limitations set forth in their Variable
Contracts, contract holders may direct through their Participating Insurance
Companies the allocation of amounts available for investment among the Trust's
Portfolios. Similarly, in accordance with any limitations set forth in their
Qualified Plans, Qualified Plan participants may direct through their Qualified
Plan administrators the allocation of amounts available for investment among the
Trust's Portfolios. Instructions for any such allocation, or for the purchase or
redemption of shares of a Portfolio, must be made by the investor's
Participating Insurance Company or Qualified Plan administrator, as the case may
be, as the record holder of the Portfolio's shares. The rights of Participating
Insurance Companies and Qualified Plans as record holders of shares of a
Portfolio are different from the rights of contract holders and Qualified Plan
participants. The term "shareholder" in this Statement of Additional Information
refers only to Participating Insurance Companies and Qualified Plans, and not to
contract holders or Qualified Plan participants.
The Trust's Prospectus identifies the investment objective and the
principal investment policies of each Portfolio and the risk factors associated
with the Portfolio's investments. Other investment policies of the Portfolios
and associated risk factors are set forth below. This Statement of Additional
Information should be read in conjunction with the Prospectus.
Lower Quality Debt Obligations
Growth Shares Portfolio, Real Estate Growth Portfolio, Growth and
Income Portfolio and Equity-Income Portfolio may each invest up to 5% of their
respective net assets in debt securities which are rated in the lowest rating
categories by Standard & Poor's Ratings Group ("Standard & Poor's") or by
Moody's Investors Service, Inc. ("Moody's") (i.e., ratings of BB or lower by
Standard & Poor's or Ba or lower by Moody's) or, if unrated by such rating
organizations, determined to be of comparable quality by Pioneering Management
Corporation (the "Manager" or "PMC"), each Portfolio's investment adviser.
International Growth and Swiss Franc Bond Portfolios may not purchase such lower
quality debt securities, but up to 5% of their net assets may be invested in
such securities as a result of credit quality downgrades. In addition, each
Portfolio other than America Income and Money Market Portfolios may invest in
medium quality debt securities (i.e., securities rated BBB by Standard & Poor's
or Baa by Moody's, or unrated securities determined by the Manager to be of
comparable quality).
Bonds rated BB or Ba or below or comparable unrated securities are
commonly referred to as "junk bonds" and are considered speculative and may be
questionable as to principal and interest payments. In some cases, such bonds
may be highly speculative, have poor prospects for reaching investment standing
and be in default. As a result, investment in such bonds will entail greater
speculative risks than those associated with investment in investment grade
bonds (i.e., bonds rated BBB or better by Standard & Poor's or Baa or better by
Moody's or, if unrated by such rating organizations, determined to be of
comparable quality by the Manager). See Appendix B to this Statement of
Additional Information for a description of the ratings issued by Standard &
Poor's and Moody's.
The amount of junk bond securities outstanding has proliferated in
conjunction with the increase in merger and acquisition and leveraged buyout
activity. An economic downturn could severely affect the ability of highly
leveraged issuers to service their debt obligations or to repay their
obligations upon maturity. Factors having an adverse impact on the market value
of lower quality securities will have an adverse effect on a Portfolio's net
asset value to the extent that it invests in such securities. In addition, a
Portfolio may incur additional expenses to the extent it is required to seek
recovery upon a default in payment of principal or interest on its portfolio
holdings.
The secondary market for junk bond securities, which is concentrated in
relatively few market makers, may not be as liquid as the secondary market for
more highly rated securities, a factor which may have an adverse effect on a
Portfolio's ability to dispose of a particular security when necessary to meet
its liquidity needs. Under adverse market or economic conditions, the secondary
market for junk bond securities could contract further, independent of any
specific adverse changes in the condition of a particular issuer. As a result, a
Portfolio could find it more difficult to sell these securities or may be able
to sell the securities only at prices lower than if such securities were widely
traded. Prices realized upon the sale of such lower rated or unrated securities,
under these circumstances, may be less than the prices used in calculating the
Portfolio's net asset value.
Certain proposed and recently enacted federal laws including the
required divestiture by federally insured savings and loan associations of their
investments in junk bonds and proposals designed to limit the use, or tax and
other advantages, of junk bond securities could adversely affect a Portfolio's
net asset value and investment practices. Such proposals could also adversely
affect the secondary market for junk bond securities, the financial condition of
issuers of these securities and the value of outstanding junk bond securities.
The form of such proposed legislation and the possibility of such legislation
being passed are uncertain.
Since investors generally perceive that there are greater risks
associated with the medium to lower quality debt securities of the type in which
each Portfolio other than America Income and Money Market Portfolios may invest
a portion of its assets, the yields and prices of such securities may tend to
fluctuate more than those for higher rated securities. In the lower quality
segments of the debt securities market, changes in perceptions of issuers'
creditworthiness tend to occur more frequently and in a more pronounced manner
than do changes in higher quality segments of the debt securities market,
resulting in greater yield and price volatility.
Medium to lower rated and comparable unrated debt securities tend to
offer higher yields than higher rated securities with the same maturities
because the historical financial condition of the issuers of such securities may
not have been as strong as that of other issuers. Since medium to lower rated
securities generally involve greater risks of loss of income and principal than
higher rated securities, investors should consider carefully the relative risks
associated with investment in securities which carry medium to lower ratings and
in comparable unrated securities. In addition to the risk of default, there are
the related costs of recovery on defaulted issues. The Manager will attempt to
reduce these risks through portfolio diversification and by analysis of each
issuer and its ability to make timely payments of income and principal, as well
as broad economic trends and corporate developments.
The prices of all debt securities generally fluctuate in response to
the general level of interest rates. Another factor which causes fluctuations in
the prices of debt securities is the supply and demand for similarly rated
securities. Fluctuations in the prices of portfolio securities subsequent to
their acquisition will not affect any cash income from such securities but will
be reflected in a Portfolio's net asset value.
Certificates of Deposit
Swiss Franc Bond Portfolio may invest in investment grade certificates
of deposit of domestic banks and savings and loan associations and foreign
banks, without regard to the size of the issuing institution. Money Market
Portfolio may invest in certificates of deposit of large domestic banks and
savings and loan associations (i.e., banks which at the time of their most
recent annual financial statements show total assets in excess of $1 billion),
including foreign branches of such domestic banks, and of smaller banks as
described below. Money Market Portfolio will not invest in certificates of
deposit of foreign banks.
Investment in certificates of deposit issued by foreign banks and
foreign branches of domestic banks involves investment risks that are different
in some respects from those associated with investment in certificates of
deposit issued by domestic banks, including the possible imposition of
withholding taxes on interest income, the possible adoption of foreign
governmental restrictions which might adversely affect the payment of principal
and interest on such certificates of deposit, or other adverse political or
economic developments. In addition, it might be more difficult to obtain and
enforce a judgment against a foreign bank or a foreign branch of a domestic
bank.
Although Money Market Portfolio recognizes that the size of a bank is
important, this fact alone is not necessarily indicative of its
creditworthiness. Accordingly, Money Market Portfolio may invest in certificates
of deposit issued by banks and savings and loan associations which had at the
time of their most recent annual financial statements total assets of less than
$1 billion, provided that (i) the principal amounts of such certificates of
deposit are insured by an agency of the U.S. Government, (ii) at no time will
the Portfolio hold more than $100,000 principal amount of certificates of
deposit of any one such bank and (iii) at the time of acquisition, no more than
10% of the Portfolio's assets (taken at current value) are invested in
certificates of deposit of such banks having total assets not in excess of $1
billion.
Additional Information Regarding GNMA Certificates
As discussed in the Prospectus, America Income Portfolio's investments
in U.S. Government Securities may include mortgage participation certificates
("GNMA Certificates") guaranteed by the Government National Mortgage Association
("GNMA"). Real Estate Growth Portfolio and Balanced Portfolio also may invest in
GNMA Certificates. GNMA Certificates evidence part ownership of a pool of
mortgage loans. Because prepayment rates of individual mortgage pools will vary
widely, it is not possible to predict with certainty the average life of a
particular issue of GNMA Certificates. However, statistics published by the
Farmers' Home Administration ("FHA") are normally used as an indicator of the
expected average life of GNMA Certificates. These statistics indicate the
average life of single-family dwelling mortgages with 25- to 30-year maturities,
the type of mortgages backing the vast majority of GNMA Certificates, is
approximately 12 years. For this reason, it is customary to treat GNMA
Certificates as 30-year mortgage-backed securities which prepay fully in the
twelfth year. The actual life of a particular issue of GNMA Certificates,
however, will depend on the coupon rate of the underlying mortgages, with higher
interest rate mortgages being more prone to prepayment or refinancing.
The coupon rate of interest of GNMA Certificates is lower than the
interest rate paid on the Veterans Administration-guaranteed or FHA-insured
mortgages underlying the GNMA Certificates, but only by the amount of the fees
paid to GNMA and the issuer. For the most common type of mortgage pool,
containing single-family dwelling mortgages, GNMA receives an annual fee of
6/100 of 1% of the outstanding principal for providing its guarantee, and the
issuer is paid an annual fee of 44/100 of 1% for assembling the mortgage pool
and for passing through monthly payments of interest and principal to GNMA
Certificate holders.
The coupon rate by itself, however, does not indicate the yield that
will be earned on GNMA Certificates for the reasons given in the section
"Investment Objective and Policies" in the Prospectus. In quoting yields for
GNMA Certificates, the customary practice is to assume that the GNMA
Certificates will have a 12-year life. Compared on this basis, GNMA Certificates
have historically yielded roughly 25/100 of 1% more than U.S. Government and
U.S. Government agency bonds. As the life of individual pools may vary widely,
however, the actual yield earned on any issue of GNMA Certificates may differ
significantly from the yield estimated on the assumption of a 12-year life.
Since the inception of the GNMA mortgage-backed securities program in
1970, the amount of GNMA Certificates outstanding has grown rapidly. The size of
the market and the active participation in the secondary market by securities
dealers and many types of investors make the GNMA Certificates a highly liquid
instrument. Prices of GNMA Certificates are readily available from securities
dealers and depend on, among other things, the level of market interest rates,
the GNMA Certificate's coupon rate and the prepayment experience of the pools of
mortgages backing each GNMA Certificate.
Covered Call Options
Growth and Income Portfolio may write (sell) covered call options on
certain portfolio securities, but options may not be written on more than 25% of
the aggregate market value of any single portfolio security (determined each
time a call is sold as of the date of such sale). The Fund does not expect to
write (sell) covered call options with an aggregate value exceeding 5% of the
Fund's total assets in the foreseeable future. As a writer of a call option, the
Portfolio receives a premium less commission, and, in exchange, foregoes the
opportunity to profit from increases in the market value of the security
covering the call above the sum of the premium and the exercise price of the
option during the life of the option. The purchaser of such a call has the
option of purchasing the security from the Portfolio's portfolio at the option
price during the life of the option. Portfolio securities on which options may
be written are purchased solely on the basis of investment considerations
consistent with the Portfolio's investment objectives. The security covering the
call is maintained in a segregated account of the Portfolio's custodian. The
Portfolio does not consider a security covered by a call option to be "pledged"
as that term is used in the Portfolio's policy which limits the pledging or
mortgaging of its assets.
The Portfolio will purchase a call option only when entering into a
"closing purchase transaction," i.e., a purchase of a call option on the same
security with the same exercise price and expiration date as a "covered" call
already written by the Portfolio. There is no assurance that the Portfolio will
be able to effect such closing purchase transactions at a favorable price; if
the Portfolio cannot enter into such a transaction it may be required to hold a
security that it might otherwise have sold. The Portfolio's portfolio turnover
may increase through the exercise of options if the market price of the
underlying securities appreciates and the Portfolio has not entered into a
closing purchase transaction. The commission on the purchase or sale of a call
option is higher in relation to the premium than the commission in relation to
the price on purchase or sale of the underlying security.
Securities Index Options
International Growth Portfolio, Capital Growth Portfolio, Real Estate
Growth Portfolio, Equity-Income Portfolio and Swiss Franc Bond Portfolio may
invest in call and put options on securities indices for the purpose of hedging
against the risk of unfavorable price movements adversely affecting the value of
the Portfolio's securities or securities the Portfolio intends to buy. The
Portfolios will not invest in securities index options for speculative purposes.
Currently, options on stock indices are traded only on national
securities exchanges and over-the-counter, both in the United States and in
foreign countries. However, a Portfolio will not purchase over-the-counter
options. A securities index fluctuates with changes in the market values of the
securities included in the index. For example, some stock index options are
based on a broad market index such as the S&P 500 or the Value Line Composite
Index in the U.S., the Nikkei in Japan or the FTSE 100 in the United Kingdom.
Index options may also be based on a narrower market index.
A Portfolio may purchase put options in order to hedge against an
anticipated decline in securities prices that might adversely affect the value
of securities held by the Portfolio. If a Portfolio purchases a put option on a
securities index, the amount of the payment it would receive upon exercising the
option would depend on the extent of any decline in the level of the securities
index below the exercise price. Such payments would tend to offset a decline in
the value of securities held by the Portfolio. However, if the level of the
securities index increases and remains above the exercise price while the put
option is outstanding, the Portfolio will not be able to profitably exercise the
option and will lose the amount of the premium and any transaction costs. Such
loss may be partially offset by an increase in the value of the securities held
by the Portfolio.
A Portfolio may purchase call options on securities indices in order to
lock in a favorable price on securities that it intends to buy in the future. If
a Portfolio purchases a call option on a securities index, the amount of the
payment it receives upon exercising the option depends on the extent of any
increase in the level of the securities index above the exercise price. Such
payments may offset increases in the price of securities that the Portfolio
intends to purchase. If, however, the level of the securities index declines and
remains below the exercise price while the call option is outstanding, the
Portfolio will not be able to exercise the option profitably and will lose the
amount of the premium and transaction costs. Such loss may be partially offset
by a reduction in the price the Portfolio pays to buy additional securities for
its portfolio.
A Portfolio may sell any securities index option it has purchased or
write a similar offsetting securities index option in order to close out a
position in a securities index option which it has purchased. These closing sale
transactions enable a Portfolio to immediately realize gains or minimize losses
on its options positions. However, there is no assurance that a liquid secondary
market on an options exchange will exist for any particular option, or at any
particular time, and for some options no secondary market may exist. In
addition, securities index prices may be distorted by interruptions in the
trading of securities of certain companies or of issuers in certain industries,
or by restrictions that may be imposed by an exchange on opening or closing
transactions, or both, which would disrupt trading in options on such indices
and preclude a Portfolio from closing out its options positions. If a Portfolio
is unable to effect a closing sale transaction with respect to options that it
has purchased, it would have to exercise the options in order to realize any
profit.
The hours of trading for options may not conform to the hours during
which the underlying securities are traded. To the extent that the options
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying markets that can not
be reflected in the options markets. The purchase of options is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions.
In addition to the risks of imperfect correlation between securities
held by a Portfolio and the index underlying the option, the purchase of
securities index options involves the risk that the premium and transaction
costs paid by a Portfolio in purchasing an option will be lost. This could occur
as a result of unanticipated movements in prices of the securities comprising
the securities index on which the option is based.
Forward Foreign Currency Transactions
International Growth Portfolio, Swiss Franc Bond Portfolio, Capital
Growth Portfolio, Growth Shares Portfolio, Real Estate Growth Portfolio, Growth
and Income Portfolio, and Balanced Portfolio each may enter into foreign
currency transactions on a spot (i.e., cash) basis at the spot rate for
purchasing or selling currency prevailing in the foreign exchange market. Each
of these Portfolios also has authority to purchase and sell forward foreign
currency exchange contracts involving currencies of the different countries in
which it will invest as a hedge against possible variations in the foreign
exchange rate between these currencies and the U.S. dollar. This is accomplished
through contractual agreements to purchase or sell a specified currency at a
specified future date and price set at the time of the contract. A Portfolio may
close out a forward position in a currency by selling the forward contract or
entering into an offsetting forward contract.
Each Portfolio's dealings in forward foreign currency contracts will be
limited to hedging either specific transactions or portfolio positions, except
that, as described below, Swiss Franc Bond Portfolio may also enter into such
contracts in order to link the value of an investment in a "non-Swiss franc
security" (as defined in the Prospectus) to the performance of the Swiss franc.
Transaction hedging is the purchase or sale of forward foreign currency
contracts with respect to specific receivables or payables of a Portfolio
accruing in connection with the purchase and sale of its portfolio securities
denominated in foreign currencies. Portfolio hedging is the use of forward
foreign currency contracts to offset portfolio security positions denominated or
quoted in such foreign currencies. There is no guarantee that a Portfolio will
be engaged in hedging activities when adverse exchange rate movements occur. A
Portfolio may not necessarily, and Swiss Franc Bond Portfolio will not, attempt
to hedge all of its foreign portfolio positions and will enter into such
transactions only to the extent, if any, deemed appropriate by the Manager.
A Portfolio may engage in cross-hedging by using forward contracts in
one currency to hedge against fluctuations in the value of securities
denominated in a different currency, if the Manager determines that there is a
pattern of correlation between the two currencies. Cross-hedging may also
include entering into a forward transaction involving two foreign currencies,
using one foreign currency as a proxy for the U.S. dollar to hedge against
variations in the other foreign currency, if the Manager determines that there
is a pattern of correlation between the proxy currency and the U.S. dollar.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also limit the opportunity
for gain if the value of the hedged currency should rise. Moreover, it may not
be possible for a Portfolio to hedge against a devaluation that is so generally
anticipated that the Portfolio is not able to contract to sell the currency at a
price above the devaluation level it anticipates.
