[PIONEER LOGO]
[GRAPHIC OF COMPASSS, MAGNIFYING GLASS AND KEYS]
PIONEER VISION (SM)
PIONEER VISION 2 (SM)
VARIABLE ANNUITY
Pioneer Variable Contracts Trust
Emerging Markets Portfolio
International Growth Portfolio
Europe 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
ANNUAL REPORT
December 31, 1998
<PAGE>
PIONEER VARIABLE CONTRACTS TRUST
Table of Contents
<TABLE>
<S> <C>
Letter from the Chairman 1
Money Market Portfolio
Portfolio Management Discussion 1
Emerging Markets Portfolio
Portfolio Management Discussion 2
Portfolio and Performance Update 3
International Growth Portfolio
Portfolio Management Discussion 4
Portfolio and Performance Update 5
Europe Portfolio
Portfolio Management Discussion 6
Portfolio and Performance Update 7
Capital Growth Portfolio
Portfolio Management Discussion 8
Portfolio and Performance Update 9
Growth Shares Portfolio
Portfolio Management Discussion 10
Portfolio and Performance Update 11
Real Estate Growth Portfolio
Portfolio Management Discussion 12
Portfolio and Performance Update 13
Growth and Income Portfolio
Portfolio Management Discussion 14
Portfolio and Performance Update 15
Equity-Income Portfolio
Portfolio Management Discussion 16
Portfolio and Performance Update 17
Balanced Portfolio
Portfolio Management Discussion 18
Portfolio and Performance Update 19
Swiss Franc Bond Portfolio
Portfolio Management Discussion 20
Portfolio and Performance Update 21
America Income Portfolio
Portfolio Management Discussion 22
Portfolio and Performance Update 23
Schedules of Investments and Financial Statements
Emerging Markets Portfolio 24
International Growth Portfolio 31
Europe Portfolio 41
Capital Growth Portfolio 50
Growth Shares Portfolio 58
Real Estate Growth Portfolio 64
Growth and Income Portfolio 69
Equity-Income Portfolio 78
Balanced Portfolio 86
Swiss Franc Bond Portfolio 95
America Income Portfolio 101
Money Market Portfolio 107
Notes to Financial Statements 112
Report of Independent Public Accountants 117
</TABLE>
<PAGE>
PIONEER VARIABLE CONTRACTS TRUST
LETTER FROM THE CHAIRMAN 12/31/98
Dear Contract Owner,
I am pleased to introduce the annual report for Pioneer Variable Contracts
Trust, covering the year ended December 31, 1998. On behalf of all of us at
Pioneer, I thank you for your interest. Before moving on to review the
financial markets, you should know about some enhancements we have made to the
Trust over the last six months. In October, the Trust began offering two new
portfolios, expanding your investment options in international equities with
Europe Portfolio and Emerging Markets Portfolio. In addition, we have expanded
the investment management capabilities for three of the Portfolios: America
Income Portfolio, Balanced Portfolio and International Growth Portfolio. The
changes are discussed in more detail in the pages that follow.
The U.S. stock market, as measured by the Standard and Poor's 500 Index, racked
up its fourth consecutive year of double-digit gains, returning 28.73% for
1998. But while the S&P 500's returns were strong, its return was dominated by
a relatively limited number of very large companies. In fact, research by
Morgan Stanley shows that the top 20% of the S&P 500 generated 85% of its
return last year. Smaller stocks did not fare nearly as well. In fact the
Russell 2000 Index, an unmanaged measure of smaller company stocks, actually
fell -2.56%.
The bond market in the United States, especially U.S. government securities,
produced impressive results over the year as the powerful combination of low
interest rates and low inflation pushed bond prices higher. The yield on the
30-year Treasury bond fell to historic lows, as bond prices rose, increasing
total returns. The Lehman Brothers Aggregate Bond Index, a broad measure of the
U.S. taxable investment grade bond market, returned 8.69% for the year.
Overseas, the emerging markets were volatile, plunging to new lows - in some
cases, to the point of near-collapse. Political, economic and currency woes
affected Asia, Latin America and Russia throughout the period. As the year drew
to a close the global financial situation settled down. More mature stock
markets, - such as those in Europe - mirrored the U.S. stock market, posting
gains after struggling through the global financial crisis in the third
quarter. The MSCI World Index, a broad measure of the world's stock markets,
returned a strong 24.33% for the year. In comparison, the MSCI Emerging Markets
Free Index lost 25.33% for the same period. The worst appears to be over in
Asia, and hopefully the other overseas regions that felt the ramifications of
the global financial crisis will soon follow suit and take the necessary steps
to recover their economic strength.
Looking back at the turbulence of the past year, the "flight to quality" that
occurred is certainly easy to understand. Investors put their money where they
felt it would be safe, mainly in U.S. "blue chip" stocks and U.S. Treasury
bonds. How long will the bull market continue? No one can be sure, and
predicting the direction of financial markets is almost always a futile
exercise.
We encourage you to have a financial plan with a mix of stock, bond and money
market investments that suits your risk tolerance, since returns on different
asset classes often vary considerably. If you don't have a plan, or you haven't
rebalanced your portfolio in some time, we suggest that you meet with your
investment professional to discuss your financial options.
I encourage you to read on to learn more about Pioneer Variable Contracts
Trust. If you have questions about your investment, please contact your
financial professional.
Respectfully,
/s/ John F. Cogan, Jr.
John F. Cogan, Jr.
Chairman and President
[SIDE BAR]
Money Market Portfolio
Money Market Portfolio continued to provide current income and a stable $1
share price. The Portfolio generated $0.046 per share in dividends over the
year ended December 31, concluding 1998 with an attractive 7-day yield of
4.19%. Overall, total return was 4.68% at net asset value for the year - in
line with the Portfolio's conservative investment style.
Demand for High-Quality Securities
The Portfolio invests exclusively in high-quality money market instruments. The
largest holdings are securities issued by the U.S. government, corporations and
banks; all issues are rated in the two highest categories by nationally
recognized securities rating organizations, Standard & Poor's Investor Services
(A1) and Moody's Investor Services (P1). (Ratings apply to underlying
securities, not Portfolio shares.) In keeping with our value investment
strategy, only market instruments that are considered to be "good values" are
selected for the Portfolio.
At year-end, the average maturity was 22 days. Keeping maturity at a
conservative level enhances your Portfolio's liquidity.
Heading Forward
The focus of the Portfolio has not changed over the past year, nor do we expect
it to change in 1999. At this point in time, inflation is low and we expect
interest rates to remain fairly stable, both of which are favorable
circumstances for the bond market. In light of the volatility that U.S. markets
and markets abroad experienced, we believe money market funds play an important
role in a balanced investment program, providing stability of principal and
liquidity.
Respectfully,
/s/ Sherman B. Russ
Sherman B. Russ
Portfolio Manager
Investments in Money Market Portfolio are not insured or guaranteed by the U.S.
government. There can be no assurance the Portfolio will be able to maintain a
stable net asset value of $1.00 per share.
[END SIDE BAR]
1
<PAGE>
PIONEER VARIABLE CONTRACTS TRUST
Emerging Markets Portfolio
PORTFOLIO MANAGEMENT DISCUSSION 12/31/98
It is with pleasure that I provide the first annual report for Emerging Markets
Portfolio covering the two months ended December 31, 1998. The Portfolio seeks
long-term growth of capital through investments in quality companies in the
developing economies of the world. However, in pursuit of the attractive growth
potential of emerging markets, investors should have an above average tolerance
for short-term volatility.
In time for the inception of Emerging Markets Portfolio, emerging markets
rallied this autumn. Increasing confidence in Asia sparked stock markets in the
developing world over the last quarter, providing a reprieve from the economic
maelstrom of the past year. Just as the Pacific Rim was the epicenter of the
crisis, we expect it to likewise prove to be the seed of a genuine recovery.
The recent rally came on the heels of what was otherwise a difficult year for
emerging market investments. Emerging Markets Portfolio rose 4.90% at net asset
value in its initial 2-month period. The 24 Emerging Markets Variable Annuity
portfolios tracked by Lipper, Inc. rose, on average, 4.36%. (Lipper is an
independent research firm that tracks annuity portfolio performance.)
Emerging Markets in Asia
Although recent developments around the Pacific Rim suggest the financial
crisis may be bottoming, we expect Asia's stock markets to consolidate and
decline to some extent before they improve. Our belief in staying fully
invested and the relative strength of our position in Asia served the Portfolio
well during the fourth quarter rally. We focused primarily, but not
exclusively, on South Korea, Thailand and Singapore. In South Korea, SK
Telecom, one of our largest holdings, provides cellular phone and paging
services. In Thailand, we're drawn to companies participating in the domestic
recovery, such as Siam City Cement and TelecomAsia Corp. Public Co. We expect
Singapore will become a major financial center, much like Hong Kong, making it
a key player in the regional recovery. Development Bank of Singapore is one of
the Portfolio's largest holdings. India, which had done well in the first three
quarters of 1998, did poorly in the year's last quarter dampening the
Portfolio's performance.
Generally, the economies of Israel and India are somewhat insulated from the
difficulties other emerging markets have faced. In Israel, the Fund owns
world-class companies such as Tecnomatix Technologies (software) and Tadiran
Telecommunications. They are global leaders in their respective technologies
and sell their products worldwide.
In Brazil, economic growth has declined, and it will remain in recession in
1999. Because of the gloomy economic outlook, Brazilian stocks are very cheap.
In the coming year, we expect to increase our holdings there. Mexico, the
Portfolio's largest allocation in Latin America, is benefiting from closer
economic ties to the United States and the continued liberalization of its own
economy. Food producer Grupo Industrial Maseca is one of the promising holdings
there.
The Long-Term Outlook
We believe keeping an eye on the long-term investment horizon puts the
potential of emerging markets stocks in the proper perspective. Consider that
many of these stocks are trading at cheap valuations with prices at five to
10-year lows. Add to this the fact that we believe many of these developing
economies are also at the low end of their economic growth range, and we see
compelling evidence that the coming years could offer better returns.
We are heartened by the actions of countries like South Korea and Thailand,
which are implementing many reforms. Nevertheless, investing in emerging
markets brings special risks that include currency fluctuations and political
unrest among others. Separating emotion from reality is always critical to
successful investing. We intend to continue to exploit market inefficiencies by
investing in quality companies with strong market positions and attractively
priced stocks.
Respectfully,
/s/ Mark H. Madden
Mark H. Madden,
Portfolio Manager
[SIDE BAR]
International investing may involve special risks, including differences in
accounting and currency, as well as economic and political instability. These
risks may be magnified in emerging markets.
The Portfolio's investment adviser, Pioneer Investment Management, Inc.,
reduced its management fee and certain other expenses; otherwise, returns would
have been lower. Past performance does not guarantee future results. Return and
principal fluctuate so that your investment, when redeemed, may be worth more
or less than the original cost.
[END SIDE BAR]
2
<PAGE>
PIONEER VARIABLE CONTRACTS TRUST
Emerging Markets Portfolio
PORTFOLIO AND PERFORMANCE UPDATE 12/31/98
Portfolio Diversification
(As a percentage of total investment portfolio)
International Common Stocks 56%
Depositary Receipts for International Stocks 44%
Geographical Distribution
(As a percentage of equity holdings)
Asia 37%
Latin America 30%
Israel 18%
Other 7%
Europe 5%
Africa 3%
- --------------------------------------------------------------------------------
Five Largest Holdings
(As a percentage of equity holdings)
<TABLE>
<S> <C>
Orbotech Ltd. 4.66%
Telecomunicacoes Brasilieras SA (A.D.R.)(Preferred) 3.75
Tecnomatix Technologies Ltd. 3.73
SK Telecom Co., Ltd. (A.D.R.) 3.44
Grupo Financiero Banamex Accival, SA de CV (Class B) 2.90
</TABLE>
Holdings will vary for other periods.
- --------------------------------------------------------------------------------
Prices and Distributions
<TABLE>
<CAPTION>
12/31/98 10/30/98
<S> <C> <C>
Net Asset Value per Share $10.49 $10.00
Accumulation Unit Value 1.0465 1.0000
</TABLE>
<TABLE>
<CAPTION>
Distributions per Share Income Short-Term Long-Term
(10/30/98 - 12/31/98) Dividends Capital Gains Capital Gains
<S> <C> <C> <C>
$ - $ - $ -
</TABLE>
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the value of an investment made in Emerging Markets
Portfolio, compared to the growth of the MSCI EAFE Index.
[TABULAR REPRESENTATION OF LINE CHART]
<TABLE>
<CAPTION>
Emerging Markets MSCI Emerging
Portfolio* Markets Free
<S> <C> <C>
10/98 10,000 10,000
11/98 10,510 10,832
12/98 10,490 10,675
</TABLE>
The MSCI Emerging Markets Free Index is an unmanaged, capitalization-weighted
measure of 1,009 securities trading in 25 emerging markets; it reflects only
those securities available to foreign investors. Index returns are calculated
monthly, assume reinvestment of dividends and, unlike Portfolio returns, do not
reflect any sales charges, fee or expenses. Portfolio returns are based on net
asset value and do not reflect any annuity-related costs.
[SIDE BAR]
Cumulative Total Returns
(As of December 31, 1998)
- --------------------------------------------------------------------------------
Net Asset Value*
<TABLE>
<CAPTION>
Period
<S> <C>
Life-of-Portfolio 4.90%
(10/30/98)
</TABLE>
- --------------------------------------------------------------------------------
Accumulation Unit Value
Pioneer Vision 2
<TABLE>
<CAPTION>
If If
Period Held** Redeemed***
<S> <C> <C>
Life-of- 4.65% -1.58%
Portfolio
(10/30/98)
</TABLE>
- --------------------------------------------------------------------------------
Accumulation Unit Value
Pioneer Vision
<TABLE>
<CAPTION>
If If
Period Held** Redeemed***
<S> <C> <C>
Life-of- 4.65% -1.94%
Portfolio
(10/30/98)
</TABLE>
The Portfolio began operations on 10/30/98.
All total returns shown assume reinvestment of distributions at net asset
value.
* Reflects Portfolio performance only. Does not reflect insurance fees or
surrender charges.
** Reflects deduction of a 1.25% mortality and expense risk charge and a 0.15%
administrative expense charge. Does not reflect surrender charges.
*** Reflects deduction of a 1.25% mortality and expense risk charge, a 0.15%
administrative expense charge and the applicable contingent deferred sales
charge (CDSC), as if the contract were surrendered at the end of each
period. The maximum CDSC of 7% declines over seven years; it is deducted
only while the contract is in the surrender charge period. Returns do not
reflect a $30 annual contract fee; this fee is applied only until the
contract value reaches $50,000.
[END SIDE BAR]
Past performance does not guarantee future results. Return and principal
fluctuate so that your investment, when redeemed, may be worth more or less than
the original cost.
3
<PAGE>
PIONEER VARIABLE CONTRACTS TRUST
International Growth Portfolio
PORTFOLIO MANAGEMENT DISCUSSION 12/31/98
Although International Growth Portfolio showed strong results in the last
quarter of the fiscal year, its strong finish was not enough to erase the first
nine months of losses. For the fiscal year as a whole, the Portfolio posted a
total return of -3.32% at net asset value, while the 111 portfolios in Lipper
Inc.'s Variable Annuity International Growth Portfolio category had an average
return of 13.35%. (Lipper is an independent research firm that tracks annuity
portfolio performance.)
Value-oriented Investing
Ironically, the very same factors that propelled the Portfolio's performance in
the final months of the year hurt it in the preceding three quarters. The
Portfolio's investment strategy favors value-oriented stocks. That means we
like inexpensive stocks - as long as the underlying companies meet our
requirements for strong financial health and sound business fundamentals. This
investment approach led us away from expensive European large company stocks
and directed us to the extraordinary values in emerging markets and small
company stocks in Europe. This was a different direction than many other
Portfolios took. It proved to be a costly decision, since large companies led
one of the strongest bull markets in Europe's history. At the same time, Asia
continued to suffer through one of its worst bear markets ever. Generally
speaking, international investors fled small company stocks - and Asia nearly
altogether - pumping money into large "blue-chip" stocks in Europe and the
United States.
In late August, Russia defaulted on loans, sending investors out of even the
blue chips. To forestall widespread lasting panic and economic collapse,
governments around the world cut interest rates. Confidence returned,
especially for emerging markets where hard-pressed companies used the lower
rates to restructure debt and improve their balance sheets. Investors began to
notice the outstanding values available in these areas. When money started
flowing back into the neglected developing markets in October and November,
your Portfolio was fully invested and well-positioned to benefit from the
rally.
In Europe, value-oriented small capitalization companies like Powerscreen
International (U.K.), which the Fund sold in November, recovered strongly after
a steep decline. Other examples of price recovery include BTR and Siebe, two
large companies held by the Portfolio; they're now merging to form a global
leader in the key controls and automation markets.
Balancing the Portfolio
Last year illustrated the risks of investing overseas (especially in emerging
markets) where currency fluctuations, political strife and other factors can
affect the performance of international investments. Over the course of the
year, to balance the portfolio and reduce volatility, we shed more than half of
portfolio holdings in emerging markets and also cut down investments in small
companies. By the end of 1998, the Portfolio's emerging markets component was
about 19% of equity assets, with less than a quarter of the portfolio in small
caps. We moved the portfolio into larger-capitalization stocks including
DaimlerChrysler (Germany) and more defensive stocks, such as Scottish Power
(U.K.) and the French water utility, Suez Lyonnaise Des Eaux.
We will continue to be active in emerging markets, although we don't expect
that the Portfolio will return to the heavy allocation it had at the beginning
of 1998. We expect to concentrate on Asia where we see positive signs for a
future recovery. Latin America, we think, may have some slow years ahead, and
we have chosen to decrease our investments from there for the time being. Our
goal is to build a balanced portfolio of quality stocks we think can provide
our shareowners with a solid return in 1999.
Respectfully,
/s/ Pavlos M. Alexandrakis
Pavlos M. Alexandrakis
Portfolio Manager
[SIDE BAR]
Effective January 8, 1999, Norman Kurland, stepped down from the helm of
Pioneer International Growth Portfolio. His successor, Pavlos M. Alexandrakis
assumed responsibility for the day to day management of the Portfolio that day.
Mr. Alexandrakis has been an international investment manager for Pioneer's
institutional clients since September of 1998. We're confident that his 14
years of industry experience will serve you well.
International investing may involve special risks, including differences in
accounting and currency, as well as economic and political instability.
The Portfolio's investment adviser, Pioneer Investment Management, Inc.,
reduces its management fee and certain other expenses; otherwise, returns would
have been lower. Past performance does not guarantee future results. Return and
pricipal fluctuate so that your investment, when redeemed, may be worth more or
less than the original cost.
[END SIDE BAR]
4
<PAGE>
PIONEER VARIABLE CONTRACTS TRUST
International Growth Portfolio
PORTFOLIO AND PERFORMANCE UPDATE 12/31/98
Portfolio Diversification
(As a percentage of total investment portfolio)
International Common Stocks 90%
Short-Term Cash Equivalents 4%
Depositary Receipts for International Stocks 4%
International Preferred Stocks 2%
Geographical Distribution
(As a percentage of equity holdings)
Europe 67%
Japan 12%
Asia 9%
Other 8%
Latin America 4%
- --------------------------------------------------------------------------------
Five Largest Holdings
(As a percentage of equity holdings)
<TABLE>
<S> <C>
Novartis AG 2.52%
Nokia AB 2.05
Telecom Italia SpA 1.83
San Paolo IMI SpA 1.53
Buhrmann N.V. 1.51
</TABLE>
Holdings will vary for other periods.
- --------------------------------------------------------------------------------
Prices and Distributions
<TABLE>
<CAPTION>
12/31/98 12/31/97
<S> <C> <C>
Net Asset Value per Share $10.79 $12.23
Accumulation Unit Value 1.1544 1.2108
</TABLE>
<TABLE>
<CAPTION>
Distributions per Share Income Short-Term Long-Term
(12/31/97 - 12/31/98) Dividends Capital Gains Capital Gains
<S> <C> <C> <C>
$0.194 $0.744 $0.146
</TABLE>
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the value of an investment made in International
Growth Portfolio, compared to the growth of the Morgan Stanley Capital
International (MSCI) EAFE (Europe, Australasia, Far East) Index.
[TABULAR REPRESENTATION OF LINE CHART]
<TABLE>
<CAPTION>
International MSCI EAFE
Growth Portfolio* Index
<S> <C> <C>
3/95 10,000 10,000
10,360 10,073
11,051 10,494
12/95 11,053 10,918
11,407 11,233
11,845 11,411
11,592 11,398
12/96 11,998 11,579
12,515 11,398
13,888 12,877
14,125 12,786
12/97 12,581 11,784
14,824 13,518
12,885 13,661
10,123 11,718
12/98 12,163 14,137
</TABLE>
Index comparison begins 3/31/95. The Morgan Stanley Capital International (MSCI)
EAFE (Europe, Australasia, Far East) Index is an unmanaged,
capitalization-weighted index of international stock markets. The Index includes
Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong,
Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal,
Singapore, Spain, Sweden, Switzerland and the United Kingdom. Index returns are
calculated monthly, assume reinvestment of dividends and, unlike Portfolio
returns, do not reflect any fees or expenses. Portfolio returns are based on net
asset value and do not reflect any annuity-related costs. You cannot invest
directly in the Index.
[SIDE BAR]
Average Annual Total Returns
(As of December 31, 1998)
- --------------------------------------------------------------------------------
Net Asset Value*
<TABLE>
<CAPTION>
Period
<S> <C>
Life-of-Portfolio 5.20%
(3/1/95)
1 Year -3.32
</TABLE>
- --------------------------------------------------------------------------------
Accumulation Unit Value
Pioneer Vision 2
<TABLE>
<CAPTION>
If If
Period Held** Redeemed***
<S> <C> <C>
Life-of- 3.76% 2.82%
Portfolio
(3/1/95)
1 Year -4.66 -9.52
</TABLE>
- --------------------------------------------------------------------------------
Accumulation Unit Value
Pioneer Vision
<TABLE>
<CAPTION>
If If
Period Held** Redeemed***
<S> <C> <C>
Life-of- 3.76% 2.32%
Portfolio
(3/1/95)
1 Year -4.66 -10.67
</TABLE>
The Portfolio began operations on 3/1/95.
All total returns shown assume reinvestment of distributions at net asset
value.
* Reflects Portfolio performance only. Does not reflect insurance fees or
surrender charges.
** Reflects deduction of a 1.25% mortality and expense risk charge and a 0.15%
administrative expense charge. Does not reflect surrender charges.
*** Reflects deduction of a 1.25% mortality and expense risk charge, a 0.15%
administrative expense charge and the applicable contingent deferred sales
charge (CDSC), as if the contract were surrendered at the end of each
period. The maximum CDSC of 7% declines over seven years; it is deducted
only while the contract is in the surrender charge period. Returns do not
reflect a $30 annual contract fee; this fee is applied only until the
contract value reaches $50,000.
[END SIDE BAR]
Past performance does not guarantee future results. Return and principal
fluctuate so that your investment, when redeemed, may be worth more or less than
the original cost.
5
<PAGE>
PIONEER VARIABLE CONTRACTS TRUST
Europe Portfolio
PORTFOLIO MANAGEMENT DISCUSSION 12/31/98
We are pleased to provide our first annual report for Europe Portfolio, which
covers the two months ended December 31, 1998. Against a backdrop of generally
favorable market conditions, the Portfolio's net asset value climbed from
$10.00 to $10.60 following its introduction on October 30, 1998. The resulting
total return was 6.00%. The Morgan Stanley Capital International (MSCI) Europe
Index posted a return of 9.93%.
Favoring Companies Poised to Grow in Slower Economy
Modeled after the Pioneer Europe Fund, the Portfolio invests in companies based
in the developed countries of the United Kingdom and continental Europe for
long-term growth of capital. Right now, the Portfolio is largely comprised of
less cyclical, more defensive companies, which are likely to outperform in a
slowing economy - the result of the ongoing turmoil in emerging markets. This
includes the financial, healthcare, utility and telecommunications industries.
Financial holdings are benefiting from several long-term trends - including the
euro as a common currency, cost savings arising out of technology-driven
productivity gains and Europe's rising demand for retirement plans.
Restructuring and mergers also helped boost prices of financial services
companies. Zurich Allied (Switzerland), Amvescap (U.K.), Julius Baer Holding
(Switzerland) and Svenska Handelsbanken (Sweden) represent some of the
Portfolio's largest holdings in this sector.
The pharmaceutical industry is enjoying solid earnings growth, thanks to cost
cutting and new approaches to products and services. UCB (Belgium), Glaxo
Wellcome (U.K.), Novartis (Switzerland) and Roche Holdings (Switzerland) share
a strong commitment to research and development and a solid pipeline of
proprietary products. In the services sector, the Portfolio invests in several
utilities that deliver high-quality drinking water - including Suez Lyonaise
des Eaux (France), Vivendi (France) and Aguas de Barcelona (Spain).
Telecommunication stocks, another backbone of the Portfolio, represent an area
of great opportunity as monopolies are coming under pressure and competition is
increasing. MobilCom (Germany), a well-managed company with steadily increasing
market share, is the Portfolio's largest holding. Mannesmann (Germany), an
equipment manufacturer and telecommunications enterprise, is divesting its less
profitable divisions and reallocating resources to its telecom arm. It has
purchased stakes in Italian, Austrian and French cellular companies in an
effort to build a pan-European cellular network. This enterprise and its
management exemplify the alert, nimble company we think will succeed in a
united Europe.
A United States of Europe
January 1 marked the inauguration of the euro - Europe's new currency uniting
11 nations into one economic market of 290 million consumers and a gross
domestic product equal to 80% of the United States'. The member nations'
efforts to comply with the strict fiscal and monetary guidelines set by the
Maastricht Treaty have been effective - albeit painful - and have produced a
bonanza of benefits. Already, corporate consolidations and restructurings,
deregulation and lower interest rates boosted stock prices.
Investing outside the United States will always hold certain risks-including
currency fluctuations and political and economic uncertainty, but we believe
that this historic moment holds many opportunities for investors. We've
invested the Portfolio in an array of innovative companies that we think can
grow as Europe develops into one of the world's biggest and most efficient
marketplaces.
Respectfully,
/s/ Patrick M. Smith
Patrick M. Smith,
Portfolio Manager
[SIDE BAR]
International investing may involve special risks, including differences in
accounting and currency, as well as economic and political instability.
The Portfolio's investment adviser, Pioneer Investment Management, Inc.,
reduced its management fee and certain other expenses; otherwise, returns would
have been lower. Past performance does not guarantee future results. Return and
principal fluctuate so that your investment, when redeemed, may be worth more
or less than the original cost.
[END SIDE BAR]
6
<PAGE>
PIONEER VARIABLE CONTRACTS TRUST
Europe Portfolio
PORTFOLIO AND PERFORMANCE UPDATE 12/31/98
Portfolio Diversification
(As a percentage of total investment portfolio)
International Common Stocks 59%
Short-Term Cash Equivalents 21%
Depositary Receipts for International Stocks 19%
International Preferred Stocks 1%
Geographical Distribution
(As a percentage of equity holdings)
United Kingdom 26%
Germany 14%
France 13%
Switzerland 10%
Italy 10%
Spain 9%
Netherlands 5%
Sweden 4%
Finland 3%
Portugal 3%
Other 3%
- --------------------------------------------------------------------------------
Five Largest Holdings
(As a percentage of equity holdings)
<TABLE>
<S> <C>
MobilCom AG 2.50%
Glaxo Wellcome Plc (A.D.R.) 1.82
Portugal Telecom SA (A.D.R.) 1.75
Telecom Italia SpA Di Risp 1.65
Roche Holdings AG (A.D.R.) 1.60
</TABLE>
Holdings will vary for other periods.
- --------------------------------------------------------------------------------
Prices and Distributions
<TABLE>
<CAPTION>
12/31/98 10/30/98
<S> <C> <C>
Net Asset Value per Share $10.60 $10.00
Accumulation Unit Value 1.0575 1.0000
</TABLE>
<TABLE>
<CAPTION>
Distributions per Share Income Short-Term Long-Term
(10/30/98 - 12/31/98) Dividends Capital Gains Capital Gains
<S> <C> <C> <C>
$ - $ - $ -
</TABLE>
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the value of an investment made in Europe Portfolio,
compared to the growth of the The Morgan Stanley Capital International Europe
Index.
[TABULAR REPRESENTATION OF LINE CHART]
<TABLE>
<CAPTION>
Europe MSCI
Portfolio* Europe
<S> <C> <C>
10/98 10,000 10,000
11/98 10,150 10,532
12/98 10,600 10,992
</TABLE>
The Morgan Stanley Capital International Europe Index is a capitalization-
weighted index of 15 European Country indexes included in the MSCI EAFE (Europe,
Australasia, Far East) Index. The countries are: Austria, Belgium, Denmark,
Finland, France, Germany, Ireland, Italy, Netherlands, Norway, Portugal, Spain,
Sweden, Switzerland and the United Kingdom. Index returns are calculated
monthly, assume reinvestment of dividends and, unlike Portfolio returns, do not
reflect any fees or expenses. Portfolio returns are based on net asset value and
do not reflect any annuity-related costs. You cannot invest directly in the
Index.
[SIDE BAR]
Cumulative Total Returns
(As of December 31, 1998)
- --------------------------------------------------------------------------------
Net Asset Value*
<TABLE>
<CAPTION>
Period
<S> <C>
Life-of-Portfolio 6.00%
(10/30/98)
</TABLE>
- --------------------------------------------------------------------------------
Accumulation Unit Value
Pioneer Vision 2
<TABLE>
<CAPTION>
If If
Period Held** Redeemed***
<S> <C> <C>
Life-of- 5.75% -0.54%
Portfolio
(10/30/98)
</TABLE>
- --------------------------------------------------------------------------------
Accumulation Unit Value
Pioneer Vision
<TABLE>
<CAPTION>
If If
Period Held** Redeemed***
<S> <C> <C>
Life-of- 5.75% -0.91%
Portfolio
(10/30/98)
</TABLE>
The Portfolio began operations on 10/30/98.
All total returns shown assume reinvestment of distributions at net asset
value.
* Reflects Portfolio performance only. Does not reflect insurance fees or
surrender charges.
** Reflects deduction of a 1.25% mortality and expense risk charge and a 0.15%
administrative expense charge. Does not reflect surrender charges.
*** Reflects deduction of a 1.25% mortality and expense risk charge, a 0.15%
administrative expense charge and the applicable contingent deferred sales
charge (CDSC), as if the contract were surrendered at the end of each
period. The maximum CDSC of 7% declines over seven years; it is deducted
only while the contract is in the surrender charge period. Returns do not
reflect a $30 annual contract fee; this fee is applied only until the
contract value reaches $50,000.
[END SIDE BAR]
Past performance does not guarantee future results. Return and principal
fluctuate so that your investment, when redeemed, may be worth more or less than
the original cost.
7
<PAGE>
PIONEER VARIABLE CONTRACTS TRUST
Capital Growth Portfolio
PORTFOLIO MANAGEMENT DISCUSSION 12/31/98
Large-company stocks turned in another extraordinary year, with the Standard &
Poor's 500 Index returning 28.73%. However, the performance of the S&P 500 was
much different from the rest of the market. The Russell 2000 Index, which
measures the performance of smaller stocks, actually lost -2.56%. Reflecting
this, Capital Growth Portfolio returned -4.02% at net asset value. Value stocks
were also out of favor, as investors preferred large-cap growth stocks.
Performance Review
Just like the overall stock market, the larger stocks in the Portfolio
performed well. Examples include mid-sized NCR and The Learning Company, a
developer of educational software programs - two technology companies that
benefited from the ever-increasing demand for faster applications. Eastman
Kodak, Viacom and McDonald's - all names very familiar to shareowners - also
fall into this category and were positive contributors to performance.
The Portfolio's smaller holdings did not fare as well, especially companies
with exposure to Asia. We sold Reebok International and Belden, a manufacturer
of cable for electrical applications, because of their vulnerability to
downturns overseas. Oil-related stocks like Atlantic Richfield and Union
Pacific Resources hurt performance when energy prices dropped significantly
throughout the year.
Value Strategy
The Portfolio's focus on undervalued stocks is designed to produce results over
time. We like to find unique opportunities in enterprises that do not have a
large Wall Street following. This means that they typically are out of favor
and are selling at relatively low prices but have solid cash flows and strong
management. We also seek a catalyst to unlock a company's potential value.
Examples of a positive catalyst include management changes, asset sales or
acquisitions, new products and improved capital structures. We look at, and
select, companies of all sizes, although the Portfolio has tended to find the
best value in the mid-cap area.
We reduced the number of holdings to 108 stocks, down from 121 this time last
year, which we believe makes for a leaner portfolio. We accomplished this by
selling stocks that were not meeting expectations and replaced them with, or
increased the commitment to, stocks of companies with better balance sheets,
stronger managements and solid product lines. Going forward, these changes
should also help us more quickly adjust the Portfolio's holdings when we see
opportunities.
Long-Term Approach to Investing
Even after the roller coaster ride of 1998, we are optimistic as we head into
1999. The U.S. economic picture remains relatively strong, and interest rates
remain low. These are both positive factors for companies and, therefore, for
the stock market.
As we look ahead into 1999, we are concerned with the historically high
valuations of many of the large stocks that have been driving the market for
the past several years. Currently, the valuations of mid-sized companies are
more attractive than larger companies, and so we expect to focus our attention
in this area. Mid-sized companies (generally between $1 billion and $7 billion
in size) are typically stronger, better managed and more liquid than smaller
companies. Even so, today they sell at significant discounts to larger firms.
While it may take others some time to see the value we recognize today, we
believe we will ultimately be rewarded for our patience.
Respectfully,
J. Rodman Wright
J. Rodman Wright
Portfolio Manager
[SIDE BAR]
Past performance does not guarantee future results. Return and principal
fluctuate so that your investment, when redeemed, may be worth more or less
than the original cost.
[END SIDE BAR]
8
<PAGE>
PIONEER VARIABLE CONTRACTS TRUST
Capital Growth Portfolio
PORTFOLIO AND PERFORMANCE UPDATE 12/31/98
Portfolio Diversification
(As a percentage of total investment portfolio)
U.S. Common Stocks 91%
Short-Term Cash Equivalents 7%
International Common Stocks 1%
Depositary Receipts for International Stocks 1%
Geographical Distribution
(As a percentage of equity holdings)
Technology 16%
Financial 15%
Utilities 14%
Consumer Cyclicals 12%
Consumer Staples 12%
Capital Goods 8%
Basic Materials 6%
Healthcare 6%
Energy 5%
Other 6%
- --------------------------------------------------------------------------------
Five Largest Holdings
(As a percentage of equity holdings)
<TABLE>
<S> <C>
NCR Corp. 3.63%
Frontier Corp. 2.94
McDonald's Corp. 2.92
Viacom, Inc. (Class B) (Non-voting) 2.74
Sealed Air Corp. 2.28
</TABLE>
Holdings will vary for other periods.
- --------------------------------------------------------------------------------
Prices and Distributions
<TABLE>
<CAPTION>
12/31/98 12/31/97
<S> <C> <C>
Net Asset Value per Share $14.49 $16.15
Accumulation Unit Value 1.5300 1.6153
</TABLE>
<TABLE>
<CAPTION>
Distributions per Share Income Short-Term Long-Term
(12/31/97 - 12/31/98) Dividends Capital Gains Capital Gains
<S> <C> <C> <C>
$0.099 $0.659 $0.371
</TABLE>
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the value of an investment made in Capital Growth
Portfolio, compared to the growth of the Standard & Poor's (S&P) 500 Index.
