Pioneer Variable Contracts Trust
Class II Shares Prospectus
May 3, 1999
Introduction
Pioneer Variable Contracts Trust is an open-end management investment company
that currently consists of twelve distinct portfolios. Pioneer Investment
Management, Inc. is the investment adviser to each portfolio. Class II shares of
the portfolios are offered through this prospectus. Shares of the portfolios
are offered primarily to insurance companies to fund the benefits under
variable annuity and variable life insurance contracts (Variable Contracts)
issued by their companies. You may obtain certain tax benefits by purchasing a
Variable Contract.
Each portfolio has its own distinct investment objective and policies. In
striving to meet its objective, each portfolio will face the challenges of
changing business, economic and market conditions. Each portfolio offers
different levels of potential return and risks. These risks are discussed in
the description of each portfolio.
No single portfolio constitutes a complete investment plan. Each portfolio's
share price, yield and total return will fluctuate and an investment in a
portfolio may be worth more or less than the original cost when shares are
redeemed.
Each portfolio complies with various insurance regulations. Please read your
insurance company's separate account prospectus for more specific information
relating to insurance regulations and instructions on how to invest among the
portfolios through a Variable Contract.
Portfolios
Strategic focus
Equity-Income Invests in a portfolio of income producing equity securities of
U.S. corporations for current income and long-term capital growth.
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Contents
Basic information about the portfolios ......... 2
Common portfolio investment policies ........... 6
Management ..................................... 6
Distributions and taxes ........................ 7
Shareholder information ........................ 7
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An investment in a portfolio is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
Neither the Securities and Exchange Commission nor any state securities agency
has approved the portfolios' shares or determined whether this prospectus is
accurate or complete. Any representation to the contrary is a crime.
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Basic information about Equity-Income Portfolio
Investment objective
Current income and long-term growth of capital from a portfolio consisting
primarily of income producing equity securities of U.S. corporations.
Investment strategies
Normally, the portfolio invests at least 80% of its total assets in income
producing equity securities of U.S. companies. The income producing equity
securities in which the portfolio may invest include common stocks, preferred
stocks and interests in real estate investment trusts (REITs). The remainder of
the portfolio may be invested in debt securities, most of which are expected to
be convertible into common stocks.
Pioneer, the portfolio's investment adviser, uses a value approach to select
the portfolio's investments. Using this investment style, Pioneer seeks
securities selling at substantial discounts to their underlying values and
holds these securities until the market values reflect their intrinsic values.
Pioneer evaluates a security's potential value based on the company's assets
and prospects for earnings growth. Pioneer also considers a security's
potential to provide a reasonable amount of income. In making these
assessments, Pioneer employs fundamental research and due diligence, employing
a bottom-up analytic style. Pioneer relies on the knowledge, experience and
judgment of its staff who have access to a wide variety of research. Factors
Pioneer looks for in selecting investments include:
- Favorable expected returns relative to perceived risk
- Management with demonstrated ability and commitment to the company
- Low market valuations relative to earnings forecast, book value, cash
flow and sales
- Good prospects for dividend growth
Pioneer focuses on the quality and price of individual issuers, not on economic
sector or market-timing strategies. The portfolio avoids concentrating in any
one sector or industry.
Principal risks of investing in the portfolio
Even though the portfolio seeks current income and long-term growth of capital,
you could lose money on your investment or not make as much as if you invested
elsewhere if:
- The stock market goes down (this risk may be greater in the short term)
- Value stocks fall out of favor with investors
- The portfolio's assets remain undervalued or do not have the potential
value originally expected
- Stocks selected for income do not achieve the same return as securities
selected for capital appreciation
- Interest rates or inflation increases
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The portfolio's past performance
The bar chart and table indicate the risks of investing in the portfolio by
showing how the portfolio has performed in the past. The portfolio's
performance varies from year to year.
The portfolio's past performance does not necessarily indicate how it will
perform in the future. As a shareowner, you may lose or make money on your
investment.
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Portfolio performance
The chart shows the performance of the portfolio's Class I shares for each full
calendar year since the portfolio's inception on March 1, 1995. The chart does
not reflect any fees or expenses payable with respect to a Variable Contract.
Such fees and expenses will reduce your return. Although Class II shares invest
in the same portfolio investments as Class I shares, Class II shares would have
the same investment results except for the difference in class expenses. Class
II shares are subject to a 0.25% distribution fee, which Class I shares do not
pay. Consequently, the performance of Class II shares will be lower.