Swiss Franc Bond Portfolio may combine forward contracts to purchase
Swiss francs with investments in securities denominated in another currency in
an attempt to construct a combined investment position whose overall performance
will be similar to that of a security denominated in Swiss francs. For example,
the Portfolio could purchase a dollar-denominated security and at the same time
enter into a forward contract to exchange dollars for Swiss francs at a future
date. If the amount of dollars to be exchanged is properly matched with the
anticipated value of the dollar-denominated security, the Portfolio should be
able to "lock in" the Swiss franc value of the security, and the Portfolio's
overall investment return from the combined position should be similar to the
return from purchasing a Swiss franc-denominated instrument. This is commonly
referred to as a "synthetic" investment position.
Synthetic investment positions may offer greater liquidity than actual
purchases of Swiss franc-denominated securities because of the broad variety of
highly liquid short-term instruments available in the United States and other
countries (other than Switzerland). However, the execution of a synthetic
investment strategy may not be successful. It is impossible to forecast with
absolute precision what the market value of a particular security will be at any
given time. If the value of a non-Swiss franc security is not exactly matched
with Swiss Franc Bond Portfolio's obligation under the forward currency exchange
contract on the contract's maturity date, the Portfolio may be exposed to some
risk of loss from fluctuation in the exchange rate between the Swiss franc and
the non-Swiss franc currency. Although the Manager will attempt to match such
investments, there can be no assurance that the Manager will be successful in
doing so.
If a Portfolio enters into a forward contract to purchase foreign
currency, its custodian bank will segregate cash or liquid, high grade debt
securities in a separate account of the Portfolio in an amount equal to the
value of the Portfolio's total assets committed to the consummation of such
forward contract. Those assets will be valued at market daily and if the value
of the assets in the separate account declines, additional cash or securities
will be placed in the accounts so that the value of the account will equal the
amount of the Portfolio's commitment with respect to such contracts.
The cost to a Portfolio of engaging in foreign currency transactions
varies with such factors as the currency involved, the size of the contract, the
length of the contract period and the market conditions then prevailing. Since
transactions in foreign currency and forward contracts are usually conducted on
a principal basis, no fees or commissions are involved.
Options on Foreign Currencies
International Growth Portfolio, Capital Growth Portfolio, Growth Shares
Portfolio, Real Estate Growth Portfolio, Growth and Income Portfolio, Balanced
Portfolio and Swiss Franc Bond Portfolio each may purchase options on foreign
currencies for hedging purposes in a manner similar to that of transactions in
forward contracts. For example, a decline in the U.S. dollar value of a foreign
currency in which portfolio securities are quoted or denominated will reduce the
U.S. dollar value of such securities, even if their value in the foreign
currency remains constant. In order to protect against such decreases in the
value of portfolio securities, a Portfolio may purchase put options on the
foreign currency. If the value of the currency declines, the Portfolio will have
the right to sell such currency for a fixed amount of U.S. dollars which exceeds
the market value of such currency. This would result in a gain that may offset,
in whole or in part, the negative effect of currency depreciation on the value
of the Portfolio's securities quoted or denominated in that currency.
Conversely, if a rise in the U.S. dollar value of a currency is
projected for those securities to be acquired, thereby increasing the cost of
such securities, a Portfolio may purchase call options on such currency. If the
value of such currency increased, the purchase of such call options would enable
the Portfolio to purchase currency for a fixed amount of U.S. dollars which is
less than the market value of such currency. Such a purchase would result in a
gain that may offset, at least partially, the effect of any currency related
increase in the price of securities the Portfolio intends to acquire. As in the
case of other types of options transactions, however, the benefit a Portfolio
derives from purchasing foreign currency options will be reduced by the amount
of the premium and related transaction costs. In addition, if currency exchange
rates do not move in the direction or to the extent anticipated, a Portfolio
could sustain losses on transactions in foreign currency options which would
deprive it of a portion or all of the benefits of advantageous changes in such
rates.
A Portfolio may close out its position in a currency option by either
selling the option it has purchased or entering into an offsetting option.
Futures Contracts and Options on Futures Contracts
To hedge against changes in securities prices or currency exchange
rates, International Growth Portfolio, Capital Growth Portfolio, Real Estate
Growth Portfolio and Swiss Franc Bond Portfolio may purchase and sell various
kinds of futures contracts, and purchase and write (sell) call and put options
on any of such futures contracts. Growth Shares Portfolio, Growth and Income
Portfolio and Balanced Portfolio may only purchase and sell futures contracts
that relate to foreign currencies and related options. Each Portfolio may also
enter into closing purchase and sale transactions with respect to such futures
contracts and options. Futures contracts may be based on various securities
(such as U.S. Government securities), securities indices, foreign currencies and
other financial instruments and indices. All futures contracts entered into by
the Portfolios are traded on U.S. exchanges or boards of trade that are licensed
and regulated by the Commodity Futures Trading Commission (the "CFTC") or on
foreign exchanges.
Futures Contracts. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
for an agreed price during a designated month (or to deliver the final cash
settlement price, in the case of a contract relating to an index or otherwise
not calling for physical delivery at the end of trading in the contract).
When interest rates are rising or securities prices are falling, a
Portfolio can seek to offset a decline in the value of its current portfolio
securities through the sale of futures contracts. When interest rates are
falling or securities prices are rising, a Portfolio, through the purchase of
futures contracts, can attempt to secure better rates or prices than might later
be available in the market when it effects anticipated purchases. Similarly, a
Portfolio can sell futures contracts on a specified currency to protect against
a decline in the value of such currency and a decline in the value of its
portfolio securities which are quoted or denominated in such currency. A
Portfolio can purchase futures contracts on foreign currency to establish the
price in U.S. dollars of a security quoted or denominated in such currency that
the Portfolio has acquired or expects to acquire.
Positions taken in the futures markets are not normally held to
maturity but are instead liquidated through offsetting transactions which may
result in a profit or a loss. While futures contracts on securities or currency
will usually be liquidated in this manner, a Portfolio may instead make, or
take, delivery of the underlying securities or currency whenever it appears
economically advantageous to do so. A clearing corporation associated with the
exchange on which futures on securities or currency are traded guarantees that,
if still open, the sale or purchase will be performed on the settlement date.
Each Portfolio will be required, in connection with transactions in
futures contracts and the writing of options on futures, to make margin
deposits, which will be held by the Portfolio's custodian for the benefit of the
futures commission merchant through whom the Portfolio engages in such futures
contracts and options transactions. In the case of futures contracts or options
requiring a Portfolio to purchase securities, the Portfolio must place cash or
liquid, high grade debt securities in a segregated account maintained by the
custodian and marked to market daily to cover such futures contracts and
options.
Hedging Strategies. Hedging, by use of futures contracts, seeks to
establish with more certainty the effective price, rate of return and currency
exchange rate on portfolio securities and securities that a Portfolio owns or
proposes to acquire. A Portfolio may, for example, take a "short" position in
the futures market by selling futures contracts in order to hedge against an
anticipated rise in interest rates or a decline in market prices or foreign
currency rates that would adversely affect the value of securities held by the
Portfolio. Such futures contracts may include contracts for the future delivery
of securities held by the Portfolio or securities with characteristics similar
to those securities held by the Portfolio. Similarly, a Portfolio may sell
futures contracts in currency in which its portfolio securities are quoted or
denominated, or in one currency to hedge against fluctuations in the value of
securities quoted or denominated in a different currency if there is an
established historical pattern of correlation between the two currencies. If, in
the opinion of the Manager, there is a sufficient degree of correlation between
price trends for the securities held by the Portfolio and futures contracts
based on other financial instruments, securities indices or other indices, the
Portfolio may also enter into such futures contracts as part of its hedging
strategy. Although under some circumstances prices of securities held by a
Portfolio may be more or less volatile than prices of such futures contracts,
the Manager will attempt to estimate the extent of this volatility difference
based on historical patterns and compensate for any such differential by having
the Portfolio enter into a greater or lesser number of futures contracts or by
attempting to achieve only a partial hedge against price changes affecting the
Portfolio's securities portfolio. When hedging of this character is successful,
any depreciation in the value of securities held by a Portfolio will be
substantially offset by appreciation in the value of the futures position. On
the other hand, any unanticipated appreciation in the value of securities held
by a Portfolio would be substantially offset by a decline in the value of the
futures position.
On other occasions, a Portfolio may take a "long" position by
purchasing futures contracts. This would be done, for example, when the
Portfolio anticipates the subsequent purchase of particular securities when it
has the necessary cash, but expects the prices or currency exchange rates then
available in the applicable market to be less favorable than prices or rates
that are currently available.
Options on Futures Contracts. International Growth Portfolio, Capital
Growth Portfolio, Growth Shares Portfolio, Real Estate Growth Portfolio, Growth
and Income Portfolio, Balanced Portfolio and Swiss Franc Bond Portfolio may each
purchase and write options on futures contracts for hedging purposes. The
acquisition of put and call options on futures contracts will give a Portfolio
the right (but not the obligation) for a specified price to sell or to purchase,
respectively, the underlying futures contract at any time during the option
period. As the purchaser of an option on a futures contract, a Portfolio obtains
the benefit of the futures position if prices move in a favorable direction but
limits its risk of loss in the event of an unfavorable price movement to the
loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium
which may partially offset a decline in the value of a Portfolio's assets. By
writing a call option, a Portfolio becomes obligated (if the option is
exercised), in exchange for the premium, to sell a futures contract, which may
have a value higher than the exercise price. Conversely, the writing of a put
option on a futures contract generates a premium which may partially offset an
increase in the price of securities that the Portfolio intends to purchase.
However, by writing a put option, the Portfolio becomes obligated (if the option
is exercised) to purchase a futures contract which may have a value lower than
the exercise price. Thus, the loss that a Portfolio may incur by writing options
on futures is potentially unlimited and may exceed the amount of the premium
received. A Portfolio will incur transaction costs in connection with the
writing of options on futures.
The holder or writer of an option on a futures contract may terminate
its position by selling or purchasing an offsetting option of the same series.
There is no guarantee that such closing transactions can be effected. A
Portfolio's ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid market.
Other Considerations. As noted above, International Growth Portfolio,
Capital Growth Portfolio, Growth Shares Portfolio, Real Estate Growth Portfolio,
Growth and Income Portfolio, Balanced Portfolio and Swiss Franc Bond Portfolio
may each engage in futures and related options transactions for hedging
purposes. CFTC regulations permit principals of an investment company registered
under the 1940 Act to engage in such transactions for bona fide hedging (as
defined in such regulations) and certain other limited purposes without
registering as commodity pool operators. Each Portfolio will determine that the
price fluctuations in the futures contracts and options on futures contracts
used for hedging purposes are substantially related to price fluctuations in
securities held by the Portfolio or which it expects to purchase. Except as
stated below, each Portfolio's futures transactions will be entered into for
traditional hedging purposes--i.e., futures contracts will be sold to protect
against a decline in the price of securities (or the currency in which they are
quoted or denominated) that the Portfolio owns, or futures contracts will be
purchased to protect the Portfolio against an increase in the price of
securities (or the currency in which they are quoted or denominated) it intends
to purchase. As evidence of this hedging intent, each Portfolio expects that on
75% or more of the occasions on which it takes a long futures or option position
(involving the purchase of futures contracts), the Portfolio will have
purchased, or will be in the process of purchasing, equivalent amounts of
related securities or assets quoted or denominated in the related currency in
the cash market at the time when the futures or option position is closed out.
However, in particular cases, when it is economically advantageous for a
Portfolio to do so, a long futures position may be terminated or an option may
expire without the corresponding purchase of securities or other assets.
As an alternative to literal compliance with the bona fide hedging
definition, a CFTC regulation permits a Portfolio to elect to comply with a
different test under which the sum of the amounts of initial margin deposits on
the Portfolio's existing futures contracts and premiums paid for options on
futures entered into for the purpose of seeking to increase total return (net of
the amount the positions were "in the money" at the time of purchase) may not
exceed 5% of the market value of the Portfolio's net assets. A Portfolio will
engage in transactions in futures contracts and related options only to the
extent such transactions are consistent with the requirements of the Internal
Revenue Code of 1986, as amended (the "Code"), for maintaining its qualification
as a regulated investment company for federal income tax purposes.
Transaction costs associated with futures contracts and related options
include brokerage costs, required margin deposits and, in the case of contracts
and options obligating a Portfolio to purchase securities or currencies, the
requirement that the Portfolio segregate assets to cover such contracts and
options.
While transactions in futures contracts and options on futures may
reduce certain risks, such transactions themselves entail certain other risks.
Thus, while a Portfolio may benefit from the use of futures and options on
futures, unanticipated changes in interest rates, securities prices or currency
exchange rates may result in a poorer overall performance for the Portfolio than
if it had not entered into any futures contracts or options transactions. In the
event of an imperfect correlation between a futures position and a portfolio
position which is intended to be protected, the desired protection may not be
obtained and a Portfolio may be exposed to risk of loss.
Perfect correlation between a Portfolio's futures positions and
portfolio positions will be difficult to achieve because the only futures
contracts available to hedge a Portfolio's portfolio are various futures on U.S.
Government securities and foreign currencies, futures on a municipal securities
index and stock index futures. In addition, it is not possible to hedge fully or
perfectly against the effect of currency fluctuations on the value of foreign
securities because currency movements affect the value of different securities
in differing degrees.
Restricted and Illiquid Securities
Each Portfolio, other than America Income Portfolio and Money Market
Portfolio, may invest up to 5% of its net assets in "restricted securities"
(i.e., securities that would be required to be registered prior to distribution
to the public), excluding restricted securities eligible for resale under Rule
144A under the Securities Act of 1933, as amended (the "1933 Act"), and, for the
Portfolios that allow non-U.S. investments, foreign securities which are offered
or sold outside the United States. In addition, each Portfolio other than Money
Market Portfolio may invest up to 15% of its net assets in illiquid investments,
which includes securities that are not readily marketable and repurchase
agreements maturing in more than seven days. Money Market Portfolio may invest
up to 10% of its net assets in such investments. Generally, a security may be
considered illiquid if a Portfolio is unable to dispose of such security within
seven days at approximately the price at which it values such security.
Securities may also be considered illiquid as a result of certain legal or
contractual restrictions on resale. The sale of illiquid securities, if they can
be sold at all, generally will require more time and result in higher brokerage
charges and other selling expenses than will the sale of liquid securities, such
as securities eligible for trading on U.S. exchanges or in the over-the-counter
markets. Moreover, restricted securities (i.e., securities that would be
required to be registered prior to distribution to the general public), such as
securities eligible for resale pursuant to Rule 144A ("144A securities"), which
may be illiquid for purposes of this limitation, often sell, if at all, at a
price lower than similar securities that are not subject to restrictions on
resale.
With respect to liquidity determinations generally, the Board of
Trustees has the ultimate responsibility for determining whether specific
securities, including Rule 144A securities, are liquid or illiquid. The Board
has delegated the function of making day-to-day determinations of liquidity for
each Portfolio to the Manager, pursuant to guidelines reviewed by the Trustees.
The Manager takes into account a number of factors in reaching liquidity
decisions. These factors may include, but are not limited to: (i) the frequency
of trading in the security; (ii) the number of dealers who make quotes for the
security; (iii) the number of dealers who have undertaken to make a market in
the security; (iv) the number of other potential purchasers; and (v) the nature
of the security and how trading is effected (e.g., the time needed to sell the
security, how offers are solicited and the mechanics of transfer). The Manager
will monitor the liquidity of securities held by the Portfolio and report
periodically on such decisions to the Trustees.
Repurchase Agreements
Each Portfolio may enter into repurchase agreements with "primary
dealers" in U.S. Government securities and banks which furnish collateral at
least equal in value or market price to the amount of their repurchase
obligation. Each Portfolio that may invest in foreign securities may also enter
into repurchase agreements involving certain foreign government securities. The
primary risk associated with repurchase agreements is that, if the seller
defaults, a Portfolio might suffer a loss to the extent that the proceeds from
the sale of the underlying securities and other collateral held by the Portfolio
in connection with the related repurchase agreement are less than the repurchase
price. Another risk is that, in the event of bankruptcy of the seller, a
Portfolio could be delayed in or prohibited from disposing of the underlying
securities and other collateral held by the Portfolio in connection with the
related repurchase agreement pending court proceedings. In evaluating whether to
enter into a repurchase agreement for a Portfolio, the Manager will carefully
consider the creditworthiness of the seller pursuant to procedures reviewed and
approved by the Trustees. See "Repurchase Agreements" in the Prospectus.
Lending of Portfolio Securities
Each Portfolio other than America Income Portfolio and Money Market
Portfolio may lend portfolio securities to member firms of the New York Stock
Exchange, under agreements which would require that the loans be secured
continuously by collateral in cash, cash equivalents or U.S. Treasury Bills
maintained on a current basis at an amount at least equal to the market value of
the securities loaned. A Portfolio would continue to receive the equivalent of
the interest or dividends paid by the issuer on the securities loaned as well as
the benefit of an increase in the market value of the securities loaned and
would also receive compensation based on investment of the collateral. A
Portfolio would not, however, have the right to vote any securities having
voting rights during the existence of the loan, but would call the loan in
anticipation of an important vote to be taken among holders of the securities or
of the giving or withholding of consent on a material matter affecting the
investment.