[TABULAR REPRESENTATION OF LINE CHART]
<TABLE>
<CAPTION>
Capital S&P 500
Growth Portfolio* Index
<S> <C> <C>
3/95 10,000 10,000
10,650 11,362
11,980 12,262
12/95 11,713 12,998
12,624 13,695
13,527 14,308
13,141 14,747
12/96 13,473 15,974
14,268 16,405
15,541 19,263
17,559 20,704
12/97 16,800 21,296
18,652 24,261
18,228 25,059
14,411 22,571
12/98 16,125 27,370
</TABLE>
The S&P 500 Index is a unmanaged measure of 500 widely held common stocks listed
on the New York Stock Exchange, American Stock Exchange and over-the- counter
markets. Index returns assume reinvestment of dividends and, unlike Portfolio
returns, do not reflect any fees or expenses. Portfolio returns are based on net
asset value and do not reflect any annuity-related costs. You cannot invest
directly in the Index.
[SIDE BAR]
Average Annual Total Returns
(As of December 31, 1998)
- --------------------------------------------------------------------------------
Net Asset Value*
<TABLE>
<CAPTION>
Period
<S> <C>
Life-of-Portfolio 13.25%
(3/1/95)
1 Year -4.02
</TABLE>
- --------------------------------------------------------------------------------
Accumulation Unit Value
Pioneer Vision 2
<TABLE>
<CAPTION>
If If
Period Held** Redeemed***
<S> <C> <C>
Life-of- 11.71% 10.95%
Portfolio
(3/1/95)
1 Year -5.28 -10.11
</TABLE>
- --------------------------------------------------------------------------------
Accumulation Unit Value
Pioneer Vision
<TABLE>
<CAPTION>
If If
Period Held** Redeemed***
<S> <C> <C>
Life-of- 11.71% 10.56%
Portfolio
(3/1/95)
1 Year -5.28 -11.25
</TABLE>
The Portfolio began operations on 3/1/95.
All total returns shown assume reinvestment of distributions at net asset
value.
* Reflects Portfolio performance only. Does not reflect insurance fees or
surrender charges.
** Reflects deduction of a 1.25% mortality and expense risk charge and a 0.15%
administrative expense charge. Does not reflect surrender charges.
*** Reflects deduction of a 1.25% mortality and expense risk charge, a 0.15%
administrative expense charge and the applicable contingent deferred sales
charge (CDSC), as if the contract were surrendered at the end of each
period. The maximum CDSC of 7% declines over seven years; it is deducted
only while the contract is in the surrender charge period. Returns do not
reflect a $30 annual contract fee; this fee is applied only until the
contract value reaches $50,000.
[END SIDE BAR]
Past performance does not guarantee future results. Return and principal
fluctuate so that your investment, when redeemed, may be worth more or less than
the original cost.
9
<PAGE>
PIONEER VARIABLE CONTRACTS TRUST
Growth Shares Portfolio
PORTFOLIO MANAGEMENT DISCUSSION 12/31/98
Growth Shares Portfolio rode out 1998's tumultuous stock market to finish with
a flourish, outperforming the Standard & Poor's 500 Index. Although late summer
seemed to signal the end of the United States' historic bull run, interest rate
cuts in the United States and the International Monetary Fund's attempts to
stabilize emerging markets overseas brought the bull roaring back in the last
quarter of the year.
The Portfolio generated a total return of 32.60% at net asset value for the
year, outperfoming the S&P 500's 28.73% return for the same period. The 150
Variable Annuity Growth Portfolio tracked by Lipper, Inc. had an average return
of 24.63%. (Lipper is an independent research firm that tracks annuity
portfolio performance.)
This performance did not occur in a straight line though. The year was marked
by considerable volatility. Including two distinct steps forward - one early
and one late in the year - and one step back in the summer. While
disconcerting, this pattern produced exceptional returns for those who stayed
invested.
Volatility's affect at home and abroad
The volatility was created by two factors. First, the weakness in many of the
world's emerging market economies clearly affected companies that do large
volumes of business overseas. We saw stocks of huge multi-national companies
such as Coca-Cola, Gillette and Wrigley drop abruptly, thanks to these global
developments. However, despite these shorter-term economic problems abroad, we
remain very positive on the long-term potential of these companies. Periods of
market uncertainty allow great companies to increase market share and enhance
their long-term competitive advantages. We used this period of share price
weakness to increase the Portfolio's holdings in many dominant business
franchises.
Second, many deflationary trends became evident this past year. With product
prices remaining steady or even dropping, it made it difficult for companies to
recoup costs and put pressure on earnings growth.
More quickly than most, technology and drug stocks shook off these worries and
helped propel the Portfolio to strong returns. Holdings in Dell Computer,
Microsoft, Pfizer and Walgreen's all provided significant returns.
Focus on High-Quality Growth Companies
The Portfolio continued to maintain its focus on high-quality, growth companies
in 1998 - companies we can own for many years. We believe that superior
long-term returns can best be generated by businesses with three attributes:
competitive advantages that erect high barriers to market entry by potential
competitors, solid growth potential and high-quality, ethical management.
A terrific example of the type of company we like, and why, is Berkshire
Hathaway, the insurance and investment vehicle run by Warren Buffett. Berkshire
this year acquired General Re Corp., the largest re-insurance company in the
United States This acquisition caused us to take a long, hard look at Berkshire
and we liked what we saw. Before General Re, Berkshire already owned some of
the best insurance properties in the world. One is auto insurance titan Geico,
which is building a dominant position in the growing insurance industry. And,
of course, a world-renowned manager and investor runs the company. That is the
kind of "triple threat" that we are looking for, and Berkshire Hathaway is now
the largest holding in the Portfolio.
Looking forward into the economic trends of the new year is always a shaky
proposition. We prefer to closely study current and potential investments. As
always we look past any uncertainty near term and focus on a company's
long-term competitive position and growth potential. Our belief is that this
investment philosophy will help us offer you solid long-term returns.
Respectfully,
/s/ Jeffrey Poppenhagen
Jeffrey Poppenhagen,
Portfolio Manager
[SIDE BAR]
The Portfolio's investment adviser, Pioneer Investment Management, Inc.,
reduced its management fee and certain other expenses; otherwise, returns would
have been lower. Past performance does not guarantee future results. Return and
principal fluctuate so that your investment, when redeemed, may be worth more
or less than the original cost.
[END SIDE BAR]
10
<PAGE>
PIONEER VARIABLE CONTRACTS TRUST
Growth Shares Portfolio
PORTFOLIO AND PERFORMANCE UPDATE 12/31/98
Portfolio Diversification
(As a percentage of total investment portfolio)
U.S. Common Stocks 93%
Short-Term Cash Equivalents 4%
Depositary Receipts for International Stocks 2%
International Preferred Stocks 1%
Sector Distribution
(As a percentage of equity holdings)
Consumer Staples 31%
Financial 20%
Technology 13%
Healthcare 12%
Capital Goods 9%
Basic Materials 8%
Consumer Cyclicals 7%
- --------------------------------------------------------------------------------
Five Largest Holdings
(As a percentage of equity holdings)
<TABLE>
<S> <C>
Berkshire Hathaway, Inc. 8.03%
Monsanto Co. 6.82%
The Gillette Co. 5.54
Progressive Corp. 5.28
Sealed Air Corp. 5.24
</TABLE>
Holdings will vary for other periods.
- --------------------------------------------------------------------------------
Prices and Distributions
<TABLE>
<CAPTION>
12/31/98 12/31/97
<S> <C> <C>
Net Asset Value per Share $20.34 $15.34
Accumulation Unit Value 1.3329 1.0203
</TABLE>
<TABLE>
<CAPTION>
Distributions per Share Income Short-Term Long-Term
(12/31/97 - 12/31/98) Dividends Capital Gains Capital Gains
<S> <C> <C> <C>
$ 0.001 - -
</TABLE>
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the value of an investment made in Growth Shares
Portfolio, compared to the growth of the Standard & Poor's (S&P) 500 Index.
[TABULAR REPRESENTATION OF LINE CHART]
<TABLE>
<CAPTION>
Growth Shares S&P 500
Portfolio* Index
<S> <C> <C>
10/97 10,000 10,000
12/97 10,160 10,463
10,227 10,643
10,460 10,760
11,527 11,536
11,773 12,126
12,273 12,250
6/98 12,080 12,039
12,574 12,528
12,374 12,395
10,687 10,604
11,094 11,284
12,041 12,200
12,621 12,940
12/98 13,561 13,701
</TABLE>
The S&P 500 Index is a unmanaged measure of 500 widely held common stocks listed
on the New York Stock Exchange, American Stock Exchange and over-the- counter
market. Index returns assume reinvestment of dividends and, unlike Portfolio
returns, do not reflect any fees or expenses. Portfolio returns are based on net
asset value and do not reflect any annuity-related costs. You cannot invest
directly in the Index.
[SIDE BAR]
Cumulative Total Returns
(As of December 31, 1998)
- --------------------------------------------------------------------------------
Net Asset Value*
<TABLE>
<CAPTION>
Period
<S> <C>
Life-of-Portfolio 29.74%
(10/31/97)
1 Year 32.60
</TABLE>
- --------------------------------------------------------------------------------
Accumulation Unit Value
Pioneer Vision 2
<TABLE>
<CAPTION>
If If
Period Held** Redeemed***
<S> <C> <C>
Life-of- 27.87% 22.93%
Portfolio
(10/31/97)
1 Year 30.64 24.64
</TABLE>
- --------------------------------------------------------------------------------
Accumulation Unit Value
Pioneer Vision
<TABLE>
<CAPTION>
If If
Period Held** Redeemed***
<S> <C> <C>
Life-of- 27.87% 22.10%
Portfolio
(10/31/97)
1 Year 30.64 23.64
</TABLE>
The Portfolio began operations on 10/31/97.
All total returns shown assume reinvestment of distributions at net asset
value.
* Reflects Portfolio performance only. Does not reflect insurance fees or
surrender charges.
** Reflects deduction of a 1.25% mortality and expense risk charge and a 0.15%
administrative expense charge. Does not reflect surrender charges.
*** Reflects deduction of a 1.25% mortality and expense risk charge, a 0.15%
administrative expense charge and the applicable contingent deferred sales
charge (CDSC), as if the contract were surrendered at the end of each
period. The maximum CDSC of 7% declines over seven years; it is deducted
only while the contract is in the surrender charge period. Returns do not
reflect a $30 annual contract fee; this fee is applied only until the
contract value reaches $50,000.
[END SIDE BAR]
Past performance does not guarantee future results. Return and principal
fluctuate so that your investment, when redeemed, may be worth more or less than
the original cost.
11
<PAGE>
PIONEER VARIABLE CONTRACTS TRUST
Real Estate Growth Portfolio
PORTFOLIO MANAGEMENT DISCUSSION 12/31/98
It was tough going for real estate investment trusts (REITs) during the 12
months ended December 31, 1998. In a complete reversal from the performance of
the previous year, the REIT market encountered a number of difficulties in
addition to the dramatic bouts of volatility in the broader stock and bond
markets. As a result, Real Estate Growth Portfolio closed fiscal 1998 with a
total return of -18.74% at net asset value. This compares with the -15.58%
average return posted by the 14 funds in the Lipper, Inc. Variable Annuity Real
Estate Portfolio category. Despite disappointing share price performance, the
Portfolio paid strong dividends throughout the year. (Lipper is an independent
firm that reports annuity Portfolio performance).
Market influences outweigh strong industry fundamentals
Several factors outside of the business fundamentals of the real estate
industry hurt REITs in 1998. New legislation eliminated some of the
tax-advantages of "paired-share" REITs, which hobbled the performance of the
hotel and office sectors for much of the period. The growth rate of earnings
across the industry began to slow slightly, causing momentum investors to leave
the group in search of a faster growing arena. A note of caution from the
Federal Reserve about bank lending to REITs also propelled the market downward.
Then in the fall, the credit crunch combined with an unprecedented halt in
trading within the commercial mortgage-backed securities market completed the
rout.
Although it may appear that news from the REIT sector is all negative, a closer
look reveals an industry that featured very strong underlying fundamentals
throughout the year. And it still does. Indeed, most all of the Portfolio's
holdings met or exceeded our expectations for corporate performance and
profitability. Funds from operations, a measure of earnings growth, remained in
the double digits, and we anticipate that this important indicator of
profitability will be in the 10% range in 1999. In fact, many of the
Portfolio's securities increased their dividend payout in 1998.
Other good news comes from acquisitions, which continue to take place and
remain a solid source of growth potential. Furthermore, today's higher rents
have pushed up the price of lease renewals, bolstering internal growth
prospects as tenants roll over leases.
Performance contributors and detractors
Starwood Hotels & Resorts, Patriot American Hospitality and AMRESCO, were three
holdings whose performance hurt the Portfolio. The general pullback from hotel
REITs hurt Starwood and Patriot while financial missteps and difficulty
repaying debt further added to Patriot's problems. AMRESCO fell victim to the
crisis in the commercial mortgage-backed securities market. Both Starwood and
AMRESCO have since bounced back from their lows and Patriot is making concerted
efforts to address its financial situation. Simon Property Group, Macerich and
Developers Diversified Realty were three retail REITs that produced strong
performance relative to the performance of the industry as a whole. Cousins
Properties posted notable performance, returning more than 15% in 1998.
Outlook
Though the possibility of a recession continues to loom in some investors'
minds, our research suggests that the possibility is slight. The national and
local economies are healthy, inflation is low, and in general, U.S. corporate
profitability remains intact despite global economic swings. We are not overly
concerned about the fiscal ills currently plaguing many nations because history
shows that REITs tend to be relatively insulated from world events. Because our
primary focus is the real estate industry's fundamental condition - which is
quite positive - we enter fiscal 1999 anticipating a rebound in REIT stocks. In
the meantime, the relatively high real income generated by REITs pays the
Portfolio and, in turn, shareholders, to wait. We will maintain a steady course
going forward and target the REIT sectors and individual securities we believe
will benefit the Portfolio over time.
Respectfully,
/s/ Robert W. Benson
Robert W. Benson
Portfolio Manager
[SIDE BAR]
Real-estate related investments involve specific risks, including those related
to general and local economic conditions and individual properties.
The Portfolio's investment adviser, Pioneer Investment Management, Inc. reduced
its management fee and certain other expenses; otherwise, returns would have
been lower. Past performance does not guarantee future results. Return and
principal fluctuate so that your investment, when redeemed, may be worth more
or less than the original cost.
[END SIDE BAR]
12
<PAGE>
PIONEER VARIABLE CONTRACTS TRUST
Real Estate Growth Portfolio
PORTFOLIO AND PERFORMANCE UPDATE 12/31/98
Portfolio Diversification
(As a percentage of total investment portfolio)
U.S. Common Stocks 96%
Short-Term Cash Equivalents 4%
Sector Distribution
(As a percentage of equity holdings)
Real Estate Investment Trust 86%
Real Estate Services 11%
Services 3%
- --------------------------------------------------------------------------------
Five Largest Holdings
(As a percentage of equity holdings)
<TABLE>
<S> <C>
Cousins Properties, Inc. 4.78%
Prentiss Properties Trust 4.30
Charles E. Smith Residential Realty, Inc. 4.29
Mack-Cali Reality Corp. 4.12
Bedford Property Investors, Inc. 4.00
</TABLE>
Holdings will vary for other periods.
- --------------------------------------------------------------------------------
Prices and Distributions
<TABLE>
<CAPTION>
12/31/98 12/31/97
<S> <C> <C>
Net Asset Value per Share $13.07 $16.90
Accumulation Unit Value 1.4819 1.8494
</TABLE>
<TABLE>
<CAPTION>
Distributions per Share Income Short-Term Long-Term
(12/31/97 - 12/31/98) Dividends Capital Gains Capital Gains
<S> <C> <C> <C>
$ 0.560 $ 0.151 -
</TABLE>
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the value of an investment made in Real Estate Growth
Portfolio, compared to the growth of the Standard & Poor's (S&P) 500 Index and
the Wilshire Real Estate Securities Index.
Wilshire
Real Estate S&P Real Estate
Growth Portfolio* 500 Index Securities Index
3/95 10721 10953 10435
11564 11823 10930
12/95 11696 12533 11322
12020 13206 11800
12316 13796 12360
13548 14221 13090
12/96 15875 15406 15497
16178 15820 15781
16875 18579 16507
19340 19969 18565
19105 23406 18425
18090 24182 17579
15670 21780 15477
12/98 15629 26444 15292
Index comparisons begin 3/31/95. The S&P 500 Index is an unmanaged measure of
500 widely held common stocks listed on the New York Stock Exchange, American
Stock Exchange and the over-the-counter market. The Wilshire Real Estate
Securities Index is a market-capitalization weighted measure of the performance
of real estate securities. The Index is 94% REITs (real estate investment
trusts) (equity and hybrid) and 6% real estate operating companies. Index
returns are calculated monthly, assume reinvestment of dividends and, unlike
Portfolio returns, do not reflect any fees, expenses or sales charges. You
cannot invest directly in the Indexes.
[SIDE BAR]
Average Annual Total Returns
(As of December 31, 1998)
- --------------------------------------------------------------------------------
Net Asset Value*
<TABLE>
<CAPTION>
Period
<S> <C>
Life-of-Portfolio 12.33%
(3/1/95)
1 Year -18.74
</TABLE>
- --------------------------------------------------------------------------------
Accumulation Unit Value
Pioneer Vision 2
<TABLE>
<CAPTION>
If If
Period Held** Redeemed***
<S> <C> <C>
Life-of- 10.78% 10.00%
Portfolio
(3/1/95)
1 Year -19.87 -23.96
</TABLE>
- --------------------------------------------------------------------------------
Accumulation Unit Value
Pioneer Vision
<TABLE>
<CAPTION>
If If
Period Held** Redeemed***
<S> <C> <C>
Life-of- 10.78% 9.60%
Portfolio
(3/1/95)
1 Year -19.87 -24.92
</TABLE>
The Portfolio began operations on 3/1/95.
All total returns shown assume reinvestment of distributions at net asset
value.
* Reflects Portfolio performance only. Does not reflect insurance fees or
surrender charges.
** Reflects deduction of a 1.25% mortality and expense risk charge and a 0.15%
administrative expense charge. Does not reflect surrender charges.
*** Reflects deduction of a 1.25% mortality and expense risk charge, a 0.15%
administrative expense charge and the applicable contingent deferred sales
charge (CDSC), as if the contract were surrendered at the end of each
period. The maximum CDSC of 7% declines over seven years; it is deducted
only while the contract is in the surrender charge period. Returns do not
reflect a $30 annual contract fee; this fee is applied only until the
contract value reaches $50,000.
[END SIDE BAR]
Past performance does not guarantee future results. Return and principal
fluctuate so that your investment, when redeemed, may be worth more or less than
the original cost.
13
<PAGE>
PIONEER VARIABLE CONTRACTS TRUST
Growth and Income Portfolio
PORTFOLIO MANAGEMENT DISCUSSION 12/31/98
Growth and Income Portfolio had a terrific year, generating a 26.12% total
return at net asset value. The Portfolio's return handily outperformed the
16.54% average return posted by the 155 funds in the Lipper, Inc. Variable
Annuity Growth and Income Portfolio category.
The year, marked by a great deal of turbulence and volatility in share price,
ended pretty well. Earnings growth remained a key issue throughout 1998, but
few forecasters seemed to think growth would stop or that a recession would set
in. Interest rates remained quite manageable, and inflation was very modest.
All in all, the investment climate was favorable, and the Portfolio benefited
handsomely from staying substantially invested in equities throughout the year.
Investing with an Eye on the Future
If there was any theme to our investing over the last year, it was to stick
with the same strategy we have always had, which is forward-looking and
value-based. Of course the stocks encompassed by it will vary as necessary from
one market cycle to the next, and from one stage of our national business
development to the next.
One thing we have observed is strong interest in newer, "growth" industries.
While we could not accept the astronomical prices of many internet stocks, the
Portfolio successfully invested in many other technology stocks. We also found
opportunities in other growth areas such as healthcare, telecommunications and
financial services. The difference between our approach and that of a
"momentum" investor is that, in many cases, we attempt to identify promising
stocks when they are much less well known. Many of the Portfolio's biggest
gains in 1998 were on stocks that we have held for quite some time.
Diverse Portfolio Boosts Performance
Earnings growth for many technology companies, such as IBM and Sun
Microsystems, was ahead of expectations and helped to fuel performance. Drug
and pharmaceutical holdings also turned in gains, including Bristol-Myers
Squibb and Schering-Plough. Telephone companies, for example BellSouth and Bell
Atlantic, made positive contributions. Major retailers, Wal-Mart Stores and
Walgreen, also posted impressive results, especially at the end of the year
when holiday sales reports were higher than most predictions.
Many of the Portfolio's financial services stocks struggled during the year.
Especially disappointing were the property and casualty insurance companies,
such as Chubb Corp., and companies that produce capital goods, most notably the
machinery and manufacturing sectors, including Caterpillar and Timken.
Compared with this time last year, there are a number of new holdings and also
some deletions. The largest purchases in the most recent months included oil
company Atlantic Richfield and retailer Dollar General. The Portfolio received
shares in cellular telephone company Sprint PCS as a spin-off from Sprint.
Mergers affected four positions in the fourth quarter. The Portfolio booked
gains on Amoco after it was taken over by British Petroleum and received shares
of DaimlerChrysler in exchange for holdings in Chrysler. Shares of Banc One
came in exchange for First Chicago NBD, and shares of Washington Mutual were
received in exchange for those of H.F. Ahmanson.
Outlook
As the stock market has continued to advance over the past four years, we have
often suggested caution. There has never been another period when the Standard
& Poor's 500 has produced such large gains over such an extended period of
time. As we look ahead, we could foresee the possibility of lower returns than
in recent years. But, as we saw over the course of 1998, markets can be very
unpredictable. We will continue to manage the Portfolio by taking a long-term
view - focusing on companies we think can grow their sales and earnings -
because these are the factors that will ultimately determine if stock prices
rise or fall.
Respectfully,
/s/ John A. Carey
John A. Carey
Portfolio Manager
[SIDE BAR]
The Portfolio's investment adviser, Pioneer Investment Management, Inc.,
reduced its management fee and certain other expenses; otherwise, returns would
have been lower. Past performance does not guarantee future results. Return and
principal fluctuate so that your investment, when redeemed, may be worth more
or less than the original cost.
[END SIDE BAR]
14
<PAGE>
PIONEER VARIABLE CONTRACTS TRUST
Growth and Income Portfolio
PORTFOLIO AND PERFORMANCE UPDATE 12/31/98
Portfolio Diversification
(As a percentage of total investment portfolio)
U.S. Common Stocks 93%
Depositary Receipts for International Stocks 5%
Short-Term Cash Equivalents 2%
Sector Distribution
(As a percentage of equity holdings)
Financial 22%
Technology 16%
Healthcare 15%
Communication Services 12%
Consumer Cyclicals 11%
Consumer Staples 9%
Capital Goods 5%
Energy 4%
Basic Materials 3%
Other 3%
- --------------------------------------------------------------------------------
Five Largest Holdings
(As a percentage of equity holdings)
<TABLE>
<S> <C>
Schering-Plough Corp. 4.23%
IBM Corp. 2.56
The Bank of New York Co., Inc. 2.54
BellSouth Corp. 1.99
Charles Schwab Corp. 1.93
</TABLE>
Holdings will vary for other periods.
- --------------------------------------------------------------------------------
Prices and Distributions
<TABLE>
<CAPTION>
12/31/98 12/31/97
<S> <C> <C>
Net Asset Value per Share $19.76 $15.80
Accumulation Unit Value 1.3108 1.0525
</TABLE>
<TABLE>
<CAPTION>
Distributions per Share Income Short-Term Long-Term
12/31/97 - 12/31/98 Dividends Capital Gains Capital Gains
<S> <C> <C> <C>
$ 0.150 - -
</TABLE>
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the value of an investment made in Growth and Income
Portfolio, compared to the growth of the Standard & Poor's (S&P) 500 Index.
Growth and S&P
Income Portfolio* 500 Index
10/97 10000 10000
10473 10463
12/97 10543 10643
10790 10760
11490 11536
11944 12126
11944 12250
11663 12039
6/98 11964 12528
11877 12395
10315 10604
10985 11284
11986 12200
12557 12940
12/98 13296 13701
The S&P 500 Index is a unmanaged measure of 500 widely held common stocks listed
on the New York Stock Exchange, American Stock Exchange and over-the- counter
market. Index returns assume reinvestment of dividends and, unlike Portfolio
returns, do not reflect any fees or expenses. Portfolio returns are based on net
asset value and do not reflect any annuity-related costs. You cannot invest
directly in the Index.
[SIDE BAR]
Cumulative Total Returns
(As of December 31, 1998)
- --------------------------------------------------------------------------------
Net Asset Value*
<TABLE>
<CAPTION>
Period
<S> <C>
Life-of-Portfolio 27.57%
(10/31/97)
1 Year 26.12
</TABLE>
- --------------------------------------------------------------------------------
Accumulation Unit Value
Pioneer Vision 2
<TABLE>
<CAPTION>
If If
Period Held** Redeemed***
<S> <C> <C>
Life-of- 26.05% 21.10%
Portfolio
(10/31/97)
1 Year 24.54 18.54
</TABLE>
- --------------------------------------------------------------------------------
Accumulation Unit Value
Pioneer Vision
<TABLE>
<CAPTION>
If If
Period Held** Redeemed***
<S> <C> <C>
Life-of- 26.05% 20.27%
Portfolio
(10/31/97)
1 Year 24.54 17.54
</TABLE>
The Portfolio began operations on 10/31/97.
All total returns shown assume reinvestment of distributions at net asset
value.
* Reflects Portfolio performance only. Does not reflect insurance fees or
surrender charges.
** Reflects deduction of a 1.25% mortality and expense risk charge and a 0.15%
administrative expense charge. Does not reflect surrender charges.
*** Reflects deduction of a 1.25% mortality and expense risk charge, a 0.15%
administrative expense charge and the applicable contingent deferred sales
charge (CDSC), as if the contract were surrendered at the end of each
period. The maximum CDSC of 7% declines over seven years; it is deducted
only while the contract is in the surrender charge period. Returns do not
reflect a $30 annual contract fee; this fee is applied only until the
contract value reaches $50,000.
[END SIDE BAR]
Past performance does not guarantee future results. Return and principal
fluctuate so that your investment, when redeemed, may be worth more or less than
the original cost.
15
<PAGE>
PIONEER VARIABLE CONTRACTS TRUST
Equity-Income Portfolio
PORTFOLIO MANAGEMENT DISCUSSION 12/31/98
The last 12 months included some very interesting and volatile times for stock
investors. A tremendous rally in the first two quarters of 1998, culminating in
the middle of July, was totally reversed over the next two months. Then, in the
autumn, a new rally occurred, prompted by a reduction in interest rates by the
Federal Reserve.
Equity-Income Portfolio returned an impressive 21.80% for the year at net asset
value, far outpacing the 15.84% average return posted by the 35 funds in the
Lipper, Inc. Variable Annuity Equity Income Portfolio category. The total
return reflects the increase in net asset value from $18.14 per share on
December 31, 1997 to $21.44 on December 31, 1998 and the reinvestment of $0.386
per share in income dividends and $0.219 in capital gains distributions.
The bias toward growth-oriented stocks showed in the 28.73% return of the
Standard & Poor's 500 Index. While the Portfolio did not keep pace with the S&P
500's breakneck advances, it did very well during the turbulent, downward legs.
From the end of July through October, for example, the S&P 500 was down 1.55%
but the Portfolio rose 1.64%. We were gratified by the results, since we've
worked to structure the Portfolio to be resilient during difficult markets.
Well Rounded Portfolio
For Equity-Income Portfolio, we emphasize companies with relatively stable and
predictable streams of earnings and cash flow that should allow them to support
regular dividend payments and to increase dividends over time. These companies
are often described by investors as "defensive" stocks, but we are also
attracted to them for their longer-term growth prospects.
We also concentrate on larger enterprises. Although we can and do select
companies of various sizes, the Portfolio's major positions and the bulk of
assets are invested in larger companies that we think are fundamentally strong.
Larger capitalization, more mature sectors of the market are also more likely
to offer the dividend income we seek.
Holdings in utilities, communications services - including many of the Baby
Bells - and oil and gas companies, such as Baltimore Gas & Electric, performed
well over the difficult summer months of the market correction. During the more
upbeat months, pharmaceutical, consumer goods and financial stocks were
especially lustrous. Examples include Johnson & Johnson, Sara Lee and The Bank
of New York.
Going Forward
Our principal concern as we look out over the next couple of quarters relates
to the historically high price-to-earnings multiples on many leading stocks.
This is particularly important in what may be a period of more slowly growing
earnings. Naturally, we also pay attention to economies abroad and their
potential to limit exports or other foreign sales opportunities. However, there
is never a situation where everything is "just right."
We think the key to making money in the stock market is to buy shares at a
reasonable valuation. This is where our strength and experience in securities
analysis comes in. We work constantly at finding the best companies selling at
the best prices. But because stock prices rarely move up steadily - and in case
they actually drop over some period of time - we also add an attractive stream
of dividends to the Portfolio. Investors looking for the potential for
long-term returns can benefit from having a portion of their assets invested in
well-established companies with compelling valuations and solid growth
prospects.
Respectfully,
/s/ John A. Carey
John A. Carey
Portfolio Manager
[SIDE BAR]
Past performance does not guarantee future results. Return and principal
fluctuate so that your investment, when redeemed, may be worth more or less
than the original cost.
[END SIDE BAR]
16
<PAGE>
PIONEER VARIABLE CONTRACTS TRUST
Equity-Income Portfolio
PORTFOLIO AND PERFORMANCE UPDATE 12/31/98
Portfolio Diversification
(As a percentage of total investment portfolio)
U.S. Common Stocks 96%
U.S. Convertible Securities 3%
Short-Term Cash Equivalents 1%
Sector Distribution
(As a percentage of equity holdings)
Financial 23%
Communication Services 19%
Healthcare 12%
Utilities 11%
Consumer Staples 7%
Consumer Cyclicals 7%
Energy 6%
Technology 5%
Basic Materials 5%
Other 5%
- --------------------------------------------------------------------------------
Five Largest Holdings
(As a percentage of equity holdings)
<TABLE>
<S> <C>
Schering-Plough Corp. 4.83%
Ameritech Corp. 3.17
Sprint Corp. 3.12
GTE Corp. 2.85
Ford Motor Co. 2.75
</TABLE>
Holdings will vary for other periods.
- --------------------------------------------------------------------------------
Prices and Distributions
<TABLE>
<CAPTION>
12/31/98 12/31/97
<S> <C> <C>
Net Asset Value per Share $21.44 $18.14
Accumulation Unit Value 2.2300 1.8514
</TABLE>
<TABLE>
<CAPTION>
Distributions per Share Income Short-Term Long-Term
12/31/97 - 12/31/98 Dividends Capital Gains Capital Gains
<S> <C> <C> <C>
$ 0.386 $ 0.101 $ 0.118
</TABLE>
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the value of an investment made in Equity-Income
Portfolio, compared to the growth of the Standard & Poor's (S&P) 500 Index.
Equity-Income S&P
Portfolio* 500 Index
3/95 10000 10000
10280 10375
10990 11362
12290 12262
12/95 12362 12998
12778 13695
12881 14308
13189 14747
12/96 14240 15974
14745 16405
16867 19263
18202 20704
12/97 19257 21296
21434 24261
21635 25059
20388 22571
12/98 23455 27370
The S&P 500 Index is a unmanaged measure of 500 widely held common stocks listed
on the New York Stock Exchange, American Stock Exchange and over-the- counter
market. Index returns assume reinvestment of dividends and, unlike Portfolio
returns, do not reflect any fees or expenses. Portfolio returns are based on net
asset value and do not reflect any annuity-related costs. You cannot invest
directly in the Index.
[SIDE BAR]
Average Annual Total Returns
(As of December 31, 1998)
- --------------------------------------------------------------------------------
Net Asset Value*
<TABLE>
<CAPTION>
Period
<S> <C>
Life-of-Portfolio 24.86%
(3/1/95)
1 Year 21.80
</TABLE>
- --------------------------------------------------------------------------------
Accumulation Unit Value
Pioneer Vision 2
<TABLE>
<CAPTION>
If If
Period Held** Redeemed***
<S> <C> <C>
Life-of- 23.24% 22.66%
Portfolio
(3/1/95)
1 Year 20.45 14.45
</TABLE>
- --------------------------------------------------------------------------------
Accumulation Unit Value
Pioneer Vision
<TABLE>
<CAPTION>
If If
Period Held** Redeemed***
<S> <C> <C>
Life-of- 23.24% 22.36%
Portfolio
(3/1/95)
1 Year 20.45 13.45
</TABLE>
The Portfolio began operations on 3/1/95.
All total returns shown assume reinvestment of distributions at net asset
value.
* Reflects Portfolio performance only. Does not reflect insurance fees or
surrender charges.
** Reflects deduction of a 1.25% mortality and expense risk charge and a 0.15%
administrative expense charge. Does not reflect surrender charges.
*** Reflects deduction of a 1.25% mortality and expense risk charge, a 0.15%
administrative expense charge and the applicable contingent deferred sales
charge (CDSC), as if the contract were surrendered at the end of each
period. The maximum CDSC of 7% declines over seven years; it is deducted
only while the contract is in the surrender charge period. Returns do not
reflect a $30 annual contract fee; this fee is applied only until the
contract value reaches $50,000.
[END SIDE BAR]
Past performance does not guarantee future results. Return and principal
fluctuate so that your investment, when redeemed, may be worth more or less than
the original cost.
17
<PAGE>
PIONEER VARIABLE CONTRACTS TRUST
Balanced Portfolio
PORTFOLIO MANAGEMENT DISCUSSION 12/31/98
Balanced Portfolio completed a busy year on December 31, 1998. The period
encompassed dramatic ups and downs in the financial markets and a rebalancing
of the Fund's asset allocation. In the following discussion, we provide some
insight into the Fund's repositioning and our expectations for its performance
going forward.
There's no denying that the Portfolio had a tough year. The Portfolio's net
asset value fell from $14.99 to $14.47 during the 12 months, resulting in a
return of 2.64%. The 52 Variable Annuity Balanced Portfolios tracked by Lipper,
Inc. posted an average return of 14.77% for the same period. The Portfolio's
weak performance is partly the result of holdings in smaller technology
companies, which were hurt by Asia's economic turmoil. Investments in real
estate investment trusts (REITs) also took a toll. Despite their attractive
income payments, these stocks suffered from low investor demand. We sold all of
these as we rebalanced the Portfolio.
Overall, though, the largest factor working against the Portfolio was our
"value" strategy, which did not fare well amidst investors' seemingly
insatiable appetite for the rapid earnings potential of growth stocks. By
contrast, value investing focuses on stocks, regardless of company size, that
are out of favor and selling at prices below their true worth - creating the
potential for significant long-term appreciation.
The Portfolio's asset allocation remained fairly steady throughout the year -
50% stocks, about 40% bonds and the small remainder in short-term cash
equivalents. Within the equity portion, we've started placing greater emphasis
on high-quality, large-capitalization stocks, which can provide good
opportunities for "value" investing. We look for established companies facing
short-term economic or industry-specific pressures, which contribute to
uncertainty and lower stock prices relative to their future earnings power.
Energy holdings Exxon and Chevron pay attractive dividends and are experiencing
solid appreciation, especially in light of recent megamerger announcements.
Takeover activity is likewise sparking enthusiasm for financial stocks.
Greater Focus on Income
The Portfolio's twin investment objectives of capital growth and current income
have not changed. However, we've changed the way we're trying to achieve these
two goals. The Portfolio now has greater emphasis on income-producing
investments of all kinds - dividend-paying stocks, corporate bonds and
mortgage-backed securities. Dividends are generally a stable and predictable
source of return and can contribute greatly to overall performance.
When the stock market turned down briefly this fall, we increased the
Portfolio's holdings in corporate bonds, including retailer Saks. We also took
profits on Treasury bonds and invested the proceeds in mortgage-backed
securities. The moves boosted the Portfolio's yield and may contribute to
capital appreciation over the longer term.
More Volatility Ahead
The new year is likely to be just as volatile as 1998, making price protection
and income all the more important. The Portfolio's value orientation is an
inherently lower risk equity strategy, because investor expectations are low.