The portfolio's highest calendar quarterly return was 15.04% (9/30/98 to
12/31/98).
The portfolio's lowest calendar quarterly return was -5.76% (6/30/98 to
9/30/98).
[Begin: Description Bar Chart]
Annual return Class I shares
(Year ended December 31)
15.16 35.23 21.80
'96 '97 '98
[End: Description Bar Chart]
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Comparison with Standard & Poor's 500 Index
The table shows the average annual total returns of the portfolio's Class I
shares over time and compares these returns to the returns of Standard & Poor's
500 Index. This index is a widely recognized measure of the performance of 500
widely held common stocks. Unlike the portfolio, the index is not managed and
does not incur expenses. Although Class II shares invest in the same portfolio
investments as Class I shares, Class II shares would have the same investment
results except for the difference in class expenses. Class II shares are subject
to a 0.25% distribution fee, which Class I shares do not pay. Consequently, the
performance of Class II shares will be lower. The table assumes:
- - The sale of the shares at the end
of the period
- - Reinvestment of all dividends and
distributions
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Average annual total return (%)
(for periods ended December 31, 1998)
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Since Inception
1 Year Inception Date
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<S> <C> <C> <C>
Class I 21.80 24.86 3/1/95
- -------------------------------------------------
S&P 500 Index 28.73 29.98 --
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</TABLE>
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Other investment strategies
As discussed, the portfolio primarily invests in income producing equity
securities of U.S. corporations to seek current income and long-term capital
growth.
This section and "Common portfolio investment policies" describe additional
investments that the portfolio may make or strategies that it may pursue to a
lesser degree to achieve the portfolio's goal. Some of the portfolio's
secondary investment policies also entail risks. To learn more about these
investments and risks, you should obtain and read the statement of additional
information (SAI).
Other investments
The portion of the portfolio's assets not invested in equity securities may be
invested in debt securities of corporate and government issuers. Most of the
debt securities the portfolio acquires are expected to be securities
convertible into common stocks. Generally, the portfolio may acquire debt
securities that are investment grade, but the portfolio may invest up to 10% of
its total assets (at the time of purchase) in lower quality debt securities
including convertible debt securities.
Debt securities are subject to the risk of an issuer's inability to meet
principal or interest payments on its obligations. Factors which could
contribute to a decline in the market value of debt securities in the portfolio
include rising interest rates or reduction in the perceived creditworthiness of
the issuer of the securities. A debt security is investment grade if it is
rated in one of the top four categories by a nationally recognized securities
rating organization or determined to be of equivalent credit quality by
Pioneer. Debt securities rated below investment grade are commonly referred to
as "junk bonds" and are considered speculative. Below investment grade
securities involve greater risk of loss, are subject to greater price
volatility and are less liquid, especially during periods of economic
uncertainty or change, than higher quality debt securities.
The portfolio may invest up to 25% of its total assets (at the time of
purchase) in real estate investment trusts. Real estate investment trusts are
pooled investment vehicles that invest primarily in real estate or real estate
related loans. Investing in real estate investment trusts involves unique
risks. They are significantly affected by the market for real estate and are
dependent upon management skills and cash flow.
Management
Portfolio manager
Day-to-day management of the portfolio is the responsibility of John A. Carey.
Mr. Carey is a senior vice president of Pioneer. He joined Pioneer in 1979 and
has been an investment professional since 1979.
Mr. Carey is supported by a team of portfolio managers and analysts who
specialize in U.S. equity securities. This team provides research for the
portfolio and other Pioneer mutual funds with similar investment objectives or
styles. Mr. Carey and his team operate under the supervision of Theresa A.
Hamacher. Ms. Hamacher is chief investment officer of Pioneer. She joined
Pioneer in 1997 and has been an investment professional since 1984; most
recently as chief investment officer at another investment adviser.
Management fee
The portfolio pays Pioneer a fee for managing the portfolio and to cover the
cost of providing certain services to the portfolio. Pioneer's annual fee is
equal to 0.65% of the portfolio's average daily net assets. The fee is normally
computed daily and paid monthly. For the portfolio's most recent fiscal year,
the portfolio paid a management fee equal to 0.65% of the portfolio's average
daily net assets.