As with other extensions of credit there are risks of delay in recovery
or even loss of rights in the collateral should the borrower of the securities
fail financially. A Portfolio will lend portfolio securities only to firms which
have been approved in advance by the Board of Trustees, which will monitor the
creditworthiness of any such firms. At no time would the value of the securities
loaned by a Portfolio exceed 33 1/3% of the value of its total assets.
Real Estate Investment Trusts
Real Estate Growth Portfolio may invest without limitation in shares
of real estate investment trusts ("REITs"). Capital Growth Portfolio, Growth
Shares Portfolio, Growth and Income Portfolio, Equity-Income Portfolio and
Balanced Portfolio each may invest up to 5% of their respective total assets in
shares of REITs. REITs are pooled investment vehicles which invest primarily
in income-producing real estate or real estate related loans or interests.
REITs are generally classified as equity REITs, mortgage REITs or a combination
of equity and mortgage REITs. Equity REITs invest the majority of their assets
directly in real property and derive income primarily from the collection of
rents. Equity REITs can also realize capital gains by selling properties that
have appreciated in value. Mortgage REITs invest the majority of their assets
in real estate mortgages and derive income from the collection of interest
payments. Like investment companies, REITs are not taxed on income distributed
to shareholders provided they comply with several requirements of the the
Code. Each Portfolio will indirectly bear its proportionate share of any
expenses paid by REITs in which it invests in addition to the expenses paid by
the Portfolio.
Investing in REITs involves certain unique risks in addition to those risks
associated with investing in the real estate industry in general. Equity REITs
may be affected by changes in the value of the underlying property owned by the
REITs, while mortgage REITs may be affected by the quality of any credit
extended. REITs are dependent upon management skills, are not diversified and
are subject to the risks of financing projects. REITs are subject to heavy
cash flow dependency, default by borrowers, self-liquidation, and the
possibilities of failing to qualify for the exemption from tax for distributed
income under the Code and failing to maintain their exemptions under the 1940
Act. REITs whose underlying assets include long-term health care properties,
such as nursing, retirement and assisted living homes, may be affected by
federal regulations concerning the health care industry.
REITs (especially mortgage REITs) are also subject to interest rate risks.
When interest rates decline, the value of a REIT's investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a REIT's investment in fixed rate obligations can be expected to
decline.
Investing in REITs involves risks similar to those associated with investing in
small capitalization companies. REITs may have limited financial resources,
may trade less frequently and in a limited volume and may be subject to more
abrupt or erratic price movements than larger company securities. Historically,
small capitalization stocks, such as REITs, have been more volatile in price
than the larger capitalization stocks included in the S&P 500 Index.
Investment Restrictions
The Trust, on behalf of each Portfolio, has adopted certain fundamental
investment restrictions which may not be changed without the affirmative vote of
the record holders of a "majority" (as defined in the 1940 Act) of the
Portfolio's outstanding voting securities. As used in the Prospectus and this
Statement of Additional Information, such approval means the approval of the
lesser of (i) the recordholders of 67% or more of the shares of a Portfolio
represented at a meeting if the recordholders of more than 50% of the
outstanding shares of the Portfolios are present in person or by proxy, or (ii)
the holders of more than 50% of the Portfolio's outstanding shares.
Restrictions That Apply to International Growth Portfolio, Capital Growth
Portfolio, Growth Shares Portfolio, Real Estate Growth Portfolio, Growth and
Income Portfolio, Equity-Income Portfolio, Balanced Portfolio and Swiss Franc
Bond Portfolio:
Each Portfolio may not:
(1) Issue senior securities, except as permitted by paragraphs (2), (6)
and (7) below. For purposes of this restriction, the issuance of shares of
beneficial interest in multiple classes or series, the purchase or sale of
options, futures contracts and options on futures contracts, forward
commitments, forward foreign exchange contracts, repurchase agreements and
reverse repurchase agreements entered into in accordance with the Portfolio's
investment policy, and the pledge, mortgage or hypothecation of the Portfolio's
assets within the meaning of paragraph (3) below are not deemed to be senior
securities.
(2) Borrow money, except from banks as a temporary measure for
extraordinary emergency purposes and except pursuant to reverse repurchase
agreements and (for Swiss Franc Bond Portfolio only) forward roll transactions,
and then only in amounts not to exceed 33 1/3% of the Portfolio's total assets
(including the amount borrowed) taken at market value. The Portfolio will not
use leverage to attempt to increase income. The Portfolio will not purchase
securities while outstanding borrowings (including reverse repurchase
agreements) exceed 5% of the Portfolio's total assets.
(3) Pledge, mortgage, or hypothecate its assets, except to secure
indebtedness permitted by paragraph (2) above and then only if such pledging,
mortgaging or hypothecating does not exceed 33 1/3% of the Portfolio's total
assets taken at market value.
(4) Act as an underwriter, except to the extent that, in connection
with the disposition of portfolio securities, the Portfolio may be deemed to be
an underwriter for purposes of the Securities Act of 1933.
(5) Purchase or sell real estate, except that the Portfolio may (i)
lease office space for its own use, (ii) invest in securities of issuers that
invest in real estate or interests therein, (iii) invest in securities that are
secured by real estate or interests therein, (iv) purchase and sell
mortgage-related securities and (v) hold and sell real estate acquired by the
Portfolio as a result of the ownership of securities.
(6) Make loans, except that the Portfolio may lend portfolio securities
in accordance with the Portfolio's investment policies and may purchase or
invest in repurchase agreements, bank certificates of deposit, a portion of an
issue of publicly distributed bonds, bank loan participation agreements,
bankers' acceptances, debentures or other securities, whether or not the
purchase is made upon the original issuance of the securities.
(7) Invest in commodities or commodity contracts or in puts, calls, or
combinations of both, except interest rate futures contracts, options on
securities, securities indices, currency and other financial instruments,
futures contracts on securities, securities indices, currency and other
financial instruments and options on such futures contracts, forward foreign
currency exchange contracts, forward commitments, securities index put or call
warrants, interest rate swaps, caps and floors and repurchase agreements entered
into in accordance with the Fund's investment policies.
(8) (This restriction No. 8 does not apply to Real Estate Growth
Portfolio) With respect to 75% of its total assets, purchase
securities of an issuer (other than the U.S. Government, its agencies
or instrumentalities), if
(a) such purchase would cause more than 5% of the Portfolio's
total assets, taken at market value, to be invested in the securities
of such issuer, or
(b) such purchase would at the time result in more than 10% of
the outstanding voting securities of such issuer being held by the
Portfolio.
It is the fundamental policy of each Portfolio other than Real Estate
Growth Portfolio not to concentrate its investments in securities of companies
in any particular industry. Following the current opinion of the staff of the
Securities and Exchange Commission (the "SEC"), investments are concentrated in
a particular industry if such investments aggregate 25% or more of the
Portfolio's total assets. The foregoing industry concentration policy does not
apply to investments in U.S. Government securities.
Real Estate Growth Portfolio will invest 25% or more of its total
assets in securities issued by companies in the real estate industry.
As a matter of nonfundamental investment policy and in connection with
the offering of its shares in various states and foreign countries, the Trust,
on behalf of each Portfolio, has agreed not to:
(a) Participate on a joint-and-several basis in any securities trading
account. The "bunching" of orders for the sale or purchase of marketable
portfolio securities with other accounts under the management of the Manager to
save commissions or to average prices among them is not deemed to result in a
securities trading account.
(b) Purchase securities on margin or make short sales unless by virtue
of its ownership of other securities, the Portfolio has the right to obtain,
without payment of additional consideration, securities equivalent in kind and
amount to the securities sold and, if the right is conditional, the sale is made
upon the same conditions, except that the Portfolio may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities and in connection with transactions involving forward foreign
currency exchange transactions, options, futures contracts and options on
futures contracts.
(c) Purchase a security if, as a result, (i) more than 10% of the
Portfolio's total assets would be invested in securities of investment
companies, (ii) such purchase would result in more than 3% of the total
outstanding voting securities of any one investment company being held by the
Portfolio, or (iii) more than 5% of the Portfolio's total assets would be
invested in any one investment company; provided, however, the Portfolio can
exceed such limitations in connection with a plan of merger or consolidation
with or acquisition of substantially all the assets of such other closed-end
investment company.
(d) Purchase securities of any issuer which, together with any
predecessor, has a record of less than three years' continuous operations prior
to the purchase if such purchase would cause investments of the Portfolio in all
such issuers to exceed 5% of the value of the total assets of the Portfolio.
(e) Invest for the purpose of exercising control over or management of any
company.
(f) Purchase warrants of any issuer, if, as a result of such purchases,
more than 2% of the value of the Portfolio's total assets would be invested in
warrants which are not listed on the New York Stock Exchange, the American Stock
Exchange or comparable international exchanges or more than 5% of the value of
the Portfolio's net assets would be invested in warrants, whether or not so
listed. For these purposes, warrants are to be valued at the lesser of cost or
market, but warrants acquired by the Portfolio in units with or attached to debt
securities shall be deemed to be without value.
(g) Knowingly purchase or retain securities of an issuer if one or more
of the Trustees or officers of the Portfolio or directors or officers of the
Portfolio's Manager or any investment management subsidiary of such Manager
individually owns beneficially more than 1/2% and together own beneficially more
than 5% of the securities of such issuer.
(h) Purchase interests in oil, gas or other mineral leases or
exploration programs; however, this policy will not prohibit the acquisition of
securities of companies engaged in the production or transmission of oil, gas or
other minerals.
(i) Purchase any security which is illiquid, if more than 15% of the
net assets of the Portfolio, taken at market value, would be invested in such
securities. The Portfolio may not invest in repurchase agreements maturing in
more than seven days. The Portfolio currently intends to limit its investments
in illiquid securities to illiquid Rule 144A securities.
(j) Invest more than 5% of its total assets in restricted securities,
excluding Rule 144A securities; provided, however, the Portfolio may not invest
more than 15% of its total assets in restricted securities, including such Rule
144A securities.
(k) Write covered calls or put options with respect to more than 25% of
the value of its total assets or invest more than 5% of its total assets in
puts, calls, spreads, or straddles, other than protective put options.
(l) Invest in real estate limited partnerships.
(m) Real Estate Growth Portfolio may not invest more than 10% of its
total assets in shares of REITs that are not readily marketable.
Restrictions That Apply to America Income Portfolio
America Income Portfolio may not:
(1) borrow money, except from banks to meet redemptions in amounts not
exceeding 33 1/3% (taken at the lower of cost or current value) of its total
assets (including the amount borrowed). The Portfolio does not intend to borrow
money during the coming year, and will do so only as a temporary measure for
extraordinary purposes or to facilitate redemptions. The Portfolio will not
purchase securities while any borrowings are outstanding;
(2) purchase securities on margin;
(3) make loans to any person, except by (a) the purchase of a debt
obligation in which the Portfolio is permitted to invest and (b)
engaging in repurchase agreements;
(4) act as an underwriter, except as it may be deemed to be
an underwriter in a sale of restricted securities; or
(5) issue senior securities, except as permitted by restrictions nos. 2
and 4 above, and, for purposes of this restriction, the issuance of shares of
beneficial interest in multiple classes or series, the purchase or sale of
options, futures contracts and options on futures contracts, forward
commitments, forward foreign exchange contracts and repurchase agreements
entered into in accordance with the Portfolio's investment policies.
The Trust, on behalf of America Income Portfolio, has agreed to adopt
certain additional investment restrictions which are not fundamental and may be
changed by a vote of the Trust's Board of Trustees and without shareholder
approval or notification. Pursuant to these additional restrictions, the
Portfolio may not:
(a) make short sales of securities, unless by virtue of its ownership
of other securities, the Portfolio has the right to obtain securities equivalent
in kind and amount to the securities sold and, if the right is conditional, the
sale is made upon the same terms and conditions, except that the Portfolio may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities;
(b) write, purchase or otherwise invest in any put, call, straddle
or spread options;
(c) invest in any security, including any repurchase agreement maturing
in more than seven days, which is illiquid, if more than 15% of the net assets
of the Portfolio, taken at market value, would be invested in such securities;
(d) pledge, mortgage or hypothecate its portfolio securities if at the
time of such action the value of the securities so pledged, mortgaged or
hypothecated would exceed 10% of the value of the Portfolio;
(e) invest in warrants;
(f) invest in oil, gas or other mineral leases or exploration or
development programs;
(g) purchase or sell real estate, including real estate limited
partnerships except that the Portfolio may (i) acquire or lease office space for
its own use, (ii) invest in securities of issuers that invest in real estate or
interests therein, (iii) invest in securities that are secured by real estate or
interests therein, (iv) purchase and sell mortgage-related securities and (v)
hold and sell real estate acquired by the Portfolio as a result of the ownership
or securities; and
(h) invest in assets, except in U.S. Government Securities and in
when-issued commitments and repurchase agreements with respect to
these securities;
Restrictions That Apply to Money Market Portfolio
Money Market Portfolio may not:
(1) except with respect to investments in obligations of (a) the U.S.
Government, its agencies, authorities or instrumentalities and (b) domestic
banks, purchase any security if, as a result (i) more than 5% of the assets of
the Portfolio would be invested in the securities of any one issuer, or (ii)
more than 25% of its assets would be invested in a particular industry;
(2) borrow money, except from banks to meet redemptions in amounts not
exceeding 33 1/3% (taken at the lower of cost or current value) of its total
assets (including the amount borrowed). The Portfolio does not intend to borrow
money during the coming year, and will do so only as a temporary measure for
extraordinary purposes or to facilitate redemptions. The Portfolio will not
purchase securities while any borrowings are outstanding;
(3) make short sales of securities;
(4) purchase securities on margin;
(5) write, purchase or otherwise invest in any put, call, straddle or
spread option or buy or sell real estate, commodities or commodity futures
contracts or invest in oil, gas or mineral exploration or development programs;
(6) make loans to any person, except by (a) the purchase of a debt
obligation in which the Portfolio is permitted to invest and (b)
engaging in repurchase agreements;
(7) knowingly purchase any security that is subject to legal or
contractual restrictions on resale or for which there is no
readily available market;
(8) purchase the securities of other investment companies or
investment trusts, unless they are acquired as part of a merger,
consolidation or acquisition of assets;
(9) purchase or retain the securities of any issuer if any officer or
Trustee of the Trust or the Portfolio or its investment adviser is an officer or
director of such issuer and beneficially owns more than 1/2 of 1% of the
securities of such issuer and all of the officers and the Trustees of the Trust
and the Portfolio's investment adviser together own more than 5% of the
securities of such issuer;
(10) act as an underwriter, except as it may be deemed to be an
underwriter in a sale of restricted securities;
(11) invest in companies for the purpose of exercising control or
management; or
(12) issue senior securities.
In addition, in order to comply with certain nonfundamental policies of
the Portfolio, the Portfolio will not (i) pledge, mortgage or hypothecate its
portfolio securities if at the time of such action the value of the securities
so pledged, mortgaged or hypothecated would exceed 10% of the value of the
Portfolio, (ii) will not commit more than 10% of its assets to illiquid
investments, such as repurchase agreements that mature in more than seven days,
(iii) invest more than 5% of its assets in companies which, including
predecessors, have a record of less than three years continuous operation, or
(iv) invest in warrants. The term "person" as used in Investment Restriction No.
6 includes institutions as well as individuals. Policies in this paragraph may
be changed by the Trustees without shareholder approval or notification.
Certain Additional Non-Fundamental Restrictions that apply to the Portfolios
Except with respect to the 300% asset coverage required with respect to
borrowings by each Portfolio, if a percentage restriction on investment or
utilization of assets as set forth above is adhered to at the time an investment
is made, a later change in percentage resulting from changes in the values of
the Portfolio's assets will not be considered a violation of the restriction.
In order to permit the sale of shares of the Portfolios in certain
states, the Trustees may, in their sole discretion, adopt restrictions on
investment policy more restrictive than those described above. Should the
Trustees determine that any such more restrictive policy is no longer in the
best interest of a Portfolio and its shareholders, the Portfolio may cease
offering shares in the state involved and the Trustees may revoke such
restrictive policy. Moreover, if the states involved shall no longer require any
such restrictive policy, the Trustees may, in their sole discretion, revoke such
policy.
Foreign Country Guidelines
(Applicable to International Growth Portfolio, Capital Growth
Portfolio, Real Estate Growth Portfolio and Balanced Portfolio)
A. Each Portfolio will be invested in a minimum of five different foreign
countries at all times. However, this minimum is reduced to four when
foreign country investments comprise less than 80% of the Portfolio's net
asset value; to three when less than 60% of such value; to two when less
than 20%.
B. Except as set forth in items C and D below, the Portfolio will have no
more than 20% of its net asset value invested in securities of issuers
located in any one country.
C. The Portfolio may have an additional 15% of its value invested in
securities of issuers located in any one of the following countries:
Australia, Germany, France, Japan or the United Kingdom.
D. The Portfolio's investments in U.S. issuers are not subject to the foreign
country diversification guidelines.
Borrowing Guidelines
(Applicable to all Portfolios other than Swiss Franc Bond Portfolio)
Pursuant to these guidelines, the borrowing limits for each Portfolio
are:
A. 10% of net asset value when borrowing for any general purposes; and
B. 25% of net asset value when borrowing as a temporary measure to facilitate
redemptions.
The net asset value of a Portfolio is the market value of all investments or
assets owned, less outstanding liabilities of the Portfolio at the time that any
new or additional borrowing is undertaken. Additionally, borrowing is not
acceptable for leveraging purposes.