Given its emphasis on "value" stocks, we anticipate the Portfolio's future
performance will fall somewhere between that of the S&P 500 Index and the
Lehman Brothers Government/Corporate Bond Index. We believe our efforts should
reduce overall market risk and help the Portfolio steer a smoother and
potentially more profitable course in 1999.
Respectfully,
/s/ Tin Chan /s/ Eric Weigel
Tin Chan Eric Weigel
Portfolio Manager Portfolio Manager
[SIDE BAR]
On September 1, William C. Field, passed the reins of Pioneer Balanced
Portfolio to a new investment team. Eric Weigel, who joined Pioneer in August
of 1998 with 10 years of industry experience, is the leader of Pioneer's
quantitative analysis efforts. He makes overall decisions for the allocation of
assets in the Fund. Tin Chan, who also joined us in August, has six years of
industry experience and manages the equity holdings of the Fund. The fixed
income team manages the bond portfolio.
Past performance does not guarantee future results. Return and principal
fluctuate so that your investment, when redeemed, may be worth more or less
than the original cost.
[END SIDE BAR]
18
<PAGE>
PIONEER VARIABLE CONTRACTS TRUST
Balanced Portfolio
PORTFOLIO AND PERFORMANCE UPDATE 12/31/98
Portfolio Diversification
(As a percentage of total investment portfolio)
U.S. Common Stocks 48%
Corporate Bonds 23%
U.S. Government Agency Obligations 13%
Short-Term Cash Equivalents 9%
U.S. Treasury Obligations 6%
International Common Stocks 1%
Sector Distribution
(As a percentage of long-term holdings)
Financial 22%
U.S. Government Securities 21%
Consumer Cyclicals 12%
Energy 9%
Technology 7%
Communication Services 7%
Capital Goods 7%
Consumer Staples 6%
Basic Materials 3%
Other 6%
- --------------------------------------------------------------------------------
Five Largest Holdings
(As a percentage of long-term holdings)
<TABLE>
<S> <C>
U.S. Treasury Bonds, 6.5%, 10/15/06 4.52%
Exxon Corp. 2.89
Ford Motor Co. 2.67
US West Communications Group, Inc. 2.48
Government National Mortgage Association, 6.0%, 11/15/28 2.39
</TABLE>
Holdings will vary for other periods.
- --------------------------------------------------------------------------------
Prices and Distributions
<TABLE>
<CAPTION>
12/31/98 12/31/97
<S> <C> <C>
Net Asset Value per Share $14.47 $14.99
Accumulation Unit Value 1.5407 1.5161
</TABLE>
<TABLE>
<CAPTION>
Distributions per Share Income Short-Term Long-Term
(12/31/97 - 12/31/98) Dividends Capital Gains Capital Gains
<S> <C> <C> <C>
$0.416 $0.337 $0.184
</TABLE>
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the value of an investment made in Balanced
Portfolio, compared to the growth of the Standard & Poor's (S&P) 500 Index and
the Lehman Brothers Government/Corporate Bond Index.
Lehman Brothers
Government/Corporate
Balanced Portfolio S&P 500 Index Bond Index
3/95 10000 10000 10000
10598 10953 10649
11774 11823 10853
12/95 11847 12533 11359
12206 13206 11093
12437 13796 11144
12700 14221 11340
12/96 13536 15406 11687
13523 15820 11586
14882 18579 12007
16120 19969 12428
12/97 15920 20543 12827
17058 23406 13022
16921 24182 13362
15851 21780 14023
12/98 16341 26444 14042
Index comparisons begin 3/31/95. The S&P 500 Index is a unmanaged measure of 500
widely held common stocks listed on the New York Stock Exchange, American Stock
Exchange and over-the-counter market. The Lehman Brothers Government/Corporate
Bond Index is an unmanaged measure of investment-grade domestic and Yankee
bonds. Bonds in the Index must be publicly issued, fixed-rate and
non-convertible. Index returns assume reinvestment of dividends and, unlike
Portfolio returns, do not reflect any fees or expenses. Portfolio returns are
based on net asset value and do not reflect any annuity-related costs. You
cannot invest directly in the Indexes.
[SIDE BAR]
Average Annual Total Returns
(As of December 31, 1998)
- --------------------------------------------------------------------------------
Net Asset Value*
<TABLE>
<CAPTION>
Period
<S> <C>
Life-of-Portfolio 14.23%
(3/1/95)
1 Year 2.64
</TABLE>
- --------------------------------------------------------------------------------
Accumulation Unit Value
Pioneer Vision 2
<TABLE>
<CAPTION>
If If
Period Held** Redeemed***
<S> <C> <C>
Life-of- 12.66% 11.91%
Portfolio
(3/1/95)
1 Year 1.63 -3.56
</TABLE>
- --------------------------------------------------------------------------------
Accumulation Unit Value
Pioneer Vision
<TABLE>
<CAPTION>
If If
Period Held** Redeemed***
<S> <C> <C>
Life-of- 12.66% 11.53%
Portfolio
(3/1/95)
1 Year 1.63 -4.78
</TABLE>
The Portfolio began operations on 3/1/95.
All total returns shown assume reinvestment of distributions at net asset
value.
* Reflects Portfolio performance only. Does not reflect insurance fees or
surrender charges.
** Reflects deduction of a 1.25% mortality and expense risk charge and a 0.15%
administrative expense charge. Does not reflect surrender charges.
*** Reflects deduction of a 1.25% mortality and expense risk charge, a 0.15%
administrative expense charge and the applicable contingent deferred sales
charge (CDSC), as if the contract were surrendered at the end of each
period. The maximum CDSC of 7% declines over seven years; it is deducted
only while the contract is in the surrender charge period. Returns do not
reflect a $30 annual contract fee; this fee is applied only until the
contract value reaches $50,000.
[END SIDE BAR]
Past performance does not guarantee future results. Return and principal
fluctuate so that your investment, when redeemed, may be worth more or less than
the original cost.
19
<PAGE>
PIONEER VARIABLE CONTRACTS TRUST
Swiss Franc Bond Portfolio
PORTFOLIO MANAGEMENT DISCUSSION 12/31/98
It was a very good year for conservative investors and Swiss Franc Bond
Portfolio. The Portfolio returned 9.48% at net asset value for the year ended
December 31, 1998, benefiting from the strength of the Swiss franc and lower
interest rates which increased the value of our bond holdings. The Portfolio
surpassed its investment goal of staying close to the return of Swiss franc, up
6.51% against the U.S. dollar for the period. Assets in the Portfolio nearly
doubled from $22 million at the start of the year to $41 million by year-end.
To help us track the value of the Swiss franc, we invest in Swiss
franc-denominated bonds with a maturity of three to five years. As of December
31, 1998, over 66.8% of the Portfolio's investments were rated AA+ bonds or
better. (These ratings apply to underlying investments not Portfolio shares.)
The average maturity of the bonds in the Portfolio dropped slightly over the
course of the year to 3.29 years.
Why the Swiss Franc
Historically, the Swiss franc has been a strong currency in times of economic
volatility. This proved to be true in 1998. A country's currency signals to the
rest of the world the state of its internal affairs, especially in relation to
other global market participants. Bad loans, inflation, poor trade balances and
civil strife are symptoms that affect the value of a country's currency
relative to others around the world. Across wars and economic hard times,
through Switzerland's political neutrality and tight economic controls, the
Swiss franc has played the role of safe haven against the world's economic
uncertainties.
Market Volatility Led to Portfolio Success
Over the last several years, a decline in inflation across the globe and the
credibility of global central banking have lowered the Swiss franc's
comparative advantage to other currencies as a safe haven for conservative
investors. There is, for instance, the perception that the euro, with its own
independent central bank, will be strong competition for the Swiss franc as the
world's reserve currency. However, with the return of global market volatility
in 1998, the Swiss franc and your Portfolio benefited.
Early in the year the Portfolio's performance suffered from the strength of the
U.S. dollar, and especially the Swiss franc's underperformance versus other
major currencies like the dollar and deutschmark. Because of the United States'
relatively high interest rates and its strength, it continued to attract
capital from around the world. However, after Russia's default on loans and the
ensuing world wide economic turmoil in late summer, the appeal and strength of
the Swiss franc increased. While the economic volatility renewed interest in
the Swiss franc and helped the Portfolio's holdings, it also detracted
slightly. Corporate bond prices dipped because of the economic uncertainty but
rebounded when central banks around the world began to drop interest rates to
forestall economic panic.
Looking Forward
With global volatility a strong possibility and the prospect of Y2K problems
(perceived or real) unsettling investors as the millennium draws to a close, we
believe Swiss Franc Bond Portfolio may do well again in 1999. Another positive
factor for the Portfolio would be the reversal of "europhoria." Should the
Continent's new economic union and its currency become over-politicized, or if
an economic slowdown sparks lower interest rates, the Swiss franc could
benefit. However, if economic volatility remains low, the dollar and the euro
strong, the Swiss franc and consequently the Portfolio would most likely not
fare as well. Either way, we believe Swiss Franc Bond Portfolio is a viable
candidate for conservative investors.
Respectfully,
/s/ Salvatore Pramas
Salvatore Pramas
Portfolio Manager
[SIDE BAR]
International investing may involve special risks, including differences in
accounting and currency, as well as economic and political instability.
The Portfolio's investment adviser, Pioneer Investment Management Inc., reduced
its management fee and certain other expenses; otherwise, returns would have
been lower. Past performance does not guarantee future results. Return and
principal fluctuate so that your investment, when redeemed, may be worth more
or less than the original cost.
[END SIDE BAR]
20
<PAGE>
PIONEER VARIABLE CONTRACTS TRUST
Swiss Franc Bond Portfolio
PORTFOLIO AND PERFORMANCE UPDATE 12/31/98
Portfolio Diversification
(As a percentage of total investment portfolio)
Corporate Bonds 53%
Foreign Government Bonds 27%
Short-Term Cash Equivalents 20%
Geographical Distribution
(As a percentage of debt holdings)
United States 14%
Netherlands 13%
France 12%
Canada 11%
Germany 10%
Philippines 6%
Sweden 6%
Belgium 5%
Norway 5%
Austria 5%
Denmark 4%
Other 9%
- --------------------------------------------------------------------------------
Five Largest Holdings
(As a percentage of debt holdings)
<TABLE>
<S> <C>
Asian Development Bank, 7.375%, 11/27/00 6.27%
AB Spintab, 3.25%, 1/24/02 5.75
Province of Ontario, 6.25%, 11/27/03 5.09
Statoil, 4.125%, 9/20/01 5.03
Merrill Lynch & Co., 3.0%, 4/8/02 4.97
</TABLE>
Holdings will vary for other periods.
- --------------------------------------------------------------------------------
Prices and Distributions
<TABLE>
<CAPTION>
12/31/98 12/31/97
<S> <C> <C>
Net Asset Value per Share $13.22 $12.50
Accumulation Unit Value 0.8726 0.8083
</TABLE>
<TABLE>
<CAPTION>
Distributions per Share Income Short-Term Long-Term
12/31/97 - 12/31/98 Dividends Capital Gains Capital Gains
<S> <C> <C> <C>
$0.456 - -
</TABLE>
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the value of an investment made in Swiss Franc Bond
Portfolio, compared to the growth of the Merrill Lynch Global Bond Index.
Swiss Franc Merrill Lynch
Bond Portfolio* Global Bond Index
11/95 10000 10000
10013 10110
9807 9944
9244 9991
9416 10246
12/96 8931 10515
8399 10205
8379 10543
8372 10740
12/97 8313 10845
8100 10968
8079 11196
8978 11935
12/98 9101 12231
Index comparison begins 11/30/95. The Merrill Lynch Global Bond Index is an
unmanaged measure of nearly 3,000 global government securities and Eurobonds.
Index returns are calculated monthly, assume reinvestment of dividends and,
unlike Portfolio returns, do not reflect any fees or expenses. Portfolio returns
are based on net asset value and do not reflect any annuity-related costs. You
cannot invest directly in the Index.
[SIDE BAR]
Average Annual Total Returns
(As of December 31, 1998)
- --------------------------------------------------------------------------------
Net Asset Value*
<TABLE>
<CAPTION>
Period
<S> <C>
Life-of-Portfolio -2.85%
(11/1/95)
1 Year 9.48
</TABLE>
- --------------------------------------------------------------------------------
Accumulation Unit Value
Pioneer Vision 2
<TABLE>
<CAPTION>
If If
Period Held** Redeemed***
<S> <C> <C>
Life-of- -4.21% -5.25%
Portfolio
(11/1/95)
1 Year 7.96 2.46
</TABLE>
- --------------------------------------------------------------------------------
Accumulation Unit Value
Pioneer Vision
<TABLE>
<CAPTION>
If If
Period Held** Redeemed***
<S> <C> <C>
Life-of- -4.21% -5.87%
Portfolio
(11/1/95)
1 Year 7.96 1.16
</TABLE>
The Portfolio began operations on 11/1/95.
All total returns shown assume reinvestment of distributions at net asset
value.
* Reflects Portfolio performance only. Does not reflect insurance fees or
surrender charges.
** Reflects deduction of a 1.25% mortality and expense risk charge and a 0.15%
administrative expense charge. Does not reflect surrender charges.
*** Reflects deduction of a 1.25% mortality and expense risk charge, a 0.15%
administrative expense charge and the applicable contingent deferred sales
charge (CDSC), as if the contract were surrendered at the end of each
period. The maximum CDSC of 7% declines over seven years; it is deducted
only while the contract is in the surrender charge period. Returns do not
reflect a $30 annual contract fee; this fee is applied only until the
contract value reaches $50,000.
[END SIDE BAR]
Past performance does not guarantee future results. Return and principal
fluctuate so that your investment, when redeemed, may be worth more or less than
the original cost.
21
<PAGE>
PIONEER VARIABLE CONTRACTS TRUST
America Income Portfolio
PORTFOLIO MANAGEMENT DISCUSSION 12/31/98
For investors in U.S. government securities, 1998 was a rewarding but
challenging year, as price swings became the hallmark of the credit markets. As
is often the case, turbulence gave way to longer-term opportunity. Ultimately,
interest rates fell to historic lows, driving bond prices significantly higher.
The yield on the 30-year U.S. Treasury bond fell from 5.92% on December 31,
1997, to an all-time low of 4.72% on October 5, 1998 before closing the year at
5.10%.
America Income Portfolio produced a solid return and a competitive level of
income over the past 12 months. The Portfolio paid a total of $0.548 per share
in income dividends and rose $0.25 in share price. On December 31, 1998, the
Portfolio's net asset value (NAV) stood at $10.29 per share versus $10.04 on
December 31, 1997. This increase in share price, plus the reinvestment of
dividends produced a total return of 8.15%, based on net asset value, for the
Portfolio's 1998 fiscal year. In comparison, the Lehman Brothers Government
Bond Index returned 9.85%.
A Tale of Two Economies
Two vastly different investment environments existed in 1998. In the first half
of the year, investors focused on robust U.S. economic growth, debating whether
or not the economy's strength would rekindle inflation. However, in the second
half, financial markets became increasingly fragile as economic problems
affected many global economies. Anticipating the worst, investors sought the
safety and liquidity of U.S. Treasurys. Their demand sparked a
"flight-to-quality" that pushed prices up and yields to all-time lows. Also, in
response to events overseas, the Federal Reserve lowered the federal funds rate
three times in the fall of 1998 - from 5.50% to 4.75% - to increase liquidity,
reduce volatility and calm credit markets, both internationally and
domestically. By year-end, the markets had begun to stabilize and interest
rates rose, but still remained low by historical standards.
From an investment standpoint, the "flight-to-quality" created good values in
other segments of the U.S. bond market. As economic trouble overseas translated
into increased credit risk for U.S. companies, prices fell, yields rose for
mortgage backed securities and corporate bonds. These other groups eventually
provided extremely attractive relative value.
Liquidity and Relative Value Generate Attractive Total Return
Throughout 1998, our strategy emphasized total return and relative value while
maintaining a high degree of liquidity and high standards for quality and
diversification. We emphasized Treasurys in the first half of the year to build
liquidity, which made it easier to adjust to changing interest rate
environments. We also invested in callable agencies, gaining an attractive
yield advantage over Treasurys. A "callable" bond will have a predetermined
date set on which the issuer has the option of redeeming the bond prior to its
maturity date.
In the second half of the year, we reduced the allocation to Treasurys.
Instead, we increased the Fund's holdings in mortgage-backed securities from
26% on June 30, 1998 to 45% on December 31, 1998, to take advantage of the
substantial yield they provided over U.S. Treasurys. We focused on newly issued
Government National Mortgage Association (GNMA) securities because of their
tendency for lower prepayments (the ability of a homeowner to refinance their
current mortgage at a lower interest rate) and, to a lesser degree, on Federal
National Mortgage Obligation (FNMA) securities.
Looking Ahead
As we head into the first half of 1999, we are cautiously optimistic about
bonds. We think the current condition of the U.S. economy bodes well for
continued low interest rates. Further, in our opinion, last year's market
turmoil created considerable opportunity for agile investors to capture
attractive yields and low prices. Over the next few months, these price
disparities among various types of bonds should close, to reflect more
historical standards and generate attractive returns.
Respectfully,
/s/ Sherman B. Russ
Sherman B. Russ,
Portfolio Manager
[SIDE BAR]
We recently changed, and we think strengthened, the Fund's management team. We
are pleased that Kenneth J. Taubes joined us in September, bringing with him 13
years of investment experience. He and Sherman B. Russ, who has worked with the
Portfolio since its inception, supervise the fixed-income team of portfolio
managers and analysts responsible for the day-to-day management of the
Portfolio.
The Portfolio's investment adviser, Pioneer Investment Management, Inc.,
reduced its management fee and certain other expenses; otherwise, returns would
have been lower. Past performance does not guarantee future results. Return and
principal fluctuate so that your investment, when redeemed, may be worth more
or less than the original cost.
[END SIDE BAR]
22
<PAGE>
PIONEER VARIABLE CONTRACTS TRUST
America Income Portfolio
PORTFOLIO AND PERFORMANCE UPDATE 12/31/98
Portfolio Diversification
(As a percentage of total investment portfolio)
U.S. Government Agency Obligations 72%
U.S. Treasury Obligations 24%
Short-Term Cash Equivalents 4%
Portfolio Maturity
(Effective life as a percentage of total investment portfolio)
0-2 Years 11%
2-5 Years 29%
5-7 Years 12%
7-10 Years 36%
10-20 Years 4%
20+ Years 8%
- --------------------------------------------------------------------------------
Five Largest Holdings
(As a percentage of debt holdings)
<TABLE>
<S> <C>
U.S. Treasury Notes, 7.0%, 7/15/06 10.64%
U.S. Treasury Notes, 6.25%, 8/15/23 7.03
Government National Mortgage Association, 6.0%, 10/15/28 5.38
U.S. Treasury Bonds, 7.25%, 5/15/16 3.70
Federal National Mortgage Association, 6.5%, 11/1/28 3.65
</TABLE>
Holdings will vary for other periods.
- --------------------------------------------------------------------------------
Prices and Distributions
<TABLE>
<CAPTION>
12/31/98 12/31/97
<S> <C> <C>
Net Asset Value per Share $10.29 $10.04
Accumulation Unit Value 1.1878 1.1141
</TABLE>
<TABLE>
<CAPTION>
Distributions per Share Income Short-Term Long-Term
12/31/97 - 12/31/98 Dividends Capital Gains Capital Gains
<S> <C> <C> <C>
$0.548 - -
</TABLE>
- --------------------------------------------------------------------------------
Performance of a $10,000 Investment
The following chart shows the value of an investment made in America Income
Portfolio, compared to the growth of the Lehman Brothers Government Bond Index.
Lehman Brothers
America Income Government
Portfolio* Bond Index
3/95 10000 10000
10109 10620
10432 10809
12/95 10574 11302
10320 11046
10339 11098
10479 11285
12/96 10712 11615
10615 11520
10967 11919
11288 12318
12/97 11616 12727
11758 12919
11991 13261
12560 13994
12/98 12563 13981
Index comparison begins 3/31/95. The Lehman Brothers Government Bond Index is an
unmanaged performance measure of U.S. Treasury debt, all publicly issued debt of
U.S. government agencies and quasi-federal corporations and corporate debt
guaranteed by the U.S. government. Index returns are calculated monthly, assume
reinvestment of dividends and, unlike Portfolio returns, do not reflect any fees
or expenses. Portfolio returns are based on net asset value and do not reflect
any annuity-related costs. You cannot invest directly in the Index.
[SIDE BAR]
Average Annual Total Returns
(As of December 31, 1998)
- --------------------------------------------------------------------------------
Net Asset Value*
<TABLE>
<CAPTION>
Period
<S> <C>
Life-of-Portfolio 6.11%
(3/1/95)
1 Year 8.15
</TABLE>
- --------------------------------------------------------------------------------
Accumulation Unit Value
Pioneer Vision 2
<TABLE>
<CAPTION>
If If
Period Held** Redeemed***
<S> <C> <C>
Life-of- 4.68% 3.75%
Portfolio
(3/1/95)
1 Year 6.61 1.17
</TABLE>
- --------------------------------------------------------------------------------
Accumulation Unit Value
Pioneer Vision
<TABLE>
<CAPTION>
If If
Period Held** Redeemed***
<S> <C> <C>
Life-of- 4.68% 3.28%
Portfolio
(3/1/95)
1 Year 6.61 -0.11
</TABLE>
The Portfolio began operations on 3/1/95.
All total returns shown assume reinvestment of distributions at net asset
value.
* Reflects Portfolio performance only. Does not reflect insurance fees or
surrender charges.
** Reflects deduction of a 1.25% mortality and expense risk charge and a 0.15%
administrative expense charge. Does not reflect surrender charges.
*** Reflects deduction of a 1.25% mortality and expense risk charge, a 0.15%
administrative expense charge and the applicable contingent deferred sales
charge (CDSC), as if the contract were surrendered at the end of each
period. The maximum CDSC of 7% declines over seven years; it is deducted
only while the contract is in the surrender charge period. Returns do not
reflect a $30 annual contract fee; this fee is applied only until the
contract value reaches $50,000.
[END SIDE BAR]
Past performance does not guarantee future results. Return and principal
fluctuate so that your investment, when redeemed, may be worth more or less
than the original cost.
23
<PAGE>
Emerging Markets Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ---------- --------------
<S> <C> <C>
INVESTMENT IN SECURITIES - 100%
PREFERRED STOCKS - 8.1%
100 Companhia Energetica de Minas Gerais (A.D.R.) $ 1,850
63 Telecomunicacoes Brasileiras SA (A.D.R.) 4,579
40 Telesp Celular Participacoes SA (A.D.R.)* 700
16 Telesp Participacoes SA (A.D.R.) 354
115 Tele Sudeste Celular Participacoes SA (A.D.R.) 2,379
-----------
TOTAL PREFERRED STOCKS (Cost $10,542) $ 9,862
-----------
COMMON STOCKS - 91.9%
BASIC MATERIALS - 10.2%
Construction (Cement & Aggregates) - 1.4%
815 Siam City Cement Co., Ltd.* $ 1,766
-----------
Gold & Precious Metals Mining - 7.1%
545 Gold Fields Ltd.* $ 3,007
2,700 Lihir Gold Ltd.* 3,028
1,450 TVX Gold Inc.* 2,628
-----------
$ 8,663
-----------
Metals Mining - 1.7%
5,500 PT Aneka Tambang Tbk $ 1,117
1,500 PT Tambang Timah Tbk 1,008
-----------
$ 2,125
-----------
TOTAL BASIC MATERIALS $ 12,554
-----------
CAPITAL GOODS - 1.4%
Engineering & Construction - 1.4%
225 Larsen & Toubro (G.D.R.) $ 1,766
-----------
TOTAL CAPITAL GOODS $ 1,766
-----------
COMMUNICATION SERVICES - 15.0%
Cellular/ Wireless Communications - 7.8%
70 Ceske Radiokomunikace AS (G.D.R.)* $ 2,257
440 Grupo Iusacell SA (Series L) (A.D.R.)* 3,136
412 SK Telecom Co., Ltd. (A.D.R.) 4,197
-----------
$ 9,590
-----------
Telecommunications (Long Distance) - 1.5%
1,000 Asia Satellite Telecommunications Holdings Ltd. $ 1,781
-----------
Telephone - 5.7%
220 Mahanagar Telephone Nigam Ltd. (G.D.R.) $ 2,722
4,200 TelecomAsia Corp. Public Co., Ltd.* 1,820
200 Videsh Sanchar Nigam Ltd. (G.D.R.) 2,475
-----------
$ 7,017
-----------
TOTAL COMMUNICATION SERVICES $ 18,388
-----------
CONSUMER CYCLICALS - 7.0%
Automobiles - 2.1%
600 Tata Engineering & Locomotive Co. Ltd. (G.D.R.)* $ 2,520
-----------
Building Materials - 2.0%
975 Cemex SA de CV (Class B) $ 2,446
-----------
Retail (Specialty) - 2.0%
2,015 Cifra SA de CV (Series C)* $ 2,482
-----------
Services (Commercial & Consumer) - 0.9%
262,000 Net Holding AS* $ 1,059
-----------
TOTAL CONSUMER CYCLICALS $ 8,507
-----------
CONSUMER STAPLES - 12.1%
Broadcasting (Television/Cable/Radio) - 7.0%
700 Benpres Holdings Corp. (G.D.R.)* $ 1,794
350 Central European Media Enterprises Ltd.* 2,297
505 Grupo Radio Centro SA de CV (A.D.R.) 2,714
73 Grupo Televisa SA (G.D.R.)* 1,802
-----------
$ 8,607
-----------
Entertainment - 0.5%
200 Corporacion Interamericana de Entretenimiento SA (Series B)* $ 545
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
Emerging Markets Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ---------- --------------
<S> <C> <C>
Foods - 4.6%
2,500 Daya Guna Samudera $ 1,617
115 Grupo Industrial Maseca SA de CV (A.D.R.) 1,430
575 Thai Union Frozen Products Public Co. Ltd. 2,515
-----------
$ 5,562
-----------
TOTAL CONSUMER STAPLES $ 14,714
-----------
ENERGY - 3.1%
Oil (International Integrated) - 3.1%
70 MOL Magyar Olaj-Es Gazipari (G.D.R.) $ 1,932
200 Perez Compano SA (Class B) 847
36 YPF SA (Class D) (A.D.R.) 1,006
-----------
TOTAL ENERGY $ 3,785
-----------
FINANCIAL - 17.6%
Banks (Major Regional) - 12.9%
46 Banco Frances Del Rio Plata SA (A.D.R.) $ 955
150 Credicorp Ltd. 1,350
375 Development Bank of Singapore Ltd. 3,386
2700 Grupo Financiero Banamex Accival, SA de CV (Class B)* 3,544
300 Industrial Credit & Investment Corp. of India Ltd. (G.D.R.) 2,003
325 Overseas-Union Bank Ltd. 1,418
250 State Bank of India (G.D.R.) 2,094
83,080 Yapi ve Kredi Bankasi AS 961
-----------
$ 15,711
-----------
Financial (Diversified) - 3.7%
15,700 Grupo Financiero Bancomer (B Shares) $ 3,360
600 Pakistan Investment Fund Inc. 1,125
-----------
$ 4,485
-----------
Investment Banking/Brokerage - 1.0%
670,000 Global Menkul Degerler AS $ 1,232
-----------
TOTAL FINANCIAL $ 21,428
-----------
TECHNOLOGY - 21.5%
Communications Equipment - 3.1%
10 Gilat Satellite Networks Ltd.* $ 551
170 Tadiran Telecommunications Ltd. 3,251
-----------
$ 3,802
-----------
Computers (Software & Services) - 9.8%
70 Check Point Software Technologies Ltd.* $ 3,207
135 Creative Technology Ltd.* 1,906
90 Formula Systems Ltd. (A.D.R.)* 2,250
260 Tecnomatix Technologies Ltd.* 4,550
-----------
$ 11,913
-----------
Electronics (Component Distributors) - 2.9%
600 KCE Electronics Public Co., Ltd.* $ 1,329
100 Nice Systems Ltd. (A.D.R.)* 2,163
-----------
$ 3,492
-----------
Electronics (Instrumentation) - 1.1%
250 Elec & Eltek International Co., Ltd. $ 1,350
-----------
Equipment (Semiconductors) - 4.6%
120 Orbotech Ltd.* $ 5,685
-----------
TOTAL TECHNOLOGY $ 26,242
-----------
UTILITIES - 4.0%
Electric Companies - 4.0%
150 Empresa Nacional de Electricidad SA (A.D.R.) $ 1,706
200 Korea Electric Power (A.D.R.) 3,138
-----------
TOTAL UTILITIES $ 4,844
-----------
TOTAL COMMON STOCKS (Cost $105,746) $ 112,228
-----------
TOTAL INVESTMENT IN SECURITIES - 100% (Cost $116,288)(a)(b) $ 122,090
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
Emerging Markets Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
(a) Distribution of investments by country, as a percentage of total equity
holdings, is as follows:
<TABLE>
<S> <C>
Israel 17.7%
Mexico 17.6
India 11.1
Brazil 8.1
Singapore 6.6
Thailand 6.1
South Korea 6.0
Czech Republic 3.7
Indonesia 3.1
Turkey 2.7
Papua New Guinea 2.5
South Africa 2.5
Argentina 2.3
Canada 2.1
Hungary 1.6
Philippines 1.5
Chile 1.4
Hong Kong 1.4
Peru 1.1
Pakistan 0.9
-----
100.0%
=====
</TABLE>
(b) At December 31, 1998, the net unrealized gain on investments based on cost
for federal income tax purposes of $116,288 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized gain for all investments in which
there is an excess of value over tax cost $ 9,361
Aggregate gross unrealized loss for all investments in which
there is an excess of tax cost over value (3,559)
--------
Net unrealized gain $ 5,802
========
Purchases and sales of securities (excluding temporary cash investments)
for the period ended December 31,1998 aggregated $126,318 and $10,033,
respectively.
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
Emerging Markets Portfolio
Balance Sheet
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investment in securities, at value (cost $116,288) $122,090
Cash 14,249
Foreign currencies, at value 619
Receivables--
Dividends, interest and foreign taxes withheld 101
Forward foreign currency settlement contracts, net 2
Due from Pioneer Investment Management, Inc. 15,409
--------
Total assets $152,470
--------
Liabilities:
Payables--
Investment securities purchased $ 6,643
Due to affiliates 55
Accrued expenses 12,999
--------
Total liabilities $ 19,697
--------
Net Assets:
Paid-in capital $126,973
Accumulated net investment loss (2)
Net unrealized gain on investments 5,802
--------
Total net assets $132,773
========
Net Asset Value Per Share:
(Unlimited number of shares authorized)
Based on $132,773/12,658 shares $ 10.49
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
Emerging Markets Portfolio
Statement of Operations
For the Period from October 30, 1998 (Commencement of Operations) to December
31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income:
Dividends (net of foreign taxes withheld of $41) $ 284
Interest 44
------
Total investment income $ 328
---------
Expenses:
Management fees $ 213
Transfer agent fees 124
Accounting 6,014
Custodian fees 9,450
Professional fees 2,232
Printing 992
Fees and expenses of nonaffiliated trustees 124
Miscellaneous 635
------
Total expenses $ 19,784
Less management fees waived and expenses reimbursed by
Pioneer Investment Management, Inc. (19,445)
---------
Net expenses $ 339
---------
Net investment loss $ (11)
---------
Realized and Unrealized Gain on Investments
and Foreign Currency Transactions:
Net realized gain from investments and foreign currency transactions $ 3
Net unrealized gain from investments and foreign currency transactions 5,802
---------
Net gain on investments and foreign currency transactions $ 5,805
---------
Net increase in net assets resulting from operations $ 5,794
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
Emerging Markets Portfolio
Statement of Changes in Net Assets
For the Period from October 30, 1998 (Commencement of Operations) to December
31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 30, 1998 to
December 31, 1998
--------------------
<S> <C> <C>
From Operations:
Net investment loss $ (11)
Net realized gain on investments and foreign currency transactions 3
Net unrealized gain on investments and foreign currency transactions 5,802
--------
Net increase in net assets resulting
from operations $ 5,794
--------
From Fund Share Transactions: '98 Shares
-------------
Net proceeds from sale of shares 2,726 $ 27,691
Cost of shares repurchased (68) (712)
----- --------
Net increase in net assets resulting
from fund share transactions 2,658 $ 26,979
===== --------
Net increase in net assets $ 32,773
NET ASSETS:
Beginning of period (initial capitalization--
10,000 shares) 100,000
--------
End of period (including accumulated net
investment loss of $2) $132,773
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
Emerging Markets Portfolio
Financial Highlights
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 30, 1998 to
December 31, 1998
--------------------
<S> <C>
Net asset value, beginning of period $ 10.00
--------
Increase from investment operations:
Net investment loss $ 0.00
Net realized and unrealized gain on
investments and foreign currency transactions 0.49
--------
Net increase in net asset value $ 0.49
--------
Net asset value, end of period $ 10.49
========
Total return* 4.90%
Ratio of net expenses to average net assets 1.75%**
Ratio of net investment loss to average net assets (0.01)%**
Portfolio turnover rate 60%**
Net assets, end of period (in thousands) $ 133
Ratios assuming no waiver of management fees and assumption of
expenses by PIM:
Net expenses 104.83%**
Net investment loss (103.09)%**
</TABLE>
* Assumes initial investment at net asset value at the beginning of the period,
reinvestment of distributions, and the complete redemption of the investment
at net asset value at the end of the period.