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Distributions
The portfolio generally makes distributions of any net long-term capital gains
in November. The portfolio generally pays dividends from any net investment
income or distributions of net short-term capital gains quarterly during March,
June, September and December. The portfolio may pay additional distributions
and dividends at other times if necessary for the portfolio to avoid a federal
tax.
Financial highlights
Class II shares are a new class of shares; financial highlights are not
currently avaialble for CLass II shares. Arthur Andersen LLP's report on the
portfolios' audited financial statements as of Decmeber 31, 1998, for Class I
shares appears in the portfolios' annual report which is incorporated by
reference into the SAI. The annual report includes more information about the
portfolios' performance and is available upon request.
Common portfolio investment policies
Some policies of the portfolios are stated as a percentage of assets. These
percentages are applied at the time of purchase of a security and subsequently
may be exceeded because of changes in the value of a portfolio's investments.
If a rating organization downgrades the quality rating assigned to one or more
of the fund's portfolio securities, Pioneer will consider what actions, if any,
are appropriate including selling the downgraded security or purchasing
additional securities as soon as it is prudent to do so.
Temporary investments
Normally, each portfolio invests substantially all of its assets to meet its
investment objective. Each portfolio may invest the remainder of its assets in
securities with a remaining maturity of less than one year, cash equivalents or
may hold cash. For temporary defensive purposes, a portfolio may depart from
its principal investment strategies and invest part or all of its assets in
these securities. During such periods, the portfolio may not be able to achieve
its investment objective. Each portfolio intends to adopt a defensive strategy
only when Pioneer believes there to be extraordinary risks in investing in the
securities in which the portfolio normally invests due to political or economic
factors.
Short-term trading
The portfolios usually do not trade for short-term profits. Each portfolio will
sell an investment, however, even if it has only been held for a short time, if
it no longer meets the portfolio's investment criteria. If a portfolio does a
lot of trading, it may incur additional operating expenses, which would reduce
performance.
Derivatives
Each portfolio (other than Money Market portfolio) may use futures, options and
other derivatives. A derivative is a security or instrument whose value is
determined by reference to the value or the change in value of one or more
securities, currencies, indices or other financial instruments. The portfolios
do not use derivatives as a primary investment technique and generally limit
their use to hedging. However, each portfolio may use derivatives for a variety
of purposes, including:
- As a hedge against adverse changes in stock market prices, interest rates
or currency exchange rates
- As a substitute for purchasing or selling securities
- To increase the portfolio's return as a non-hedging strategy that may be
considered speculative
Even a small investment in derivatives can have a significant impact on the
portfolio's exposure to stock market values, interest rates or currency
exchange rates. If changes in a derivative's value do not correspond to changes
in the value of the portfolio's other investments, the portfolio may not fully
benefit from or could lose money on the derivative position. In addition, some
derivatives involve risk of loss if the person who issued the derivative
defaults on its obligation. Certain derivatives may be less liquid and more
difficult to value.
Management
Pioneer, the portfolios' investment adviser, selects each portfolio's
investments and oversees the portfolios' operations.
Pioneer Group
The Pioneer Group, Inc. and its subsidiaries are engaged in financial services
businesses in the United States and many foreign countries. As of December 31,
1998, the firm had more than $23 billion in assets under management worldwide
including more than $22 billion in U.S. mutual funds. The firm's U.S. mutual
fund investment history includes creating in 1928 of one of the first mutual
funds. John F. Cogan, chairman of the board and president of The Pioneer Group,
Inc., owns approximately 14% of the firm. He is also an officer and director of
each of the Pioneer mutual funds.
The investment adviser
Pioneer manages a family of U.S. and international stock funds, bond funds and
money market funds. Pioneer is a subsidiary of The Pioneer Group, Inc. Its main
office is at 60 State Street, Boston, Massachusetts 02109.
Distribution plan
The portfolios have adopted plans of distribution for Class II shares in
accordance with Rule 12b-1 under the Investment Com[pany Act of 1940. Under the
plans, each portfolio pays to Pioneer Funds Distributor, Inc. a distribution
fee of 0.25% of the average daily net assets attributable to Class II shares.
Because these fees are an ongoing expense, over time they increase the cost of
an investment and the shares may cost more than shares that are not subject to a
distribution fee.