2. MANAGEMENT OF THE TRUST
The Trust's Board of Trustees provides broad supervision over the
affairs of the Trust. The officers of the Trust are responsible for the Trust's
operations. The Trustees and executive officers of the Trust are listed below,
together with their principal occupations during the past five years. An
asterisk indicates those Trustees who are interested persons of the Trust within
the meaning of the 1940 Act.
JOHN F. COGAN, JR.*, Chairman of the Board, President and Trustee, DOB: June
1926 President, Chief Executive Officer and a Director of The Pioneer Group,
Inc. ("PGI"); Chairman and a Director of Pioneering Management Corporation
("PMC") and Pioneer Funds Distributor, Inc. ("PFD"); Director of Pioneering
Services Corporation ("PSC"), Pioneer Capital Corporation ("PCC") and
Forest-Starma (a Russian timber joint venture); President and Director of
Pioneer Plans Corporation ("PPC"), Pioneer Investment Corp. ("PIC"),
Pioneer Metals and Technology, Inc. ("PMT"), Pioneer International Corp.
("Pintl"), Luscina, Inc., Pioneer First Russia, Inc. ("First Russia"),
Pioneer Omega, Inc. ("Omega"); and Theta Enterprises, Inc.; Chairman of the
Board and Director of Pioneer Goldfields Limited ("PGL") and Teberebie
Goldfields Limited; Chairman of the Supervisory Board of Pioneer Fonds
Marketing, GmbH ("Pioneer GmbH"); Member of the Supervisory Board of
Pioneer First Polish Trust Fund Joint Stock Company ("PFPT"); Chairman,
President and Trustee of all of the Pioneer mutual funds; and Partner, Hale
and Dorr LLP (counsel to the Fund).
RICHARD H. EGDAHL, M.D., Trustee, DOB: December 1926
Boston University Health Policy Institute, 53 Bay State Rd., Boston, MA 02115
Professor of Management, Boston University School of Management;
Professor of Public Health, Boston University School of Public Health; Professor
of Surgery, Boston University School of Medicine; Director, Boston University
Health Policy Institute and Boston University Medical Center; Executive Vice
President and Vice Chairman of the Board, University Hospital; Academic Vice
President for Health Affairs, Boston University; Director, Essex Investment
Management Company, Inc. (investment adviser), Health Payment Review, Inc.
(health care containment software firm), Mediplex Group, Inc. (nursing care
facilities firm), Peer Review Analysis, Inc. (health care facilities firm) and
Springer-Verlag New York, Inc. (publisher); Honorary Trustee, Franciscan
Children's Hospital; and Trustee of all of the Pioneer mutual funds.
MARGUERITE A. PIRET, Trustee, DOB: May 1948
One Boston Place, Suite 2635, Boston, MA 02108 President, Newbury, Piret &
Company, Inc. (merchant banking firm) and Trustee of all of the Pioneer
mutual funds.
DAVID D. TRIPPLE*, Trustee and Executive Vice President, DOB: February 1944
Executive Vice President and a Director of PGI; President, Chief
Investment Officer and a Director of PMC; Director of PFD, PCC, PIC, PIntl,
First Russia, Omega and Pioneer SBIC Corporation; and Executive Vice President
and Trustee of all of the Pioneer mutual funds.
STEPHEN K. WEST, Trustee, DOB: September 1928
125 Broad Street, New York, NY 10004
Partner, Sullivan & Cromwell (law firm); Trustee, The Winthrop Focus
Funds (mutual funds) and Trustee of all of the Pioneer mutual funds.
STEPHEN G. KASNET, Vice President, DOB: May 1945
Trustee and Vice President of Pioneer Real Estate Shares; Vice President
of PGI and President of Pioneer Real Estate Advisor, Inc. since 1995; Managing
Director, Winthrop Financial Associates and First Winthrop Corp. from 1991 to
1995; Executive Vice President, Cabot, Cabot & Forbes from 1989 to 1991.
WILLIAM H. KEOUGH, Treasurer, DOB: April 1937
Senior Vice President, Chief Financial Officer and Treasurer of PGI;
Treasurer of PFD, PMC, PSC, PCC, PIC, PIntl, PMT, PGL, First Russia, Omega and
Pioneer SBIC Corporation; Treasurer and Director of PPC; and Treasurer of all of
the Pioneer mutual funds.
JOSEPH P. BARRI, Secretary, DOB: August 1946
Secretary of PGI, PMC, PPC, PIC, PIntl, PMT, First Russia, Omega and PCC;
Clerk of PFD and PSC; Partner, Hale and Dorr LLP (counsel to the Fund); and
Secretary of all of the Pioneer mutual funds.
ERIC W. RECKARD, Assistant Treasurer, DOB: June 1956
Manager of Fund Accounting of PMC since May 1994; Manager of Auditing,
Compliance and Business Analysis for PGI prior to May 1994; and Assistant
Treasurer of all of the Pioneer mutual funds.
ROBERT P. NAULT, Assistant Secretary, DOB: March 1964
General Counsel and Assistant Secretary of PGI since 1995; Assistant
Secretary of PMC, PIntl, PGL, First Russia, Omega and all of the Pioneer mutual
funds; Assistant Clerk of PFD and PSC; and formerly of Hale and Dorr LLP
(counsel to the Fund) where he most recently served as junior partner.
NORMAN KURLAND, Vice President, DOB: November 1949
Senior Vice President of PMC since 1993; Vice President of PMC from 1990
to 1993; Vice President of Pioneer Europe Fund, Pioneer Emerging Markets Fund,
Pioneer India Fund and Pioneer International Growth Fund.
J. RODMAN WRIGHT, Vice President, DOB: January 1961
Vice President of PMC and Pioneer Capital Growth Fund, since January 1997
and former analyst and assistant portfolio manager of the Fund; formerly an
analyst and a co-portfolio manager, focusing on small capitalization securities,
with another investment firm from November 1989 to July 1994.
ROBERT W. BENSON, Vice President, DOB: April 1947
Senior Vice President of PMC; Vice President of Pioneer Mid-Cap Fund and
Pioneer Real Estate Shares.
JOHN A. CAREY, Vice President, DOB: May 1949
Vice President of PMC, Pioneer Equity-Income Fund and Pioneer Fund.
WILLIAM C. FIELD, Vice President, DOB: September 1964
Vice President of PMC and Pioneer Balanced Fund. Research Analyst since
1991 and served as an assistant portfolio manager for certain instituttional
accounts since January 1996.
SHERMAN B. RUSS, Vice President, DOB: July 1937
Senior Vice President of PMC; Vice President of Pioneer Bond Fund,
Pioneer Money Market Trust, Pioneer America Income Trust and Pioneer Interest
Shares.
SALVATORE P. PRAMAS, Vice President, DOB: April 1963
Vice President of PMC.
JEFFREY B. POPPENHAGEN, Vice President, DOB: March 1962
Vice President of PMC and Pioneer Growth Shares, since February 1996;
formerly a portfolio manager for a number of equity portfolios.
The Trust's Agreement and Declaration of Trust provides that the
recordholders of two-thirds of its outstanding shares may vote to remove a
Trustee of the Trust at any special meeting of shareholders. The business
address of all officers is 60 State Street, Boston, Massachusetts 02109.
All of the outstanding capital stock of PMC, PFD and PSC is directly or
indirectly owned by PGI, a Delaware corporation. All of the outstanding capital
stock of PFD is owned by PMC. The table below lists all the Pioneer funds
currently offered to the public (other than the Portfolios) and the investment
adviser and principal underwriter for each fund.
Investment Principal
Fund Name Adviser Underwriter
Pioneer Fund PMC PFD
Pioneer II PMC PFD
Pioneer Mid-Cap Fund PMC PFD
Pioneer Growth Shares PMC PFD
Pioneer Micro-Cap Fund PMC PFD
Pioneer Small Company Fund PMC PFD
Pioneer Capital Growth Fund PMC PFD
Pioneer Equity-Income Fund PMC PFD
Pioneer Gold Shares PMC PFD
Pioneer Real Estate Shares PMC PFD
Pioneer Balanced Fund PMC PFD
Pioneer Europe Fund PMC PFD
Pioneer World Equity Fund PMC PFD
Pioneer International Growth Fund PMC PFD
Pioneer Emerging Markets Fund PMC PFD
Pioneer India Fund PMC PFD
Pioneer Bond Fund PMC PFD
Pioneer America Income Trust PMC PFD
Pioneer Short-Term Income Trust PMC PFD
Pioneer Tax-Free Income Fund PMC PFD
Pioneer Intermediate Tax-Free Fund PMC PFD
Pioneer Cash Reserves Fund PMC PFD
Pioneer Interest Shares PMC *
- ------------------------------
* This fund is a closed-end investment company.
PMC, the investment adviser to each Portfolio, also manages the
investments of certain institutional private accounts. To the knowledge of the
Trust, no officer or Trustee of the Trust owned 5% or more of the issued and
outstanding shares of PGI as of the date of this Statement of Additional
Information, except Mr. Cogan who then owned approximately 14% of such shares.
As of April 2, 1997, the officers and Trustees of the Trust held in the
aggregate less than 1% of the outstanding shares of each Portfolio.
As of April 2, 1997, the following record holder owned substantially
all the shares of each Portfolio: Allmerica Financial Life Insurance and Annuity
Company, 440 Lincoln Street, Worcester, MA 01653.
Compensation of Officers and Trustees
The Trust pays no salaries or compensation to any of its officers,
however, the Trust pays an annual trustee's fee to each Trustee who is not
affiliated with PMC, PGI, PFD or PSC consisting of two components: (a) a base
fee of $500 and (b) a variable fee, calculated on the basis of the average net
assets of the Trust. In addition, the Trust pays a per meeting fee of $100 to
each Trustee who is not affiliated with PMC, PGI, PFD or PSC. The Trust also
pays an annual committee participation fee to trustees who serve as members of
committees established to act on behalf of one or more of the Pioneer mutual
funds. Committee fees are allocated to the Trust on the basis of the Trust's
average net assets. Each Trustee who is a member of the Audit Committee for the
Pioneer mutual funds receives an annual fee equal to 10% of the aggregate annual
trustee's fee, except the Committee Chair who receive an annual trustee's fee
equal to 20% of the aggregate annual trustee's fee. Members of the Pricing
Committee for the Pioneer mutual funds, as well as any other committee which
renders material functional services to the Board of Trustees for the Pioneer
mutual funds, receive an annual fee equal to 5% of the annual trustee's fee,
except the Committee Chair who receives an annual trustee's fee equal to 10% of
the annual trustee's fee. Any such fees paid to affiliates or interested persons
of PGI, PMC, PFD or PSC are reimbursed to the Trust under its Management
Contract.
The following table sets forth the compensation of the Trustees from
the Trust and the other Pioneer Funds for the fiscal year of the Trust ending
December 31, 1996:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Pension or Total
Retirement Compensation
Benefits from Pioneer
Aggregate Accrued as Family of Funds
Compensation Part of (including
Name of Trustee From the Trust* Trust's Expenses Trust)**
John F. Cogan, Jr. $ 500 $0 $11,083
Richard H. Egdahl, M.D. $2,000 0 $59,858
Marguerite A. Piret $2,100 0 $79,842
David D. Tripple* $ 500 0 $11,083
Stephen K. West $2,100 0 $67,850
------ - -------
Total $7,200 $417,052
====== ========
* For the fiscal year ended December 31, 1996.
** For the calender year ended December 31, 1996 for all 21 Pioneer mutual
funds.
</TABLE>
3. INVESTMENT ADVISER
As stated in the Prospectus, PMC, 60 State Street, Boston,
Massachusetts, serves as the investment adviser to each Portfolio. Each of the
Trust's management contracts is renewable annually by the vote of a majority of
the Board of Trustees of the Trust (including a majority of the Board of
Trustees who are not parties to the contract or interested persons of any such
parties) cast in person at a meeting called for the purpose of voting on such
renewal. Each contract terminates if assigned and may be terminated with respect
to one or more Portfolios without penalty by either party by vote of its Board
of Directors or Trustees, as the case may be, or a majority of the affected
Portfolio's outstanding voting securities and the giving of sixty days' written
notice.
As compensation for the management services and expenses incurred, the
Manager is entitled to management fees at the annual rate of the applicable
Portfolio's average daily net assets set forth below.
Percentage of Average
Portfolio Daily Net Assets
International Growth Portfolio 1.00%
Real Estate Growth Portfolio 1.00%
Capital Growth Portfolio 0.65%
Growth Shares Portfolio 0.70%
Growth and Income Portfolio 0.65%
Equity-Income Portfolio 0.65%
Balanced Portfolio 0.65%
Swiss Franc Bond Portfolio 0.65%
America Income Portfolio 0.55%
Money Market Portfolio 0.50%
The above management fees are normally computed daily and paid monthly
in arrears. The Manager has voluntarily agreed not to impose a portion of its
management fee and to make other arrangements, if necessary, to limit certain
other expenses of the Portfolios to the extent necessary to reduce expenses to a
specified percentage of average daily net assets, as indicated below. As of the
date of this Statement of Additional Information, expense limitations are in
effect for International Growth Portfolio, Growth Shares Portfolio, Real estate
Growth Portfolio, Growth and Income Portfolio, Swiss Franc Bond Portfolio and
America Income Portfolio. PMC is waiving all or a portion of its management fees
for International Growth Portfolio, Real Estate Growth Portfolio and Swiss Franc
Bond Portfolio. Other Expenses may be reduced, as necessary for International
Growth Portfolio and Swiss Franc Bond Portfolio. Any such arrangements may be
terminated by the Manager at any time without notice.
Percentage of Portfolio's
Portfolio Average Daily Net Assets
International Growth Portfolio 1.50%
Growth Shares Portfolio 1.25%
Growth and Income Portfolio 1.25%
Real Estate Growth Portfolio 1.25%
Swiss Franc Bond Portfolio 1.25%
America Income Portfolio 1.25%
For the fiscal years ended December 31, 1995 and December 31, 1996, the
Portfolios would have incurred the following management fees had the expense
limitation agreements not been in place:
1995 1996
---- ----
International Growth Portfolio $ 8,341 $128,708
Capital Growth Portfolio $17,739 $178,068
Real Estate Growth Portfolio $ 1,879 $ 29,633
Equity-Income Portfolio $10,878 $161,879
Balanced Portfolio $ 3,924 $ 52,926
America Income Portfolio $ 127 $ 23,307
Swiss Franc Bond Portfolio $ 3,861 $ 33,183
Money Market Portfolio $ 4,972 $ 42,001
Real Estate Growth Portfolio Subadviser. Boston Financial Securities, Inc.
("BFS"), 101 Arch Street, Boston, Massachusetts, serves as the Real Estate
Growth Portfolio's subadviser. The subadvisory agreement among the Portfolio,
PMC and BFS expires on May 31, 1997 but is renewable annually after such date by
the vote of a majority of the Board of Trustees of the Portfolio (including a
majority of the Board of Trustees who are not parties to the contract or
interested persons of any such parties) cast in person at a meeting called for
the purpose of voting on such renewal. This contract terminates if assigned and
may be terminated without penalty by any party by vote of its Board of Directors
or Trustees, as the case may be, or a majority of its outstanding voting
securities and the giving of 60 days' written notice.
As compensation for its subadvisory services, PMC pays BFS a
subadvisory fee equal to 0.30% per annum of the Real Estate Growth Portfolio's
average daily net assets. The fee is normally computed daily and paid monthly.
The subadvisory fee payable by PMC to BFS will be reduced proportionally to the
extent that the management fee paid by the Portfolio to PMC is reduced under
PMC's voluntary expense limitation agreement or to the extent that PMC, after
written notice to BFS, elects to utilize a portion of the management fees paid
to PMC by the Portfolio to make payments to third parties.
As of December 31, 1996, the following individuals owned beneficially more than
10% of the outstanding common stock of BFS: Randolph G. Hawthorne (11.17%), Fred
N. Pratt, Jr. (12.98%), William B. Haynsworth (11.24%). The address for each of
these individuals is BFS, 101 Arch Street, Boston, Massachusetts 02110.
4.PRINCIPAL UNDERWRITER
Pioneer Funds Distributor, Inc., 60 State Street, Boston,
Massachusetts, serves as the principal underwriter for the Trust in connection
with the continuous offering of shares of the Portfolios. The Trust will not
generally issue shares for consideration other than cash. At the Trust's sole
discretion, however, it may issue shares for consideration other than cash in
connection with an acquisition of portfolio securities pursuant to a purchase of
assets, merger or other reorganization.
The redemption price of shares of beneficial interest of a Portfolio
may, at PMC's discretion, be paid in cash or portfolio securities. The Trust
has, however, elected to be governed by Rule 18f-1 under the 1940 Act pursuant
to which each Portfolio is obligated to redeem shares solely in cash up to the
lesser of $250,000 or 1% of the Portfolio's net asset value during any 90-day
period for any one shareholder. Should the amount of redemptions by any
shareholder exceed such limitation, the Trust will have the option of redeeming
the excess in cash or portfolio securities. In the latter case, the securities
are taken at their value employed in determining the Portfolio's net asset
value. A shareholder whose shares are redeemed in-kind may incur brokerage
charges in selling the securities received in-kind. The selection of such
securities will be made in such manner as the Board deems fair and reasonable.