** Annualized.
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
International Growth Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ------------ --------------
<S> <C> <C>
INVESTMENT IN SECURITIES - 95.9%
PREFERRED STOCKS - 2.3%
1,130 Bau Holdings AG $ 42,410
154,000 Companhia Riograndenese de Telecomunicacoes 53,787
3,000 Henkel KGaA 268,195
7,500 Rhine-Westphalia Electric AG 273,595
360 Suedzucker AG 163,509
84,595 Telecomunicacoes de Sao Paulo SA 11,531
3,700,000 Telecomunicacoes de Sao Paulo SA (Class B)* 162,607
11,600 Tele Sudeste Celular Participacoes SA (A.D.R.) 239,975
-----------
TOTAL PREFERRED STOCKS (Cost $1,562,369) $ 1,215,609
-----------
COMMON STOCKS - 93.6%
BASIC MATERIALS - 7.3%
Agricultural Products - 0.7%
459,000 IOI Corporation Bhd. $ 210,657
838,000 London Sumatra Indonesia 136,175
-----------
$ 346,832
-----------
Chemicals - 0.5%
6,100 BASF AG $ 232,771
-----------
Chemicals (Diversified) - 1.4%
570,000 Montedison SpA $ 568,793
58,000 WMC Ltd. 174,869
-----------
$ 743,662
-----------
Containers & Packaging (Paper) - 1.4%
47,000 Malaysian Pacific Industries Bhd. $ 51,453
5,100 Schmalbach Lubeca AG 697,666
-----------
$ 749,119
-----------
Gold & Precious Metals Mining - 0.4%
213,700 Orogen Minerals Ltd. $ 220,135
-----------
Iron & Steel - 1.1%
5,150 Boehler - Uddeholm AG $ 239,720
17,000 Broken Hill Proprietary Co., Ltd. 125,209
12,000 Pohang Iron & Steel Co. (A.D.R.) 202,500
-----------
$ 567,429
-----------
Paper & Forest Products - 1.8%
42,480 Buhrmann N.V. $ 759,864
181,000 Jaya Tiasa Holdings Bhd. 192,432
-----------
$ 952,296
-----------
TOTAL BASIC MATERIALS $ 3,812,244
-----------
CAPITAL GOODS - 10.7%
Electrical Equipment - 1.6%
900,000 IDT International Ltd. $ 120,811
10,600 Philips Electronics NV 711,031
-----------
$ 831,842
-----------
Engineering & Construction - 1.7%
28,000 Ashtead Group Plc $ 63,793
20,000 Gujarat Ambuja Cements Ltd. (G.D.R.) 133,500
1,700 L.G. Construction Ltd. 11,305
3,200 Technip 301,055
4,500 VA Technologies AG 389,986
-----------
$ 899,639
-----------
Machinery (Diversified) - 3.0%
8,000 Sampo Insurance Co., Ltd. $ 305,945
6,600 Sidel SA 559,542
124,800 Siebe Plc 490,838
17,000 Valmet Corp. 226,713
-----------
$ 1,583,038
-----------
Manufacturing (Diversified) - 2.0%
223,187 BTR Plc $ 458,383
1,675 Plettac AG 131,150
128,000 TT Group Plc 457,658
-----------
$ 1,047,191
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
International Growth Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ------------ --------------
<S> <C> <C>
Office Equipment & Supplies - 1.8%
23,000 Canon, Inc. $ 491,853
12,000 Koninklije Ahrend NV 274,063
9,250 Samas-Groep NV 165,460
-----------
$ 931,376
-----------
Trucks & Parts - 0.6%
160 Bucher Holding AG $ 128,251
13,700 Svedala Industri AB 199,616
-----------
$ 327,867
-----------
TOTAL CAPITAL GOODS $ 5,620,953
-----------
COMMUNICATION SERVICES - 10.3%
Cellular/Wireless Telecommunications - 2.2%
52,500 Cable & Wireless Optus Ltd.* $ 110,350
14 NTT Mobile Communication Network, Inc. 576,463
700 Panafon Hellenic Telecom SA* 18,758
1,900 Sonera Group Plc* 33,536
80,800 Telecom Italia Mobile SpA 380,178
74,500 United Communication Industry Public Co., Ltd.* 39,965
-----------
$ 1,159,250
-----------
Telephone - 8.1%
130 NTT Data Corp. $ 645,798
1,200 Swisscom AG (Registered)* 502,805
586,000 Technology Resources Industries Bhd. 244,269
163,000 TelecomAsia Corp. Public Co., Ltd.* 70,626
108,077 Telecom Italia SpA 921,612
105,000 Telecom Italia SpA Di Risp 660,417
2,500 Telecomunicacoes Brasileiras SA (A.D.R.) 181,719
13,779 Telefonica SA 611,756
7,350 Telefonica de Argentina SA (Class B) (A.D.R.) 205,341
18,100 Videsh Sanchar Nigam Ltd. (G.D.R.) 223,988
-----------
$ 4,268,331
-----------
TOTAL COMMUNICATION SERVICES $ 5,427,581
-----------
CONSUMER CYCLICALS - 13.9%
Auto Parts & Equipment - 0.5%
8,000 AutoLiv Inc. (A.D.R.) $ 287,459
-----------
Automobiles - 0.5%
2,512 DaimlerChrysler AG $ 247,929
-----------
Building Materials - 1.3%
13,640 Asko OY $ 232,463
1,500 Cemex, SA de CV (Class A) 3,203
75,000 Cemex, SA de CV (Class B) 188,162
46,708 Williams Plc 267,202
-----------
$ 691,030
-----------
Consumer (Jewelry, Novelties, & Gifts) - 0.2%
24,500 Safilo SpA $ 130,094
-----------
Hardware & Tools - 0.2%
9,000 Makita Corp. $ 100,337
-----------
Homebuilding - 0.2%
2,354,000 DMCI Holdings Inc.* $ 99,243
-----------
Household Furniture & Appliances - 2.3%
500 Forbo Holding AG $ 218,611
3,400 Ryohin Keikaku Ltd. 453,112
7,400 Sony Corp. 539,290
-----------
$ 1,211,013
-----------
Leisure Time (Products) - 0.3%
12,000 Bajaj Auto Ltd. (A.D.R.) (Dematerialized Shares) $ 183,000
-----------
Publishing (Newspapers) - 0.7%
35,000 Reed International Plc $ 278,220
61,000 Star Publications 69,347
-----------
$ 347,567
-----------
Retail (Department Stores) - 0.3%
6,766,500 PT Matahari Putra Prima $ 169,163
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
International Growth Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ------------ --------------
<S> <C> <C>
Retail (Discounters) - 0.1%
5,000 Makro Atacadista SA (G.D.R.) $ 36,250
-----------
Retail (General Merchandise) - 0.2%
198,000 Woolworths Holdings Ltd. $ 97,483
-----------
Retail (Home Shopping) - 1.1%
67,500 Next Plc $ 553,405
-----------
Retail (Specialty) - 1.4%
37,000 Arriva Plc $ 231,357
59,000 Carpetright Plc 220,763
210,000 Cifra SA de CV (Series C) 258,657
100,000 Sa Sa International Holdings Ltd. 7,099
-----------
$ 717,876
-----------
Retail (Specialty-Apparel) - 0.3%
834,000 Giordano International Ltd. $ 156,087
-----------
Services (Commercial & Consumer) - 3.4%
7,000 Hagemeyer NV $ 255,643
65,000 Hays Plc 572,904
167,500 Jasmine International Public Co., Ltd.* 41,933
7,700,000 Net Holding AS* 31,121
43,000 Rentokil Initial Plc 324,521
23,200 Select Appointments Holdings Plc 239,206
13,300 Stork NV 303,753
-----------
$ 1,769,081
-----------
Textiles (Apparel) - 0.1%
669,000 Goldiron Holdings Ltd. $ 50,946
15 Hugo Boss AG 25,200
-----------
$ 76,146
-----------
Textiles (Home Furnishings) - 0.8%
2,450 Chargeurs International SA $ 135,405
11,000 Industrie Natuzzi SpA (A.D.R.) 273,625
-----------
$ 409,030
-----------
TOTAL CONSUMER CYCLICALS $ 7,282,193
-----------
CONSUMER STAPLES - 5.9%
Beverages (Non-Alcoholic) - 0.4%
8,200 Louis Dreyfus Citrus $ 205,477
-----------
Broadcasting (Television/Radio/Cable) - 0.8%
1,760,000 Benpres Holdings Corp.* $ 285,039
18,300 Central European Media Enterprises Ltd.* 120,094
-----------
$ 405,133
-----------
Distributors (Food & Health) - 0.3%
2,100 Gehe AG $ 144,897
-----------
Entertainment - 0.6%
15,200 Pearson Plc $ 302,537
-----------
Foods - 1.3%
3,700 Huhtamaki (Series I) $ 138,597
1,481,625 JG Summit Holding, Inc. (Series B)* 91,411
493,875 JG Summit Holding, Inc. (Series B)+* 24,292
45,000 Thai Union Frozen Products Public Co., Ltd. 179,505
23,000 Unilever Plc 258,946
-----------
$ 692,751
-----------
Household Products (Non-Durables) - 1.2%
19,500 Hunter Douglas NV $ 645,709
-----------
Restaurants - 0.2%
147,000 Kentucky Fried Chicken Bhd. $ 95,318
-----------
Retail Stores (Food Chains) - 0.7%
4,400 Delhaize-Le Lion, SA $ 386,925
-----------
Services (Facilities & Environment) - 0.4%
9,800 Brambles Industries Ltd. $ 238,716
-----------
TOTAL CONSUMER STAPLES $ 3,117,463
-----------
ENERGY - 4.6%
Oil (International Integrated) - 1.9%
27,600 British Petroleum Plc $ 388,221
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
International Growth Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ---------- -------------
<S> <C> <C>
Oil (International Integrated) - (Continued)
2,650 Elf Aquitaine $ 306,189
65,000 Saipem SpA 274,388
----------
$ 968,798
----------
Oil & Gas (Exploration & Production) - 1.1%
121,000 Cultus Petroleum NL* $ 49,680
9,000 Veba AG 538,369
----------
$ 588,049
----------
Oil & Gas (Refining & Marketing) - 1.6%
12,200 Repsol SA (L Shares) $ 649,831
2,000 Total SA (Class B) 202,468
----------
$ 852,299
----------
TOTAL ENERGY $2,409,146
----------
FINANCIAL - 14.5%
Banks (Major Regional) - 6.3%
77,000 Banco Popolare Di Milano $ 698,518
15,300 Banco De Santander SA 303,589
1,400 Credit Suisse Group, Inc. 219,340
30,000 Dao Heng Bank Ltd. 92,739
2,300 DePfa-Bank 201,476
35,480 Development Bank of Singapore Ltd. 320,395
18,000 Housing & Commercial Bank 222,943
535,000 JCG Holdings Ltd. 172,634
18,133 Kookmin Bank 147,868
247,200 National Finance Public Co., Ltd. 78,206
3,800 Societe Generale 615,096
6,150 Svenska Handelbanken 259,713
----------
$3,332,517
----------
Banks (Money Center) - 1.5%
43,500 San Paolo IMI SpA* $ 768,189
----------
Banks (Regional) - 0.5%
40,000 Australia & New Zealand Banking Ltd. $ 261,788
----------
Financial (Diversified) - 3.8%
16,000 AMP Ltd.* $ 202,714
20,000 Cheung Kong Holdings Ltd. 143,916
4,000 Industrial Credit & Investment Corp. of India Ltd.
(G.D.R.) (Dematerialized Shares) 26,700
8,500 ING Groep NV CVA 518,127
7,180 Nichiei Co., Ltd. 572,213
1,600 Shohkoh Fund 515,718
----------
$1,979,388
----------
Insurance (Life/Health) - 0.1%
9,000 Mediolanum SpA $ 66,677
----------
Insurance (Multi-Line) - 1.7%
1,250 Axa Colonia Konzern AG $ 141,747
3,000 Catalana Occidente SA* 78,103
133,200 Malaysian Assurance Alliance Bhd. 109,364
730 Zurich Allied AG 540,997
----------
$ 870,211
----------
Savings & Loan Companies - 0.6%
165,000 Hong Leong Finance Ltd. $ 316,000
----------
TOTAL FINANCIAL $7,594,770
----------
HEALTHCARE - 7.4%
Healthcare (Drugs - Generic & Other) - 0.7%
17,000 Sankyo Co. Ltd. $ 371,823
----------
Healthcare (Drugs/Major Pharmaceuticals) - 5.4%
13,766 Astra AB $ 281,319
11,480 Fabrica Espanola de Productos Quimicos y Farmaceuticos, SA 184,575
8,300 Glaxo Wellcome Plc 286,410
645 Novartis AG 1,269,037
9,432 Rhone-Poulenc SA 485,180
20 Roche Holdings AG 244,261
85,000 SkyePharma Plc* 109,904
----------
$2,860,686
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
International Growth Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ---------- --------------
<S> <C> <C>
Healthcare (Medical Products/Supplies) - 1.3%
19,200 Biora AB* $ 129,208
23,000 Terumo Corp. 541,752
-----------
$ 670,960
-----------
TOTAL HEALTHCARE $ 3,903,469
-----------
TECHNOLOGY - 13.2%
Communications Equipment - 4.4%
3,200 Alcatel Alsthom SA $ 391,487
5,800 ECI Telecommunications Ltd. 206,625
8,500 Nokia AB 1,033,546
3,200 Samsung Electronics Co. 214,663
15,400 Tadiran Telecommunications Ltd. 294,525
7,800 Telefonaktiebolaget LM Ericsson (Series B) 185,885
-----------
$ 2,326,731
-----------
Computers (Peripherals) - 0.4%
1,500 Logitech International AG* $ 181,447
3,700 Logitech International AG (A.D.R.)* 42,088
-----------
$ 223,535
-----------
Computers (Software & Services) - 1.0%
3,600 Intentia International AB (Class B)* $ 122,244
5,000 Pentafour Software & Exports Ltd. (G.D.R.) 83,177
18,500 Tecnomatix Technologies Ltd.* 323,750
-----------
$ 529,171
-----------
Electronics (Componet Distributors) - 2.4%
1,100 Barco N.V $ 308,649
80,900 KCE Electronics Public Co., Ltd.* 179,160
62,000 Toshiba Corp. 369,486
86,000 Varitronix International Ltd. 160,953
55,000 Venture Manufacturing Ltd. 210,000
-----------
$ 1,228,248
-----------
Electronics (Instrumentation) - 0.7%
71,200 Elec & Eltek International Co., Ltd. $ 384,480
-----------
Electronics (Semiconductors) - 3.5%
115,000 Advanced Semiconductor Engineering, Inc. $ 192,737
5,400 Rohm Co., Ltd. 492,039
5,500 STMicroelectronics NV* 432,839
94,000 Taiwan Semiconductors Manufacturing Co. 207,138
14,000 Tokyo Electron Ltd. 531,834
-----------
$ 1,856,587
-----------
Equipment (Semiconductors) - 0.2%
170,000 ASM Pacific Technology Ltd. $ 74,055
-----------
Services (Computer Systems) - 0.1%
171,000 Loxley Public Co., Ltd.* $ 64,683
10,400 Loxley Public Co., Ltd. (Local Shares)* 3,934
-----------
$ 68,617
-----------
Services (Data Processing) - 0.5%
23,500 Merkantildata ASA $ 231,955
-----------
TOTAL TECHNOLOGY $ 6,923,379
-----------
TRANSPORTATION - 0.4%
Airlines - 0.4%
28,000 British Airways Plc $ 186,256
-----------
TOTAL TRANSPORTATION $ 186,256
-----------
UTILITIES - 5.4%
Electric Companies - 4.2%
18,500 Electricidade de Portugal, SA $ 407,498
18,500 Endesa SA 489,445
26,300 Fortum Oyj Corp.* 152,675
80,000 Hongkong Electric Holdings Ltd. 242,656
29,000 National Power Plc 250,298
53,000 Scottish Power Plc 535,885
450,000 Zhejiang Southeast Electric Power (Class B) 94,500
-----------
$ 2,172,957
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
International Growth Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ------------ -------------
<S> <C> <C>
Natural Gas - 0.2%
51,000 Fletcher Challenge Energy* $ 96,610
-----------
Water Utilities - 1.0%
2,600 Suez Lyonnaise Des Eaux $ 533,858
-----------
TOTAL UTILITIES $ 2,803,425
-----------
TOTAL COMMON STOCKS (Cost $50,929,666) $49,080,879
-----------
TOTAL INVESTMENT IN SECURITIES (Cost $52,492,035)(a) $50,296,488
-----------
Principal
Amount
---------
TEMPORARY CASH INVESTMENT - 4.1%
Commercial Paper - 4.1%
$2,142,000 Ford Motor Credit Corp., 4.92%, 1/4/99 $ 2,142,000
-----------
TOTAL TEMPORARY CASH INVESTMENT (Cost $2,142,000) $ 2,142,000
-----------
TOTAL INVESTMENT IN SECURITIES AND
TEMPORARY CASH INVESTMENT - 100% (Cost $54,634,035)(b)(c) $52,438,488
===========
</TABLE>
* Non-income producing security.
+ Security is restricted for resale until receipt of shares in six month
intervals from January 1999 through January 2000.
(a) Distribution of investments by country of issue, as a percentage of total
equity holdings, is as follows:
<TABLE>
<S> <C>
United Kingdom 12.9%
Japan 12.3
Italy 9.4
France 8.3
Netherlands 7.2
Switzerland 6.7
Germany 6.1
Spain 4.6
Finland 4.2
Sweden 2.9
Australia 2.8
Singapore 2.5
Hong Kong 2.4
Malaysia 1.9
Israel 1.6
South Korea 1.6
Belgium 1.4
Brazil 1.4
Austria 1.3
Thailand 1.3
India 1.3
Philippines 1.0
Others (Individually less than 1%) 4.9
-----
100.0%
=====
</TABLE>
(b) At December 31, 1998, the net unrealized loss on investments based on cost
for federal income tax purposes of $55,060,739 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized gain for all investments
in which there is an excess of value
over tax cost $ 5,856,016
Aggregate gross unrealized loss for all investments
in which there is an excess of tax
cost over value (8,478,267)
------------
Net unrealized loss $ (2,622,251)
============
</TABLE>
(c) At December 31, 1998, the Portfolio had a net capital loss carry forward of
$5,379,184 which will expire in 2006 if not utilized.
Purchases and sales of securities (excluding temporary cash investments)
for the year ended December 31, 1998, aggregated $64,678,670 and
$56,265,938, respectively.
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
International Growth Portfolio
Balance Sheet
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investment in securities, at value (including temporary cash investment
of $2,142,000) (cost $54,634,035) $ 52,438,488
Foreign currencies, at value 144
Receivables--
Investment securities sold 278,812
Fund shares sold 57,651
Dividends, interest and foreign taxes withheld 60,708
Other 1,453
------------
Total assets $ 52,837,256
------------
Liabilities:
Payables--
Investment securities purchased $ 1,103,289
Forward foreign currency settlement contracts, net 4,738
Due to bank 2,383
Due to affiliates 129,106
Accrued expenses 72,701
------------
Total liabilities $ 1,312,217
------------
Net Assets:
Paid-in capital $ 58,985,204
Accumulated undistributed net investment income 497,990
Accumulated net realized loss on investments and foreign currency
transactions (5,764,756)
Net unrealized loss on investments (2,195,547)
Net unrealized gain on forward currency contracts and other assets and
liabilities denominated in foreign currencies 2,148
------------
Total net assets $ 51,525,039
============
Net Asset Value Per Share:
(Unlimited number of shares authorized)
Based on $51,525,039/4,777,174 shares $ 10.79
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
International Growth Portfolio
Statement of Operations
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income:
Dividends (net of foreign taxes withheld of $92,097) $ 1,069,588
Interest (net of foreign taxes withheld of $226) 248,726
------------
Total investment income $ 1,318,314
------------
Expenses:
Management fees $ 540,021
Transfer agent fees 912
Accounting 29,000
Custodian fees 200,794
Professional fees 12,950
Printing 3,124
Fees and expenses of nonaffiliated trustees 811
Miscellaneous 7,763
------------
Total expenses $ 795,375
Less management fees waived by Pioneer Investment Management, Inc. (19,468)
Less fees paid indirectly (1,549)
------------
Net expenses $ 774,358
------------
Net investment income $ 543,956
------------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized gain (loss) from:
Investments $ (4,903,525)
Forward foreign currency contracts and other assets
and liabilities denominated in foreign currencies 4,747 $ (4,898,778)
------------ ------------
Change in net unrealized gain or loss from:
Investments $ 1,644,342
Forward foreign currency contracts and other assets
and liabilities denominated in foreign currencies 2,048 $ 1,646,390
------------ ------------
Net loss on investments and foreign currency transactions $ (3,252,388)
------------
Net decrease in net assets resulting from operations $ (2,708,432)
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
38
<PAGE>
International Growth Portfolio
Statements of Changes in Net Assets
For the Years Ended December 31, 1998 and December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
------------------- ------------------
<S> <C> <C> <C> <C>
From Operations:
Net investment income $ 543,956 $ 314,179
Net realized gain (loss) on investments and foreign
currency transactions (4,898,778) 3,838,459
Change in net unrealized gain or loss on
investments and foreign currency transactions 1,646,390 (4,309,688)
------------- ------------
Net decrease in net assets resulting
from operations $ (2,708,432) $ (157,050)
------------- ------------
Distributions to Shareholders:
Net investment income ($0.19 and $0.03 per
share, respectively) $ (902,674) $ (91,398)
Net realized gain ($0.89 and $0.16 per share,
respectively) (4,137,337) (479,245)
------------- ------------
Total distributions to shareholders $ (5,040,011) $ (570,643)
------------- ------------
From Fund Share Transactions: '98 Shares '97 Shares
--------------- ------------
Net proceeds from sale of shares 1,390,758 2,153,395 $ 17,420,739 $ 27,923,006
Reinvestment of distributions 445,231 42,649 5,040,011 570,643
Cost of shares repurchased (1,099,900) (248,981) (12,599,547) (3,123,621)
------------ ---------- ------------- ------------
Net increase in net assets resulting
from fund share transactions 736,089 1,947,063 $ 9,861,203 $ 25,370,028
============ ========== ------------- ------------
Net increase in net assets $ 2,112,760 $ 24,642,335
Net Assets:
Beginning of year 49,412,279 24,769,944
------------- ------------
End of year (including accumulated
undistributed net investment income of
$497,990 and $852,169, respectively) $ 51,525,039 $ 49,412,279
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
39
<PAGE>
International Growth Portfolio
Financial Highlights
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended March 1, 1995 to
December 31, 1998 December 31, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.23 $ 11.83 $ 10.93 $ 10.00
------- ------- ------- -------
Increase (decrease) from investment
operations:
Net investment income $ 0.09 $ 0.06 $ 0.05 $ --
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions ( 0.45) 0.53 0.88 1.04
------- ------- ------- -------
Net increase (decrease) from
investment operations $ (0.36) $ 0.59 $ 0.93 $ 1.04
Distributions to shareholders:
Net investment income ( 0.19) ( 0.03) -- --
In excess of net investment income -- -- -- ( 0.02)
Net realized gain ( 0.89) ( 0.16) ( 0.03) ( 0.09)
------- ------- ------- -------
Net increase (decrease) in net
asset value $ (1.44) $ 0.40 $ 0.90 $ 0.93
------- ------- ------- -------
Net asset value, end of period $ 10.79 $ 12.23 $ 11.83 $ 10.93
======= ======= ======= =======
Total return* ( 3.32)% 4.87% 8.54% 10.42%
Ratio of net expenses to average net
assets 1.44%+ 1.49%+ 1.52%+ 2.10%**+
Ratio of net investment income (loss)
to average net assets 1.00%+ 0.78%+ 0.78%+ (0.25)%**+
Portfolio turnover rate 113% 133% 115% 139%**
Net assets, end of period
(in thousands) $51,525 $49,412 $24,770 $2,967
Ratios assuming no waiver of
management fees and assumption
of expenses by PIM and no
reduction for fees paid indirectly:
Net expenses 1.47% 1.71% 3.04% 17.22%**
Net investment income (loss) 0.97% 0.56% (0.74)% (15.37)%**
Ratios assuming waiver of
management fees and assumption
of expenses by PIM and reduction
for fees paid indirectly:
Net expenses 1.43% 1.48% 1.50% 1.75%**
Net investment income 1.01% 0.79% 0.80% 0.10%**
</TABLE>
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of distributions and the complete redemption of the
investment at net asset value at the end of each period.
** Annualized.
+ Ratio assuming no reduction for fees paid indirectly.
The accompanying notes are an integral part of these financial statements.
40
<PAGE>
Europe Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- -------- --------------
<S> <C> <C>
INVESTMENT IN SECURITIES - 79.3%
PREFERRED STOCK - 1.2%
250 Henkel KGaA $ 22,350
-----------
TOTAL PREFERRED STOCK (Cost $19,520) $ 22,350
-----------
COMMON STOCKS - 78.1%
BASIC MATERIALS - 1.7%
Chemicals - 0.3%
150 BASF AG $ 5,724
-----------
Containers & Packaging (Paper) - 0.8%
50 Schmalbach Lubeca AG $ 6,840
15 Viag AG 8,793
-----------
$ 15,633
-----------
Paper & Forest Products - 0.6%
600 NV Koninklijke KNP BT $ 10,732
-----------
TOTAL BASIC MATERIALS $ 32,089
-----------
CAPITAL GOODS - 6.5%
Aerospace/Defense - 0.6%
1,400 British Aerospace Plc $ 11,944
-----------
Electrical Equipment - 0.3%
1,500 TT Group Plc $ 5,363
-----------
Engineering & Construction - 2.1%
8,000 Ashtead Group Plc $ 18,226
2,700 Saipam SpA 11,398
70 Technip 6,586
60 VA Technologies AG 5,200
-----------
$ 41,410
-----------
Machinery (Diversified) - 1.6%
170 Sidel, SA (Bearer Shares) $ 14,412
4,200 Siebe Plc 16,519
-----------
$ 30,931
-----------
Manufacturing (Diversified) - 1.3%
1,000 Bodycote International Plc $ 13,678
100 Mannesmann AG 11,460
-----------
$ 25,138
-----------
Office Equipment & Supplies - 0.6%
500 Koninklije Ahrend NV $ 11,419
-----------
TOTAL CAPITAL GOODS $ 126,205
-----------
COMMUNICATION SERVICES - 9.7%
Cellular/Wireless Telecommunications - 3.6%
120 MobilCom AG $ 38,195
80 Telecel-Comunicacaoes Pessoais, SA* 16,360
3,000 Telecom Italia Mobile SpA 14,115
-----------
$ 68,670
-----------
Telephone - 6.1%
1,000 British Telecom Plc $ 15,033
100 British Telecom Plc (A.D.R.) 15,169
600 Portugal Telecom SA (A.D.R.) 26,775
20 Swisscom AG (Registered)* 8,380
4,000 Telecom Italia SpA Di Risp 25,159
3 Telefonica de Espana* 133
150 Telefonica de Espana (A.D.R.)* 20,306
150 Telefonica SA 6,660
-----------
$ 117,615
-----------
TOTAL COMMUNICATION SERVICES $ 186,285
-----------
CONSUMER CYCLICALS - 12.9%
Auto Parts & Equipment - 0.8%
2,000 Kwik-Fit Holdings Plc $ 16,048
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
41
<PAGE>
Europe Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- -------- --------------
<S> <C> <C>
Automobiles - 1.6%
160 DaimlerChrysler AG $ 15,792
150 DaimlerChrysler AG (NY Shares) 14,409
-----------
$ 30,201
-----------
Consumer (Jewelry, Novelties & Gifts) - 0.7%
1,200 Safilo SpA $ 6,372
100 TAG Heuer International SA (Registered) 6,894
-----------
$ 13,266
-----------
Household Furnishings & Appliances - 0.3%
15 Forbo Holding AG $ 6,558
-----------
Publishing - 0.6%
200 Reuters Holdings Plc (A.D.R.) $ 12,675
-----------
Retail (Department Stores) - 1.0%
240 Metro AG $ 19,152
-----------
Retail (Specialty) - 0.9%
60 Selecta Group $ 16,614
-----------
Services (Commercial & Consumer) - 5.3%
170 Falck AS $ 13,757
250 Hagemeyer NV 9,130
1,400 Hays Plc 12,339
2 Kuoni Reisen Holding AG (Series B) (Registered) 7,943
1,000 Prosegur, CIA de Seguidad SA 11,786
1,500 Rentokil Initial Plc 11,320
1,000 Select Appointments Holdings Plc 10,311
600 Select Appointments Holdings Plc (A.D.R.) 12,900
50 Vivendi 12,967
-----------
$ 102,453
-----------
Textiles (Apparel) - 0.9%
10 Hugo Boss AG $ 16,800
-----------
Textiles (Home Furnishings) - 0.8%
600 Industrie Natuzzi SpA (A.D.R.) $ 14,925
-----------
TOTAL CONSUMER CYCLICALS $ 248,692
-----------
CONSUMER STAPLES - 6.6%
Broadcasting (Cable/Television/Radio) - 0.9%
1,600 Reuters Group Plc $ 16,896
-----------
Distributors (Food & Health) - 0.7%
200 Gehe AG $ 13,800
-----------
Entertainment - 0.8%
800 Pearson Plc $ 15,923
-----------
Foods - 1.4%
400 Raisio Group Plc $ 4,377
2,000 Unilever Plc 22,517
-----------
$ 26,894
-----------
Household Products (Non-Durables) - 0.3%
150 Hunter Douglas NV $ 4,967
-----------
Restaurants - 0.6%
1,000 Compass Group Plc $ 11,425
-----------
Retail Stores (Food Chains) - 1.2%
20 Carrefour SA $ 15,092
100 Delhaize-Le Lion, SA 8,794
-----------
$ 23,886
-----------
Services (Employment) - 0.7%
30 Adecco SA $ 13,707
-----------
TOTAL CONSUMER STAPLES $ 127,498
-----------
ENERGY - 4.7%
Oil (International Integrated) - 1.8%
100 Elf Aquitaine SA $ 11,554
400 Elf Aquitaine SA (A.D.R.) 22,650
-----------
$ 34,204
-----------
Oil & Gas (Refining & Marketing) - 2.9%
1,000 ENI SpA* $ 6,532
300 ENI SpA (A.D.R.)* 20,325
</TABLE>
The accompanying notes are an integral part of these financial statements.
42
<PAGE>
Europe Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- -------- --------------
<S> <C> <C>
Oil & Gas (Refining & Marketing) - (Continued)
250 Repsol SA (L Shares) $ 13,316
300 Repsol SA (A.D.R.) 16,387
-----------
$ 56,560
-----------
TOTAL ENERGY $ 90,764
-----------
FINANCIAL - 12.9%
Banks (Major Regional) - 5.4%
1,000 Banca Fideuram SpA $ 7,139
1,000 Banca Popolare di Milano 9,072
300 Banco de Santander SA 5,953
120 Banque Paribas* 10,425
160 Credit Commercial de France 14,852
200 DePfa-Bank 17,520
4 Julius Baer Holding AG 13,306
400 Svenska Handelsbanken 16,892
100 Unidanmark A/S 9,035
-----------
$ 104,194
-----------
Banks (Money Center) - 0.7%
800 Royal Bank Of Scotland Group $ 13,091
-----------
Financial (Diversified) - 0.6%
200 Internationale Nederlanden Groep NV $ 12,191
-----------
Insurance (Life/Health) - 0.8%
2,000 Mediolanum SpA $ 14,817
-----------
Insurance (Multi-Line) - 4.6%
300 Axa (A.D.R.) $ 21,675
200 Axa Colonia Konzern AG 22,680
120 Axa UAP 17,385
300 Catalana Occidente SA 7,810
1,100 Royal & Sun Alliance Insurance Group Plc 8,964
15 Zurich Allied AG (Registered) 11,116
-----------
$ 89,630
-----------
Investment Management - 0.8%
2,000 Amvescap Plc $ 15,466
-----------
TOTAL FINANCIAL $ 249,389
-----------
HEALTHCARE - 11.3%
Healthcare (Drugs/Major Pharmaceuticals) - 9.3%
1,000 Fabrica Espanola de Productos Quimicos y Farmaceuticos, SA $ 16,078
400 Glaxo Wellcome Plc 13,803
400 Glaxo Wellcome Plc (A.D.R.) 27,800
9 Novartis AG 17,707
200 Novartis AG (A.D.R.) 19,675
1 Roche Holdings AG 12,213
200 Roche Holdings AG (A.D.R.) 24,500
1,000 Smithkline Beecham Plc 13,873
300 Smithkline Beecham Plc (A.D.R.) 20,850
2 UCB SA 12,265
-----------
$ 178,764
-----------
Healthcare (Medical Products/Supplies) - 2.0%
3,000 Biora AB* $ 20,189
1,500 Biora AB (A.D.R.)* 19,500
-----------
$ 39,689
-----------
TOTAL HEALTHCARE $ 218,453
-----------
TECHNOLOGY - 4.6%
Communications Equipment - 3.3%
700 Alcatel (A.D.R.) $ 17,106
50 Alcatel Alsthom SA 6,117
150 Nokia AB 18,239
150 Nokia AB (A.D.R.) 18,066
200 Telefonaktiebolaget LM Ericsson (B Shares) 4,766
-----------
$ 64,294
-----------
Electronics (Component Distributors) - 0.3%
1,000 Electrocomponents Plc $ 6,602
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
43
<PAGE>
Europe Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ----------- -------------
<S> <C> <C>
Electronics (Semiconductors) - 0.3%
60 STMicroelectronics NV* $ 4,722
----------
Services (Computer Systems) - 0.7%
250 Getronics NV $ 12,378
----------
TOTAL TECHNOLOGY $ 87,996
----------
TRANSPORTATION - 1.5%
Shipping - 1.0%
600 TNT Post Group NV $ 19,325
----------
Railways - 0.5%
2,500 Stagecoach Holdings Plc $ 9,957
----------
TOTAL TRANSPORTATION $ 29,282
----------
UTILITIES - 5.7%
Electric Companies - 3.1%
600 Endesa SA $ 15,874
500 Endesa SA (A.D.R.) 13,500
1,100 Fortum Oyj Corp.* 6,386
1,300 Scottish Power Plc 13,144
300 Scottish Power Plc (A.D.R.) 12,394
----------
$ 61,298
----------
Power Producers - 0.9%
7,000 AEM SpA* $ 16,786
----------
Water Utilities - 1.7%
150 Aguas De Barcelona $ 10,027
80 Suez Lyonnaise Des Eaux 16,426
400 United Utilities Plc 5,554
----------
$ 32,007
----------
TOTAL UTILITIES $ 110,091
----------
TOTAL COMMON STOCKS (Cost $1,443,534) $1,506,744
----------
TOTAL INVESTMENT IN SECURITIES (Cost $1,463,054)(a) $1,529,094
----------
Principal
Amount
- --------
TEMPORARY CASH INVESTMENT - 20.7%
Repurchase Agreement - 20.7%
$ 400,000 Chase Manhattan Bank, 4.5%, dated 12/31/98, repurchase price of $400,000 plus
accrued interest on 1/4/99, collateralized by $373,000 U.S. Treasury Notes, 7.5%, 5/15/02 $ 400,000
----------
TOTAL TEMPORARY CASH INVESTMENT (Cost $400,000) $ 400,000
----------
TOTAL INVESTMENT IN SECURITIES AND
TEMPORARY CASH INVESTMENT - 100% (Cost $1,863,054)(b) $1,929,094
==========
</TABLE>
* Non-income producing security.
(a) Distribution of investments by country of issue, as a percentage of total
equity holdings, is as follows:
<TABLE>
<S> <C>
United Kingdom 26.1%
Germany 14.0
France 12.6
Switzerland 10.4
Italy 9.6
Spain 9.0
Netherlands 5.2
Sweden 4.0
Finland 3.1
Portugal 2.8
Denmark 1.5
Belgium 1.4
Austria 0.3
-----
100.0%
=====
</TABLE>
The accompanying notes are an integral part of these financial statements.
44
<PAGE>
Europe Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
(b) At December 31, 1998, the net unrealized gain on investments based on cost
for federal income tax purposes of $1,863,054 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized gain for all investments in which
there is an excess of value over tax cost $ 80,469
Aggregate gross unrealized loss for all investments in which
there is an excess of tax cost over value (14,429)
---------
Net unrealized gain $ 66,040
=========
</TABLE>
Purchases and sales of securities (excluding temporary cash investments) for
the period ended December 31, 1998, aggregated $1,468,373 and $9,966,
respectively.
The accompanying notes are an integral part of these financial statements.
45
<PAGE>
Europe Portfolio
Balance Sheet
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investment in securities, at value (including temporary cash investment of
$400,000) (cost $1,863,054) $ 1,929,094
Cash 45,549
Foreign currencies, at value 20,364
Receivables--
Fund shares sold 12,143
Dividends, interest and foreign taxes withheld 414
Due from Pioneer Investment Management, Inc. 18,389
-----------
Total assets $ 2,025,953
-----------
Liabilities:
Payables--
Investment securities purchased $ 388,258
Forward foreign currency settlement contracts, net 215
Due to affiliates 3,877
Accrued expenses 13,717
-----------
Total liabilities $ 406,067
-----------
Net Assets:
Paid-in capital $ 1,549,102
Accumulated undistributed net investment income 215
Accumulated undistributed net realized gain on investments and foreign
currency transactions 4,528
Net unrealized gain on investments 66,040
Net unrealized gain on foreign currency contracts and other assets and
liabilities denominated in foreign currencies 1
-----------
Total net assets $ 1,619,886
===========
Net Asset Value Per Share:
(Unlimited number of shares authorized)
Based on $1,619,886/152,834 shares $ 10.60
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
46
<PAGE>
Europe Portfolio
Statement of Operations
For the Period from October 30, 1998 (Commencement of Operations) to December
31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income:
Dividends (net of foreign taxes withheld of $64) $ 364
Interest 1,586
-------
Total investment income $ 1,950
---------
Expenses:
Management fees $ 1,257
Transfer agent fees 124
Accounting 6,014
Custodian fees 10,168
Professional fees 2,232
Printing 992
Fees and expenses of nonaffiliated trustees 124
Miscellaneous 635
-------
Total expenses $ 21,546
Less management fees waived and expenses reimbursed by
Pioneer Investment Management, Inc. (19,646)
---------
Net expenses $ 1,900
---------
Net investment income $ 50
---------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized gain (loss) from:
Investments $ 4,700
Forward foreign currency contracts and other assets and liabilities
denominated in foreign currencies (7) $ 4,693
-------- ---------
Net unrealized gain from:
Investments $66,040
Forward foreign currency contracts and other assets and liabilities
denominated in foreign currencies 1 $ 66,041
-------- ---------
Net gain on investments and foreign currency transactions $ 70,734
---------
Net increase in net assets resulting from operations $ 70,784
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
47
<PAGE>
Europe Portfolio
Statement of Changes in Net Assets
For the Period from October 30, 1998 (Commencement of Operations) to December
31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 30, 1998 to
December 31, 1998
--------------------
<S> <C> <C>
From Operations:
Net investment income $ 50
Net realized gain on investments and foreign
currency transactions 4,693
Net unrealized gain on investments and foreign
currency transactions 66,041
----------
Net increase in net assets resulting
from operations $ 70,784
----------
From Fund Share Transactions: '98 Shares
------------
Net proceeds from sale of shares 142,843 $1,449,191
Cost of shares repurchased (9) (89)
------------ ----------
Net increase in net assets resulting from
fund share transactions 142,834 $1,449,102
=========== ----------
Net increase in net assets $1,519,886
Net Assets:
Beginning of period (initial capitalization-- 10,000 shares) 100,000
----------
End of period (including accumulated undistributed
net investment income of $215) $1,619,886
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
48
<PAGE>
Europe Portfolio
Financial Highlights
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 30, 1998 to
December 31, 1998
--------------------
<S> <C>
Net asset value, beginning of period $ 10.00
-------
Increase from investment operations:
Net investment income $ 0.00
Net realized and unrealized gain on investments and
foreign currency transactions 0.60
-------
Net increase in net asset value $ 0.60
-------
Net asset value, end of period $ 10.60
=======
Total return* 6.00%
Ratio of net expenses to average net assets 1.50%**
Ratio of net investment income to average net assets 0.00%**
Portfolio turnover rate 6%**
Net assets, end of period (in thousands) $ 1,620
Ratios assuming no waiver of management fees and assumption of
expenses by PIM:
Net expenses 16.56%**
Net investment loss (15.06)%**
</TABLE>
* Assumes initial investment at net asset value at the beginning of the period,
reinvestment of distributions and the complete redemption of the investment
at net asset value at the end of the period.
** Annualized.
The accompanying notes are an integral part of these financial statements.
49
<PAGE>
Capital Growth Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ---------- ---------------
<S> <C> <C>
COMMON STOCKS - 92.6%
BASIC MATERIALS - 5.8%
Chemicals - 1.1%
56,100 The Geon Co. $ 1,290,300
------------
Chemicals (Diversified) - 1.0%
24,000 Monsanto Co. $ 1,140,000
------------
Chemicals (Specialty) - 1.3%
75,200 Agrium, Inc. $ 653,300
31,000 Borden Chemicals & Plastics, L.P. 145,313
67,200 Wellman, Inc. 684,600
------------
$ 1,483,213
------------
Gold & Precious Metals Mining - 0.4%
20,500 Barrick Gold Corp. $ 399,750
------------
Metals Mining - 1.0%
21,000 Penn Engineering & Manufacturing Corp. $ 469,875
46,000 Usec Inc. 638,250
------------
$ 1,108,125
------------
Paper & Forest Products - 1.0%
3,000 Bowater, Inc. $ 124,313
55,300 Louisiana-Pacific Corp. 1,012,681
------------
$ 1,136,994
------------
TOTAL BASIC MATERIALS $ 6,558,382
------------
CAPITAL GOODS - 7.8%
Electrical Equipment - 2.0%
51,000 CommScope, Inc.* $ 857,437
10,300 Molex, Inc. 392,688
6,000 Molex, Inc. (Non-voting) 191,250
55,165 Vishay Intertechnology, Inc.* 799,893
------------
$ 2,241,268
------------
Engineering & Construction - 1.1%
126,000 Morrison Knudsen Corp.* $ 1,228,500
------------
Machinery (Diversified) - 0.8%
23,100 Kaydon Corp. $ 925,444
------------
Manufacturing (Diversified) - 0.8%
19,000 Corning, Inc. $ 855,000
------------
Manufacturing (Specialized) - 2.1%
46,500 Sealed Air Corp.* $ 2,374,406
------------
Metal Fabricators - 0.7%
47,500 Brush Wellman, Inc. $ 828,281
------------
Office Equipment & Supplies - 0.3%
34,700 Moore Corporation Ltd. $ 381,700
------------
TOTAL CAPITAL GOODS $ 8,834,599
------------
COMMUNICATION SERVICES - 4.1%
Telephone - 4.1%
17,000 Alltel Corp. $ 1,016,812
90,000 Frontier Corp. 3,060,000
12,600 Telephone and Data Systems, Inc. 566,213
------------
TOTAL COMMUNICATION SERVICES $ 4,643,025
------------
CONSUMER CYCLICALS - 11.2%
Auto Parts & Equipment - 1.5%
31,700 ITT Industries $ 1,260,075
12,000 Lear Corp.* 462,000
------------
$ 1,722,075
------------
Consumer (Jewelry, Novelties & Gifts) - 0.9%
40,000 Jostens, Inc. $ 1,047,500
------------
Household Furniture & Appliances - 0.7%
10,800 Harman International Industries, Inc. $ 411,750
45,800 Helig-Meyers Co. 306,288
------------
$ 718,038
------------
Leisure Time (Products) - 2.9%
45,300 Arctic Cat, Inc. $ 461,494
</TABLE>
The accompanying notes are an integral part of these financial statements.
50
<PAGE>
Capital Growth Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ---------- ---------------
<S> <C> <C>
Leisure Time (Products) - (Continued)
55,900 Hasbro, Inc. $ 2,019,387
36,000 Mattel, Inc. 821,250
------------
$ 3,302,131
------------
Publishing - 0.5%
44,900 PRIMEDIA, Inc.* $ 527,575
------------
Publishing (Newspapers) - 0.5%
11,000 Knight-Ridder Inc. $ 562,375
------------
Retail (Specialty) - 2.6%
46,500 Cole National Corp.* $ 796,313
18,000 OfficeMax, Inc.* 220,500
91,300 Pep Boys - Manny, Moe & Jack 1,432,269
80,700 Venator Group, Inc.* 519,506
------------
$ 2,968,588
------------
Retail (Specialty - Apparel) - 0.5%
18,000 The Limited Inc. $ 524,250
------------
Textiles (Apparel) - 1.1%
35,000 Justin Industries $ 459,375
85,000 The Stride Rite Corp. 743,750
------------
$ 1,203,125
------------
TOTAL CONSUMER CYCLICALS $ 12,575,657
------------
CONSUMER STAPLES - 10.9%
Entertainment - 2.5%
38,600 Viacom, Inc. (Class B) (Non-voting)* $ 2,856,400
------------
Foods - 1.5%
76,100 Tyson Foods, Inc. $ 1,617,125
------------
Household Products (Non-Durables) - 0.2%
15,450 The Rival Co. $ 207,609
------------
Restaurants - 3.6%
111,500 Lone Star Steakhouse & Saloon, Inc.* $ 1,024,406
39,700 McDonald's Corp. 3,042,013
------------
$ 4,066,419
------------
Retail Stores (Food Chains) - 2.0%
33,200 The Great Atlantic & Pacific Tea Co., Inc. $ 983,550
27,700 Winn-Dixie Stores 1,243,038
------------
$ 2,226,588
------------
Specialty Printing - 1.1%
80,000 John H. Harland Co. $ 1,265,000
------------
TOTAL CONSUMER STAPLES $ 12,239,141
------------
ENERGY - 4.8%
Oil (Domestic Integrated) - 1.5%
25,400 Atlantic Richfield Co. $ 1,657,350
------------
Oil (International Integrated) - 0.8%
40,400 Conoco Inc.* $ 843,350
------------
Oil & Gas (Exploration/Production) - 2.5%
31,600 Apache Corp. $ 799,875
17,200 Burlington Resources, Inc. 615,975
16,700 Crystal Oil Co.* 630,425
51,000 Seagull Energy Corp.* 321,938
53,250 Union Pacific Resources Group, Inc. 482,578
------------
$ 2,850,791
------------
TOTAL ENERGY $ 5,351,491
------------
FINANCIAL - 13.7%
Banks (Regional) - 2.0%
1,400 Marshall & Ilsley Corp. $ 81,812
30,000 North Fork Bancorporation, Inc. 718,125
22,500 SouthTrust Corp. 831,094
11,000 Zions Bancorporation 686,125
------------
$ 2,317,156
------------
Consumer Finance - 1.1%
25,500 SLM Holdings Corp. $ 1,224,000
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
51
<PAGE>
Capital Growth Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ---------- ---------------
<S> <C> <C>
Financial (Diversified) - 1.2%
23,000 The Equitable Companies, Inc. $ 1,331,125
------------
Insurance (Life/Health) - 1.7%
56,593 Conseco, Inc. $ 1,729,624
5,000 Mony Group Inc.* 156,562
------------
$ 1,886,186
------------
Insurance (Property/Casualty) - 4.0%
26,900 Allmerica Financial Corp. $ 1,556,838
25,100 Financial Security Assurance Holdings Ltd. 1,361,675
12,000 HCC Insurance Holdings, Inc. 211,500
59,500 20th Century Industries 1,379,656
------------
$ 4,509,669
------------
Investment Management - 1.1%
47,200 United Asset Management Corp. $ 1,227,200
------------
Savings & Loan Companies - 2.6%
18,700 Astoria Financial Corp. $ 855,525
28,250 Charter One Financial, Inc. 783,937
32,900 Washington Mutual, Inc. 1,256,369
------------
$ 2,895,831
------------
TOTAL FINANCIAL $ 15,391,167
------------
HEALTHCARE - 5.5%
Healthcare (Diversified) - 0.3%
24,000 IVAX Corp.* $ 298,500
------------
Healthcare (Hospital Management) - 2.1%
95,000 Columbia/HCA Healthcare Corp. $ 2,351,250
------------
Healthcare (Long Term Care) - 0.8%
62,900 Integrated Health Services, Inc.* $ 888,463
------------
Healthcare (Managed Care) - 0.7%
46,000 Humana Inc.* $ 819,375
------------
Healthcare (Medical Products/Supplies) - 1.0%
20,100 Beckman Coulter, Inc. $ 1,090,425
------------
Healthcare (Specialized Services) - 0.6%
46,600 HealthSouth Corp.* $ 719,387
------------
TOTAL HEALTHCARE $ 6,167,400
------------
TECHNOLOGY - 14.7%
Communications Equipment - 2.1%
57,500 Alcatel Alsthom (A.D.R.) $ 1,405,156
56,800 Andrew Corp.* 937,200
------------
$ 2,342,356
------------
Computers (Hardware) - 3.4%
90,700 NCR Corp.* $ 3,786,725
------------
Computers (Peripherals) - 0.8%
29,400 Seagate Technology, Inc.* $ 889,350
------------
Computers (Software & Services) - 2.2%
30,000 Informix Corp.* $ 296,250
47,200 The Learning Company, Inc.* 1,224,250
54,500 Novell, Inc.* 987,812
------------
$ 2,508,312
------------
Electronics (Component Distributors) - 1.6%
41,000 Adaptec, Inc.* $ 720,062
46,700 Marshall Industries* 1,144,150
------------
$ 1,864,212
------------
Electronics (Defense) - 0.3%
19,000 Whittaker Corp.* $ 320,625
------------
Equipment (Semiconductors) - 0.8%
21,300 Etec Systems, Inc.* $ 852,000
------------
Photography/Imaging - 2.1%
2,200 Eastman Kodak Co. $ 158,400
128,000 Imation Corp.* 2,240,000
------------
$ 2,398,400
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
52
<PAGE>
Capital Growth Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ------------- ---------------
<S> <C> <C>
Services (Data Processing) - 1.4%
50,200 First Data Corp. $ 1,590,712
-------------
TOTAL TECHNOLOGY $ 16,552,692
-------------
TRANSPORTATION - 1.6%
Railroads - 1.6%
40,700 Union Pacific Corp. $ 1,834,044
-------------
TOTAL TRANSPORTATION $ 1,834,044
-------------
UTILITIES - 12.5%
Electric Companies - 9.4%
23,200 Allegheny Energy, Inc. $ 800,400
23,400 Baltimore Gas & Electric Co. 722,475
32,900 BEC Energy Co. 1,355,069
92,336 Citizens Utilities Co. (Class B) 750,230
21,800 Dominion Resources, Inc. 1,019,150
31,500 DPL, Inc. 681,187
19,500 DQE, Inc. 856,781
25,750 DTE Energy Co. 1,104,031
34,400 Edison International 958,900
23,000 Kansas City Power & Light Co. 681,375
18,000 New Century Energies Inc. 877,500
20,600 Public Service Enterprise Group Inc. 824,000
-------------
$ 10,631,098
-------------
Natural Gas - 3.1%
16,500 Consolidated Natural Gas Co. $ 891,000
24,000 El Paso Energy Corp. 835,500
23,400 KeySpan Energy Corp. 725,400
27,500 Questar Corp. 532,813
18,000 Sonat, Inc. 487,125
-------------
$ 3,471,838
-------------
TOTAL UTILITIES $ 14,102,936
-------------
TOTAL COMMON STOCKS (Cost $103,429,985) $ 104,250,534
-------------
Principal
Amount
- ----------
TEMPORARY CASH INVESTMENTS - 7.4%
Commercial Paper - 7.4%
$2,875,000 American Express Credit Corp., 5.0%, 1/6/99 $ 2,875,000
2,553,000 Chevron USA, Inc., 5.75%, 1/5/99 2,553,000
2,860,000 Ford Motor Credit Corp., 4.92%, 1/4/99 2,860,000
-------------
TOTAL TEMPORARY CASH INVESTMENTS (Cost $8,288,000) $ 8,288,000
-------------
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $111,717,985)(a)(b) $ 112,538,534
=============
</TABLE>
* Non-income producing security.
(a) At December 31, 1998, the net unrealized gain on investments based on cost
for federal income tax purposes of $111,977,030 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized gain for all investments in which
there is an excess of value over tax cost $ 10,647,193
Aggregate gross unrealized loss for all investments in which
there is an excess of tax cost over value (10,085,689)
-------------
Net unrealized gain $ 561,504
============
</TABLE>
(b) At December 31, 1998, the Portfolio had a net capital loss carryforward of
$597,627 which will expire in 2006 if not utilized. Purchases and sales of
securities (excluding temporary cash investments) for the year ended
December 31, 1998 aggregated $99,368,186 and $86,387,849, respectively.
The accompanying notes are an integral part of these financial statements.
53
<PAGE>
Capital Growth Portfolio
Balance Sheet
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investment in securities, at value (including temporary cash investments
of $8,288,000) (cost $111,717,985) $112,538,534
Receivables--
Investment securities sold 2,537,024
Fund shares sold 191,199
Dividends and interest 144,770
Other 3,676
------------
Total assets $115,415,203
------------
Liabilities:
Payables--
Investment securities purchased $ 1,966,384
Fund shares repurchased 1,449
Due to bank 969
Due to affiliates 63,396
Accrued expenses 23,507
------------
Total liabilities $ 2,055,705
------------
Net Assets:
Paid-in capital $112,253,494
Accumulated undistributed net investment income 1,137,089
Accumulated net realized loss on investments (851,634)
Net unrealized gain on investments 820,549
------------
Total net assets $113,359,498
============
Net Asset Value Per Share:
(Unlimited number of shares authorized)
Based on $113,359,498/7,821,020 shares $ 14.49
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
54
<PAGE>
Capital Growth Portfolio
Statement of Operations
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income:
Dividends (net of foreign taxes withheld of $9,712) $1,372,214
Interest 544,614
----------
Total investment income $ 1,916,828
------------
Expenses:
Management fees $ 760,061
Transfer agent fees 935
Accounting 33,988
Custodian fees 48,949
Professional fees 14,051
Printing 4,346
Fees and expenses of nonaffiliated trustees 815
Miscellaneous 4,130
----------
Total expenses $ 867,275
Less fees paid indirectly (1,556)
------------
Net expenses $ 865,719
------------
Net investment income $ 1,051,109
------------
Realized and Unrealized Loss on Investments:
Net realized loss on investments $ (850,768)
Change in net unrealized gain on investments (6,899,238)
------------
Net loss on investments $ (7,750,006)
------------
Net decrease in net assets resulting from operations $ (6,698,897)
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
55
<PAGE>
Capital Growth Portfolio
Statements of Changes in Net Assets
For the Years Ended December 31, 1998 and December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
------------------- ------------------
<S> <C> <C> <C> <C>
From Operations:
Net investment income $ 1,051,109 $ 789,549
Net realized gain (loss) on investments (850,768) 7,625,055
Change in net unrealized gain on investments (6,899,238) 6,236,718
------------ ------------
Net increase (decrease) in net assets resulting
from operations $ (6,698,897) $ 14,651,322
------------ ------------
Distributions to Shareholders:
Net investment income ($0.10 and $0.00 per
share, respectively) $ (732,912) $ --
Net realized gain ($1.03 and $0.11 per share,
respectively) (7,620,510) (556,650)
------------ ------------
Total distributions to shareholders $ (8,353,422) $ (556,650)
------------ ------------
From Fund Share Transactions: '98 Shares '97 Shares
--------------- -------------
Net proceeds from sale of shares 1,855,115 3,048,885 $ 30,338,387 $ 46,594,217
Reinvestment of distributions 515,961 36,889 8,353,422 556,650
Cost of shares repurchased (1,082,203) (275,697) (15,756,228) (4,341,358)
---------- ---------- ------------ ------------
Net increase in net assets resulting from fund
share transactions 1,288,873 2,810,077 $ 22,935,581 $ 42,809,509
========== ========== ------------ ------------
Net increase in net assets $ 7,883,262 $ 56,904,181
Net Assets:
Beginning of year 105,476,236 48,572,055
------------ ------------
End of year (including accumulated
undistributed net investment income of
$1,137,089 and $798,678, respectively) $113,359,498 $105,476,236
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
56
<PAGE>
Capital Growth Portfolio
Financial Highlights
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended March 1, 1995 to
December 31, 1998 December 31, 1997 December 31, 1996 December 31, 1995
------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 16.15 $ 13.05 $ 11.57 $ 10.00
------- ------- ------- -------
Increase (decrease) from investment
operations:
Net investment income $ 0.12 $ 0.12 $ 0.03 $ 0.02
Net realized and unrealized gain
(loss) on investments (0.65) 3.09 1.71 1.69
------- ------- ------- -------
Net increase (decrease) from
investment operations $ (0.53) $ 3.21 $ 1.74 $ 1.71
Distributions to shareholders:
Net investment income (0.10) -- (0.03) (0.02)
Net realized gain (1.03) (0.11) (0.23) (0.12)
------- ------- ------- --------
Net increase (decrease) in net
asset value $ (1.66) 3.10 $ 1.48 $ 1.57
------- ------- ------- --------
Net asset value, end of period $ 14.49 $ 16.15 $ 13.05 $ 11.57
======= ======= ======= ========
Total return* (4.02)% $ 24.69% 15.03% 17.13%
Ratio of net expenses to average net
assets 0.74%+ 0.80%+ 0.93%+ 1.56%**+
Ratio of net investment income to
average net assets 0.90%+ 1.02%+ 0.37%+ 0.48%**+
Portfolio turnover rate 81% 50% 41% 46%**
Net assets, end of period
(in thousands) $113,359 $105,476 $48,572 $ 9,357
Ratio assuming no waiver of
management fees and assumption
of expenses by PIM and no
reduction for fees paid indirectly:
Net expenses 0.74% 0.80% 0.95% 3.95%**
Net investment income (loss) 0.90% 1.02% 0.35% (1.91)%**
Ratio assuming waiver of
management fees and assumption
of expenses by PIM and reduction
for fees paid indirectly:
Net expenses 0.74% 0.79% 0.92% 1.49%**
Net investment income 0.90% 1.03% 0.38% 0.55%**
</TABLE>
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of distributions and the complete redemption of the
investment at net asset value at the end of each period.
** Annualized.
+ Ratio assuming no reduction for fees paid indirectly.
The accompanying notes are an integral part of these financial statements.
57
<PAGE>
Growth Shares Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ---------- --------------
<S> <C> <C>
INVESTMENT IN SECURITIES - 96.1%
PREFERRED STOCK - 1.0%
1,832 SAP AG $ 874,068
-----------
TOTAL PREFERRED STOCK (Cost $898,391) $ 874,068
-----------
COMMON STOCKS - 95.1%
BASIC MATERIALS - 7.3%
Agricultural Products - 3.7%
117,587 Pioneer Hi-Bred International, Inc. $ 3,174,849
-----------
Chemicals (Specialty) - 3.6%
76,587 Minerals Technologies, Inc. $ 3,135,280
-----------
TOTAL BASIC MATERIALS $ 6,310,129
-----------
CAPITAL GOODS - 9.1%
Aerospace/Defense - 2.0%
32,500 Gulfstream Aerospace Corp.* $ 1,730,625
-----------
Electrical Equipment - 2.1%
8,800 Molex, Inc. $ 335,500
46,537 Molex, Inc. (Non-voting) 1,483,367
-----------
$ 1,818,867
-----------
Manufacturing (Specialized) - 5.0%
84,900 Sealed Air Corp.* $ 4,335,206
-----------
TOTAL CAPITAL GOODS $ 7,884,698
-----------
CONSUMER CYCLICALS - 7.0%
Building Materials - 1.2%
24,100 Fastenal Co. $ 1,060,400
-----------
Gaming, Lottery & Parimutuel Companies - 1.1%
61,000 Mirage Resorts, Inc.* $ 911,188
-----------
Retail (General Merchandise) - 3.3%
47,325 Fred Meyer, Inc.* $ 2,851,331
-----------
Services (Commercial & Consumer) - 1.4%
16,800 Cintas Corp. $ 1,183,350
-----------
TOTAL CONSUMER CYCLICALS $ 6,006,269
-----------
CONSUMER STAPLES - 30.2%
Beverages (Non-Alcoholic) - 3.6%
45,672 The Coca-Cola Co. $ 3,054,315
-----------
Broadcasting (Television/Radio/Cable) - 8.0%
57,400 Comcast Corp. (Non-voting) $ 3,368,663
129,000 Infinity Broadcasting Corp.* 3,531,375
-----------
$ 6,900,038
-----------
Foods - 3.1%
30,078 Wrigley (Wm.) Jr. Co. $ 2,693,861
-----------
Household Products (Non-Durables) - 3.1%
29,300 Procter & Gamble Co. $ 2,675,456
-----------
Personal Care - 5.3%
94,964 The Gillette Co. $ 4,587,948
-----------
Restaurants - 4.4%
49,276 McDonald's Corp. $ 3,775,773
-----------
Retail (Drug Stores) - 2.7%
39,957 Walgreen Co. $ 2,339,982
-----------
TOTAL CONSUMER STAPLES $26,027,373
-----------
FINANCIAL - 19.0%
Financial (Diversified) - 7.7%
95 Berkshire Hathaway, Inc.* $ 6,650,000
-----------
Insurance (Multi-Line) - 4.0%
35,316 American International Group, Inc. $ 3,412,408
-----------
Insurance (Property/Casualty) - 5.1%
25,800 Progressive Corp. $ 4,369,875
-----------
Investment Bank/Brokerage - 2.2%
33,787 Charles Schwab Corp. $ 1,898,407
-----------
TOTAL FINANCIAL $16,330,690
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
58
<PAGE>
Growth Shares Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ------------- ---------------
<S> <C> <C>
HEALTHCARE - 11.1%
Biotechnology - 6.5%
118,821 Monsanto Co. $ 5,643,998
------------
Healthcare (Drugs/Major Pharmaceuticals) - 4.6%
11,258 Merck & Co., Inc. $ 1,662,666
18,106 Pfizer, Inc. 2,271,171
------------
$ 3,933,837
------------
TOTAL HEALTHCARE $ 9,577,835
------------
TECHNOLOGY - 11.4%
Computers (Hardware) - 2.2%
26,076 Dell Computer Corp.* $ 1,908,437
------------
Computers (Networking) - 2.3%
21,592 Cisco Systems, Inc.* $ 2,004,008
------------
Computers (Software & Services) - 6.2%
7,600 America Online, Inc.* $ 1,216,000
17,662 Microsoft Corp.* 2,449,499
46,100 SAP AG (A.D.R.) 1,662,481
------------
$ 5,327,980
------------
Electronics (Semiconductors) - 0.7%
4,652 Intel Corp. $ 551,553
------------
TOTAL TECHNOLOGY $ 9,791,978
------------
TOTAL COMMON STOCKS (Cost $71,195,801) $ 81,928,972
------------
TOTAL INVESTMENT IN SECURITIES (Cost $72,094,192) $ 82,803,040
------------
Principal
Amount
- -------- -
TEMPORARY CASH INVESTMENTS - 3.9%
Commercial Paper - 3.9%
$1,074,000 Ford Motor Credit Corp., 4.92%, 1/4/99 $ 1,074,000
2,240,000 Ford Motor Credit Corp., 6.05%, 1/5/99 2,240,000
------------
TOTAL TEMPORARY CASH INVESTMENTS (Cost $3,314,000) $ 3,314,000
------------
TOTAL INVESTMENT IN SECURITIES AND
TEMPORARY CASH INVESTMENTS - 100% (Cost $75,408,192)(a) $ 86,117,040
============
</TABLE>
* Non-income producing security.
(a) At December 31, 1998, the net unrealized gain on investments, based on cost
for federal income tax purposes of $75,487,891 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized gain for all investments in which
there is an excess of value over tax cost $ 12,384,546
Aggregate gross unrealized loss for all investments in which
there is an excess of tax cost over value (1,755,397)
------------
Net unrealized gain $ 10,629,149
============
</TABLE>
Purchases and sales of securities (excluding temporary cash investments) for
the year ended December 31, 1998 aggregated $77,862,238 and $9,798,566,
respectively.
The accompanying notes are an integral part of these financial statements.
59
<PAGE>
Growth Shares Portfolio
Balance Sheet
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investment in securities, at value (including temporary cash investments of
$3,314,000) (cost $75,408,192) $86,117,040
Cash 32
Receivables--
Investment securities sold 26,474
Fund shares sold 77,421
Dividends and interest 30,775
Other 3,245
-----------
Total assets $86,254,987
-----------
Liabilities:
Payables--
Investment securities purchased $ 518,830
Due to affiliates 45,239
Accrued expenses 20,640
-----------
Total liabilities $ 584,709
-----------
Net Assets:
Paid-in capital $75,099,451
Accumulated undistributed net investment income 32,360
Accumulated net realized loss on investments (170,381)
Net unrealized gain on investments 10,708,848
-----------
Total net assets $85,670,278
===========
Net Asset Value Per Share:
(Unlimited number of shares authorized)
Based on $85,670,278/4,211,218 shares $ 20.34
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
60
<PAGE>
Growth Shares Portfolio
Statement of Operations
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income:
Dividends (net of foreign taxes withheld of $188) $183,741
Interest 173,501
--------
Total investment income $ 357,242
-----------
Expenses:
Management fees $239,134
Transfer agent fees 777
Accounting 33,402
Custodian fees 45,764
Professional fees 11,639
Printing 4,347
Fees and expenses of nonaffiliated trustees 498
Miscellaneous 5,182
--------
Total expenses $ 340,743
Less management fees waived by Pioneer Investment Management, Inc. (13,678)
Less fees paid indirectly (2,264)
-----------
Net expenses $ 324,801
-----------
Net investment income $ 32,441
-----------
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments $ (166,314)
Change in net unrealized gain on investments 10,684,079
-----------
Net gain on investments $10,517,765
-----------
Net increase in net assets resulting from operations $10,550,206
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
61
<PAGE>
Growth Shares Portfolio
Statements of Changes in Net Assets
For the Year Ended December 31, 1998 and the Period Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 31,1997
Year Ended to
December 31, 1998 December 31, 1997
------------------- ------------------
<S> <C> <C> <C> <C>
From Operations:
Net investment income $ 32,441 $ 1,773
Net realized loss on investments (166,314) (4,058)
Change in net unrealized gain on investments 10,684,079 24,769
------------ ----------
Net increase in net assets resulting from
operations $ 10,550,206 $ 22,484
------------ ----------
Distributions To Shareholders:
Net investment income ($0.00 and $0.00 per
share, respectively) $ (1,864) $ --
------------ ----------
Total distributions to shareholders $ (1,864) $ --
------------ ----------
From Fund Share Transactions: '98 Shares '97 Shares
------------ ----------
Net proceeds from sale of shares 4,273,575 302,450 $ 77,029,470 $4,620,514
Reinvestment of distributions 99 -- 1,864 --
Cost of shares repurchased (365,376) (6,196) (6,555,882) (96,514)
---------- ------- ------------ ----------
Net increase in net assets resulting
from fund share transactions 3,908,298 296,254 $ 70,475,452 $4,524,000
========== ======= ------------ ----------
Net increase in net assets $ 81,023,794 $4,546,484
Net Assets:
Beginning of period 4,646,484 100,000
------------ ----------
End of period (including accumulated
undistributed net investment income of
$32,360 and $1,773, respectively) $ 85,670,278 $4,646,484
============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
62
<PAGE>
Growth Shares Portfolio
Financial Highlights
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended October 31, 1997 to
December 31, 1998 December 31, 1997
------------------- --------------------
<S> <C> <C>
Net asset value, beginning of period $ 15.34 $ 15.00
------- -------
Increase from investment operations:
Net investment income $ 0.00 $ 0.01
Net realized and unrealized gain on investments 5.00 0.33
------- -------
Net increase from investment operations $ 5.00 $ 0.34
Distributions to shareholders:
Net investment income 0.00 --
------- --------
Net increase in net asset value $ 5.00 $ 0.34
------- --------
Net asset value, end of period $ 20.34 $ 15.34
======= ========
Total return* 32.60% 2.27%
Ratio of net expenses to average net assets 0.88%+ 1.25%**
Ratio of net investment income to average net assets 0.08%+ 0.60%**
Portfolio turnover rate 28% 16%**
Net assets, end of period (in thousands) $85,670 $ 4,646
Ratio assuming no waiver of management fees and assumption
of expenses by PIM and no reduction for fees paid indirectly:
Net expenses 0.92% 6.57%**
Net investment income (loss) 0.04% (4.72)%**
Ratio assuming waiver of management fees and assumption of
expenses by PIM and reduction for fees paid indirectly:
Net expenses 0.88% 1.25%**
Net investment income 0.08% 0.60%**
</TABLE>
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of distributions and the complete redemption of the
investment at net asset value at the end of each period.
** Annualized.
+ Ratio assuming no reduction for fees paid indirectly.
The accompanying notes are an integral part of these financial statements.
63
<PAGE>
Real Estate Growth Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ------------ ---------------
<S> <C> <C>
INVESTMENT IN SECURITIES - 96.0%
REAL ESTATE INVESTMENTS TRUSTS - 82.8%
35,000 Apartment Investment & Management Co. $ 1,301,562
80,000 Bedford Property Investors, Inc. 1,350,000
70,000 Brandywine Realty Trust 1,251,250
45,000 Camden Property Trust 1,170,000
45,000 Charles E. Smith Residential Realty, Inc. 1,445,625
50,000 Cousins Properties, Inc. 1,612,500
70,000 Developers Diversified Realty Corp. 1,242,500
48,157 Equity Office Properties Trust 1,155,768
29,700 Equity Residential Property Trust 1,200,994
43,600 FelCor Suite Hotels, Inc. 1,005,525
35,000 Franchise Finance Corporation of America 840,000
60,000 Glenborough Realty Trust 1,222,500
35,000 Highwoods Properties, Inc. 901,250
40,000 Home Properties of New York, Inc. 1,030,000
45,000 The Macerich Co. 1,153,125
45,000 Mack-Cali Realty Corp. 1,389,375
35,000 National Golf Properties, Inc. 1,012,812
57,200 Pacific Gulf Properties, Inc. 1,147,575
80,199 Patriot American Hospitality, Inc. 481,194
65,000 Prentiss Properties Trust 1,450,313
40,000 Public Storage, Inc. 1,082,500
45,000 Simon Property Group, Inc. 1,282,500
30,000 Spieker Properties, Inc. 1,038,750
35,000 Starwood Hotels & Resorts Trust 794,062
40,000 Storage Trust Realty 935,000
16,300 Sun Communities, Inc. 567,444
------------
TOTAL REAL ESTATE INVESTMENTS TRUSTS $ 29,064,124
------------
REAL ESTATE SERVICES - 10.5%
53,000 AMRESCO, Inc.* $ 463,750
90,000 Catellus Development Corp.* 1,288,125
45,000 CB Richard Ellis Services, Inc.* 815,625
55,000 Trizec Hahn Corp. 1,127,500
------------
TOTAL REAL ESTATE SERVICES $ 3,695,000
------------
SERVICES - 2.7%
70,000 Host Marriott Corp.* $ 966,875
------------
TOTAL SERVICES $ 966,875
------------
TOTAL INVESTMENT IN SECURITIES (Cost $38,690,708) $ 33,725,999
------------
Principal
Amount
---------
TEMPORARY CASH INVESTMENT - 4.0%
Commercial Paper - 4.0%
$1,388,000 Ford Motor Credit Corp., 4.92%, 1/4/99 $ 1,388,000
------------
TOTAL TEMPORARY CASH INVESTMENT (Cost $1,388,000) $ 1,388,000
------------
TOTAL INVESTMENT IN SECURITIES AND
TEMPORARY CASH INVESTMENT - 100% (Cost $40,078,708)(a) $ 35,113,999
============
</TABLE>
* Non-income producing security.
(a) At December 31, 1998, the net unrealized loss on investments based on cost
for federal income tax purposes of $40,078,708 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized gain for all investments in which
there is an excess of value over tax cost $ 748,161
Aggregate gross unrealized loss for all investments in which
there is an excess of tax cost over value (5,712,870)
-----------
Net unrealized gain $(4,964,709)
===========
</TABLE>
Purchases and sales of securities (excluding temporary cash investments) for
the year ended December 31, 1998 aggregated $10,250,429 and $6,923,671,
respectively.
The accompanying notes are an integral part of these financial statements.