5. CUSTODIAN
Brown Brothers Harriman & Co. (the "Custodian") is the custodian of
each Portfolio's assets. The Custodian's responsibilities include safekeeping
and controlling each Portfolio's cash and securities in the United States as
well as in foreign countries, handling the receipt and delivery of securities,
and collecting interest and dividends on the Portfolio's investments. The
Custodian fulfills its function in foreign countries through a network of
subcustodian banks located in the foreign countries (the "Subcustodians"). The
Custodian also provides fund accounting, bookkeeping and pricing assistance to
the Portfolios and assistance in arranging for forward currency exchange
contracts as described above under "Investment Policies and Restrictions."
The Custodian does not determine the investment policies of any
Portfolio or decide which securities it will buy or sell. Each Portfolio may
invest in securities issued by the Custodian or any of the Subcustodians,
deposit cash in the Custodian or any Subcustodian and deal with the Custodian or
any of the Subcustodians as a principal in securities transactions. Portfolio
securities may be deposited into the Federal Reserve-Treasury Department Book
Entry System or the Depository Trust Company in the United States or in
recognized central depositories in foreign countries. In selecting Brown
Brothers Harriman & Co. and its network of foreign subcustodians as the
custodians for foreign securities, the Board of Trustees made certain
determinations required by Rule 17f-5 promulgated under the 1940 Act. The
Trustees annually review and approve the continuations of its international
subcustodian arrangements.
6. INDEPENDENT PUBLIC ACCOUNTANT
Arthur Andersen LLP, 225 Franklin Street, Boston, MA 02110, is the
Trust's independent public accountant, providing audit services, tax return
review, and assistance and consultation with respect to the preparation of
filings with the SEC.
7. PORTFOLIO TRANSACTIONS
Money Market Portfolio
PMC intends to fully manage Money Market Portfolio by buying and
selling securities, as well as holding securities to maturity. In managing
Pioneer Money Market Portfolio, PMC seeks to take advantage of market
developments and yield disparities, which may include use of the following
strategies:
(1) shortening the average maturity of the Portfolio in anticipation of a
rise in interest rates so as to minimize depreciation of principal;
(2) lengthening the average maturity of the Portfolio in anticipation of a
decline in interest rates so as to maximize yield;
(3) selling one type of debt security and buying another when disparities
arise in the relative values of each; and
(4) changing from one debt security to an essentially similar debt security
when their respective yields appear distorted due to market factors.
All Portfolios
All orders for the purchase or sale of portfolio securities are placed
on behalf of a Portfolio by the Manager pursuant to authority contained in the
Management Contracts. The primary consideration in placing portfolio security
transactions is execution at the most favorable prices. Additionally, in
selecting brokers and dealers, the Manager considers other factors relating to
best execution, including, but not limited to, the size and type of the
transaction; the nature and character of the markets for the security to be
purchased or sold; the execution efficiency, settlement capability, and
financial condition of the dealer; the dealer's execution services rendered on a
continuing basis; and the reasonableness of any dealer spreads. Most
transactions in foreign equity securities are executed by broker-dealers in
foreign countries in which commission rates are fixed and, therefore, are not
negotiable (as such rates are in the United States) and are generally higher
than in the United States. In addition, debt securities are traded principally
in the over-the-counter market on a net basis through dealers acting for their
own account and not as brokers.
The cost of securities purchased from underwriters includes an
underwriter's commission or concession, and the prices at which securities are
purchased and sold from and to dealers include a dealer's mark-up or mark-down.
The Manager attempts to negotiate with underwriters to decrease the commission
or concession for the benefit of the Portfolios. The Manager normally seeks to
deal directly with the primary market makers unless, in its opinion, better
prices are available elsewhere.
In circumstances where two or more broker-dealers are in a position to
offer comparable prices and execution, the Manager may select broker-dealers
which provide brokerage and/or research services to the Portfolios and/or other
investment companies or accounts managed by the Manager. Such services may
include advice concerning the value of securities; the advisability of investing
in, purchasing or selling securities; the availability of securities or the
purchasers or sellers of securities; furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and performance of accounts; and effecting securities transactions and
performing functions incidental thereto (such as clearance and settlement). The
Manager maintains a listing of broker-dealers who provide such services on a
regular basis. However, because many transactions on behalf of the Portfolios
and other investment companies or accounts managed by the Manager are placed
with broker-dealers (including broker-dealers on the listing) without regard to
the furnishing of such services, it is not possible to estimate the proportion
of such transactions directed to such dealers solely because such services were
provided. Management believes that no exact dollar value can be calculated for
such services.
The research received from broker-dealers may be useful to the Manager
in rendering investment management services to a Portfolio as well as to other
investment companies or accounts managed by the Manager, although not all of
such research may be useful to the Portfolio. Conversely, such information
provided by brokers or dealers who have executed transaction orders on behalf of
such other accounts may be useful to the Manager in carrying out its obligations
to a Portfolio. The receipt of such research has not reduced the Manager's
normal independent research activities; however, it enables the Manager to avoid
the additional expenses which might otherwise be incurred if it were to attempt
to develop comparable information through its own staff.
In circumstances where two or more broker-dealers offer comparable
prices and executions, preference may be given to a broker-dealer which has sold
shares of other investment companies or accounts managed by the Manager. This
policy does not imply a commitment to execute all portfolio transactions through
all broker-dealers that sell shares of such investment companies and accounts.
In addition, if the Manager determines in good faith that the amount of
commissions charged by a broker is reasonable in relation to the value of the
brokerage and research services provided by such broker, a Portfolio may pay
commissions to such broker in an amount greater than the amount another firm may
charge.
In addition to serving as investment adviser to the Portfolios, the
Manager acts as investment adviser to other Pioneer mutual funds and certain
private accounts with investment objectives similar to those of the Portfolios.
As such, securities may meet investment objectives of a Portfolio, such other
funds and such private accounts. In such cases, the decision to recommend
purchases for one Portfolio, fund or account rather than another is based on a
number of factors. The determining factors in most cases are the amount of
securities of the issuer then outstanding, the value of those securities and the
market for them. Other factors considered in the investment recommendations
include other investments which each Portfolio, fund or account presently has in
a particular industry or country and the availability of investment funds in
each Portfolio, fund or account.
It is possible that, at times, identical securities will be held by
more than one Portfolio, fund and/or account. However, the position of any
Portfolio, fund or account in the same issue may vary and the length of time
that any Portfolio, fund or account may choose to hold its investment in the
same issue may likewise vary. To the extent that a Portfolio, another fund in
the Pioneer group or a private account managed by the Manager seeks to acquire
the same security at about the same time, the Portfolio may not be able to
acquire as large a position in such security as it desires or it may have to pay
a higher price for the security. Similarly, a Portfolio may not be able to
obtain as large an execution of an order to sell or as high a price for any
particular portfolio security if the Manager decides to sell on behalf of
another account the same portfolio security at the same time. On the other hand,
if the same securities are bought or sold at the same time by more than one
account, the resulting participation in volume transactions could produce better
executions for a Portfolio or other account. In the event that more than one
account purchases or sells the same security on a given date, the purchases and
sales will normally be made as nearly as practicable on a pro rata basis in
proportion to the amounts desired to be purchased or sold by each.
The Trustees periodically review the Manager's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Portfolios.
For the fiscal periods ended December 31, 1995 and December 31, 1996,
the Portfolios paid or owed aggregate brokerage commissions as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Aggregate Brokerage Commissions
1995 1996
International Growth Portfolio $13,538 $104,003
Capital Growth Portfolio $29,663 $112,179
Real Estate Growth Portfolio $ 1,049 $ 22,788
Equity-Income Portfolio $ 6,890 $ 45,921
Balanced Portfolio $ 2,646 $ 16,275
America Income Portfolio $ 0 $ 0
Swiss Franc Bond Portfolio $ 0 $ 0
Money Market Portfolio $ 0 $ 0
</TABLE>
8. TAX STATUS
Each Portfolio is treated as a separate entity for federal income tax
purposes. It is each Portfolio's policy to meet the requirements of Subchapter M
of the Code, for qualification as a regulated investment company. These
requirements relate to the sources of a Portfolio's income, the diversification
of its assets and the distribution of its income to shareholders. If a Portfolio
meets all such requirements and distributes to its shareholders, in accordance
with the Code's timing requirements, all investment company taxable income and
net capital gain, if any, which it earns, the Portfolio will be relieved of the
necessity of paying federal income tax.
In order to qualify as a regulated investment company under Subchapter
M, a Portfolio must, among other things, derive at least 90% of its annual gross
income from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock, securities or foreign
currencies, or other income (including gains from options, futures and forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "90% income test"), limit its gains from the sale
of stock, securities and certain other positions held for less than three months
to less than 30% of its annual gross income (the "30% test") and satisfy certain
annual distribution and quarterly diversification requirements. For purposes of
the 90% income test, income a Portfolio earns from equity interests in certain
entities that are not treated as corporations (e.g., are treated as partnerships
or trusts) for U.S. tax purposes will generally have the same character for the
Portfolio as in the hands of such entities; consequently, a Portfolio may be
required to limit its equity investments in such entities that earn fee income,
rental income, or other nonqualifying income.
As noted in the Prospectus, each Portfolio must, and intends to, comply
with the diversification requirements imposed by Section 817(h) of the Code and
the regulations thereunder. These requirements, which are in addition to the
diversification requirements imposed on a Portfolio by the Investment Company
Act and Subchapter M of the Code, place certain limitations on the assets of
each separate account. Section 817(h) and these regulations treat the assets of
the Portfolios as assets of the related separate accounts and, among other
things, limit the assets of a Portfolio that may be invested in securities of a
single issuer. Specifically, the regulations provide that, except as permitted
by the "safe harbor" described below, as of the end of each calendar quarter or
within 30 days thereafter no more than 55% of the total assets of a Portfolio
may be represented by any one investment, no more than 70% by any two
investments, no more than 80% by any three investments and no more than 90% by
any four investments. For this purpose, all securities of the same issuer are
considered a single investment, and each U.S. Government agency and
instrumentality is considered a separate issuer for this purpose. Section 817(h)
provides, as a safe harbor, that a separate account will be treated as being
adequately diversified if the diversification requirements under Subchapter M
are satisfied and no more than 55% of the value of the account's total assets
are cash and cash items (including receivables), U.S. Government securities and
securities of other regulated investment companies. Failure by a Portfolio to
both qualify as a regulated investment company and satisfy the Section 817(h)
requirements would generally result in adverse treatment of the variable
contract holders, differing from the treatment described in the applicable
variable contract prospectus, by causing the contracts to lose their favorable
tax status and requiring a contract holder to include in ordinary income any
income accrued under the contracts for the current and all prior taxable years.
Any such failure may also result in adverse tax consequences for the insurance
company issuing the contracts.
Dividends from investment company taxable income, which includes net
investment income, net short-term capital gain in excess of net long-term
capital loss, and certain net foreign exchange gains, are treated as ordinary
income, whether received in cash or reinvested in additional shares. Dividends
from net long-term capital gain in excess of net short-term capital loss, if
any, whether received in cash or reinvested in additional shares, are treated as
long-term capital gains for federal income tax purposes without regard to the
length of time shares of the Portfolio have been held. The federal income tax
status of all distributions will be reported to shareholders annually.
Any dividend declared by a Portfolio in October, November or December
as of a record date in such a month and paid during the following January will
be treated for federal income tax purposes as received by shareholders on
December 31 of the calendar year in which it is declared.
Foreign exchange gains and losses realized by a Portfolio in connection
with certain transactions involving foreign currency-denominated debt
securities, certain options and futures contracts relating to foreign currency,
foreign currency forward contracts, foreign currencies, or payables or
receivables denominated in a foreign currency are subject to Section 988 of the
Code, which generally causes such gains and losses to be treated as ordinary
income and losses and may affect the amount, timing and character of
distributions to shareholders. Any such transactions that are not directly
related to a Portfolio's investments in stock or securities (or its options or
futures contracts with respect to stock or securities) may need to be limited in
order to enable the Portfolio to satisfy the limitations described in the second
paragraph above that are applicable to the income or gains recognized by a
regulated investment company. If the net foreign exchange loss for a year were
to exceed a Portfolio's investment company taxable income (computed without
regard to such loss), the resulting ordinary loss for such year would not be
deductible by the Portfolio or its shareholders in future years.
If a Portfolio acquires any equity interest (under proposed
regulations, generally including not only stock but also an option to acquire
stock) in certain foreign corporations that receive at least 75% of their annual
gross income from passive sources (such as interest, dividends, rents, royalties
or capital gain) or hold at least 50% of their assets in investments producing
such passive income ("passive foreign investment companies"), the Portfolio
could be subject to federal income tax and additional interest charges on
"excess distributions" received from such companies or gain from the sale of
stock in such companies, even if all income or gain actually received by the
Portfolio is timely distributed to its shareholders. The Portfolio would not be
able to pass through to its shareholders any credit or deduction for such a tax.
Certain elections may, if available, ameliorate these adverse tax consequences,
but any such election would require the applicable Portfolio to recognize
taxable income or gain without the concurrent receipt of cash. A Portfolio may
limit and/or manage its holdings in passive foreign investment companies to
minimize its tax liability or maximize its return from these investments.
Growth Shares Portfolio, Real Estate Growth Portfolio, Growth and
Income Portfolio and Equity-Income Portfolio may invest in debt obligations that
are in the lowest rating categories or are unrated, including debt obligations
of issuers not currently paying interest or who are in default. International
Growth Portfolio may hold such securities only as a result of credit quality
downgrades. Investments in debt obligations that are at risk of or in default
present special tax issues for the Portfolios. Tax rules are not entirely clear
about issues such as when a Portfolio may cease to accrue interest, original
issue discount, or market discount, when and to what extent deductions may be
taken for bad debts or worthless securities, how payments received on
obligations in default should be allocated between principal and income, and
whether exchanges of debt obligations in a workout context are taxable. These
and other issues will be addressed by a Portfolio, in the event it invests in
such securities, in order to seek to ensure that it distributes sufficient
income to preserve its status as a regulated investment company and does not
become subject to federal income tax.
If a Portfolio invests in certain pay-in-kind securities ("PIKs"), zero
coupon securities, deferred interest securities or, in general, any other
securities with original issue discount (or with market discount if a Portfolio
elects to include market discount in income currently), the Portfolio must
accrue income on such investments for each taxable year, which generally will be
prior to the receipt of the corresponding cash payments. However, the Portfolio
must distribute, at least annually, all or substantially all of its net income,
including such accrued income, to shareholders to qualify as a regulated
investment company under the Code and avoid Federal income tax. Therefore, the
Portfolio may have to dispose of its portfolio securities under disadvantageous
circumstances to generate cash, or may have to leverage itself by borrowing the
cash, to satisfy distribution requirements.
For federal income tax purposes, each Portfolio is permitted to carry
forward a net capital loss for any year to offset its own capital gains, if any,
during the eight years following the year of the loss. To the extent subsequent
capital gains are offset by such losses, they would not result in federal income
tax liability to the Portfolio and therefore are not expected to be distributed
as such to shareholders. At December 31, 1996, America Income Portfolio had
aggregate capital loss carryforwards of $72,758 which will expire in 2004 if not
utilized. As of December 31, 1996, International Growth Portfolio, Capital
Growth Portfolio, Real Estate Growth Portfolio, Equity-Income Portfolio,
Balanced Portfolio, Swiss Franc Bond Portfolio and Money Market Portfolio had no
capital loss carryforwards.
Redemptions and exchanges are taxable events for any shareholder that
is subject to tax with respect to its investment in a Portfolio. Any loss
realized by a shareholder upon the redemption, exchange or other disposition of
shares with a tax holding period of six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain with respect to such shares. Losses on redemptions or
other dispositions of shares may be disallowed under "wash sale" rules in the
event of other investments in the same Portfolio (including those made pursuant
to reinvestment of dividends and/or capital gain distributions) within a period
of 61 days beginning 30 days before and ending 30 days after a redemption or
other disposition of shares. In such a case, the disallowed portion of any loss
would be included in the federal tax basis of the shares acquired in the other
investments.
Options written or purchased and futures contracts entered into by a
Portfolio on certain securities, indices and foreign currencies, as well as
certain foreign currency forward contracts, may cause the Portfolio to recognize
gains or losses from marking-to-market at the end of its taxable year even
though such options may not have lapsed, been closed out, or exercised or such
futures or forward contracts may not have been performed or closed out. The tax
rules applicable to these contracts may affect the characterization as long-term
or short-term of some capital gains and losses realized by the Portfolios.
Certain options, futures and forward contracts relating to foreign currency may
be subject to Section 988, as described above, and may accordingly produce
ordinary income or loss. Losses on certain options, futures or forward contracts
and/or offsetting positions (portfolio securities or other positions with
respect to which a Portfolio's risk of loss is substantially diminished by one
or more options, futures or forward contracts) may also be deferred under the
tax straddle rules of the Code, which may also affect the characterization of
capital gains or losses from straddle positions and certain successor positions
as long-term or short-term. Certain tax elections may be available that would
enable a Portfolio to ameliorate some adverse effects of the tax rules described
in this paragraph. The tax rules applicable to options, futures or forward
contracts and straddles may affect the amount, timing and character of a
Portfolio's income and losses and hence of its distributions to shareholders.
Each Portfolio that may invest in foreign countries may be subject to
withholding and other taxes imposed by foreign countries, including taxes on
interest, dividends and capital gain, with respect to its investments in those
countries. Tax conventions between certain countries and the U.S. may reduce or
eliminate such taxes in some cases. The Portfolios do not expect to pass through
to their shareholders their pro rata shares of qualified foreign taxes paid by
the Portfolios.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions, and certain prohibited transactions, is accorded to accounts held
by trustees of qualified pension or retirement plans. These shareholders should
consult their tax advisers for more information.