64
<PAGE>
Real Estate Growth Portfolio
Balance Sheet
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investment in securities, at value (including temporary cash investment of
$1,388,000) (cost $40,078,708) $ 35,113,999
Cash 30,492
Receivables--
Investment securities sold 105,894
Fund shares sold 16,476
Dividends and interest 358,225
Other 3,610
------------
Total assets $ 35,628,696
------------
Liabilities:
Payables--
Fund shares repurchased $ 312
Due to affiliates 30,287
Accrued expenses 18,781
------------
Total liabilities $ 49,380
------------
Net Assets:
Paid-in capital $ 40,152,201
Accumulated undistributed net investment income 95,767
Accumulated undistributed net realized gain on investments 296,057
Net unrealized loss on investments (4,964,709)
------------
Total net assets $ 35,579,316
============
Net Asset Value Per Share:
(Unlimited number of shares authorized)
Based on $35,579,316/2,722,488 shares $ 13.07
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
65
<PAGE>
Real Estate Growth Portfolio
Statement of Operations
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income:
Dividends (net of withholding taxes of $2,588) $2,041,041
Interest 63,421
----------
Total investment income $ 2,104,462
-------------
Expenses:
Management fees $ 400,933
Transfer agent fees 998
Accounting 25,546
Custodian fees 29,634
Professional fees 13,565
Printing 3,516
Fees and expenses of nonaffiliated trustees 417
Miscellaneous 8,123
----------
Total expenses $ 482,732
Less management fees waived by Pioneer Investment Management, Inc. (6,567)
Less fees paid indirectly (601)
-------------
Net expenses $ 475,564
-------------
Net investment income $ 1,628,898
-------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments $ 438,016
Change in net unrealized gain on investments (10,520,943)
-------------
Net loss on investments $ (10,082,927)
-------------
Net decrease in net assets resulting from operations $ (8,454,029)
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
66
<PAGE>
Real Estate Growth Portfolio
Statements of Changes in Net Assets
For the Years Ended December 31, 1998 and December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
------------------- ------------------
<S> <C> <C> <C> <C>
From Operations:
Net investment income $ 1,628,898 $ 805,272
Net realized gain on investments 438,016 423,094
Change in net unrealized gain on investments (10,520,943) 4,120,591
----------- -----------
Net increase (decrease) in net assets resulting
from operations $(8,454,029) $ 5,348,957
----------- -----------
Distributions to Shareholders:
Net investment income ($0.56 and $0.45 per
share, respectively) $(1,518,501) $ (754,106)
Net realized gain ($0.15 and $0.12 per share,
respectively) (402,383) (269,649)
----------- -----------
Total distributions to shareholders $(1,920,884) $(1,023,755)
----------- -----------
From Fund Share Transactions: '98 Shares '97 Shares
------------ ----------
Net proceeds from sale of shares 1,106,588 1,842,009 $16,784,581 $28,581,231
Reinvestment of distributions 134,409 64,684 1,920,884 1,023,755
Cost of shares repurchased (1,015,334) (178,423) (14,937,948) (2,858,890)
---------- ---------- ----------- -----------
Net increase in net assets resulting
from fund share transactions 225,663 1,728,270 $ 3,767,517 $26,746,096
========== ========== ----------- -----------
Net increase (decrease) in net assets $(6,607,396) $31,071,298
Net Assets:
Beginning of year 42,186,712 11,115,414
----------- -----------
End of year (including accumulated
undistributed net investment income of
$95,767 and $31,066, respectively) $35,579,316 $42,186,712
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
67
<PAGE>
Real Estate Growth Portfolio
Financial Highlights
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended March 31, 1995 to
December 31, 1998 December 31, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 16.90 $ 14.46 $ 11.23 $ 10.00
-------- ------- ------- -------
Increase (decrease) from investment
operations:
Net investment income $ 0.60 $ 0.47 $ 0.54 $ 0.12
Net realized and unrealized gain
(loss) on investments (3.72) 2.54 3.34 1.55
-------- ------- ------- -------
Net increase (decrease) from
investment operations $ (3.12) $ 3.01 $ 3.88 $ 1.67
Distributions to shareholders:
Net investment income (0.56) (0.45) (0.53) (0.23)
Tax return of capital -- -- -- (0.18)
Net realized gain (0.15) (0.12) (0.12) (0.03)
-------- ------- ------- ---------
Net increase (decrease) in net
asset value $ (3.83) $ 2.44 $ 3.23 $ 1.23
-------- ------- ------- ---------
Net asset value, end of period $ 13.07 $ 16.90 $ 14.46 $ 11.23
======== ======= ======= =========
Total return* (18.74)% 21.16% 35.73% 16.96%
Ratio of net expenses to average net
assets 1.19%+ 1.25%+ 1.34%+ 2.10%**+
Ratio of net investment income to
average net assets 4.06%+ 3.16%+ 4.63%+ 2.68%**+
Portfolio turnover rate 18% 28% 41% 1%**
Net assets, end of period
(in thousands) $ 35,579 $42,187 $11,115 $ 512
Ratios assuming no waiver of
management fees and assumption
of expenses by PIM and no
reduction for fees paid indirectly:
Net expenses 1.20% 1.37% 3.35% 45.96%**
Net investment income (loss) 4.05% 3.04% 2.62% (41.18)%**
Ratios assuming waiver of
management fees and assumption
of expenses by PIM and reduction
for fees paid indirectly:
Net expenses 1.19% 1.24% 1.24% 1.57%**
Net investment income 4.06% 3.17% 4.73% 3.21%**
</TABLE>
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of distributions and the complete redemption of the
investment at net asset value at the end of each period.
** Annualized.
+ Ratio assuming no reduction for fees paid indirectly.
The accompanying notes are an integral part of these financial statements.
68
<PAGE>
Growth and Income Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- -------- -------------
<S> <C> <C>
COMMON STOCKS - 97.8%
BASIC MATERIALS - 3.2%
Aluminum - 0.6%
7,400 Alcoa, Inc. $ 551,762
-----------
Chemicals - 1.3%
4,500 Dow Chemical Co. $ 409,219
15,000 E.I. du Pont de Nemours & Co. 795,937
-----------
$ 1,205,156
-----------
Chemicals (Diversified) - 0.3%
7,100 Bayer AG (A.D.R.) $ 298,200
-----------
Chemicals (Specialty) - 0.0%
400 Ciba Specialty Chemicals AG (A.D.R.) $ 16,750
-----------
Iron & Steel - 0.4%
6,900 Nucor Corp. $ 298,425
3,800 Steel Dynamics, Inc.* 44,650
-----------
$ 343,075
-----------
Metals Mining - 0.6%
10,500 Phelps Dodge Corp. $ 534,187
-----------
TOTAL BASIC MATERIALS $ 2,949,130
-----------
CAPITAL GOODS - 4.4%
Aerospace/Defense - 0.5%
5,500 Lockheed Martin Corp. $ 466,125
-----------
Electrical Equipment - 1.0%
10,000 Emerson Electric Co. $ 605,000
1,900 General Electric Co. 193,919
4,000 Hubbell, Inc. (Class B) 152,000
-----------
$ 950,919
-----------
Machinery (Diversified) - 1.5%
15,100 Caterpillar, Inc. $ 694,600
5,500 Deere & Co. 182,188
7,700 Ingersoll-Rand Co. 361,419
6,000 Timken Co. 113,250
-----------
$ 1,351,457
-----------
Manufacturing (Diversified) - 0.8%
6,200 Illinois Tool Works, Inc. $ 359,600
6,600 Johnson Controls, Inc. 389,400
-----------
$ 749,000
-----------
Manufacturing (Specialized) - 0.3%
7,000 Diebold Inc. $ 249,813
-----------
Office Equipment & Supplies - 0.3%
11,600 Canon Inc. (A.D.R.) $ 249,400
-----------
TOTAL CAPITAL GOODS $ 4,016,714
-----------
COMMUNICATION SERVICES - 11.7%
Cellular/Wireless Telecommunications - 0.2%
6,900 Sprint Corp. (PCS Group) $ 159,563
-----------
Telecommunications (Long Distance) - 1.3%
13,800 Sprint Corp. $ 1,160,925
-----------
Telephone - 10.2%
10,800 Aliant Communications Co., Inc. $ 441,450
24,200 Ameritech Corp. 1,533,675
26,200 Bell Atlantic Corp. 1,388,600
35,400 BellSouth Corp. 1,765,575
20,800 GTE Corp. 1,352,000
31,900 SBC Communications, Inc. 1,710,637
16,600 US West Communication Group, Inc. 1,072,775
-----------
$ 9,264,712
-----------
TOTAL COMMUNICATION SERVICES $10,585,200
-----------
CONSUMER CYCLICALS - 11.1%
Automobiles - 2.9%
9,913 DaimlerChrysler AG $ 952,268
28,400 Ford Motor Co. 1,666,725
-----------
$ 2,618,993
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
69
<PAGE>
Growth and Income Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- -------- -------------
<S> <C> <C>
Household Furniture & Appliances - 0.5%
6,000 Sony Corp. (A.D.R.) $ 430,500
-----------
Publishing - 2.4%
27,000 John Wiley & Sons, Inc. $ 1,304,437
8,700 McGraw-Hill Co., Inc. 886,312
-----------
$ 2,190,749
-----------
Publishing (Newspapers) - 0.4%
5,300 Central Newspapers, Inc. $ 378,619
-----------
Retail (Department Stores) - 2.0%
9,000 Harcourt General, Inc. $ 478,687
8,700 Kohl's Corp.* 534,506
13,000 May Department Stores Co. 784,875
-----------
$ 1,798,068
-----------
Retail (Discounters) - 0.4%
13,500 Dollar General Corp. $ 318,938
-----------
Retail (General Merchandise) - 2.0%
22,100 Dayton Hudson Corp. $ 1,198,925
8,200 Wal-Mart Stores, Inc. 667,787
-----------
$ 1,866,712
-----------
Retail (Specialty) - 0.3%
5,800 Barnes & Noble, Inc.* $ 246,500
-----------
Services (Advertising/Marketing) - 0.2%
3,100 Omnicom Group $ 179,800
-----------
TOTAL CONSUMER CYCLICALS $10,028,879
-----------
CONSUMER STAPLES - 9.1%
Beverages (Non-Alcoholic) - 0.6%
12,900 PepsiCo, Inc. $ 528,094
-----------
Broadcasting (Television/Radio/Cable) - 1.2%
8,600 Belo (A.H.) Corp. $ 171,463
24,800 CBS Corp. 812,200
3,500 Hearst-Argyle Television, Inc.* 115,500
-----------
$ 1,099,163
-----------
Distributors (Food & Health) - 0.4%
13,000 Sysco Corp. $ 356,688
-----------
Foods - 3.9%
10,100 Bestfoods $ 537,825
20,200 ConAgra, Inc. 636,300
8,400 General Mills, Inc. 653,100
14,700 H.J. Heinz Co. 832,387
2,300 Nestle SA (A.D.R.) 248,113
21,000 Sara Lee Corp. 591,937
-----------
$ 3,499,662
-----------
Household Products (Non-Durables) - 0.8%
8,100 Colgate-Palmolive Co. $ 752,287
-----------
Restaurants - 0.4%
5,000 McDonald's Corp. $ 383,125
-----------
Retail Stores (Drug Stores) - 1.4%
21,700 Walgreen Co. $ 1,270,806
-----------
Services (Employment) - 0.4%
7,800 Robert Half International, Inc.* $ 348,563
-----------
TOTAL CONSUMER STAPLES $ 8,238,388
-----------
ENERGY - 4.4%
Oil (Domestic Integrated) - 0.5%
7,700 Atlantic Richfield Co. $ 502,425
-----------
Oil (International Integrated) - 3.1%
15,600 Chevron Corp. $ 1,293,825
8,300 Exxon Corp. 606,937
10,500 Mobil Corp. 914,812
-----------
$ 2,815,574
-----------
Oil & Gas (Drilling & Equipment) - 0.8%
9,900 Schlumberger Ltd. $ 456,638
</TABLE>
The accompanying notes are an integral part of these financial statements.
70
<PAGE>
Growth and Income Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- -------- --------------
<S> <C> <C>
Oil & Gas (Drilling & Equipment) - (Continued)
9,500 Smith International, Inc.* $ 239,281
-----------
$ 695,919
-----------
TOTAL ENERGY $ 4,013,918
-----------
FINANCIAL- 21.2%
Banks (Major Regional) - 6.5%
56,000 The Bank of New York Co., Inc. $ 2,254,000
9,180 Banc One Corp. 468,754
7,550 Comerica, Inc. 514,816
11,000 Huntington Bancshares, Inc. 330,688
2,900 Mellon Bank Corp. 199,375
19,000 National City Corp. 1,377,500
11,500 State Street Corp. 799,969
-----------
$ 5,945,102
-----------
Banks (Regional) - 1.0%
10,900 First Tennessee National Corp. $ 414,881
7,800 Zions Bancorporation 486,525
-----------
$ 901,406
-----------
Financial (Diversified) - 2.6%
12,120 Associates First Capital Corp. $ 513,585
15,300 The Equitable Companies, Inc. 885,487
6,100 Federal National Mortgage Association 451,400
5,800 Morgan Stanley, Dean Witter and Co. 411,800
5,000 The Rouse Co. 137,500
-----------
$ 2,399,772
-----------
Insurance (Life/Health) - 0.7%
14,100 ReliaStar Financial Corp. $ 650,362
-----------
Insurance (Multi-Line) - 0.7%
6,250 American International Group, Inc. $ 603,906
-----------
Insurance (Property/Casualty) - 3.5%
12,700 Chubb Corp. $ 823,912
10,900 Exel Ltd. 817,500
10,600 Partnerre Ltd. 484,950
12,000 St. Paul Companies, Inc. 417,000
14,300 Safeco Corp. 614,006
-----------
$ 3,157,368
-----------
Insurance Brokers - 0.7%
11,350 Marsh & McLennan Co., Inc. $ 663,266
-----------
Investment Banking/Brokerage - 3.4%
30,550 Charles Schwab Corp. $ 1,716,528
10,300 Merrill Lynch & Co., Inc. 687,525
16,500 Paine Webber Group, Inc. 637,312
-----------
$ 3,041,365
-----------
Investment Management - 1.6%
20,000 Federated Investors, Inc. $ 362,500
32,000 T. Rowe Price Associates, Inc. 1,096,000
-----------
$ 1,458,500
-----------
Savings & Loan Companies - 0.5%
12,024 Washington Mutual, Inc. $ 459,167
-----------
TOTAL FINANCIAL $19,280,214
-----------
HEALTHCARE - 14.3%
Healthcare (Diversified) - 4.1%
11,900 Abbott Laboratories $ 583,100
11,000 Bristol-Myers Squibb Co. 1,471,937
13,400 Johnson & Johnson 1,123,925
7,150 Warner-Lambert Co., Inc. 537,591
-----------
$ 3,716,553
-----------
Healthcare (Drugs/Major Pharmaceuticals) - 9.1%
8,000 Eli Lilly & Co. $ 711,000
3,200 Merck & Co., Inc. 472,600
13,300 Novartis AG (A.D.R.) 1,308,387
6,100 Roche Holdings AG (A.D.R.) 747,250
</TABLE>
The accompanying notes are an integral part of these financial statements.
71
<PAGE>
Growth and Income Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- -------- --------------
<S> <C> <C>
Healthcare (Drugs/Major Pharmaceuticals) - (Continued)
68,000 Schering-Plough Corp. $ 3,757,000
18,700 SmithKline Beecham Plc (A.D.R.) 1,299,650
-----------
$ 8,295,887
-----------
Healthcare (Managed Care) - 0.3%
5,900 United Healthcare Corp. $ 254,069
-----------
Healthcare (Medical Products/Supplies) - 0.8%
17,200 Becton, Dickinson & Co. $ 734,225
-----------
TOTAL HEALTHCARE $13,000,734
-----------
TECHNOLOGY - 15.3%
Communications Equipment - 2.3%
11,100 Harris Corp. $ 406,538
7,500 Lucent Technologies, Inc. 825,000
14,600 Motorola, Inc. 891,512
-----------
$ 2,123,050
-----------
Computers (Hardware) - 6.5%
28,000 Compaq Computer Corp. $ 1,174,250
15,000 Hewlett-Packard Co. 1,024,687
12,300 IBM Corp. 2,272,425
16,400 Sun Microsystems, Inc.* 1,404,250
-----------
$ 5,875,612
-----------
Computers (Software & Services) - 1.5%
15,300 Aspen Technology, Inc.* $ 221,850
2,350 BMC Software, Inc.* 104,722
9,900 Computer Sciences Corp. 637,931
3,000 Network Associates, Inc.* 198,750
2,100 Oracle Corp.* 90,563
7,500 Peoplesoft, Inc.* 142,031
-----------
$ 1,395,847
-----------
Electronics (Defense) - 0.4%
8,600 General Motors Corp. (Class H) $ 341,313
-----------
Electronics (Semiconductors) - 2.7%
5,700 Altera Corp.* $ 346,988
8,800 Intel Corp. 1,043,350
10,090 Taiwan Semiconductor Manufacturing Co., Ltd. (A.D.R.)* 143,152
10,700 Texas Instruments, Inc. 915,519
-----------
$ 2,449,009
-----------
Equipment (Semiconductors) - 0.3%
5,400 Applied Materials, Inc.* $ 230,513
-----------
Photography/Imaging - 0.3%
3,600 Eastman Kodak Co. $ 259,200
-----------
Services (Data Processing) - 1.3%
6,300 Automatic Data Processing, Inc. $ 505,181
4,000 DST Systems, Inc.* 228,250
3,600 Electronic Data Systems Corp. 180,900
5,000 Fiserv, Inc.* 257,188
-----------
$ 1,171,519
-----------
TOTAL TECHNOLOGY $13,846,063
-----------
TRANSPORTATION - 1.2%
Airlines - 0.3%
5,700 Delta Air Lines, Inc. $ 296,400
-----------
Railroads - 0.9%
7,100 Burlington Northern, Inc. $ 239,625
16,800 Norfolk Southern Corp. 532,350
-----------
$ 771,975
-----------
TOTAL TRANSPORTATION $ 1,068,375
-----------
UTILITIES - 1.9%
Electric Companies - 1.2%
19,000 Allegheny Power Systems, Inc. $ 655,500
18,500 DPL, Inc. 400,063
-----------
$ 1,055,563
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
72
<PAGE>
Growth and Income Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ------------- --------------
<S> <C> <C>
Natural Gas - 0.3%
12,000 Indiana Energy, Inc. $ 295,500
------------
Water Utilities - 0.4%
10,700 American Water Works Co., Inc. $ 361,125
------------
TOTAL UTILITIES $ 1,712,188
------------
TOTAL COMMON STOCKS (Cost $78,820,480) $ 88,739,803
------------
Principal
Amount
- ----------
TEMPORARY CASH INVESTMENT - 2.2%
Commercial Paper - 2.2%
$2,027,000 Ford Motor Credit Corp., 4.92%, 1/4/99 $ 2,027,000
------------
TOTAL TEMPORARY CASH INVESTMENT (Cost $2,027,000) $ 2,027,000
------------
TOTAL INVESTMENT IN SECURITIES - 100% (Cost $80,847,480)(a) $ 90,766,803
============
</TABLE>
* Non-income producing security.
(a) At December 31, 1998, the net unrealized gain on investments based on cost
for federal income tax purposes of $80,865,428 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized gain for all investments in which
there is an excess of value over tax cost $12,073,734
Aggregate gross unrealized loss for all investments in which
there is an excess of tax cost over value (2,172,359)
-----------
Net unrealized gain $ 9,901,375
===========
</TABLE>
Purchases and sales of securities (excluding temporary cash investments) for
the year ended December 31, 1998 aggregated $76,470,281 and $1,617,082,
respectively.
The accompanying notes are an integral part of these financial statements.
73
<PAGE>
Growth and Income Portfolio
Balance Sheet
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investment in securities, at value (including temporary cash investment
of $2,027,000) (cost $80,847,480) $ 90,766,803
Cash 452
Receivables--
Fund shares sold 249,076
Dividends, interest, and foreign taxes withheld 80,912
Other 3,275
------------
Total assets $ 91,100,518
------------
Liabilities:
Payables:
Investment securities purchased $ 1,176,702
Due to affiliates 47,893
Accrued expenses 15,826
------------
Total liabilities $ 1,240,421
------------
Net Assets:
Paid-in capital $ 79,789,833
Accumulated undistributed net investment income 2,184
Accumulated undistributed net realized gain on investments 148,757
Net unrealized gain on investments 9,919,323
------------
Total net assets $ 89,860,097
============
Net Asset Value Per Share:
(Unlimited number of shares authorized)
Based on $89,860,097/4,546,726 shares $ 19.76
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
74
<PAGE>
Growth and Income Portfolio
Statement of Operations
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income:
Dividends (net of foreign taxes withheld of $2,046) $574,530
Interest 114,984
--------
Total investment income $ 689,514
-----------
Expenses:
Management fees $243,814
Transfer agent fees 712
Accounting 33,806
Custodian fees 28,899
Professional fees 11,875
Printing 3,868
Fees and expenses of nonaffiliated trustees 497
Miscellaneous 5,223
--------
Total expenses $ 328,694
Less management fees waived by Pioneer Investment Management, Inc. (3,603)
Less fees paid indirectly (1,865)
-----------
Net expenses $ 323,226
-----------
Net investment income $ 366,288
-----------
Realized and Unrealized Gain on Investments:
Net realized gain on investments $ 148,757
Change in net unrealized gain on investments 9,848,566
-----------
Net gain on investments $ 9,997,323
-----------
Net increase in net assets resulting from operations $10,363,611
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
75
<PAGE>
Growth and Income Portfolio
Statements of Changes in Net Assets
For the Year Ended December 31, 1998 and the Period Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended October 31, 1997 to
December 31, 1998 December 31, 1997
------------------- --------------------
<S> <C> <C> <C> <C>
From Operations:
Net investment income $ 366,288 $ 2,817
Net realized gain on investments 148,757 --
Change in net unrealized gain on investments 9,848,566 70,757
------------ ----------
Net increase in net assets resulting
from operations $ 10,363,611 $ 73,574
------------ ----------
Distributions To Shareholders:
Net investment income ($0.15 and $0.01 per
share, respectively) $ (364,104) $ (2,870)
------------ ----------
Total distributions to shareholders $ (364,104) $ (2,870)
------------ ----------
From Fund Share Transactions: '98 Shares '97 Shares
------------ -------------
Net proceeds from sale of shares 4,333,802 227,558 $ 76,560,984 $4,320,369
Reinvestment of distributions 20,228 183 364,104 2,870
Cost of shares repurchased (91,682) (29) (1,557,989) (452)
---------- ------- ------------ ----------
Net increase in net assets resulting from
fund share transactions 4,262,348 227,712 $ 75,367,099 $4,322,787
========== ======= ------------ ----------
Net increase in net assets $ 85,366,606 $4,393,491
Net Assets:
Beginning of period 4,493,491 100,000
------------ ----------
End of period (including accumulated
undistributed net investment income of
$2,184 and $0, respectively) $ 89,860,097 $4,493,491
============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
76
<PAGE>
Growth and Income Portfolio
Financial Highlights
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended October 31, 1997 to
December 31, 1998 December 31, 1997
------------------- --------------------
<S> <C> <C>
Net asset value, beginning of period $ 15.80 $ 15.00
------- -------
Increase from investment operations:
Net investment income $ 0.15 $ 0.01
Net realized and unrealized gain on
investments 3.96 0.80
------- -------
Total increase from investment operations $ 4.11 $ 0.81
Distributions to shareholders:
Net investment income (0.15) (0.01)
------- --------
Net increase in net asset value $ 3.96 $ 0.80
------- --------
Net asset value, end of period $ 19.76 $ 15.80
======= ========
Total return* 26.12% 5.43%
Ratio of net expenses to average net assets 0.86%+ 1.25%**
Ratio of net investment income to average net assets 0.97%+ 1.07%**
Portfolio turnover rate 4% --
Net assets, end of period (in thousands) $89,860 $ 4,493
Ratios assuming no waiver of management fees and assumption
of expenses by PIM and no reduction for fees paid indirectly:
Net expenses 0.87% 5.30%**
Net investment income 0.96% (2.98)%**
Ratios assuming waiver of management fees and assumption of
expenses by PIM and reduction for fees paid indirectly:
Net expenses 0.86% 1.25%**
Net investment income 0.97% 1.07%**
</TABLE>
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of distributions and the complete redemption of the
investment at net asset value at the end of each period.
** Annualized.
+ Ratio assuming no reduction for fees paid indirectly.
The accompanying notes are an integral part of these financial statements.
77
<PAGE>
Equity-Income Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
- ------------- ---------------
<S> <C> <C>
INVESTMENT IN SECURITIES - 99.0%
CONVERTIBLE CORPORATE BONDS - 0.8%
$1,300,000 Aspen Technology, Inc., 5.25%, 6/15/05 (144A) $ 830,375
500,000 John H. Harland Co., 6.75%, 6/1/11 485,000
250,000 Phototronics Inc., 6.0%, 6/1/04 256,793
------------
TOTAL CONVERTIBLE CORPORATE BONDS (Cost $2,065,000) $ 1,572,168
------------
Shares
- -----------
CONVERTIBLE PREFERRED STOCKS - 1.9%
570 Sprint Corp., 8.25%, 3/31/00 $ 47,025
10,000 AirTouch Communications, Inc., 4.25%, 8/16/16 1,030,000
20,000 The Rouse Co., $3.00 (Series B) 867,500
42,300 Union Pacific Capital Inc., 6.25%, 4/01/28 1,949,776
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $3,373,619) $ 3,894,301
------------
COMMON STOCKS - 96.3%
BASIC MATERIALS - 5.3%
Aluminum - 0.9%
25,400 Aluminum Co. of America $ 1,893,888
------------
Chemicals - 2.6%
29,000 Dow Chemical Co. $ 2,637,188
50,600 E.I. du Pont de Nemours and Co. 2,684,963
------------
$ 5,322,151
------------
Chemicals (Specialty) - 0.6%
37,600 Nalco Chemical Co. $ 1,165,600
------------
Iron & Steel - 0.1%
15,450 Roanoke Electric Steel Corp. $ 226,922
------------
Metals Mining - 1.1%
44,400 Phelps Dodge Corp. $ 2,258,850
------------
TOTAL BASIC MATERIALS $ 10,867,411
------------
CAPITAL GOODS - 2.8%
Electrical Equipment - 0.9%
7,000 General Electric Co. $ 714,438
5,000 Honeywell, Inc. 376,563
19,000 Hubbell, Inc. (Class B) 722,000
------------
$ 1,813,001
------------
Machinery (Diversified) - 0.5%
7,000 The Gorman-Rupp Co. $ 117,250
52,300 Timken Co. 987,163
------------
$ 1,104,413
------------
Manufacturing (Diversified) - 0.6%
19,000 Johnson Controls, Inc. $ 1,121,000
------------
Manufacturing (Specialized) - 0.5%
31,000 Diebold, Inc. $ 1,106,313
------------
Trucks & Parts - 0.3%
12,800 PACCAR, Inc. $ 526,400
------------
TOTAL CAPITAL GOODS $ 5,671,127
------------
COMMUNICATION SERVICES - 18.1%
Cellular/Wireless Telecommunications - 0.5%
47,500 Sprint Corp. (PCS Group) $ 1,098,438
------------
Telecommunications (Long Distance) - 3.1%
75,000 Sprint Corp. $ 6,309,375
------------
Telephone - 14.5%
43,200 Aliant Communications, Inc. $ 1,765,800
101,200 Ameritech Corp. 6,413,550
76,844 Bell Atlantic Corp. 4,072,732
82,400 BellSouth Corp. 4,109,700
88,500 GTE Corp. 5,752,500
82,412 SBC Communications, Inc. 4,419,344
47,800 US West Communication Group, Inc. 3,089,075
------------
$ 29,622,701
------------
TOTAL COMMUNICATION SERVICES $ 37,030,514
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
78
<PAGE>
Equity-Income Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ---------- ---------------
<S> <C> <C>
CONSUMER CYCLICALS - 7.4%
Automobiles - 4.5%
94,800 Ford Motor Co. $ 5,563,575
37,410 DaimlerChrysler AG 3,593,698
------------
$ 9,157,273
------------
Publishing - 0.8%
15,100 McGraw-Hill Co., Inc. $ 1,538,313
------------
Retail (Department Stores) - 1.8%
62,550 May Department Stores Co. $ 3,776,456
------------
Services (Advertising/Marketing) - 0.3%
7,000 The Interpublic Group of Companies, Inc. $ 558,250
------------
TOTAL CONSUMER CYCLICALS $ 15,030,292
------------
CONSUMER STAPLES - 6.2%
Beverages (Non-Alcoholic) - 0.3%
15,000 PepsiCo, Inc. $ 614,063
------------
Entertainment - 1.0%
79,200 Cedar Fair, L.P. $ 2,059,200
------------
Foods - 3.7%
44,700 Bestfoods $ 2,380,275
47,000 General Mills, Inc. 3,654,250
23,000 H.J. Heinz Co. 1,302,375
10,000 Sara Lee Corp. 281,875
------------
$ 7,618,775
------------
Household Products (Non-Durables) - 0.9%
19,000 Colgate-Palmolive Co. $ 1,764,625
------------
Retail Stores (Food Chains) - 0.3%
15,000 Winn-Dixie Stores $ 673,125
------------
TOTAL CONSUMER STAPLES $ 12,729,788
------------
ENERGY - 5.8%
Oil (Domestic Integrated) - 0.8%
24,000 Atlantic Richfield Co. $ 1,566,000
------------
Oil (International Integrated) - 5.0%
60,800 Chevron Corp. 5,042,600
40,000 Exxon Corp. 2,925,000
26,000 Mobil Corp. 2,265,250
------------
$ 10,232,850
------------
TOTAL ENERGY $ 11,798,850
------------
FINANCIAL - 22.1%
Banks (Major Regional) - 5.9%
118,800 The Bank of New York Co., Inc. $ 4,781,700
10,000 Comerica, Inc. 681,875
42,200 Mellon Bank Corp. 2,901,250
36,000 National City Corp. 2,610,000
29,000 U.S. Bancorp 1,029,500
------------
$ 12,004,325
------------
Banks (Regional) - 5.1%
120,600 First Security Corp. $ 2,819,025
52,700 First Tennessee National Corp. 2,005,894
6,000 North Fork Bancorporation, Inc. 143,625
59,788 Old Kent Financial Corp. 2,780,142
61,200 Southtrust Corp. 2,260,575
7,600 Zions Bancorporation 474,050
------------
$ 10,483,311
------------
Financial (Diversified) - 0.5%
10,000 The Equitable Companies, Inc. $ 578,750
17,205 The Rouse Co. 473,138
------------
1,051,888
------------
Insurance (Life/Health) - 3.6%
24,000 American National Insurance Co. $ 1,986,000
40,500 Hartford Life, Inc. 2,359,125
65,200 ReliaStar Financial Corp. 3,007,350
------------
$ 7,352,475
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
79
<PAGE>
Equity-Income Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ---------- -------------
<S> <C> <C>
Insurance (Property/Casualty) - 2.9%
19,000 Chubb Corp. $ 1,232,625
30,500 HSB Group Inc. 1,252,406
39,000 St. Paul Companies, Inc. 1,355,250
50,400 Safeco Corp. 2,164,050
-----------
$ 6,004,331
-----------
Investment Management - 1.2%
71,200 Alliance Capital Management L.P. $ 1,833,400
14,000 Eaton Vance Corp. 292,250
10,000 T. Rowe Price Associated, Inc. 342,500
-----------
$ 2,468,150
-----------
Investment Banking/Brokerage - 1.2%
25,000 AG Edwards, Inc. $ 931,250
37,300 Paine Webber Group, Inc. 1,440,713
-----------
$ 2,371,963
-----------
Savings & Loans Companies - 1.7%
32,876 Astoria Financial Corp. $ 1,504,077
50,400 Washington Mutual, Inc. 1,924,650
-----------
$ 3,428,727
-----------
TOTAL FINANCIAL $45,165,170
-----------
HEALTHCARE - 11.9%
Healthcare (Diversified) - 4.6%
75,000 Abbott Laboratories $ 3,675,000
50,000 American Home Products Corp. 2,815,623
10,400 Bristol-Myers Squibb Co. 1,391,650
19,000 Johnson & Johnson 1,593,625
-----------
$ 9,475,898
-----------
Healthcare (Drugs/Major Pharmaceuticals) - 6.0%
16,200 Merck & Co., Inc. $ 2,392,538
176,800 Schering-Plough Corp. 9,768,200
-----------
$12,160,738
-----------
Healthcare (Medical Products/Supplies) - 1.3%
62,000 Becton, Dickinson & Co. $ 2,646,625
-----------
TOTAL HEALTHCARE $24,283,261
-----------
TECHNOLOGY - 4.8%
Communications Equipment - 0.8%
45,000 Harris Corp. $ 1,648,125
-----------
Computers (Hardware) - 2.7%
49,000 Hewlett-Packard Co. $ 3,347,313
12,000 IBM Corp. 2,217,000
-----------
$ 5,564,313
-----------
Equipment (Semiconductors) - 0.6%
85,000 Helix Technology Corp. $ 1,105,000
-----------
Photography/Imaging - 0.7%
20,000 Eastman Kodak Co. $ 1,440,000
-----------
TOTAL TECHNOLOGY $ 9,757,438
-----------
TRANSPORTATION - 1.3%
Railroads - 1.3%
28,000 Burlington Northern, Inc. $ 945,000
53,200 Norfolk Southern Corp. 1,685,773
-----------
TOTAL TRANSPORTATION $ 2,630,773
-----------
UTILITIES - 10.6%
Electric Companies - 6.4%
70,000 Allegheny Energy, Inc. $ 2,415,000
136,000 Baltimore Gas & Electric Co. 4,199,000
50,000 BEC Energy 2,059,375
80,300 DPL, Inc. 1,736,488
20,000 DQE, Inc. 878,750
57,000 Kansas City Power & Light Co. 1,688,625
-----------
$12,977,238
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
80
<PAGE>
Equity-Income Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ------------- ---------------
<S> <C> <C>
Natural Gas - 3.7%
4,000 Buckeye Partners, L.P. $ 116,000
14,750 Consolidated Natural Gas Co. 796,500
13,200 Indiana Energy, Inc. 325,050
64,600 Keyspan Energy Corp. 2,002,600
3,475 Kinder Morgan Energy Partners, L.P. 125,965
5,000 Lakehead Pipe Line Partners, L.P. 242,500
39,200 NICOR, Inc. 1,656,200
21,600 Public Service Co. of North Carolina, Inc. 561,600
94,600 Questar Corp. 1,832,874
------------
$ 7,659,289
------------
Water Utilities - 0.5%
32,000 American Water Works Co., Inc. $ 1,080,000
------------
TOTAL UTILITIES $ 21,716,527
------------
TOTAL COMMON STOCKS (Cost $149,392,036) $196,681,151
------------
TOTAL INVESTMENT IN SECURITIES (Cost $154,830,655) $202,147,620
------------
Principal
Amount
- ----------
TEMPORARY CASH INVESTMENT - 1.0%
Commercial Paper - 1.0%
$2,100,000 Commercial Credit Corp., 4.92%, 1/4/99 $ 2,100,000
------------
TOTAL TEMPORARY CASH INVESTMENT (Cost $2,100,000) $ 2,100,000
------------
TOTAL INVESTMENT IN SECURITIES AND TEMPORARY CASH
INVESTMENT - 100% (Cost $156,930,655)(a) $204,247,620
============
</TABLE>
144A Security is exempt from registration under Rule 144A of the Securities Act
of 1933. Such securities may be resold normally to qualified institutional
buyers in a transaction exempt from registration. At December 31, 1998,
the value of these securities amounted to $830,375 or 0.4% of total net
assets.
(a) At December 31,1998, the net unrealized gain on investments based on cost
for federal income tax purposes of $156,930,655 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized gain for all investments in which
there is an excess of value over tax cost $50,995,789
Aggregate gross unrealized loss for all investments in which
there is an excess of tax cost over value (3,678,824)
-----------
Net unrealized gain $47,316,965
===========
</TABLE>
Purchases and sales of securities (excluding temporary cash investments)
for the year ended December 31, 1998 aggregated $81,244,534 and
$29,635,700, respectively.
The accompanying notes are an integral part of these financial statements.
81
<PAGE>
Equity-Income Portfolio
Balance Sheet
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investment in securities, at value (including temporary cash investment
of $2,100,000) (cost $156,930,655) $204,247,620
Receivables--
Fund shares sold 267,191
Dividends and interest 397,814
Other 7,259
------------
Total assets $204,919,884
------------
Liabilities:
Payables--
Investment securities purchased $ 137,928
Due to bank 671,264
Due to affiliates 111,617
Accrued expenses 22,859
------------
Total liabilities $ 943,668
------------
Net Assets:
Paid-in capital $150,298,706
Accumulated undistributed net investment income 398,525
Accumulated undistributed net realized gain on investments 5,962,020
Net unrealized gain on investments 47,316,965
------------
Total net assets $203,976,216
============
Net Asset Value Per Share:
(Unlimited number of shares authorized)
Based on $203,976,216/9,512,759 shares $ 21.44
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
82
<PAGE>
Equity-Income Portfolio
Statement of Operations
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income:
Dividends $4,210,633
Interest 282,599
----------
Total investment income $ 4,493,232
-----------
Expenses:
Management fees $1,063,282
Transfer agent fees 994
Accounting 27,652
Custodian fees 43,089
Professional fees 9,781
Printing 4,201
Fees and expenses of nonaffiliated trustees 532
Miscellaneous 9,858
----------
Total expenses $ 1,159,389
Less fees paid indirectly (3,072)
-----------
Net expenses $ 1,156,317
-----------
Net investment income $ 3,336,915
-----------
Realized and Unrealized Gain on Investments:
Net realized gain on investments $ 6,127,770
Change in net unrealized gain on investments 22,790,102
-----------
Net gain on investments $28,917,872
-----------
Net increase in net assets resulting from operations $32,254,787
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
83
<PAGE>
Equity-Income Portfolio
Statements of Changes in Net Assets
For the Years Ended December 31, 1998 and December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
------------------- ------------------
<S> <C> <C> <C> <C>
From Operations:
Net investment income $ 3,336,915 $ 1,913,851
Net realized gain on investments 6,127,770 2,027,178
Change in net unrealized gain on
investments 22,790,102 20,621,558
------------- ------------
Net increase in net assets resulting from
operations $ 32,254,787 $ 24,562,587
------------- ------------
Distributions to Shareholders:
Net investment income ($0.39 and $0.37 per
share, respectively) $ (3,318,604) $ (1,974,930)
Net realized gain ($0.22 and $0.01 per
share, respectively) (1,835,100) (60,378)
------------- ------------
Total distributions to shareholders $ (5,153,704) $ (2,035,308)
------------- ------------
From Fund Share Transactions: '98 Shares '97 Shares
------------ -------------
Net proceeds from sale of shares 3,004,720 3,870,768 $ 59,078,823 $ 61,680,376
Reinvestment of distributions 257,547 123,265 5,153,704 2,035,308
Cost of shares repurchased (595,292) (561,300) (11,570,695) (8,900,852)
---------- ---------- ------------- ------------
Net increase in net assets resulting from
fund share transactions 2,666,975 3,432,733 $ 52,661,832 $ 54,814,832
========== ========== ------------- ------------
Net increase in net assets $ 79,762,915 $ 77,342,111
Net Assets:
Beginning of year 124,213,301 46,871,190
------------- ------------
End of year (including accumulated
undistributed net investment income of
$398,525 and $51,245, respectively) $ 203,976,216 $124,213,301
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
84
<PAGE>
Equity-Income Portfolio
Financial Highlights
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended March 1, 1995 to
December 31, 1998 December 31, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 18.14 $ 13.73 $ 12.17 $ 10.00
------- ------- ------- -------
Increase from investment operations:
Net investment income $ 0.39 $ 0.35 $ 0.29 $ 0.19
Net realized and unrealized gain on
investments 3.52 4.44 1.54 2.16
------- ------- ------- -------
Net increase from investment
operations $ 3.91 $ 4.79 $ 1.83 $ 2.35
Distributions to shareholders:
Net investment income (0.39) (0.37) (0.27) (0.18)
Net realized gain (0.22) (0.01) -- --
------- ------- ------- --------
Net increase in net asset value $ 3.30 $ 4.41 $ 1.56 $ 2.17
------- ------- ------- --------
Net asset value, end of period $ 21.44 $ 18.14 $ 13.73 $ 12.17
======= ======= ======= ========
Total return* 21.80% 35.23% 15.19% 23.62%
Ratio of net expenses to average net
assets 0.71%+ 0.77%+ 0.96%+ 1.63%**+
Ratio of net investment income to
average net assets 2.04%+ 2.31%+ 2.67%+ 2.89%**+
Portfolio turnover rate 19% 15% 18% --
Net assets, end of period
(in thousands) $203,976 $124,213 $46,871 $ 6,914
Ratios assuming no waiver of
management fees and assumption
of expenses by PIM and no
reduction for fees paid indirectly:
Net expenses 0.71% 0.77% 0.98% 5.32%**
Net investment income (loss) 2.04% 2.31% 2.65% (0.80)%**
Ratios assuming waiver of
management fees and assumption
of expenses by PIM and reduction
for fees paid indirectly:
Net expenses 0.71% 0.77% 0.95% 1.47%**
Net investment income 2.04% 2.31% 2.68% 3.05%**
</TABLE>
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of each period.
** Annualized
+ Ratio assuming no reduction for fees paid indirectly.
The accompanying notes are an integral part of these financial statements.
85
<PAGE>
Balanced Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- -------- -----------
<S> <C> <C>
INVESTMENT IN SECURITIES - 91.1%
COMMON STOCKS - 48.9%
BASIC MATERIALS - 2.0%
Aluminum - 0.3%
4,200 Reynolds Metals Co. $ 221,288
-----------
Chemicals - 0.8%
2,900 Dow Chemical Corp. $ 263,719
5,400 Eastman Chemical Co. 241,650
-----------
$ 505,369
-----------
Metals Mining - 0.2%
9,400 Asarco, Inc. $ 141,587
-----------
Paper & Forest Products - 0.7%
3,400 Georgia-Pacific Corp. $ 199,112
5,700 Weyerhaeuser Co. 289,631
-----------
$ 488,743
-----------
TOTAL BASIC MATERIALS $ 1,356,987
-----------
CAPITAL GOODS - 4.5%
Aerospace/Defense - 1.0%
5,900 General Dynamics Corp. $ 345,888
4,200 Lockheed Martin Corp. 355,950
-----------
$ 701,838
-----------
Electrical Equipment - 2.1%
11,700 General Electric Co. $ 1,194,131
3,400 Honeywell, Inc. 256,063
-----------
$ 1,450,194
-----------
Engineering & Construction - 0.3%
5,200 Fluor Corp. $ 221,325
-----------
Machinery (Diversified) - 0.4%
5,000 Ingersoll-Rand Co. $ 234,687
-----------
Manufacturing (Diversified) - 0.7%
4,100 Tyco International Ltd. $ 309,294
1,500 United Technologies Corp. 163,125
-----------
$ 472,419
-----------
TOTAL CAPITAL GOODS $ 3,080,463
-----------
COMMUNICATION SERVICES - 5.8%
Telecommunications (Long Distance) - 3.9%
4,200 Ameritech Corp. $ 266,175
4,000 Bell Atlantic Corp. 212,000
12,600 BellSouth Corp. 628,425
24,000 US West Communications Group, Inc. 1,551,000
-----------
$ 2,657,600
-----------
Telephone - 1.9%
17,900 AT&T Corp. $ 1,346,975
-----------
TOTAL COMMUNICATION SERVICES $ 4,004,575
-----------
CONSUMER CYCLICALS - 5.5%
Automobiles - 2.4%
28,500 Ford Motor Co. $ 1,672,594
-----------
Homebuilding - 0.3%
5,100 Centex Corp. $ 229,819
-----------
Household Furnishings & Appliances - 0.3%
3,700 Maytag Corp. $ 230,325
-----------
Publishing - 0.8%
5,200 McGraw Hill Co., Inc. $ 529,750
-----------
Publishing (Newspapers) - 0.4%
4,600 Knight-Ridder Inc. $ 235,175
-----------
Retail (General Merchandise) - 1.1%
9,200 Walmart Stores, Inc. $ 749,225
-----------
Services (Advertising/Marketing) - 0.2%
2,700 Omnicom Group $ 156,600
-----------
TOTAL CONSUMER CYCLICALS $ 3,803,488
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
86
<PAGE>
Balanced Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- -------- --------------
<S> <C> <C>
CONSUMER STAPLES - 3.7%
Distributors (Food & Health) - 0.4%
9,200 SUPERVALU, Inc. $ 257,600
-----------
Entertainment - 0.4%
8,400 The Walt Disney Co., Inc. $ 252,000
-----------
Foods - 0.8%
5,900 H.J. Heinz Co., Inc. $ 334,087
4,000 The Quaker Oats Co. 238,000
-----------
$ 572,087
-----------
Restaurants - 1.3%
26,900 Darden Restaurants, Inc. $ 484,200
5,700 McDonald's Corp. 436,763
-----------
$ 920,963
-----------
Specialty Printing - 0.8%
6,500 Deluxe Corp. $ 237,656
7,300 R.R. Donnelley & Sons Co., Inc. 319,831
-----------
$ 557,487
-----------
TOTAL CONSUMER STAPLES $ 2,560,137
-----------
ENERGY - 7.1%
Oil (Domestic Integrated) - 0.8%
11,400 Royal Dutch Petroleum Co. $ 545,775
-----------
Oil (International Integrated) - 5.7%
9,200 Chevron Corp. $ 763,025
26,000 Conoco Inc.* 542,750
24,700 Exxon Corp. 1,806,187
6,700 Mobil Corp. 583,738
4,100 Texaco Inc. 216,788
-----------
$ 3,912,488
-----------
Oil & Gas (Refining & Marketing) - 0.6%
9,400 Ashland Inc., Inc. $ 454,725
-----------
TOTAL ENERGY $ 4,912,988
-----------
FINANCIAL - 12.9%
Banks (Major Regional) - 4.0%
14,400 Banc One Corp. $ 735,300
8,000 First Union Corp. 486,500
6,300 Fleet Financial Group, Inc. 281,531
6,000 PNC Bank Corp. 324,750
23,000 Wells Fargo and Co. 918,563
-----------
$ 2,746,644
-----------
Banks (Money Center) - 1.5%
12,600 BankAmerica Corp. $ 757,575
2,900 J.P. Morgan & Co., Inc. 304,681
-----------
$ 1,062,256
-----------
Financial (Diversified) - 1.5%
8,400 American General Corp. $ 655,200
5,400 Federal National Mortgage Association 399,600
-----------
$ 1,054,800
-----------
Insurance (Life/Health) - 1.7%
7,400 Jefferson-Pilot Corp. $ 555,000
5,400 Transamerica Corp. 623,700
-----------
$ 1,178,700
-----------
Insurance (Multi-Line) - 1.3%
8,200 Cigna Corp. $ 633,963
2,800 Lincoln National Corp. 229,075
-----------
$ 863,038
-----------
Insurance (Property/Casualty) - 1.8%
14,300 Allstate Corp. $ 552,337
2,000 Progressive Corp. 338,750
7,600 Safeco Corp. 326,325
-----------
$ 1,217,412
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
87
<PAGE>
Balanced Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P/Moody's
Ratings
Shares (Unaudited) Value
- -------- ------------- -----------
<S> <C> <C> <C>
Insurance Brokers - 1.1%
8,700 Aon Corp. $ 481,763
4,800 Marsh & McLennan Co., Inc. 280,500
-----------
$ 762,263
-----------
TOTAL FINANCIAL $ 8,885,113
-----------
HEALTHCARE - 0.9%
Healthcare (Diversified) - 0.5%
2,300 Allergan Inc. $ 148,925
2,600 Warner-Lambert Co. 195,488
-----------
$ 344,413
-----------
Healthcare (Drugs/Major Pharmaceuticals) - 0.4%
2,900 Eli Lilly & Co. $ 257,737
-----------
TOTAL HEALTHCARE $ 602,150
-----------
TECHNOLOGY - 4.0%
Communications Equipment - 1.4%
6,500 Lucent Technologies, Inc. $ 715,000
3,400 Motorola, Inc. 207,613
-----------
$ 922,613
-----------
Computers (Hardware) - 1.6%
11,500 Compaq Computer Corp. $ 482,281
8,900 Hewlett-Packard Co. 607,981
-----------
$ 1,090,262
-----------
Electronics (Semiconductors) - 1.0%
6,000 Intel Corp. $ 711,375
-----------
TOTAL TECHNOLOGY $ 2,724,250
-----------
TRANSPORTATION - 0.5%
Airlines - 0.5%
15,100 Southwest Airlines Co. $ 338,806
-----------
TOTAL TRANSPORTATION $ 338,806
-----------
UTILITIES - 2.0%
Electric Companies - 2.0%
6,600 DTE Energy Co. $ 282,975
6,500 First Energy Corp. 211,656
13,300 Houston Industries Inc. 427,263
11,000 Public Service Enterprise Group, Inc. 440,000
-----------
TOTAL UTILITIES $ 1,361,894
-----------
TOTAL COMMON STOCKS (Cost $29,508,803) $33,630,851
-----------
Principal
Amount
- ----------
DEBT OBLIGATIONS - 42.2%
CORPORATE BONDS - 22.8%
BASIC MATERIALS - 0.4%
$150,000 BBB+/A3 Lockheed Martin Corp., 6.85%, 5/15/01 $ 154,581
135,000 A/A2 Phelps Dodge Corp., 7.75%, 1/1/02 140,709
-----------
TOTAL BASIC MATERIALS $ 295,290
-----------
CAPITAL GOODS - 1.5%
500,000 A/A2 Akzo Nobel N.V., 6.0%, 11/15/03 $ 501,465
500,000 BBB/Baa3 Waste Management Inc., 6.625%, 7/15/02 510,980
-----------
TOTAL CAPITAL GOODS $ 1,012,445
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
88
<PAGE>
Balanced Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P/Moody's
Principal Ratings
Amount (Unaudited) Value
- ----------- ------------- -------------
<S> <C> <C> <C>
COMMUNICATIONS SERVICES - 0.7%
500,000 A-/Baa1 Sprint Capital Corp., 5.7%, 11/15/03 $ 502,340
----------
TOTAL COMMUNICATIONS SERVICES $ 502,340
----------
CONSUMER CYCLICALS - 5.3%
1,000,000 A/A2 Penney (J.C.) & Co., 7.6%, 4/1/07 $1,091,670
250,000 BB+/Baa3 Saks Inc., 8.25%, 11/15/08 265,328
250,000 BB+/Baa3 Saks Inc., 7.5%, 12/01/10 249,745
1,000,000 BBB-/Baa3 Shopko Stores, 6.5%, 8/15/03 1,006,730
1,000,000 A+/Aa3 Sony Corp., 6.125%, 3/4/03 1,026,770
----------
TOTAL CONSUMER CYCLICALS $3,640,243
----------
CONSUMER STAPLES - 2.3%
500,000 BBB-/Baa3 Comcast Cable Communications, 6.2%, 11/15/08 $ 508,740
1,000,000 BBB-/Baa3 Telecommunications, Inc., 6.375%, 5/1/03 1,029,690
----------
TOTAL CONSUMER STAPLES $1,538,430
----------
ENERGY - 0.8%
500,000 BBB-/Baa1 Tosco Corp., 9.625%, 3/15/02 $ 547,820
----------
TOTAL ENERGY $ 547,820
----------
FINANCIAL - 7.2%
210,000 A+/Aa3 Chase Manhattan Corp., 5.5%, 2/15/01 $ 210,519
500,000 A/A1 Citicorp, 7.25%, 9/1/08 548,630
425,000 A/A2 Ford Motor Credit Co., 9.14%, 12/30/14 488,436
300,000 A/A2 Hartford Financial Services Group, Inc., 6.375%, 11/1/02 305,433
200,000 BBB/Baa2 Hertz Corp., 7.0%, 7/15/03 207,448
220,000 AA-/Aa3 Merrill Lynch & Co., Inc., 6.375%, 9/8/06 224,261
200,000 A-/A1 Nationsbank Corp., 6.5%, 3/15/06 208,334
200,000 A-/A1 Nationsbank Corp., 7.5%, 9/15/06 221,070
500,000 A+/A1 St. Paul Companies, Inc., 6.38%, 12/15/08 497,040
200,000 A/A2 Salomon Inc., 7.0%, 6/15/03 208,876
500,000 BBB/Baa2 Spieker Properties, Inc., 6.875%, 2/1/05 487,475
500,000 A/A2 SunTrust Banks Inc., 6.0%, 2/15/26 508,680
500,000 BBB+/A3 Washington Mutual Inc., 7.25%, 8/15/05 532,510
300,000 A-/A2 Western National Corp., 7.125%, 2/15/04 311,406
----------
TOTAL FINANCIAL $4,960,118
----------
HEALTHCARE - 0.3%
200,000 AA-/A1 Warner-Lambert Co., 6.625%, 9/15/02 $ 208,890
----------
TOTAL HEALTHCARE $ 208,890
----------
TECHNOLOGY - 2.5%
250,000 A/A2 First Data Corp., 6.625%, 4/1/03 $ 258,668
400,000 A/A2 Lucent Technologies, Inc., 6.9%, 7/15/01 416,319
1,000,000 AA-/Aa3 Motorola Inc., 6.5%, 3/1/08 1,056,950
----------
TOTAL TECHNOLOGY $1,731,937
----------
TRANSPORTATION - 0.8%
500,000 BBB-/Baa2 Kansas City Southern Industries, Inc., 7.875%, 7/1/02 $ 530,784
----------
TOTAL TRANSPORTATION $ 530,784
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
89
<PAGE>
Balanced Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P/Moody's
Principal Ratings
Amount (Unaudited) Value
- ------------ ------------- --------------
<S> <C> <C> <C>
UTILITIES - 1.0%
$ 650,000 A/A2 Virginia Electric & Power, 6.75%, 2/1/07 $ 689,761
-----------
TOTAL UTILITIES $ 689,761
-----------
TOTAL CORPORATE BONDS $15,658,058
-----------
U.S. GOVERNMENT OBLIGATIONS - 5.8%
2,550,000 U.S. Treasury Bonds, 6.5%, 10/15/06 $ 2,828,639
1,000,000 U.S. Treasury Bonds, 6.125%, 11/15/27 1,119,580
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS $ 3,948,219
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 13.6%
500,000 Federal Home Loan Mortgage Corp., 6.0%, 7/15/24 $ 504,945
500,000 Federal Home Loan Mortgage Corp., REMIC Series 1487F, 6.0%, 11/15/20 502,020
1,000,000 Federal Home Loan Mortgage Corp., REMIC Series 1541G, 6.75%, 11/15/21 1,029,590
1,000,000 Federal Home Loan Mortgage Corp., REMIC Series 1652PJ, 6.6%, 8/15/22 1,028,950
421,576 Federal Home Loan Mortgage Corp., REMIC Series, 2017C, 6.5%, 11/15/23 426,053
500,000 Federal National Mortgage Association, 5.75%, 2/15/08 516,730
825,000 Federal National Mortgage Association, REMIC Series 93-47C, 7.0%, 4/25/08 846,054
1,000,000 Federal National Mortgage Association, REMIC Series 93-23PJ, 6.7%, 7/25/19 1,006,320
493,104 Government National Mortgage Association I, 6.0%, 11/15/13 496,033
1,508,487 Government National Mortgage Association, 6.0%, 11/15/28 1,494,819
Government National Mortgage Association, REMIC Series 1998-24A,
493,327 6.5%, 11/20/24 499,395
Government National Mortgage Association, REMIC Series 98-13B, 6.5%,
1,000,000 12/20/25 1,015,200
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS $ 9,366,109
-----------
TOTAL DEBT OBLIGATIONS (Cost $28,387,658) $28,972,386
-----------
TOTAL INVESTMENT IN SECURITIES (Cost $57,896,461) $62,603,237
-----------
TEMPORARY CASH INVESTMENTS - 8.9%
Commercial Paper - 8.9%
2,289,000 Citigroup Inc., 4.92%, 1/4/99 $ 2,289,000
1,832,000 Ford Motor Credit Corp., 6.05%, 1/5/99 1,832,000
2,023,000 General Electric Financial Assurance Corp., 5.81%, 1/6/99 2,023,000
-----------
TOTAL TEMPORARY CASH INVESTMENTS (Cost $6,144,000) $ 6,144,000
-----------
TOTAL INVESTMENT IN SECURITIES AND TEMPORARY
CASH INVESTMENTS - 100% (Cost $64,040,461) (a) (b) $68,747,237
===========
</TABLE>
* Non-income producing security.
(a) At December 31, 1998, the net unrealized gain on investments based on cost
for federal income tax purposes of $64,040,461, was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized gain for all investments in which
there is an excess of value over tax cost $ 5,271,379
Aggregate gross unrealized loss for all investments in which
there is an excess of tax cost over value (564,603)
-----------
Net unrealized gain $ 4,706,776
===========
</TABLE>
(b) At December 31, 1998, the Portfolio had a net capital loss carryforward of
$3,120,676 which will expire in 2006 if not utilized.
Purchases and sales of securities (excluding temporary cash investments) for
the year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Purchases Sales
----------- -----------
<S> <C> <C>
Long-term U.S. Government $26,393,659 $17,096,995
Other Long-term Securities 57,114,082 36,500,824
</TABLE>
The accompanying notes are an integral part of these financial statements.
90
<PAGE>
Balanced Portfolio
Balance Sheet
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investment in securities, at value (including temporary
cash investments of $6,144,000) (cost $64,040,461) $ 68,747,237
Receivables--
Investment securities sold 394,051
Fund shares sold 10,665
Dividends and interest 434,563
Other 4,068
------------
Total assets $ 69,590,584
------------
Liabilities:
Payables--
Investment securities purchased $ 2,587,117
Due to bank 19,326
Due to affiliates 38,356
Accrued expenses 15,616
------------
Total liabilities $ 2,660,415
------------
Net Assets:
Paid-in capital $ 65,322,700
Accumulated undistributed net investment income 21,369
Accumulated net realized loss on investments (3,120,676)
Net unrealized gain on investments 4,706,776
------------
Total net assets $ 66,930,169
============
Net Asset Value Per Share:
(Unlimited number of shares authorized)
Based on $66,930,169/4,624,817 shares $ 14.47
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
91
<PAGE>
Balanced Portfolio
Statement of Operations
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income:
Dividends (net of foreign taxes withheld of $963) $ 455,932
Interest 1,628,634
----------
Total investment income $ 2,084,566
------------
Expenses:
Management fees $ 363,460
Transfer agent fees 978
Accounting 28,109
Custodian fees 29,401
Professional fees 13,730
Printing 4,742
Fees and expenses of nonaffiliated trustees 586
Miscellaneous 4,657
----------
Total expenses $ 445,663
Less fees paid indirectly (948)
------------
Net expenses $ 444,715
------------
Net investment income $ 1,639,851
------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments $ (3,114,995)
Change in net unrealized gain on investments 2,423,530
------------
Net loss on investments $ (691,465)
------------
Net increase in net assets resulting from operations $ 948,386
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
92
<PAGE>
Balanced Portfolio
Statements of Changes in Net Assets
For the Years Ended December 31, 1998 and December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
------------------- ------------------
<S> <C> <C> <C> <C>
From Operations:
Net investment income $ 1,639,851 $ 763,758
Net realized gain (loss) on investments (3,114,995) 1,950,534
Change in net unrealized gain on investments 2,423,530 1,459,896
------------ ------------
Net increase in net assets resulting from
operations $ 948,386 $ 4,174,188
------------ ------------
Distributions to Shareholders:
Net investment income ($0.42 and $0.36 per
share, respectively) $ (1,636,233) $ (768,655)
Net realized gain ($0.52 and $0.14 per share,
respectively) (1,935,738) (262,435)
------------ ------------
Total distributions to shareholders $ (3,571,971) $ (1,031,090)
------------ ------------
From Fund Share Transactions: '98 Shares '97 Shares
---------- -----------
Net proceeds from sale of shares 1,876,280 1,712,892 $ 28,239,062 $ 24,796,670
Reinvestment of distributions 237,908 71,377 3,571,971 1,031,090
Cost of shares repurchased (425,293) (121,009) (6,264,939) (1,746,636)
---------- ---------- ------------ ------------
Net increase in net assets resulting from
fund share transactions 1,688,895 1,663,260 $ 25,546,094 $ 24,081,124
========== ========== ------------ ------------
Net increase in net assets $ 22,922,509 $ 27,224,222
Net Assets:
Beginning of year 44,007,660 16,783,438
------------ ------------
End of year (including accumulated
undistributed net investment income of
$21,369 and $12,375, respectively) $ 66,930,169 $ 44,007,660
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
93
<PAGE>
Balanced Portfolio
Financial Highlights
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended March 1, 1995 to
December 31, 1998 December 31, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.99 $ 13.19 $ 11.87 $ 10.00
------- ------- ------- -------
Increase from investment operations:
Net investment income $ 0.42 $ 0.36 $ 0.29 $ 0.20
Net realized and unrealized gain on
investments 0.00 1.94 1.39 1.87
------- ------- ------- -------
Net increase from investment
operations $ 0.42 $ 2.30 $ 1.68 $ 2.07
Distributions to shareholders:
Net investment income (0.42) (0.36) (0.29) (0.20)
Net realized gain (0.52) (0.14) (0.07) --
------- ------- ------- -------
Net increase (decrease) in net asset
value $ (0.52) $ 1.80 $ 1.32 $ 1.87
------- ------- ------- -------
Net asset value, end of period $ 14.47 $ 14.99 $ 13.19 $ 11.87
======= ======= ======= =======
Total return* 2.64% 17.62% 14.26% 20.84%
Ratio of net expenses to average net
assets 0.80%+ 0.96%+ 1.20%+ 1.76%**+
Ratio of net investment income to
average net assets 2.93%+ 2.63%+ 2.83%+ 2.99%**+
Portfolio turnover rate 104% 63% 74% --
Net assets, end of period
(in thousands) $66,930 $44,008 $16,783 $ 2,661
Ratios assuming no waiver of
management fees and assumption
of expenses by PIM and no
reduction for fees paid indirectly:
Net expenses 0.80% 0.96% 1.58% 14.77%**
Net investment income (loss) 2.93% 2.63% 2.45% (10.02)%**
Ratios assuming waiver of
management fees and assumption
of expenses by PIM and reduction
for fees paid indirectly:
Net expenses 0.80% 0.95% 1.15% 1.45%**
Net investment income 2.93% 2.64% 2.88% 3.30%**
</TABLE>
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of distributions and the complete redemption of the
investment at net asset value at the end of each period.
** Annualized.
+ Ratio assuming no reduction for fees paid indirectly.
The accompanying notes are an integral part of these financial statements.
94
<PAGE>
Swiss Franc Bond Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P/Moody's
Principal Ratings
Amount (Unaudited) Value
- ------------- ------------- -------------
<S> <C> <C> <C>
DEBT OBLIGATIONS - 80.4%
Australia - 1.9%
$1,000,000 NA/NR Shell Australia, 6.0%, 1/14/00 $ 756,394
-----------
Austria - 3.7%
1,000,000 NA/NA Autobahn Schnell AG, 3.0%, 11/12/01 $ 743,278
1,000,000 NA/NR City of Vienna, 4.25%, 1/31/00 746,557
-----------
$ 1,489,835
-----------
Belgium - 4.3%
1,300,000 AA+/NA Kingdom of Belgium, 7.125%, 6/1/99 $ 965,787
1,000,000 NR/NR Societe Nationale Credit a d'Investissement, 7.25%, 10/2/00 789,915
-----------
$ 1,755,702
-----------
Canada - 8.7%
2,000,000 AA-/Aa3 Province of Ontario, 6.25%, 1/27/03 $ 1,657,801
1,260,000 NR/A2 Province of Saskatchewan, 7.0%, 8/17/00 984,734
1,200,000 A+/A2 Quebec Province, 3.5%, 9/17/08 870,947
-----------
$ 3,513,482
-----------
Denmark - 3.4%
600,000 NA/Aa1 Great Belt AS, 4.25%, 9/24/04 $ 474,714
1,340,000 AA+/Aa1 Kingdom of Denmark, 0.0%, 2/17/02 908,110
-----------
$ 1,382,824
-----------
France - 9.2%
1,800,000 AAA/Aaa Caisse National d'Autoroutes, 3.375%, 2/27/08 $ 1,339,212
1,800,000 AAA/Aaa Reseau Ferre de France, 3.25%, 9/12/08 1,328,062
1,300,000 NA/NA Rhone-Alpes, 6.375%, 11/25/02 1,075,676
-----------
$ 3,742,950
-----------
Germany - 7.7%
2,000,000 NA/Aa3 Bayerische Vereinsbank, 4.25%, 2/21/07 $ 1,517,525
2,200,000 AAA/Aaa Frankfurter Hypothekenbank Centralboden AG, 3.125%, 4/29/08 1,607,156
-----------
$ 3,124,681
-----------
Ireland - 2.6%
1,300,000 AA+/Aaa Republic of Ireland, 6.5%, 1/15/01 $ 1,058,624
-----------
Netherlands - 10.8%
1,400,000 NR/A1 BMW Finance NV, 5.0%, 4/21/13 $ 1,058,442
1,000,000 NA/Aa3 De Nationale Investeringsbank NV, 3.25%, 12/20/99 739,088
1,400,000 AA+/Aa1 Deutsche Finance BV, 3.5%, 2/19/03 1,058,442
2,000,000 NR/Aaa Helaba Finance, 3.75%, 12/28/00 1,504,044
-----------
$ 4,360,016
-----------
New Zealand - 2.3%
1,200,000 AA+/Aa2 Transpower Finance Ltd., 4.25%, 6/10/04 $ 937,842
-----------
Norway - 4.1%
2,165,000 AA/Aa2 Statoil, 4.125%, 9/20/01 $ 1,639,171
-----------
Sweden - 4.8%
2,500,000 NA/Aa3 AB Spintab, 3.25%, 1/24/02 $ 1,872,768
100,000 NA/A1 City of Gothenberg, 6.375%, 12/10/99 75,603
-----------
$ 1,948,371
-----------
Philippines - 5.0%
2,000,000 AAA/Aaa Asian Development Bank, 7.375%,11/27/00 $ 2,041,600
-----------
United Kingdom - 0.9%
500,000 AA/Aa2 Abbey National Treasury Services, 4.0%, 12/30/99 $ 372,459
-----------
United States - 11.0%
300,000 NA/Aaa General Electric Capital Corp., 3.5%, 5/29/00 $ 223,202
2,200,000 AA-/Aa3 Merrill Lynch & Co., 3.0%, 4/8/02 1,619,179
1,500,000 NR/A1 Morgan (JP) & Co., 2.0%, 12/27/01 1,087,044
2,000,000 AAA/Aa1 Toyota Motor Credit Corp., 4.5%, 9/29/00 1,513,882
-----------
$ 4,443,307
-----------
TOTAL DEBT OBLIGATIONS (Cost $32,281,905) $32,567,258
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
95
<PAGE>
Swiss Franc Bond Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P/Moody's
Principal Ratings
Amount (Unaudited) Value
- ------------- ------------- ---------------
<S> <C> <C> <C>
TEMPORARY CASH INVESTMENTS - 19.6%
Commercial Paper - 19.6%
$1,417,000 American Express Credit Corp., 6.0%, 1/6/99 $ 1,417,000
1,649,000 Commercial Credit Corp., 4.92%, 1/4/99 1,649,000
1,400,000 Ford Motor Credit Corp., 5.95%, 1/5/99 1,400,000
1,489,000 General Electric Financial Assurance Corp., 5.61%, 1/7/99 1,489,000
1,982,000 General Motors Credit Corp., 6.11%, 1/5/99 1,982,000
-----------
TOTAL TEMPORARY CASH INVESTMENTS (Cost $7,937,000) $ 7,937,000
-----------
TOTAL INVESTMENT IN SECURITIES - 100% (Cost $40,218,905)(a)(b) $40,504,258
===========
</TABLE>
(a) At December 31, 1998, the net unrealized gain on investments based on cost
for federal income tax purposes of $40,218,905 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized gain for all investments in which
there is an excess of value over tax cost $ 926,140
Aggregate gross unrealized loss for all investments in which
there is an excess of tax cost over value (640,787)
---------
Net unrealized gain $ 285,353
=========
</TABLE>
(b) At December 31, 1998, the Portfolio had a net capital loss carryforward of
$159,801 which will expire between 2005 and 2006 if not utilized.
Purchases and sales of securities (excluding temporary cash investments) for
the year ended December 31, 1998 aggregated $16,875,972 and $6,032,210,
respectively.
The accompanying notes are an integral part of these financial statements.
96
<PAGE>
Swiss Franc Bond Portfolio
Balance Sheet
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investment in securities, at value (including temporary
cash investments of $7,937,000) (cost $40,218,905) $40,504,258
Cash 455
Receivables--
Fund shares sold 13,931
Interest and foreign taxes withheld 677,912
Forward foreign currency portfolio hedge contracts, net 13,358
Other 3,726
-----------
Total assets $41,213,640
-----------
Liabilities:
Due to foreign bank $ 664
Due to affiliates 24,421
Accrued expenses 14,786
-----------
Total liabilities $ 39,871
-----------
Net Assets:
Paid-in capital $41,335,888
Accumulated net investment loss (240,236)
Accumulated net realized loss on investments and
foreign currency transactions (236,449)
Net unrealized gain on investments 285,353
Net unrealized gain on forward foreign currency contracts and other assets
and liabilities denominated in foreign currencies 29,213
-----------
Total net assets $41,173,769
===========
Net Asset Value Per Share:
(Unlimited number of shares authorized)
Based on $41,173,769/3,114,434 shares $ 13.22
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
97
<PAGE>
Swiss Franc Bond Portfolio
Statement of Operations
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income:
Interest (net of foreign taxes withheld of $3,906) $1,168,148
----------
Total investment income $1,168,148
----------
Expenses:
Management fees $ 175,251
Transfer agent fees 989
Accounting 18,117
Custodian fees 29,187
Professional fees 12,253
Printing 2,380
Fees and expenses of nonaffiliated trustees 538
Miscellaneous 8,140
----------
Total expenses $ 246,855
Less fees paid indirectly (2,081)
----------
Net expenses $ 244,774
----------
Net investment income $ 923,374
----------
Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions:
Net realized gain (loss) from:
Investments $ (521,282)
Forward foreign currency contracts and other assets and liabilities
denominated in foreign currencies 374,886 $ (146,396)
---------- ----------
Change in net unrealized gain or loss from:
Investments $1,854,378
Forward foreign currency contracts and other assets and liabilities
denominated in foreign currencies 22,883 $1,877,261
---------- ----------
Net gain on investments and foreign currency transactions $1,730,865
----------
Net increase in net assets resulting from operations $2,654,239
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
98
<PAGE>
Swiss Franc Bond Portfolio
Statements of Changes in Net Assets
For the Years Ended December 31, 1998 and December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
------------------- ------------------
<S> <C> <C> <C> <C>
From Operations:
Net investment income $ 923,374 $ 568,206
Net realized loss on investments and foreign
currency transactions (146,396) (640,426)
Change in net unrealized gain or loss on
investments and foreign currency transactions 1,877,261 (915,115)
------------ ------------
Net increase (decrease) in net assets
resulting from operations $ 2,654,239 $ (987,335)
------------ ------------
Distributions to Shareholders:
Net investment income ($0.46 and $0.00 per
share, respectively) $ (1,234,457) $ --
------------ ------------
Total distributions to shareholders $ (1,234,457) $ --
------------ ------------
From Fund Share Transactions: '98 Shares '97 Shares
---------- -----------
Net proceeds from sale of shares 1,826,041 979,273 $ 23,761,111 $ 12,351,838
Reinvestment of dividends 94,026 -- 1,234,457 --
Cost of shares repurchased (573,102) (186,177) (7,329,504) (2,355,859)
---------- -------- ------------ ------------
Net increase in net assets resulting from
fund share transactions 1,346,965 793,096 $ 17,666,064 $ 9,995,979
========== ======== ------------ ------------
Net increase in net assets $ 19,085,846 $ 9,008,644
Net Assets:
Beginning of year 22,087,923 13,079,279
------------ ------------
End of year (including accumulated net investment
loss of $240,236 and $5,627, respectively) $ 41,173,769 $ 22,087,923
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
99
<PAGE>
Swiss Franc Bond Portfolio
Financial Highlights
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended November 1, 1995 to
December 31, 1998 December 31, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.50 $ 13.42 $ 15.06 $ 15.00
------- ------- -------- -------
Increase (decrease) from investment
operations:
Net investment income $ 0.36 $ 0.30 $ 0.14 $ 0.04
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions 0.82 (1.22) (1.78) 0.02
------- ------- -------- -------
Net increase (decrease) from
investment operations $ 1.18 $ (0.92) $ (1.64) $ 0.06
Distributions to shareholders:
Net investment income (0.46) -- -- --
------- ------- -------- -------
Net increase (decrease) in net
asset value $ 0.72 $ (0.92) $ (1.64) $ 0.06
------- ------- -------- -------
Net asset value, end of period $ 13.22 $ 12.50 $ 13.42 $ 15.06
======= ======= ======== =======
Total return* 9.48% (6.92)% (10.88)% 0.40%
Ratio of net expenses to average net
assets 0.91%+ 1.23%+ 1.20%+ 2.25%**+
Ratio of net investment income to
average net assets 3.41%+ 3.22%+ 3.37%+ 1.70%**+
Portfolio turnover rate 29% 17% 39% --
Net assets, end of period
(in thousands) $41,174 $22,088 $ 13,079 $ 189
Ratios assuming no waiver of
management fees and assumption
of expenses by PIM and no
reduction for fees paid indirectly:
Net expenses 0.91% 1.25% 2.58% 69.22%**
Net investment income (loss) 3.41% 3.20% 1.99% (65.27)%**
Ratios assuming waiver of
management fees and assumption
of expenses by PIM and reduction
for fees paid indirectly:
Net expenses 0.90% 1.22% 1.15% 1.25%**
Net investment income 3.42% 3.23% 3.42% 2.70%**
</TABLE>
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of distributions and the complete redemption of the
investment at net asset value at the end of each period.