If, as anticipated, each Portfolio qualifies as a regulated investment
company under the Code, it will not be required to pay any Massachusetts income,
corporate excise or franchise taxes or any Delaware corporation income tax.
The description above relates solely to U.S. federal income tax law as
it applies to the Portfolios and to certain aspects of their distributions. It
does not address special tax rules applicable to certain classes of investors,
such as tax-exempt entities and insurance companies. Shareholders should consult
their own tax advisers on these matters and on state, local and other applicable
tax laws.
9. DESCRIPTION OF SHARES
The Trust's Agreement and Declaration of Trust permits the Board of
Trustees to authorize the issuance of an unlimited number of full and fractional
shares of beneficial interest (without par value) which may be divided into such
separate series as the Trustees may establish. Currently, the Trust consists of
ten Portfolios. The Trustees may establish additional portfolios of shares in
the future, and may divide or combine the shares into a greater or lesser number
of shares without thereby changing the proportionate beneficial interests. Each
share of a Portfolio represents an equal proportionate interest in the
Portfolio. The shares of each Portfolio participate equally in the earnings,
dividends and assets of the Portfolio, and are entitled to vote separately to
approve investment advisory agreements or changes in investment restrictions,
but shareholders of all Portfolios vote together in the election and selection
of Trustees and accountants. Upon liquidation of a Portfolio, the Portfolio's
shareholders are entitled to share pro rata in the Portfolio's net assets
available for distribution to shareholders.
Shareholders are entitled to one vote for each share held and may vote
in the election of Trustees and on other matters submitted to meetings of
shareholders. Although Trustees are not elected annually by the shareholders,
shareholders have, under certain circumstances, the right to remove one or more
Trustees. No amendment adversely affecting the rights of shareholders may be
made to the Trust's Agreement and Declaration of Trust without the affirmative
vote of a majority of its shares. Shares have no preemptive or conversion
rights. Shares are fully paid and non-assessable by the Trust, except as stated
below.
The rights, if any, of Variable Contract holders to vote the shares of
a Portfolio are governed by the relevant Variable Contract. For information on
such voting rights, see the prospectus describing such Variable Contract.
10. CERTAIN LIABILITIES
As a Delaware business trust, the Trust's operations are governed by
its Agreement and Declaration of Trust dated September 16, 1994, as amended
January 25, 1995. A copy of the Trust's Certificate of Trust, also dated
September 16, 1994, as amended February 3, 1995, is on file with the Office of
the Secretary of State of the State of Delaware. Generally, Delaware business
trust shareholders are not personally liable for obligations of a Delaware
business trust under Delaware law. The Delaware Business Trust Act (the
"Delaware Act") provides that a shareholder of a Delaware business trust shall
be entitled to the same limitation of liability extended to shareholders of
private for-profit corporations. The Trust's Agreement and Declaration of Trust
expressly provides that the Trust has been organized under the Delaware Act and
that the Agreement and Declaration of Trust is to be governed by Delaware law.
It is nevertheless possible that a Delaware business trust, such as the Trust,
might become a party to an action in another state whose courts refused to apply
Delaware law, in which case the Trust's shareholders could be subject to
personal liability.
To guard against this risk, the Agreement and Declaration of Trust (i)
contains an express disclaimer of shareholder liability for acts or obligations
of the Trust and provides that notice of such disclaimer may be given in each
agreement, obligation and instrument entered into or executed by the Trust or
its Trustees, (ii) provides for the indemnification out of Trust or Portfolio
property of any shareholders held personally liable for any obligations of the
Trust or of such Portfolio and (iii) provides that the Trust shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of the Trust and satisfy any judgment thereon. Thus, the risk
of a Trust shareholder incurring financial loss beyond his or her investment
because of shareholder liability with respect to a Portfolio is limited to
circumstances in which all of the following factors are present: (1) a court
refused to apply Delaware law; (2) the liability arose under tort law or, if
not, no contractual limitation of liability was in effect; and (3) the Portfolio
itself would be unable to meet its obligations. In the light of Delaware law,
the nature of the Trust's business and the nature of its assets, the risk of
personal liability to a Trust shareholder is remote.
The Agreement and Declaration of Trust further provides that the Trust
shall indemnify each of its Trustees and officers against liabilities and
expenses reasonably incurred by them, in connection with, or arising out of, any
action, suit or proceeding, threatened against or otherwise involving such
Trustee or officer, directly or indirectly, by reason of being or having been a
Trustee or officer of the Trust. The Agreement and Declaration of Trust does not
authorize the Trust or any Portfolio to indemnify any Trustee or officer against
any liability to which he or she would otherwise be subject by reason of or for
willful misfeasance, bad faith, gross negligence or reckless disregard of such
person's duties.
11. DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Portfolio is determined as of the
close of regular trading (currently 4:00 p.m., Eastern Time) on each day on
which the New York Stock Exchange (the "Exchange") is open for trading. As of
the date of this Statement of Additional Information, the Exchange is open for
trading every weekday except for the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The net asset value per share of each
Portfolio is also determined on any other day in which the level of trading in
its portfolio securities is sufficiently high so that the current net asset
value per share might be materially affected by changes in the value of its
portfolio securities. No Portfolio is required to determine its net asset value
per share on any day in which no purchase orders for the shares of the Portfolio
become effective and no shares of the Portfolio are tendered for redemption.
The net asset value per share of each Portfolio is computed by taking
the value of all of the Portfolio's assets less the Portfolio's liabilities, and
dividing it by the number of outstanding shares of the Portfolio. For purposes
of determining net asset value, expenses of each Portfolio are accrued daily.
Money Market Portfolio
Except as set forth in the following paragraph, Money Market
Portfolio's investments are valued on each business day on the basis of
amortized cost, if the Board of Trustees determines in good faith that the
method approximates fair value. This technique involves valuing an instrument at
its cost and, thereafter, assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. While this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price such Portfolio would receive
if it sold the investment. During periods of declining interest rates, the yield
on shares of Money Market Portfolio computed as described below may tend to be
higher than a like computation made by a fund with identical investments
utilizing a method of valuation based upon market prices and estimates of market
prices for all of its portfolio investments. Thus, if the use of amortized cost
by Money Market Portfolio resulted in a lower aggregate portfolio value on a
particular day, a prospective investor in the Portfolio would be able to obtain
a somewhat higher yield than would result from investment in a fund utilizing
solely market values. The converse would apply in a period of rising interest
rates.
In determining Money Market Portfolio's net asset value, "when-issued"
securities will be valued at the value of the security at the time the
commitment to purchase is entered into.
The valuation of Money Market Portfolio's investments based upon their
amortized cost and the concomitant maintenance of the Portfolio's per share net
asset value of $1.00 is permitted in accordance with Rule 2a-7 under the 1940
Act, pursuant to which the Portfolio must adhere to certain conditions which are
described in detail in the Prospectus. Money Market Portfolio must maintain a
dollar-weighted average portfolio maturity of 90 days or less. The maturities of
variable rate demand instruments held by the Portfolio will be deemed to be the
longer of the demand period or the period remaining until the next interest rate
adjustment, although stated maturities may be in excess of one year. The
Trustees have established procedures designed to stabilize, to the extent
reasonably possible, the price per share of Money Market Portfolio for the
purpose of maintaining sales and redemptions at a single value. Such procedures
will include review of the Portfolio's holdings by the Trustees, at such
intervals as they may deem appropriate, to determine whether the Portfolio's net
asset value calculated by using available market quotations deviates from $1.00
per share and, if so, whether such deviation may result in material dilution or
is otherwise unfair to existing shareholders. In the event the Trustees
determine that such a deviation exists, they have agreed to take such corrective
action as they regard as necessary and appropriate, including: (i) the sale of
portfolio instruments prior to maturity to realize capital gains or losses or to
shorten average portfolio maturity; (ii) withholding dividends; (iii) redeeming
shares in kind; or (iv) establishing a net asset value per share by using
available market quotations. It is the intention of the Trust to maintain Money
Market Portfolio's per-share net asset value at $1.00 but there can be no
assurance of this.
<PAGE>
All Other Portfolios
Securities which have not traded on the date of valuation or securities
for which sales prices are not generally reported are valued at the mean between
the last bid and asked prices. Securities for which no market quotations are
readily available (including those the trading of which has been suspended) will
be valued at fair value as determined in good faith by the Trust's Board of
Trustees, although the actual computations may be made by persons acting
pursuant to the direction of the Board.
12. INVESTMENT RESULTS
Each Portfolio's average annual total return quotations and yield
quotations as they may appear in the Prospectus, this Statement of Additional
Information or in advertising are calculated by standard methods prescribed by
the SEC.
Quotations, Comparisons, and General Information
From time to time, in advertisements, in sales literature, or in
reports to shareholders, the past performance of a Portfolio may be illustrated
and/or compared with that of other mutual funds with similar investment
objectives, and to other relevant indices. In addition, the performance of a
Portfolio may be compared to alternative investment or savings vehicles and/or
to indices or indicators of economic activity, e.g., inflation or interest
rates. Performance rankings and listings reported in newspapers or national
business and financial publications, such as Barron's, Business Week, Consumers
Digest, Consumer Reports, Financial World, Forbes, Fortune, Investors Business
Daily, Kiplinger's Personal Finance Magazine, Money Magazine, New York Times,
Personal Investor, Smart Money, USA Today, U.S. News and World Report, The Wall
Street Journal, and Worth may also be cited (if the Portfolio is listed in such
publications) or used for comparisons, as well as performance listings and
rankings from various other sources including CDA/Weisenberger Investment
Companies Service, Donoghue's Mutual Fund Almanac, Investment Company Data,
Inc., Ibbotson Associates, Johnson's Charts, Kanon Block Carre and Co., Lipper
Analytical Services, Micropal, Inc., Morningstar, Inc., Schabacker Investment
Management and Towers Data Systems, Inc.
In addition, from time to time quotations from articles from financial
publications such as those listed above may be used in advertisements, in sales
literature or in reports to Trust shareholders.
One of the primary methods used to measure the performance of each
Portfolio is "total return." Total return will normally represent the percentage
change in value of an account, or of a hypothetical investment in a Portfolio,
over any period up to the lifetime of that Portfolio. Total return calculations
will usually assume the reinvestment of all dividends and capital gains
distributions and will be expressed as a percentage increase or decrease from an
initial value, for the entire period or for one or more specified periods within
the entire period. Total return percentages for periods of less than one year
will usually be annualized; total return percentages for periods longer than one
year will usually be accompanied by total return percentages for each year
within the period and/or by the average annual compounded total return for the
period. The income and capital components of a given return may be separated and
portrayed in a variety of ways in order to illustrate their relative
significance. Performance may also be portrayed in terms of cash or investment
values, without percentages. Past performance cannot guarantee any particular
future result.
The Trust may also present, from time to time, historical information
depicting the value of a hypothetical account in a Portfolio since the
Portfolio's inception.
In presenting investment results, the Trust may also include references
to certain financial planning concepts, including (a) an investor's need to
evaluate his financial assets and obligations to determine how much to invest;
(b) his need to analyze the objectives of various investments to determine where
to invest; and (c) his need to analyze his time frame for future capital needs
to determine how long to invest. The investor controls these three factors, all
of which affect the use of investments in building assets.
Standardized Average Annual Total Return Quotations
Average annual total return quotations for shares of the Portfolios are
computed by finding the average annual compounded rates of return that would
cause a hypothetical investment made on the first day of a designated period
(assuming all dividends and distributions are reinvested) to equal the ending
redeemable value of such hypothetical investment on the last day of the
designated period in accordance with the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1000
initial payment made at the
beginning of the designated period (or fractional
portion thereof)
For purposes of the above computation, it is assumed that all dividends and
distributions made by a Portfolio are reinvested at net asset value during the
designated period. The average annual total return quotation is determined to
the nearest 1/100 of 1%.
In determining the average annual total return (calculated as provided
above), recurring fees, if any, that are charged to all shareholder accounts are
taken into consideration. For any account fees that vary with the size of the
account, the account fee used for purposes of the above computation is assumed
to be the fee that would be charged to the mean account size.
<PAGE>
Standardized Yield Quotations
The yield of a Portfolio is computed by dividing the Portfolio's net
investment income per share during a base period of 30 days, or one month, by
the maximum offering price per share of the Portfolio on the last day of such
base period in accordance with the following formula:
a-b
YIELD = 2[ ( ------ +1)6-1]
cd
Where: a = interest earned during the period
b = net expenses accrued for the period
c = the average daily number of shares outstanding during the
period that were entitled
to receive dividends
d = the maximum offering price per share on the last day of
the period
For purposes of calculating interest earned on debt obligations as provided in
item "a" above:
(i) The yield to maturity of each obligation held by the
Portfolio is computed based on the market value of the obligation (including
actual accrued interest, if any) at the close of business each day during the
30-day base period, or, with respect to obligations purchased during the month,
the purchase price (plus actual accrued interest, if any) on settlement date,
and with respect to obligations sold during the month the sale price (plus
actual accrued interest, if any) between the trade and settlement dates.
(ii) The yield to maturity of each obligation is then divided
by 360 and the resulting quotient is multiplied by the market value of the
obligation (including actual accrued interest, if any) to determine the interest
income on the obligation for each day. The yield to maturity calculation has
been made on each obligation during the 30-day base period.
(iii) Interest earned on all debt obligations during
the 30-day or one month period is then totaled.
(iv) The maturity of an obligation with a call provision(s) is
the next call date on which the obligation reasonably may be expected to be
called or, if none, the maturity date.
With respect to the treatment of discount and premium on mortgage or
other receivables-backed obligations which are expected to be subject to monthly
payments of principal and interest ("pay downs"), each Portfolio accounts for
gain or loss attributable to actual monthly pay downs as an increase or decrease
to interest income during the period. In addition, a Portfolio may elect (i) to
amortize the discount or premium on a remaining security, based on the cost of
the security, to the weighted average maturity date, if such information is
available, or to the remaining term of the security, if the weighted average
maturity date is not available, or (ii) not to amortize the discount or premium
on a remaining security.
For purposes of computing a Portfolio's yield, interest income is
recognized by accruing 1/360 of the stated interest rate of each obligation held
by the Portfolio each day that the obligation is held by the Portfolio.
Yield Quotations for Money Market Portfolio
Money Market Portfolio's yield quotations are computed as follows: the
net change, exclusive of capital changes (i.e., realized gains and losses from
the sale of securities and unrealized appreciation and depreciation), in the
value of a hypothetical pre-existing account having a balance of one share of
the Portfolio at the beginning of the seven-day base period is determined by
subtracting a hypothetical charge reflecting expense deductions from the
hypothetical account, and dividing the net change in value by the value of the
share at the beginning of the base period. This base period return is then
multiplied by 365/7 with the resulting yield figure carried to the nearest 100th
of 1%. The determination of net change in account value reflects the value of
additional shares purchased with dividends from the original share, dividends
declared on both the original share and any such additional shares, and all fees
that are charged to the Portfolio, in proportion to the length of the base
period and the Portfolio's average account size (with respect to any fees that
vary with the size of an account).
Money Market Portfolio may also advertise quotations of effective
yield. Effective yield is computed by compounding the unannualized base period
return determined as in the preceding paragraph by adding 1 to the base period
return, raising the sum to a power equal to 365 divided by 7, and subtracting
one from the result, according to the following formula:
Effective Yield = (base period return +1) 365/7 - 1
The Portfolios' average annual total returns for the year ended
December 31, 1996 and for the periods from commencement of operations to
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Average Annual Total Return (%)
<S> <C> <C> <C> <C> <C>
One Year Five Years Ten Years Commencement
International Growth 10.24 N/A N/A 8.54*
Capital Growth 17.59 N/A N/A 15.03*
Real Estate Growth 35.73 N/A N/A 28.55*
Equity-Income 21.18 N/A N/A 21.18*
Balanced 14.26 N/A N/A 19.16*
America Income 1.30 N/A N/A 3.77*
Swiss Franc Bond -10.88 N/A N/A -9.06**
* Commencement of operations, March 1, 1995.
** Commencement of operations, November 1, 1995.
</TABLE>
13. FINANCIAL STATEMENTS
The Trust's financial statements for the fiscal period ended December
31, 1996 are included in the Trust's Annual Report to Shareholders, which report
is incorporated by reference into and is attached to this Statement of
Additional Information. The Trust's Annual Report to Shareholders is so
incorporated and attached in reliance upon the report of Arthur Andersen LLP,
independent public accountants, as experts in accounting and auditing. A copy of
the Trust's Annual Report may be obtained without charge by calling your
insurance company.
<PAGE>
Investment Illustrations
to 12/31/96
Note: Illustrations show the value of units held based on $10,000 total value
at investment date, but do not account for additional costs of investing.
Pioneer Vision International Growth AUV
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Date Initial Investment Unit Value Units Purchased Intitial Total Value
3/1/95 $10,000.00 $ 1.002063 9,979.412 $10,000
Date Cumulative Unit Value Units Held Total Value Guaranteed Minimum
Investment Death Benefit
12/31/95 $10,000.00 $ 1.093958 9,979.412 $10,917.06 $10,000.00
12/31/96 10,000.00 1.170756 9,979.412 11,683.46 10,000.00
</TABLE>
<PAGE>
Investment Illustrations
to 12/31/96
Note: Illustrations show the value of units held based on $10,000 total value
at investment date, but do not account for additional costs of investing.