** Annualized.
+ Ratio assuming no reduction for fees paid indirectly.
The accompanying notes are an integral part of these financial statements.
100
<PAGE>
America Income Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
- ------------ --------------
<S> <C> <C>
INVESTMENT IN SECURITIES - 96.2%
U.S. Government and Agency Obligations - 96.2 %
$ 350,000 Federal Farm Credit Bank, Medium Term Note, 6.24%, 12/13/02 $ 359,310
300,000 Federal Farm Credit Bank, Medium Term Note, 6.38%, 11/27/06 321,231
350,000 Federal Farm Credit Bank, Medium Term Note, 6.78%, 12/12/07 358,897
300,000 Federal Home Loan Bank, 6.455%, 2/22/02 305,526
250,000 Federal Home Loan Bank, 6.0%, 7/27/05 251,800
350,000 Federal Home Loan Bank, 7.0%, 11/13/07 360,017
400,000 Federal Home Loan Bank, 6.02%, 3/17/08 418,300
350,000 Federal Home Loan Bank, Medium Term Note, 6.59%, 11/5/03 371,661
110,000 Federal Home Loan Mortgage Corp., 6.55%, 1/4/00 111,750
300,000 Federal Home Loan Mortgage Corp., 7.125%, 11/18/02 321,984
300,000 Federal Home Loan Mortgage Corp., 5.75%, 7/15/03 308,076
600,000 Federal Home Loan Mortgage Corp., 6.54%, 11/6/07 618,162
180,066 Federal Home Loan Mortgage Corp., 7.0%, 9/1/27 183,668
304,146 Federal Home Loan Mortgage Corp., REMIC Series G031K, 6.5%, 10/25/14 307,649
127,673 Federal Home Loan Mortgage Corp., REMIC Series 1142H, 7.95%, 12/15/20 128,517
500,000 Federal Home Loan Mortgage Corp., REMIC Series 1541G, 6.75%, 11/15/21 514,795
660,400 Federal Home Loan Mortgage Corp., REMIC Series 2043DB, 6.5%, 1/15/25 668,721
500,000 Federal National Mortgage Association, 6.5%, 5/18/26 506,570
1,009,210 Federal National Mortgage Association, 6.5%, 11/1/28 1,015,831
1,000,000 Federal National Mortgage Association, 6.0%, 12/1/28 987,190
500,000 Federal National Mortgage Association, Medium Term Note, 5.78%, 2/12/03 503,360
350,000 Federal National Mortgage Association, Medium Term Note, 5.82%, 2/12/03 352,555
500,000 Federal National Mortgage Association, Medium Term Note, 6.0%, 3/11/03 516,295
300,000 Federal National Mortgage Association, Medium Term Note, 6.84%, 7/17/07 311,700
300,000 Federal National Mortgage Association, Medium Term Note, 6.44%, 8/14/07 322,482
350,000 Federal National Mortgage Association, Medium Term Note, 6.59%, 9/17/07 380,054
225,000 Federal National Mortgage Corp., 6.8%, 1/10/03 238,509
100,000 Federal National Mortgage Corp., 6.85%, 4/5/04 107,362
239,063 Government National Mortgage Association, 8.0%, 2/15/08 250,270
175,057 Government National Mortgage Association, 7.5%, 10/15/22 to 8/15/23 180,638
2,417,896 Government National Mortgage Association, 7.0%, 12/15/25 to 4/15/28 2,472,300
2,054,694 Government National Mortgage Association, 6.5%, 3/15/26 to 9/15/28 2,074,768
1,511,679 Government National Mortgage Association, 6.0%, 10/15/28 1,497,983
47,590 Government National Mortgage Association II, 8.0%, 8/20/25 49,360
178,492 Government National Mortgage Association II, 7.5%, 8/20/27 183,679
500,000 Government National Mortgage Association, REMIC Series 1998-21VB, 6.5%, 10/20/11 501,770
493,327 Government National Mortgage Association, REMIC Series 1998-24A, 6.5%, 11/20/24 499,395
250,000 Private Export Funding, 7.3%, 1/31/02 265,450
300,000 Private Export Funding, 6.24%, 5/15/02 309,522
500,000 Private Export Funding, 6.9%, 1/31/03 530,415
200,000 Student Loan Marketing Association, 7.5%, 3/8/00 205,852
250,000 Tennessee Valley Authority, 6.375%, 6/15/05 264,190
300,000 Tennessee Valley Authority, 6.75%, 6/1/28 315,750
850,000 U.S. Treasury Bonds, 7.25%, 5/15/16 1,029,707
1,750,000 U.S. Treasury Bonds, 6.25%, 8/15/23 1,955,677
200,000 U.S. Treasury Notes, 7.875%, 11/15/04 231,716
2,600,000 U.S. Treasury Notes, 7.0%, 7/15/06 2,959,944
800,000 U.S. Treasury Notes, 6.625%, 5/15/07 899,464
-----------
TOTAL INVESTMENT IN SECURITIES (Cost $27,248,881) $27,829,822
-----------
TEMPORARY CASH INVESTMENT - 3.8%
Repurchase Agreement - 3.8%
1,100,000 Credit Suisse First Boston Group, Inc., 4.75%, dated 12/31/98, repurchase price of
$1,100,000 plus accrued interest on 1/4/99, collateralized by $1,092,000 U.S. Treasury
Notes, 5.5%, 2/29/00 $ 1,100,000
-----------
TOTAL TEMPORARY CASH INVESTMENT (Cost $1,100,000) $ 1,100,000
-----------
TOTAL INVESTMENT IN SECURITIES AND TEMPORARY CASH
INVESTMENT - 100% (Cost $28,348,881) (a) $28,929,822
===========
</TABLE>
(a) At December 31, 1998, the net unrealized gain on investments based on cost
for federal income tax purposes of $28,348,881 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized gain of all investments in which
there is an excess of value over tax cost $ 618,849
Aggregate gross unrealized loss of all investments in which
there is an excess of tax cost over value (37,908)
---------
Net unrealized gain $ 580,941
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
101
<PAGE>
America Income Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
Note: The Portfolio's investments in mortgage-backed securities of the
Government National Mortgage Association (GNMA) are interests in separate
pools of mortgages. All separate investments in the issuer which have the
same coupon rate have been aggregated for the purpose of presentation in the
schedule of investments.
Purchases and sales of securities (excluding temporary cash investments) for
the year ended December 31, 1998 were $20,988,146 and $7,504,864,
respectively.
The accompanying notes are an integral part of these financial statements.
102
<PAGE>
America Income Portfolio
Balance Sheet
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investment in securities, at value (including temporary cash investment of
$1,100,000) (cost $28,348,881) $ 28,929,822
Cash 8,362
Receivables--
Fund shares sold 61,910
Interest 356,873
Other 2,896
------------
Total assets $ 29,359,863
------------
Liabilities:
Payables--
Investment securities purchased $ 499,587
Due to affiliates 17,990
Accrued expenses 20,535
------------
Total liabilities $ 538,112
------------
Net Assets:
Paid-in capital $ 28,214,271
Accumulated undistributed net realized gain on investments 26,539
Net unrealized gain on investments 580,941
------------
Total net assets $ 28,821,751
============
Net Asset Value Per Share:
(Unlimited number of shares authorized)
Based on $28,821,751/2,802,062 shares $ 10.29
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
103
<PAGE>
America Income Portfolio
Statement of Operations
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income:
Interest $1,381,013
----------
Expenses:
Management fees $120,674
Transfer agent fees 1,124
Accounting 30,457
Custodian fees 22,871
Professional fees 14,292
Printing 4,779
Registration 363
Fees and expenses of nonaffiliated trustees 524
Miscellaneous 12,323
--------
Total expenses $ 207,407
Less fees paid indirectly (3,289)
----------
Net expenses $ 204,118
----------
Net investment income $1,176,895
----------
Realized and Unrealized Gain on Investments:
Net realized gain on investments $ 93,570
Change in net unrealized gain on investments 356,054
----------
Net gain on investments $ 449,624
----------
Net increase in net assets resulting from operations $1,626,519
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
104
<PAGE>
America Income Portfolio
Statements of Changes in Net Assets
For the Years Ended December 31, 1998 and December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
------------------- ------------------
<S> <C> <C> <C> <C>
From Operations:
Net investment income $ 1,176,895 $ 499,639
Net realized gain on investments 93,570 5,727
Change in net unrealized gain or loss on
investments 356,054 283,024
------------- ------------
Net increase in net assets resulting from
operations $ 1,626,519 $ 788,390
------------- ------------
Distributions to Shareholders:
Net investment income ($0.55 and $0.54 per
share, respectively) $ (1,176,895) $ (499,639)
------------- ------------
Total distributions to shareholders $ (1,176,895) $ (499,639)
------------- ------------
From Fund Share Transactions: '98 Shares '97 Shares
------------ ----------
Net proceeds from sale of shares 2,456,812 943,506 $ 25,038,916 $ 9,298,835
Reinvestment of distributions 115,530 50,797 1,176,895 499,639
Cost of shares repurchased (1,216,873) (250,594) (12,362,571) (2,440,624)
------------ -------- ------------- ------------
Net increase in net assets resulting from fund
share transactions 1,355,469 743,709 $ 13,853,240 $ 7,357,850
============ ======== ------------- ------------
Net increase in net assets $ 14,302,864 $ 7,646,601
Net Assets:
Beginning of year 14,518,887 6,872,286
------------- ------------
End of year (including accumulated undistributed
net investment income of $0 and $0,
respectively.) $ 28,821,751 $ 14,518,887
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
105
<PAGE>
America Income Portfolio
Financial Highlights
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended March 1, 1995 to
December 31, 1998 December 31, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.04 $ 9.78 $ 10.18 $ 10.00
------- ------- ------- -------
Increase (decrease) from investment
operations:
Net investment income $ 0.55 $ 0.54 $ 0.52 $ 0.38
Net realized and unrealized gain
(loss) on investments 0.25 0.26 (0.40) 0.18
------- ------- ------- -------
Net increase from investment
operations $ 0.80 $ 0.80 $ 0.12 $ 0.56
Distributions to shareholders:
Net investment income (0.55) (0.54) (0.52) (0.38)
------- ------- ------- --------
Net increase (decrease) in net
asset value $ 0.25 $ 0.26 $ (0.40) $ 0.18
------- ------- ------- --------
Net asset value, end of period $ 10.29 $ 10.04 $ 9.78 $ 10.18
======= ======= ======= ========
Total return* 8.15% 8.44% 1.30% 5.68%
Ratio of net expenses to average net
assets 0.94%+ 1.26%+ 1.31%+ 1.12%**+
Ratio of net investment income to
average net assets 5.35%+ 5.46%+ 5.25%+ 5.22%**+
Portfolio turnover rate 36% 11% 60% 96%**
Net assets, end of period (in
thousands) $28,822 $14,519 $ 6,872 $ 3,514
Ratio assuming no waiver of
management fees and assumption
of expenses by PIM and no
reduction for fees paid indirectly:
Net expenses 0.94% 1.43% 2.24% 11.86%**
Net investment income (loss) 5.35% 5.29% 4.32% (5.52)%**
Ratio assuming waiver of
management fees and assumption
of expenses by PIM and reduction
for fees paid indirectly:
Net expenses 0.93% 1.23% 1.25% 0.99%**
Net investment income 5.36% 5.49% 5.31% 5.35%**
</TABLE>
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of distributions and the complete redemption of the
investment at net asset value at the end of each period.
** Annualized.
+ Ratio assuming no reduction for fees paid indirectly.
The accompanying notes are an integral part of these financial statements.
106
<PAGE>
Money Market Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
- ------------ --------------
<S> <C> <C>
COMMERCIAL PAPER - 72.3%
$ 970,000 American Express Credit Corp., 4.9%, 1/11/99 $ 969,110
700,000 BancOne Corp., 5.04%, 1/15/99 698,956
537,000 Chevron USA Inc., 6.0%, 1/7/99 536,766
683,000 The Coca-Cola Co., 5.04%, 1/28/99 680,739
700,000 Deere (John) Capital Corp., 5.13%, 1/12/99 699,202
530,000 E. I. Du Pont de Nemours & Co., 5.01%, 2/11/99 527,197
1,000,000 Ford Motor Credit Corp., 5.12%, 1/22/99 997,440
880,000 Gannett Co., 4.92%, 1/8/99 879,519
907,000 General Electric Capital Corp., 5.03%, 1/21/99 904,846
843,000 General Motors Acceptance Corp., 5.07%, 2/18/99 837,657
860,000 IBM Corp., 5.03%, 1/14/99 858,798
1,010,000 National Rural Utilities Corp., 5.11%, 1/25/99 1,006,989
787,000 Norwest Financial Inc., 5.23%, 1/29/99 784,142
925,000 Paccar Financial, Inc., 5.0%, 2/25/99 918,319
825,000 Penney (J.C.) Co., Inc., 5.15%, 1/15/99 823,702
710,000 PepsiCo Inc., 5.2%, 1/29/99 707,436
642,000 Prudential Funding Corp., 5.28%, 1/5/99 641,906
600,000 Republic New York Corp., 5.02%, 3/3/99 595,147
990,000 Texaco Inc., 5.15%, 1/6/99 989,717
900,000 Trans America Finance Corp., 5.11%, 2/5/99 895,912
-----------
$15,953,500
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS--6.8%
500,000 Federal Farm Credit Bank, 5.32%, 1/4/99 $ 500,000
500,000 Federal Farm Credit Bank, 4.9%, 3/1/99 500,000
500,000 Federal Farm Credit Bank, 4.87%, 4/1/99 500,000
-----------
Total U.S. Government Obligations $ 1,500,000
-----------
REPURCHASE AGREEMENT--20.9%
4,600,000 Credit Suisse First Boston Group, Inc., 4.75%, dated 12/31/98, repurchase price of
$4,600,000 plus accrued interest on 1/4/99, collateralized by $4,566,000
U.S. Treasury Notes, 5.5%, 2/29/00 $ 4,600,000
-----------
TOTAL REPURCHASE AGREEMENT $ 4,600,000
-----------
TOTAL INVESTMENT IN SECURITIES - 100% $22,053,500
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
107
<PAGE>
Money Market Portfolio
Balance Sheet
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investment in securities, at value based on amortized cost $ 22,053,500
Cash 772
Receivables--
Interest 11,625
Other 2,690
------------
Total assets $ 22,068,587
------------
Liabilities:
Payables--
Investment securities purchased $ 500,000
Fund shares repurchased 40,663
Due to affiliates 12,425
Accrued expenses 18,634
------------
Total liabilities $ 571,722
------------
Net Assets:
Fund shares $ 21,496,865
------------
Total net assets $ 21,496,865
============
Net Asset Value Per Share:
(Unlimited number of shares authorized)
Based on $21,496,865/21,496,865 shares $ 1.00
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
108
<PAGE>
Money Market Portfolio
Statement of Operations
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income:
Interest $1,047,847
----------
Expenses:
Management fees $95,451
Transfer agent fees 1,062
Accounting 34,639
Custodian fees 24,980
Professional fees 13,148
Printing 4,995
Fees and expenses of nonaffiliated trustees 584
Miscellaneous 11,105
-------
Total expenses $ 185,964
Less management fees waived by Pioneer Investment Management, Inc. (9,024)
Less fees paid indirectly (725)
----------
Net expenses $ 176,215
----------
Net investment income $ 871,632
----------
Net increase in net assets resulting from operations $ 871,632
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
109
<PAGE>
Money Market Portfolio
Statements of Changes in Net Assets
For the Years Ended December 31, 1998 and December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
------------------- ------------------
<S> <C> <C>
From Operations:
Net investment income $ 871,632 $ 569,693
------------- -------------
Net increase in net assets resulting from operations $ 871,632 $ 569,693
------------- -------------
Distributions to Shareholders:
Net investment income ($0.05 and $0.05 per share,
respectively) $ (871,632) $ (569,693)
------------- -------------
From Fund Share Transactions (at $1.00 per share):
Net proceeds from sale of shares $ 47,281,170 $ 39,298,007
Reinvestment of distributions 871,632 569,693
Cost of shares repurchased (40,395,275) (37,872,664)
------------- -------------
Net increase in net assets resulting from fund share
transactions $ 7,757,527 $ 1,995,036
------------- -------------
Net increase in net assets $ 7,757,527 $ 1,995,036
Net Assets:
Beginning of year 13,739,338 11,744,302
------------- -------------
End of year $ 21,496,865 $ 13,739,338
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
110
<PAGE>
Money Market Portfolio
Financial Highlights
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended March 1, 1995 to
December 31, 1998 December 31, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------
Increase from investment operations:
Net investment income $ 0.05 $ 0.05 $ 0.04 $ 0.04
------- ------- ------- ------
Distributions to shareholders:
Net investment income (0.05) (0.05) (0.04) (0.04)
------- ------- ------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ========
Total return* 4.68% 4.64% 4.51% 4.35%
Ratio of net expenses to average net
assets 0.92%+ 1.00%+ 0.97%+ 0.81%**+
Ratio of net investment income to
average net assets 4.55%+ 4.55%+ 4.43%+ 5.00%**+
Net assets, end of period (in
thousands) $21,497 $13,739 $11,744 $3,416
Ratios assuming no waiver of
management fees and assumption
of expenses by PIM and no
reduction for fees paid indirectly:
Net expenses 0.97% 1.17% 1.29% 8.34%**
Net investment income (loss) 4.50% 4.38% 4.11% (2.53)%**
Ratios assuming waiver of
management fees and assumption
of expenses by PIM and reduction
for fees paid indirectly:
Net expenses 0.92% 0.99% 0.96% 0.74%**
Net investment income 4.55% 4.56% 4.44% 5.07%**
</TABLE>
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of all distributions and the complete redemption of the
investment at net asset value at the end of each period.
** Annualized.
+ Ratios assuming no reduction for fees paid indirectly.
The accompanying notes are an integral part of these financial statements.
111
<PAGE>
Notes to Financial Statements - December 31, 1998
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies - Pioneer Variable
Contracts Trust (the Trust) is a Delaware business trust registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The Trust consists of twelve separate portfolios (collectively, the
Portfolios): Emerging Markets Portfolio, International Growth Portfolio, Europe
Portfolio, Capital Growth Portfolio, Growth Shares Portfolio, Real Estate
Growth Portfolio, Growth and Income Portfolio, Equity-Income Portfolio,
Balanced Portfolio, Swiss Franc Bond Portfolio, America Income Portfolio, and
Money Market Portfolio. Shares of each Portfolio may only be purchased by
insurance companies for the purpose of funding variable annuity or variable
life insurance contracts.
The investment objective of Emerging Markets Portfolio, International
Growth Portfolio and Europe Portfolio is to seek long-term capital growth.
Capital Growth Portfolio and Growth Shares Portfolio seek capital appreciation.
Real Estate Growth Portfolio pursues long-term capital growth, with income as a
secondary objective. Growth and Income Portfolio seeks reasonable income and
growth of capital. Equity-Income Portfolio seeks current income and long-term
capital growth. Balanced Portfolio's investment objectives are capital growth
and current income. Swiss Franc Bond Portfolio invests to approximate the
performance of the Swiss franc relative to the U.S. dollar while earning
reasonable income. America Income Portfolio seeks a high level of current
income as consistent with preservation of capital. Money Market Portfolio
invests for current income consistent with preserving capital and providing
liquidity.
The Trust's financial statements have been prepared in conformity with
generally accepted accounting principles that require the management of the
Trust to, among other things, make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates. The following is a summary of significant
accounting policies consistently followed by the Trust, which are in conformity
with those generally accepted in the investment company industry:
A. Security Valuation - Security transactions are recorded on trade date. Net
asset values for the Portfolios are computed once daily, on each day the New
York Stock Exchange is open, as of the close of regular trading on the
Exchange. In computing the net asset values, securities are valued at the last
sale price on the principal exchange where they are traded. Securities that
have not traded on the date of valuation, or securities for which sale prices
are not generally reported, are valued at the mean between the last bid and
asked prices. Trading in foreign equity securities is substantially completed
each day at various times prior to the close of the New York Stock Exchange.
The value of such securities used in computing the net asset value of the
Portfolio's shares are determined as of such times.
Fixed income securities are valued at prices supplied by independent
pricing services, which consider such factors as Treasury spreads, yields,
maturities and ratings, and valuations may be supplemented by dealers and other
sources, as required. Market discount and premium are accreted and amortized
daily on a straight-line basis.
Securities for which market quotations are not readily available are
valued at their fair values as determined by, or under the direction of, the
Board of Trustees. Dividend income is recorded on the ex-dividend date, except
that certain dividends from foreign securities where the ex-dividend date may
have passed are recorded as soon as the Portfolio is informed of the
ex-dividend data in the exercise of reasonable diligence. Income is recorded on
the accrual basis, net of unrecoverable foreign taxes withheld at the
applicable country rates. Temporary cash investments are valued at amortized
cost.
Gains and losses from sales on investments are calculated on the
identified cost method for both financial reporting and federal income tax
purposes. It is the Trust's practice to first select for sale those securities
that have the highest cost and also qualify for long-term capital gain or loss
treatment for tax purposes.
Because the Real Estate Growth Portfolio may invest a substantial portion
of its assets in real estate investment trusts (REITs), the Portfolio may be
subject to certain risks associated with direct investments in REITs. REITs may
be affected by changes in the value of their underlying properties and by
defaults by borrowers or tenants. REITs depend generally on their ability to
generate cash flow to make distributions to shareholders, and certain REITs
have self-liquidation provisions by which mortgages held may be paid in full
and distributions of capital returns may be made at any time. In addition, the
performance of a REIT may be affected by its failure to qualify for tax-free
pass-through of income under the Internal Revenue Code or its failure to
maintain exemption from registration under the Investment Company Act of 1940.
The Emerging Markets and International Growth Portfolios' investments in
emerging markets or countries with limited or developing markets may subject
the Portfolios to a greater degree of risk than in a developed market. Risks
112
<PAGE>
Notes to Financial Statements - December 31, 1998
- --------------------------------------------------------------------------------
associated with these developing markets include political, social or economic
factors and may affect the price of the Portfolios' investments and income
generated by these investments, as well as the Portfolios' ability to
repatriate such amounts. In addition, delays are common in registering
transfers of securities in certain foreign countries, such as India, and the
Portfolios may be unable to sell portfolio securities until the registration
process is completed.
B. Foreign Currency Translation - The books and records of the Portfolios are
maintained in U.S. dollars. Amounts denominated in foreign currencies are
translated into U.S. dollars using current exchange rates.
Net realized gains and losses on foreign currency transactions represent,
among other things, the net realized gains and losses on foreign currency
contracts, disposition of foreign currencies, and the difference between the
amount of income accrued and the U.S. dollar actually received. Further, the
effects of changes in foreign currency exchange rates on investments are not
segregated in the statement of operations from the effects of changes in market
price of those securities but are included with the net realized and unrealized
gain or loss on investments.
C. Forward Foreign Currency Contracts - Certain Portfolios are authorized to
enter into forward foreign currency contracts (contracts) for the purchase or
sale of a specific foreign currency at a fixed price on a future date as a
hedge or cross-hedge against either specific investment transactions
(settlement hedges) or portfolio positions (portfolio hedges). All contracts
are marked to market daily at the applicable exchange rates, and any resulting
unrealized gains or losses are recorded in the Portfolios' financial
statements. The Portfolios record realized gains and losses at the time a
portfolio hedge is offset by entry into a closing transaction or extinguished
by delivery of the currency. Risks may arise upon entering into these contracts
from the potential inability of counterparties to meet the terms of the
contract and from unanticipated movements in the value of foreign currencies
relative to the U.S. dollar (see Note 5).
D. Taxes - It is the Trust's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and net realized capital gains, if any, to
its shareholders. Therefore, no federal income tax provision is required. In
addition to the requirements of the Internal Revenue Code, the Trust may also
be required to pay local taxes on net realized capital gains in certain
countries. The required capital gains taxes, if any, are determined in
accordance with local tax laws. In determining daily net asset value, the Trust
estimates the reserve for capital gains taxes, if any, associated with net
unrealized gains on certain portfolio securities. The estimated reserve for
capital gains taxes, if any, is based on the holding periods of such securities
and the related tax rates, tax loss carryforward (if applicable) and other such
factors. During the year ended December 31, 1998, none of the Portfolios paid
capital gains taxes on the sale of foreign securities.
The characterization of distributions to shareholders for financial
reporting purposes is determined in accordance with income tax rules.
Therefore, the source of each Portfolio's distributions may be shown in the
accompanying financial statements as either from or in excess of net investment
income or net realized gain on investment transactions, or from paid-in
capital, depending on the type of book/tax differences that may exist.
A portion of the dividend income recorded by the Real Estate Growth
Portfolio is from distributions by publicly traded REITs, and such
distributions for tax purposes may also consist of capital gains and return of
capital. The actual return of capital and capital gains portions of such
distributions is determined by formal notifications from the REITs subsequent
to the calendar year-end. Distributions received from the REITs that are
determined to be a return of capital, are recorded by the Trust as a reduction
of the cost basis of the securities held.
At December 31, 1998, certain Portfolios made reclassifications as
described below. These reclassifications have no impact on the net asset values
of the respective Portfolios and are designed to present the Portfolios'
capital accounts on a tax basis.
113
<PAGE>
Notes to Financial Statements - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated Accumulated
Net Investment Realized Paid-in
Portfolio Income/Loss Gain/Loss Capital
- -------------------------------- ---------------- --------------- --------------
<S> <C> <C> <C>
Emerging Markets Portfolio $ 9 $ (3) $ (6)
International Growth Portfolio 4,539 (4,539) --
Europe Portfolio 165 (165) --
Capital Growth Portfolio 20,214 (4,580) (15,634)
Growth Shares Portfolio 10 (9) (1)
Real Estate Growth Portfolio (45,696) 44,519 1,177
Equity-Income Portfolio 328,969 (328,969) --
Balanced Portfolio 5,376 (5,376) --
Swiss Franc Bond Portfolio 76,474 (73,479) (2,995)
</TABLE>
In order to comply with federal income tax regulations, certain Portfolios
have designated the following amounts as capital gains dividends for the
purposes of the dividend paid deduction:
<TABLE>
<CAPTION>
Portfolio Amount
- ------------------------------ ------------
<S> <C>
Real Estate Growth Portfolio $ 466,507
Growth and Income Portfolio 35,273
Equity-Income Portfolio 5,789,244
America Income Portfolio 26,539
</TABLE>
E. Fund Shares - The Portfolios record sales and repurchases of their fund
shares on trade date. Net losses, if any, as a result of cancellations are
absorbed by Pioneer Funds Distributor, Inc. (PFD), the principal underwriter
for the Trust and an indirect subsidiary of The Pioneer Group, Inc (PGI). The
America Income Portfolio and Money Market Portfolio declare as daily dividends
substantially all of their respective net investment income. All dividends are
paid on a monthly basis. Short-term capital gain distributions, if any, may be
declared with the daily dividends. Dividends and distributions to shareholders
are recorded as of the ex-dividend date.
F. Repurchase Agreements - With respect to repurchase agreements entered into
by the Portfolios, the value of the underlying securities (collateral),
including accrued interest received from counterparties, is required to be at
least equal to or in excess of the value of the repurchase agreement at the
time of purchase. The collateral for all repurchase agreements is held in
safekeeping in the customer-only account of the Fund's custodian, or
subcustodians. The Trust's investment adviser, Pioneer Investment Management,
Inc. (PIM) (formerly Pioneering Management Corp.), is responsible for
determining that the value of the collateral remains at least equal to the
repurchase price.
2. Management Agreement - PIM manages the Portfolios, and is a wholly owned
subsidiary of PGI. Management fees are calculated daily at the following annual
rates:
<TABLE>
<CAPTION>
Management Fee as a Percentage
of each Portfolio's Average
Portfolio Daily Net Assets
- -------------------------------- -------------------------------
<S> <C>
Emerging Markets Portfolio 1.15%
International Growth Portfolio 1.00%
Europe Portfolio 1.00%
Capital Growth Portfolio 0.65%
Growth Shares Portfolio 0.65%
Real Estate Growth Portfolio 1.00%
Growth and Income Portfolio 0.65%
Equity-Income Portfolio 0.65%
Balanced Portfolio 0.65%
Swiss Franc Bond Portfolio 0.65%
America Income Portfolio 0.55%
Money Market Portfolio 0.50%
</TABLE>
PIM has appointed Boston Financial Securities, Inc. (BFS) as Real Estate
Growth Portfolio's subadviser. As compensation for its subadvisory services,
PIM pays BFS a management fee at the annual rate of 0.30% of the Portfolio's
average daily net assets.
114
<PAGE>
Notes to Financial Statements - December 31, 1998
- --------------------------------------------------------------------------------
PIM has agreed not to impose a portion of its management fees and to
assume other operating expenses for certain Portfolios to the extent necessary
to limit expenses of each Portfolio to the following percentage of its average
daily net assets:
<TABLE>
<CAPTION>
Expense Limitation as a
Percentage of each Portfolio's
Portfolio Average Daily Net Assets
- -------------------------------- -------------------------------
<S> <C>
Emerging Markets Portfolio 1.75%
International Growth Portfolio 1.50%
Europe Portfolio 1.50%
Growth Shares Portfolio 1.25%
Real Estate Growth Portfolio 1.25%
Growth and Income Portfolio 1.25%
Swiss Franc Bond Portfolio 1.25%
America Income Portfolio 1.25%
Money Market Portfolio 1.00%
</TABLE>
In addition, under the management and administration agreements, certain
other services and costs, including accounting, regulatory reporting and
insurance premiums, are paid by the Portfolios. At December 31, 1998, the
following amounts were payable to PIM related to management fees,
administrative and certain other services:
<TABLE>
<CAPTION>
Portfolio Amount
- -------------------------------- -----------------
<S> <C>
International Growth Portfolio $128,998
Europe Portfolio 3,821
Capital Growth Portfolio 63,364
Growth Shares Portfolio 45,060
Real Estate Growth Portfolio 30,190
Growth and Income Portfolio 47,789
Equity-Income Portfolio 111,525
Balanced Portfolio 38,261
Swiss Franc Bond Portfolio 24,333
America Income Portfolio 17,884
Money Market Portfolio 12,320
</TABLE>
3. Transfer Agent - Pioneering Services Corp. (PSC), a wholly owned
subsidiary of PGI, provides substantially all transfer agent and shareholder
services to the Trust at negotiated rates. At December 31, 1998, the following
transfer agent fees payable to PSC were included in due to affiliates:
<TABLE>
<CAPTION>
Portfolio Amount
- -------------------------------- ---------------
<S> <C>
Emerging Markets Portfolio $ 55
International Growth Portfolio 108
Europe Portfolio 56
Capital Growth Portfolio 32
Growth Shares Portfolio 179
Real Estate Growth Portfolio 97
Growth and Income Portfolio 104
Equity-Income Portfolio 92
Balanced Portfolio 95
Swiss Franc Bond Portfolio 88
America Income Portfolio 106
Money Market Portfolio 105
</TABLE>
115
<PAGE>
Notes to Financial Statements - December 31, 1998
- --------------------------------------------------------------------------------
4. Expense Offsets - The Trust has entered into certain expense offset
arrangements resulting in a reduction in the Portfolios' total expenses. For
the year ended December 31, 1998, the Portfolios' expenses were reduced under
such arrangements as follows:
<TABLE>
<CAPTION>
Portfolio Amount
- -------------------------------- ---------
<S> <C>
International Growth Portfolio $1,549
Capital Growth Portfolio 1,556
Growth Shares Portfolio 2,264
Real Estate Growth Portfolio 601
Growth and Income Portfolio 1,865
Equity-Income Portfolio 3,072
Balanced Portfolio 948
Swiss Franc Bond Portfolio 2,081
America Income Portfolio 3,289
Money Market Portfolio 725
</TABLE>
5. Forward Foreign Currency Contracts - At December 31, 1998, certain
Portfolios had entered into various contracts that obligate the Portfolios to
deliver currencies at specified future dates. At the maturity of a contact, the
Portfolio must make delivery of the foreign currency. Alternatively, prior to
the settlement date of a portfolio hedge, the Portfolio may close out such
contracts by entering into an offsetting hedge contract. As of December 31,
1998, the Swiss Franc Bond Portfolio open portfolio hedges were as follows:
<TABLE>
<CAPTION>
In Net
Contracts Exchange Settlement Unrealized
Currency to Receive For Date Value Gain
- ---------- ------------ ------------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
CHF 12,750,000 $9,300,619 1/29/99 $9,313,977 $13,358
</TABLE>
The Emerging Markets Portfolio gross forward currency settlement contracts
receivable and payable were $83 and $81, respectively, resulting in a net
receivable of $2.
The International Growth Portfolio's gross forward foreign currency
settlement contracts receivable and payable were $848,659 and $853,397,
respectively, resulting in a net payable of $4,738.
The Europe Portfolio's gross forward foreign currency settlement contracts
receivable and payable were $24,645 and $24,860, respectively, resulting in a
net payable of $215.
6. Other - On January 1, 1999, the European Monetary Union introduced a new
single currency, the euro, which will replace the national currencies of the
participating member countries. Until 2002, the national currencies will
continue to exist, but exchange rates will be tied to the euro. The
introduction of the euro is likely to affect all stages of the investment
process, including trading, foreign exchange and accounting. Because this
change to a single currency is new, the introduction of the euro may result in
market volatility and may affect the business or financial conditions of
European issuers or of a Portfolio investing in European issuers. In addition,
while the conversion will eliminate currency risk among the participating
nations, currency risk between the euro and the U.S. dollar remains a factor.
116
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareowners and the Board of Trustees of Pioneer Variable Contracts
Trust:
We have audited the accompanying balance sheets, including the schedules of
investments, of Pioneer Variable Contracts Trust (comprising, respectively, the
Emerging Markets Portfolio, the International Growth Portfolio, the Europe
Portfolio, the Capital Growth Portfolio, the Growth Shares Portfolio, the Real
Estate Growth Portfolio, the Equity-Income Portfolio, the Growth and Income
Portfolio, the Balanced Portfolio, the Swiss Franc Bond Portfolio, the America
Income Portfolio, and the Money Market Portfolio), as of December 31, 1998, and
the related statements of operations, the statements of changes in net assets
and the financial highlights for the periods presented. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Portfolios comprising the Pioneer Variable Contracts Trust as
of December 31, 1998, the results of their operations, the changes in their net
assets, and the financial highlights for the periods presented, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 12, 1999
117
<PAGE>
[PIONEER LOGO]
PIONEER VISION(SM)
PIONEER VISION 2(SM)
VARIABLE ANNUITY
Pioneer Variable Contracts Trust
Officers
John F. Cogan, Jr., Chairman and President
David D. Tripple, Executive Vice President
Stephen G. Kasnet, Vice President
John A. Boynton, Treasurer
Joseph P. Barri, Secretary
Trustees
John F. Cogan, Jr.
Richard H. Egdahl, M.D.
Marguerite A. Piret
David D. Tripple
Stephen K. West
Investment Adviser
Pioneer Investment Management, Inc.
Custodian
Brown Brothers Harriman & Co.
Legal Counsel
Hale and Dorr LLP
Issuer
Allmerica Financial Life Insurance and Annuity Company, Contract Form A3025-96
In New York and Hawaii, issued by First Allmerica Financial Life Insurance
Company, Contract Form A3025-96 GRC
General Distributor
Allmerica Investments, Inc.
440 Lincoln Street
Worcester, MA 01653
This report must be preceded or accompanied by a prospectus for Pioneer Vision
and/or Pioneer Vision 2 Variable Annuity, which includes more information about
charges and expenses. Please read the prospectus carefully before you invest or
send money.
0299-6095
(c)Pioneer Funds Distributor, Inc.