Pioneer Vision Capital Growth AUV
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Date Initial Investment Unit Value Units Purchased Intitial Total Value
3/1/95 $10,000.00 $ 1.000038 9,999.620 $10,000
Date Cumulative Unit Value Units Held Total Value Guaranteed Minimum
Investment Death Benefit
12/31/95 $10,000.00 $ 1.158080 9,999.620 $11,580.36 $10,000.00
12/31/96 10,000.00 1.313525 9,999.620 13,134.75 10,000.00
<PAGE>
Investment Illustrations
to 12/31/96
Note: Illustrations show the value of units held based on $10,000 total value at investment date, but do not account for
additional costs of investing.
Pioneer Vision Real Estate Growth AUV
<S> <C> <C> <C> <C> <C>
Date Initial Investment Unit Value Units Purchased Intitial Total Value
3/1/95 $10,000.00 $ 1.000227 9,997.731 $10,000
Date Cumulative Unit Value Units Held Total Value Guaranteed Minimum
Investment Death Benefit
12/31/95 $10,000.00 $ 1.156319 9,997.731 $11,560.57 $10,000.00
12/31/96 10,000.00 1.547672 9,997.731 15,473.21 10,000.00
<PAGE>
Investment Illustrations
to 12/31/96
Note: Illustrations show the value of units held based on $10,000 total value at investment date, but do not account for
additional costs of investing.
Pioneer Vision Equity Income AUV
<S> <C> <C> <C> <C> <C>
Date Initial Investment Unit Value Units Purchased Intitial Total Value
3/1/95 $10,000.00 $ 1.000037 9,999.630 $10,000
Date Cumulative Unit Value Units Held Total Value Guaranteed Minimum Death
Investment Benefit
12/31/95 $10,000.00 $ 1.222215 9,999.630 $12,221.70 $10,000.00
12/31/96 10,000.00 1.388129 9,999.630 13,880.78 10,000.00
<PAGE>
Investment Illustrations
to 12/31/96
Note: Illustrations show the value of units held based on $10,000 total value at investment date, but do not account for
additional costs of investing.
Pioneer Vision Balanced AUV
<S> <C> <C> <C> <C> <C>
Date Initial Investment Unit Value Units Purchased Intitial Total Value
3/1/95 $10,000.00 $ 0.975073 10,255.642 $10,000
Date Cumulative Unit Value Units Held Total Value Guaranteed Minimum Death
Investment Benefit
12/31/95 $10,000.00 $ 1.164800 10,255.642 $11,945.77 $10,000.00
12/31/96 10,000.00 1.312218 10,255.642 13,457.64 10,000.00
<PAGE>
Investment Illustrations
to 12/31/96
Note: Illustrations show the value of units held based on $10,000 total value at investment date, but do not account for
additional costs of investing.
Pioneer Vision Swiss Franc AUV
<S> <C> <C> <C> <C> <C>
Date Initial Investment Unit Value Units Purchased Intitial Total Value
11/1/95 $10,000.00 $ 1.000000 10,000.000 $10,000
Date Cumulative Unit Value Units Held Total Value Guaranteed Minimum
Investment Death Benefit
12/31/95 $10,000.00 $ 1.001476 10,000.000 $10,014.76 $10,000.00
12/31/96 10,000.00 0.880598 10,000.000 8,805.98 10,000.00
<PAGE>
Investment Illustrations
to 12/31/96
Note: Illustrations show the value of units held based on $10,000 total value at investment date, but do not account for
additional costs of investing.
Pioneer Vision America Income AUV
<S> <C> <C> <C> <C> <C>
Date Initial Investment Unit Value Units Purchased Intitial Total Value
3/1/95 $10,000.00 $ 0.996465 10,035.475 $10,000
Date Cumulative Unit Value Units Held Total Value Guaranteed Minimum
Investment Death Benefit
12/31/95 $10,000.00 $ 1.043081 10,035.475 $10,467.81 $10,000.00
12/31/96 10,000.00 1.041725 10,035.475 10,454.21 10,000.00
<PAGE>
Investment Illustrations
to 12/31/96
Note: Illustrations show the value of units held based on $10,000 total value at investment date, but do not account for
additional costs of investing.
Pioneer Vision Money Market AUV
<S> <C> <C> <C> <C> <C>
Date Initial Investment Unit Value Units Purchased Intitial Total Value
3/1/95 $10,000.00 $ 1.000076 9,999.240 $10,000
Date Cumulative Unit Value Units Held Total Value Guaranteed Minimum Death
Investment Benefit
12/31/95 $10,000.00 $ 1.031243 9,999.240 $10,311.65 $10,000.00
12/31/96 10,000.00 1.062621 9,999.240 10,625.40 10,000.00
</TABLE>
<PAGE>
APPENDIX A
MOODY'S CORPORATE BOND RATINGS
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be greater amplitude or there may be other elements present which make the
long term risks appear somewhat larger than in Aaa securities.
A
Bonds which are rated A posses many favorable investment attributes are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
other good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
<PAGE>
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicated that the security ranks in the higher end of its generic
rating category; the modifier 2 indicated a mid-range ranking and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
STANDARD AND POOR'S RATINGS GROUP CORPORATE BOND RATINGS
AAA
Debt rated AAA has the highest rating assigned by Standard and Poor's. Capacity
to pay interest and repay principal is extremely strong.
AA
Debt rated AA has a very strong capacity to pay interest and repay principal and
differs from the higher rated issues only in small degree.
A
Debt rated A has a strong capacity to pay interest and repay principal although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB
Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions of changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB
Debt rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB-rating.
B
Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC
Debt rated CCC has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC
The rating CC is typically applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating.
C
The C rating is typically applied to debt subordinated to senior debt which is
assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI
The rating CI is reserved for income bonds on which no interest is being paid.
D
Debt rated D is in payment default. The D rating category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-)
The rating from AAA to CCC may be modified by the addition of a plus or minus
sign to show relative standing within the major categories.
<PAGE>
APPENDIX B
COMPARATIVE PERFORMANCE
INDEX DESCRIPTIONS
The following securities indices are well-known, unmanaged measures of market
performance. Advertisements and sales literature for the Fund may refer to these
indices or may present comparisons between the performance of the Fund and one
or more of the indices. Other indices may be used, if appropriate. The indices
are not available for direct investment. The data presented is not meant to be
indicative of the performance of the Fund, reflects past performance and does
not guarantee future results.
S&P 500
This index is a readily available, carefully constructed, market value weighted
benchmark of common stock performance. Currently, the S&P Composite Index
includes 500 of the largest stocks (in terms of stock market value) in the
United States; prior to March 1957 it consisted of 90 of the largest stocks.
DOW JONES INDUSTRIAL AVERAGE
This is a total return index based on the performance of 30 blue chip stocks.
U.S. SMALL STOCK INDEX
This index is a market value weighted index of the ninth and tenth deciles of
the New York Stock Exchange (NYSE), plus stocks listed on the American Stock
Exchange (AMEX) and over-the-counter (OTC) with the same or less capitalization
as the upper bound of the NYSE ninth decile.
U.S. INFLATION
The Consumer Price Index for All Urban Consumers (CPI-U), not seasonally
adjusted, is used to measure inflation, which is the rate of change of consumer
goods prices. Unfortunately, the inflation rate as derived by the CPI is not
measured over the same period as the other asset returns. All of the security
returns are measured from one month-end to the next month-end. CPI commodity
prices are collected during the month. Thus, measured inflation rates lag the
other series by about one-half month. Prior to January 1978, the CPI (as
compared with CPI-U) was used. Both inflation measures are constructed by the
U.S. Department of Labor, Bureau of Labor Statistics, Washington, DC.
S&P/BARRA INDEXES
The S&P/BARRA Growth and Value Indexes are constructed by dividing the stocks in
the S&P 500 Index according to price-to-book ratios. The Growth Index contains
stocks with higher price-to-book ratios, and the Value Index contains stocks
with lower price-to-book ratios. Both indexes are market capitalization
weighted.
-49-
<PAGE>
COMPARATIVE PERFORMANCE
INDEX DESCRIPTIONS
LONG-TERM U.S. GOVERNMENT BONDS
The total returns on long-term government bonds from 1977 to 1991 are
constructed with data from The Wall Street Journal. Over 1926-1976, data are
obtained from the Government bond file at the Center for Research in Security
Prices (CRSP), Graduate School of Business, University of Chicago. Each year, a
one-bond portfolio with a term of approximately 20 years and a reasonably
current coupon was used, and whose returns did not reflect potential tax
benefits, impaired negotiability, or special redemption or call privileges.
Where callable bonds had to be used, the term of the bond was assumed to be a
simple average of the maturity and first call dates minus the current date. The
bond was "held" for the calendar year and returns were computed. Total returns
for 1977-1991 are calculated as the change in the flat price or and-interest
price.
INTERMEDIATE-TERM U.S. GOVERNMENT BONDS
Total returns of the intermediate-term government bonds for 1977-1991 are
calculated from The Wall Street Journal prices, using the change in flat price.
Returns from 1934-1986 are obtained from the CRSP Government Bond File.
Each year, one-bond portfolios are formed, the bond chosen is the shortest
noncallable bond with a maturity not less than 5 years, and this bond is "held"
for the calendar year. Monthly returns are computed. (Bonds with impaired
negotiability or special redemption privileges are omitted, as are partially or
fully tax-exempt bonds starting with 1943.) From 1934-1942, almost all bonds
with maturities near 5 years were partially or full tax-exempt and were selected
using the rules described above. Personal tax rates were generally low in that
period, so that yields on tax-exempt bonds were similar to yields on taxable
bonds. From 1926-1933, there are few bonds suitable for construction of a series
with a 5-year maturity. For this period, five year bond yield estimates are
used.
MSCI
Morgan Stanley Capital International Indices, developed by the Capital
International S.A., are based on share prices of some 1470 companies listed on
the stock exchanges around the world.
Countries in the MSCI EAFE Portfolio are:
Australia; Austria; Belgium; Denmark; Finland; France; Germany; Hong Kong;
Italy; Japan; Netherlands; N. Zealand; Norway; Singapore/Malaysia; Spain;
Sweden; Switzerland; United Kingdom.
Countries in the MSCI EMERGING MARKET FREE INDEX are: Argentina, Brazil, Chile,
China, Czech Republic, Colombia, Greece, Hungary, India, Indonesia, Israel,
Jordan, Korea Free (at 50%), Malaysia, Mexico Free, Pakistan, Peru, Philippines
Free, Poland, Portugal, South Africa, Sri Lanka, Taiwan, Thailand, Turkey,
Venezuela Free
-50-
<PAGE>
COMPARATIVE PERFORMANCE
INDEX DESCRIPTIONS
6 MONTH CDs
Data sources include the Federal Reserve Bulletin and The Wall Street Journal.
LONG-TERM U.S. CORPORATE BONDS
For 1969-1991, corporate bond total returns are represented by the Salomon
Brothers Long-Term High-Grade Corporate Bond Index. Since most large corporate
bond transactions take place over the counter, a major dealer is the natural
source of these data. The index includes nearly all Aaa- and Aa-rated bonds. If
a bond is downgraded during a particular month, its return for the month is
included in the index before removing the bond from future portfolios.
Over 1926-1968 the total returns were calculated by summing the capital
appreciation returns and the income returns. For the period 1946-1968, Ibbotson
and Sinquefield backdated the Salomon Brothers' index, using Salomon Brothers'
monthly yield data with a methodology similar to that used by Salomon for
1969-1991. Capital appreciation returns were calculated from yields assuming (at
the beginning of each monthly holding period) a 20-year maturity, a bond price
equal to par, and a coupon equal to the beginning-of-period yield. For the
period 1926-1945, the Standard and Poor's monthly High-Grade Corporate Composite
yield data were used, assuming a 4 percent coupon and a 20-year maturity. The
conventional present-value formula for bond price for the beginning and
end-of-month prices was used. (This formula is presented in Ross, Stephen A.,
and Randolph W. Westerfield, Corporate Finance, Times Mirror/Mosby, St. Louis,
1990, p. 97 ["Level-Coupon Bonds"].) The monthly income return was assumed to be
one-twelfth the coupon.
U.S. (30 DAY) TREASURY BILLS
For the U.S. Treasury bill index, data from The Wall Street Journal are used for
1977-1991; the CRSP U.S. Government Bond File is the source until 1976. Each
month a one-bill portfolio containing the shortest-term bill having not less
than one month to maturity is constructed. (The bill's original term to maturity
is not relevant.) To measure holding period returns for the one-bill portfolio,
the bill is priced as of the last trading day of the previous month-end and as
of the last trading day of the current month.
NAREIT-EQUITY INDEX
All of the data is based upon the last closing price of the month for all
tax-qualified REITs listed on the NYSE, AMSE and the NASDAQ. The data is
market-value-weighted. Prior to 1987 REITs were added to the index the January
following their listing. Since 1987 Newly formed or listed REITs are added to
the total shares outstanding figure in the month that the shares are issued.
Only common shares issued by the REIT are included in the index. The total
return calculation is based upon the weighing at the beginning of the period.
Only those REITs listed for the entire period are
-51-
<PAGE>
COMPARATIVE PERFORMANCE
INDEX DESCRIPTIONS
used in the total return calculation. Dividends are included in the month based
upon their payment date. There is no smoothing of income. Liquidating dividends,
whether full or partial, are treated as income.
RUSSELL 2000 SMALL STOCK INDEX
Index of the 2,000 smallest stocks in the Russell 3000 Index (TM); the smallest
company has a market capitalization of approximately $13 million. The Russell
3000 is comprised of the 3,000 largest US companies as determined by market
capitalization representing approximately 98% of the US equity market. The
largest company in the index has a market capitalization of $67 billion. The
Russell Indexes (TM) are reconstituted annually as of June 1st, based on May 31
market capitalization rankings.
WILSHIRE REAL ESTATE SECURITIES INDEX
The Wilshire Real Estate Securities Index is a market capitalization-weighted
index which measures the performance of more than 85 securities.
The index contains performance data on five major categories of property;
office, retail, industrial, apartment and miscellaneous. Additionally, the Index
has real estate portfolio encumbered by 16% third party mortgages. The companies
in the WRESEC are 79% equity and hybrid REIT's and 21% real estate operating
companies. The capitalization is 47% NYSE, 33% AMEX and 20% OTC."
STANDARD & POOR'S MIDCAP 400 INDEX
The Standard and Poor's MidCap 400 Index is a market-value-weighted index. The
performance data for the MidCap 400 Index were calculated by taking the stocks
presently in the MidCap 400 Index and tracking them backwards in time as long as
there were prices reported. No attempt was made to determine what stocks "might
have been" in the MidCap 400 Index five or ten years ago had it existed.
Dividends are reinvested on a monthly basis prior to June 30, 1991, and are
reinvested daily thereafter.
The S&P MidCap 400 Index and the S&P 500 together represent approximately 85% of
the total market capitalization of stocks traded in the United States.
LIPPER BALANCED FUNDS INDEX
Equally-weighted performance indices, adjusted for capital gains distributions
and income dividends of approximately 30 of the largest funds with a primary
objective of conserving principal by maintaining at all times a balanced
portfolio of stocks and bonds. Typically, the stock/bond ratio ranges around
60%/40%.
-52-
<PAGE>
COMPARATIVE PERFORMANCE
INDEX DESCRIPTIONS
BANK SAVINGS ACCOUNT
Data sources include the U.S. League of Savings Institutions Sourcebook; average
annual yield on savings deposits in FSLIC [FDIC] insured savings institutions
for the years 1963-1987 and The Wall Street Journal for the years 1988-1994.
Source: Ibbotson Associates
-53-
<PAGE>
PERFORMANCE STATISTICS - TOTAL RETURN PERCENT
S&P 500 Dow U.S. Small S&P/ S&P/
Jones Stock U.S. BARRA BARRA
Industrials Index Inflation Growth Value
- --------------------------------------------------------------------------------
Dec 1928 43.61 55.38 39.69 -0.97 N/A N/A
Dec 1929 -8.42 -13.64 -51.36 0.20 N/A N/A
Dec 1930 -24.90 -30.22 -38.15 -6.03 N/A N/A
Dec 1931 -43.34 -49.03 -49.75 -9.52 N/A N/A
Dec 1932 -8.19 -16.88 -5.39 -10.30 N/A N/A
Dec 1933 53.99 73.71 142.87 0.51 N/A N/A
Dec 1934 -1.44 8.07 24.22 2.03 N/A N/A
Dec 1935 47.67 43.77 40.19 2.99 N/A N/A
Dec 1936 33.92 30.23 64.80 1.21 N/A N/A
Dec 1937 -35.03 -28.88 -58.01 3.10 N/A N/A
Dec 1938 31.12 33.16 32.80 -2.78 N/A N/A
Dec 1939 -0.41 1.31 0.35 -0.48 N/A N/A
Dec 1940 -9.78 -7.96 -5.16 0.96 N/A N/A
Dec 1941 -11.59 -9.88 -9.00 9.72 N/A N/A
Dec 1942 20.34 14.12 44.51 9.29 N/A N/A
Dec 1943 25.90 19.06 88.37 3.16 N/A N/A
Dec 1944 19.75 17.19 53.72 2.11 N/A N/A
Dec 1945 36.44 31.60 73.61 2.25 N/A N/A
Dec 1946 -8.07 -4.40 -11.63 18.16 N/A N/A
Dec 1947 5.71 7.61 0.92 9.01 N/A N/A
Dec 1948 5.50 4.27 -2.11 2.71 N/A N/A
Dec 1949 18.79 20.92 19.75 -1.80 N/A N/A
Dec 1950 31.71 26.40 38.75 5.79 N/A N/A
Dec 1951 24.02 21.77 7.80 5.87 N/A N/A
Dec 1952 18.37 14.58 3.03 0.88 N/A N/A
Dec 1953 -0.99 2.02 -6.49 0.62 N/A N/A
Dec 1954 52.62 51.25 60.58 -0.50 N/A N/A
Dec 1955 31.56 26.58 20.44 0.37 N/A N/A
Dec 1956 6.56 7.10 4.28 2.86 N/A N/A
Dec 1957 -10.78 -8.63 -14.57 3.02 N/A N/A
Dec 1958 43.36 39.31 64.89 1.76 N/A N/A
Dec 1959 11.96 20.21 16.40 1.50 N/A N/A
Dec 1960 0.47 -6.14 -3.29 1.48 N/A N/A
Dec 1961 26.89 22.60 32.09 0.67 N/A N/A
Dec 1962 -8.73 -7.43 -11.90 1.22 N/A N/A
Dec 1963 22.80 20.83 23.57 1.65 N/A N/A
Dec 1964 16.48 18.85 23.52 1.19 N/A N/A
Dec 1965 12.45 14.39 41.75 1.92 N/A N/A
Dec 1966 -10.06 -15.78 -7.01 3.35 N/A N/A
Dec 1967 23.98 19.16 83.57 3.04 N/A N/A
Dec 1968 11.06 7.93 35.97 4.72 N/A N/A
-54-
<PAGE>
PERFORMANCE STATISTICS - TOTAL RETURN PERCENT
S&P 500 Dow U.S. Small S&P/ S&P/
Jones Stock U.S. BARRA BARRA
Industrials Index Inflation Growth Value
- --------------------------------------------------------------------------------
Dec 1969 -8.50 -11.78 -25.05 6.11 N/A N/A
Dec 1970 4.01 9.21 -17.43 5.49 N/A N/A
Dec 1971 14.31 9.83 16.50 3.36 N/A N/A
Dec 1972 18.98 18.48 4.43 3.41 N/A N/A
Dec 1973 -14.66 -13.28 -30.90 8.80 N/A N/A
Dec 1974 -26.47 -23.58 -19.95 12.20 N/A N/A
Dec 1975 37.20 44.75 52.82 7.01 31.72 43.38
Dec 1976 23.84 22.82 57.38 4.81 13.84 34.93
Dec 1977 -7.18 -12.84 25.38 6.77 -11.82 -2.57
Dec 1978 6.56 2.79 23.46 9.03 6.78 6.16
Dec 1979 18.44 10.55 43.46 13.31 15.72 21.16
Dec 1980 32.42 22.17 39.88 12.40 39.40 23.59
Dec 1981 -4.91 -3.57 13.88 8.94 -9.81 0.02
Dec 1982 21.41 27.11 28.01 3.87 22.03 21.04
Dec 1983 22.51 25.97 39.67 3.80 16.24 28.89
Dec 1984 6.27 1.31 -6.67 3.95 2.33 10.52
Dec 1985 32.16 33.55 24.66 3.77 33.31 29.68
Dec 1986 18.47 27.10 6.85 1.13 14.50 21.67
Dec 1987 5.23 5.48 -9.30 4.41 6.50 3.68
Dec 1988 16.81 16.14 22.87 4.42 11.95 21.67
Dec 1989 31.49 32.19 10.18 4.65 36.40 26.13
Dec 1990 -3.17 -0.56 -21.56 6.11 0.20 -6.85
Dec 1991 30.55 24.19 44.63 3.06 38.37 22.56
Dec 1992 7.67 7.41 23.35 2.90 5.07 10.53
Dec 1993 9.99 16.94 20.98 2.75 1.68 18.60
Dec 1994 1.31 5.06 3.11 2.78 3.13 -0.64
Dec 1995 37.43 36.84 34.46 2.74 38.13 36.99
Dec 1996 23.07 28.84 17.62 3.58 23.96 21.99
-55-
<PAGE>
PERFORMANCE STATISTICS - TOTAL RETURN PERCENT
Intermediate MSCI Long-
Long-Term -Term U.S. EAFE 6 Term U.S. U.S.
U.S. Gov't Government - Net of MONTH Corporate (30 Day)
Bonds Bonds Taxes CDs Bonds T- Bill
- --------------------------------------------------------------------------------
Dec 1925 N/A N/A N/A N/A N/A N/A
Dec 1926 7.77 5.38 N/A N/A 7.37 3.27
Dec 1927 8.93 4.52 N/A N/A 7.44 3.12
Dec 1928 0.1 0.92 N/A N/A 2.84 3.56
Dec 1929 3.42 6.01 N/A N/A 3.27 4.75
Dec 1930 4.66 6.72 N/A N/A 7.98 2.41
Dec 1931 -5.31 -2.32 N/A N/A -1.85 1.07
Dec 1932 16.84 8.81 N/A N/A 10.82 0.96
Dec 1933 -0.07 1.83 N/A N/A 10.38 0.30
Dec 1934 10.03 9.00 N/A N/A 13.84 0.16
Dec 1935 4.98 7.01 N/A N/A 9.61 0.17
Dec 1936 7.52 3.06 N/A N/A 6.74 0.18
Dec 1937 0.23 1.56 N/A N/A 2.75 0.31
Dec 1938 5.53 6.23 N/A N/A 6.13 -0.02
Dec 1939 5.94 4.52 N/A N/A 3.97 0.02
Dec 1940 6.09 2.96 N/A N/A 3.39 0.00
Dec 1941 0.93 0.50 N/A N/A 2.73 0.06
Dec 1942 3.22 1.94 N/A N/A 2.60 0.27
Dec 1943 2.08 2.81 N/A N/A 2.83 0.35
Dec 1944 2.81 1.80 N/A N/A 4.73 0.33
Dec 1945 10.73 2.22 N/A N/A 4.08 0.33
Dec 1946 -0.10 1.00 N/A N/A 1.72 0.35
Dec 1947 -2.62 0.91 N/A N/A -2.34 0.50
Dec 1948 3.40 1.85 N/A N/A 4.14 0.81
Dec 1949 6.45 2.32 N/A N/A 3.31 1.10
Dec 1950 0.06 0.70 N/A N/A 2.12 1.20
Dec 1951 -3.93 0.36 N/A N/A -2.69 1.49
Dec 1952 1.16 1.63 N/A N/A 3.52 1.66
Dec 1953 3.64 3.23 N/A N/A 3.41 1.82
Dec 1954 7.19 2.68 N/A N/A 5.39 0.86
Dec 1955 -1.29 -0.65 N/A N/A 0.48 1.57
Dec 1956 -5.59 -0.42 N/A N/A -6.81 2.46
Dec 1957 7.46 7.84 N/A N/A 8.71 3.14
Dec 1958 -6.09 -1.29 N/A N/A -2.22 1.54
Dec 1959 -2.26 -0.39 N/A N/A -0.97 2.95
Dec 1960 13.78 11.76 N/A N/A 9.07 2.66
Dec 1961 0.97 1.85 N/A N/A 4.82 2.13
Dec 1962 6.89 5.56 N/A N/A 7.95 2.73
Dec 1963 1.21 1.64 N/A N/A 2.19 3.12
Dec 1964 3.51 4.04 N/A 4.18 4.77 3.54
Dec 1965 0.71 1.02 N/A 4.68 -0.46 3.93
-56-
<PAGE>
PERFORMANCE STATISTICS - TOTAL RETURN PERCENT
Intermediate MSCI Long-
Long-Term -Term U.S. EAFE 6 Term U.S. U.S.
U.S. Gov't Government - Net of MONTH Corporate (30 Day)
Bonds Bonds Taxes CDs Bonds T- Bill
- --------------------------------------------------------------------------------
Dec 1966 3.65 4.69 N/A 5.75 0.20 4.76
Dec 1967 -9.18 1.01 N/A 5.48 -4.95 4.21
Dec 1968 -0.26 4.54 N/A 6.44 2.57 5.21
Dec 1969 -5.07 -0.74 N/A 8.71 -8.09 6.58
Dec 1970 12.11 16.86 -11.66 7.06 18.37 6.52
Dec 1971 13.23 8.72 29.59 5.36 11.01 4.39
Dec 1972 5.69 5.16 36.35 5.38 7.26 3.84
Dec 1973 -1.11 4.61 -14.92 8.60 1.14 6.93
Dec 1974 4.35 5.69 -23.16 10.20 -3.06 8.00
Dec 1975 9.20 7.83 35.39 6.51 14.64 5.80
Dec 1976 16.75 12.87 2.54 5.22 18.65 5.08
Dec 1977 -0.69 1.41 18.06 6.12 1.71 5.12
Dec 1978 -1.18 3.49 32.62 10.21 -0.07 7.18
Dec 1979 -1.23 4.09 4.75 11.90 -4.18 10.38
Dec 1980 -3.95 3.91 22.58 12.33 -2.76 11.24
Dec 1981 1.86 9.45 -2.28 15.50 -1.24 14.71
Dec 1982 40.36 29.1 -1.86 12.18 42.56 10.54
Dec 1983 0.65 7.41 23.69 9.65 6.26 8.80
Dec 1984 15.48 14.02 7.38 10.65 16.86 9.85
Dec 1985 30.97 20.33 56.16 7.82 30.09 7.72
Dec 1986 24.53 15.14 69.44 6.30 19.85 6.16
Dec 1987 -2.71 2.90 24.63 6.58 -0.27 5.47
Dec 1988 9.67 6.10 28.27 8.15 10.70 6.35
Dec 1989 18.11 13.29 10.54 8.27 16.23 8.37
Dec 1990 6.18 9.73 -23.45 7.85 6.78 7.81
Dec 1991 19.3 15.46 12.13 4.95 19.89 5.60
Dec 1992 8.05 7.19 -12.17 3.27 9.39 3.51
Dec 1993 18.24 11.24 32.56 2.88 13.19 2.90
Dec 1994 -7.77 -5.14 7.78 5.40 -5.76 3.90
Dec 1995 31.67 16.8 11.21 5.21 26.39 5.60
Dec 1996 -0.93 2.10 6.05 5.21 1.40 5.21
-57-
<PAGE>
PERFORMANCE STATISTICS - TOTAL RETURN PERCENT
<TABLE>
<CAPTION>
RUSSELL LIPPER MSCI EMERGING
2000 WILSHIRE REAL S&P MIDCAP BALANCED MARKETS FREE BANK
NAREIT-EQUITY INDEX ESTATE 400 FUND INDEX SAVINGS ACCOUNT
SECURITIES INDEX INDEX
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dec 1925 N/A N/A N/A N/A N/A N/A N/A
Dec 1926 N/A N/A N/A N/A N/A N/A N/A
Dec 1927 N/A N/A N/A N/A N/A N/A N/A
Dec 1928 N/A N/A N/A N/A N/A N/A N/A
Dec 1929 N/A N/A N/A N/A N/A N/A N/A
Dec 1930 N/A N/A N/A N/A N/A N/A 5.30
Dec 1931 N/A N/A N/A N/A N/A N/A 5.10
Dec 1932 N/A N/A N/A N/A N/A N/A 4.10
Dec 1933 N/A N/A N/A N/A N/A N/A 3.40
Dec 1934 N/A N/A N/A N/A N/A N/A 3.50
Dec 1935 N/A N/A N/A N/A N/A N/A 3.10
Dec 1936 N/A N/A N/A N/A N/A N/A 3.20
Dec 1937 N/A N/A N/A N/A N/A N/A 3.50
Dec 1938 N/A N/A N/A N/A N/A N/A 3.50
Dec 1939 N/A N/A N/A N/A N/A N/A 3.40
Dec 1940 N/A N/A N/A N/A N/A N/A 3.30
Dec 1941 N/A N/A N/A N/A N/A N/A 3.10
Dec 1942 N/A N/A N/A N/A N/A N/A 3.00
Dec 1943 N/A N/A N/A N/A N/A N/A 2.90
Dec 1944 N/A N/A N/A N/A N/A N/A 2.80
Dec 1945 N/A N/A N/A N/A N/A N/A 2.50
Dec 1946 N/A N/A N/A N/A N/A N/A 2.20
Dec 1947 N/A N/A N/A N/A N/A N/A 2.30
Dec 1948 N/A N/A N/A N/A N/A N/A 2.30
Dec 1949 N/A N/A N/A N/A N/A N/A 2.40
Dec 1950 N/A N/A N/A N/A N/A N/A 2.50
Dec 1951 N/A N/A N/A N/A N/A N/A 2.60
Dec 1952 N/A N/A N/A N/A N/A N/A 2.70
Dec 1953 N/A N/A N/A N/A N/A N/A 2.80
Dec 1954 N/A N/A N/A N/A N/A N/A 2.90
Dec 1955 N/A N/A N/A N/A N/A N/A 2.90
Dec 1956 N/A N/A N/A N/A N/A N/A 3.00
Dec 1957 N/A N/A N/A N/A N/A N/A 3.30
Dec 1958 N/A N/A N/A N/A N/A N/A 3.38
Dec 1959 N/A N/A N/A N/A N/A N/A 3.53
Dec 1960 N/A N/A N/A N/A 5.77 N/A 3.86
Dec 1961 N/A N/A N/A N/A 20.59 N/A 3.90
Dec 1962 N/A N/A N/A N/A -6.80 N/A 4.08
Dec 1963 N/A N/A N/A N/A 13.10 N/A 4.17
Dec 1964 N/A N/A N/A N/A 12.36 N/A 4.19
Dec 1965 N/A N/A N/A N/A 9.80 N/A 4.23
Dec 1966 N/A N/A N/A N/A -5.86 N/A 4.45
Dec 1967 N/A N/A N/A N/A 15.09 N/A 4.67
Dec 1968 N/A N/A N/A N/A 13.97 N/A 4.68
Dec 1969 N/A N/A N/A N/A -9.01 N/A 4.80
Dec 1970 N/A N/A N/A N/A 5.62 N/A 5.14
Dec 1971 N/A N/A N/A N/A 13.90 N/A 5.30
-58-
<PAGE>
PERFORMANCE STATISTICS - TOTAL RETURN PERCENT
RUSSELL LIPPER MSCI EMERGING
2000 WILSHIRE REAL S&P MIDCAP BALANCED MARKETS FREE BANK
NAREIT-EQUITY INDEX ESTATE 400 FUND INDEX SAVINGS ACCOUNT
SECURITIES INDEX INDEX
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dec 1972 8.01 N/A N/A N/A 11.13 N/A 5.37
Dec 1973 -15.52 N/A N/A N/A -12.24 N/A 5.51
Dec 1974 -21.40 N/A N/A N/A -18.71 N/A 5.96
Dec 1975 19.30 N/A N/A N/A 27.10 N/A 6.21
Dec 1976 47.59 N/A N/A N/A 26.03 N/A 6.23
Dec 1977 22.42 N/A N/A N/A -0.72 N/A 6.39
Dec 1978 10.34 N/A 13.04 N/A 4.80 N/A 6.56
Dec 1979 35.86 43.09 70.81 N/A 14.67 N/A 7.29
Dec 1980 24.37 38.58 22.08 N/A 19.70 N/A 8.78
Dec 1981 6.00 2.03 7.18 N/A 1.86 N/A 10.71
Dec 1982 21.60 24.95 24.47 22.68 30.63 N/A 11.19
Dec 1983 30.64 29.13 27.61 26.10 17.44 N/A 9.71
Dec 1984 20.93 -7.30 20.64 1.18 7.46 N/A 9.92
Dec 1985 19.10 31.05 22.20 35.58 29.83 N/A 9.02
Dec 1986 19.16 5.68 20.30 16.21 18.43 N/A 7.84
Dec 1987 -3.64 -8.77 -7.86 -2.03 4.13 N/A 6.92
Dec 1988 13.49 24.89 24.18 20.87 11.18 40.43 7.20
Dec 1989 8.84 16.24 2.37 35.54 19.70 64.96 7.91
Dec 1990 -15.35 -19.51 -33.46 -5.12 0.66 10.55 7.80
Dec 1991 35.70 46.05 20.03 50.10 25.83 59.91 4.61
Dec 1992 14.59 18.41 7.36 11.91 7.46 11.40 2.89
Dec 1993 19.65 18.91 15.24 13.96 11.95 74.83 2.73
Dec 1994 3.17 -1.82 1.64 -3.57 -2.05 7.32 4.96
Dec 1995 15.27 28.44 13.65 30.94 24.89 5.21 5.24
Dec 1996 35.26 16.53 36.87 19.20 13.01 6.03 4.95
</TABLE>
Source: Lipper
-59-
<PAGE>
APPENDIX C
ADDITIONAL PIONEER INFORMATION
The Pioneer group of mutual funds was established in 1928 with the
creation of Pioneer Fund. Pioneer is one of the oldest and most experienced
money managers in the United States.
As of December 31, 1996, PMC employed a professional investment staff
of 53, with a combined average of twelve years' experience in the financial
services industry.
Total assets of all Pioneer mutual funds at December 31, 1996, were
approximately $15.8 billion representing 1,086,554 shareholder accounts, 722,661
non-retirement accounts and 363,893 retirement accounts.