6
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Year 2000
Information technology experts are concerned about computer and other
electronic systems' ability to process date-related information on and after
January 1, 2000. This scenario, commonly referred to as the "Year 2000
problem," could have an adverse impact on the portfolios and the provision of
services to their shareowners. Pioneer is addressing the Year 2000 problem with
respect to its systems and those used by its affiliates. During 1999, Pioneer
expects to finish addressing all material Year 2000 issues and to participate
in industry-wide testing. The portfolios have obtained assurances from their
other service providers that they are taking appropriate Year 2000 measures and
Pioneer is monitoring their efforts. Although the portfolios do not expect the
Year 2000 problem to adversely impact them, the portfolios cannot guarantee
that their, or the portfolio's service providers', efforts will be successful.
Distributions and taxes
You should read the prospectus for your insurance company's Variable Contract
for a discussion of the tax status of a Variable Contract, including the tax
consequences of withdrawals or other payments. You should keep all statements
you receive from the insurance company or the portfolios to assist in your
personal recordkeeping. Class I shares of the portfolios are held by life
insurance company separate accounts that fund Variable Contracts or by certain
qualified pension and retirement plans (Qualified Plans). A portfolio's
dividends and capital gain distributions to those accounts are generally
treated as ordinary income and long-term capital gain, respectively, under the
Internal Revenue Code and are treated as received by the insurance company
rather than the owner of the qualified Variable Contract. Insurance companies
should consult their own tax advisers regarding the tax treatment of dividends
or capital gain distributions they receive from any portfolio.
Each portfolio is treated as a separate entity for federal income tax purposes
and has elected or intends to elect to be treated, and intends to qualify each
year, as a regulated investment company under Subchapter M of the Code. Each
portfolio must satisfy certain requirements relating to the sources of its
income, diversification of its assets and distribution of its income to
shareholders to qualify as a regulated investment company. As a regulated
investment company, each portfolio will not be subject to federal income tax on
any net investment income and net realized capital gains that are distributed
to its shareholders as required under the Code.
In addition to the above, each portfolio also follows certain portfolio
diversification requirements imposed by the Code on separate accounts of
insurance companies relating to the tax-deferred status of Variable Contracts.
More specific information on these diversification requirements is contained in
the insurance company's separate account prospectus and in the portfolios' SAI.
Shareholder information
Net asset values
Each portfolio's net asset value is the value of its portfolio of securities
plus any other assets minus its operating expenses and any other liabilities.
Each portfolio calculates a net asset value for each class of shares every day
the New York Stock Exchange is open when regular trading closes (normally 4:00
p.m. Eastern time).
Each portfolio generally values its portfolio securities based on market prices
or quotations. When market prices are not available or are considered by Pioneer
to be unreliable, the portfolio may use an asset's fair value. Fair value is
determined in accordance with procedures approved by the portfolios' trustees.
International securities markets may be open on days when the U.S. markets are
closed. For this reason, the values of any international securities owned by a
portfolio could change on a day when insurance companies or Qualified Plans
cannot buy or sell shares of the portfolio.
Money Market portfolio's investments are valued on the basis of amortized cost.
This means of valuation assumes a steady rate of amortization of any premium and
discount from the date of purchase until maturity.
Share price
The net asset value per share
calculated on the day of a
transaction, is often referred
to as the share price.
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Investments in shares of the portfolios
Each portfolio may sell its shares directly to separate accounts established and
maintained by insurance companies for the purpose of funding Variable Contracts
and to Qualified Plans. Shares of the portfolios are sold at net asset value.
Variable Contracts may or may not allow you to allocate your investments in the
Variable Contracts to all the portfolios described in this prospectus.
Investments in each portfolio are expressed in terms of the full and fractional
shares of the portfolio purchased. Investments in a portfolio are credited to an
insurance company's separate account immediately upon acceptance of the
investment by the portfolio. Investments will be processed at the next net asset
value calculated after an order is received and accepted by a portfolio. The
offering of shares of any portfolio may be suspended for a period of time and
each portfolio reserves the right to reject any specific purchase order.
Purchase orders may be refused if, in Pioneer's opinion, they are of a size that
would disrupt the management of a portfolio.
Since you may not directly
purchase shares of the
portfolios, you should read
the prospectus for your
insurance company's Variable
Contract to learn how to
purchase a Variable Contract
based on the portfolios.
The interests of Variable Contracts and Qualified Plans investing in the
portfolios could conflict due to differences of tax treatment and other
considerations. The portfolios currently do not foresee any disadvantages to
investors arising out of the fact that each portfolio may offer its shares to
insurance company separate accounts that serve as the investment medium for
their Variable Contracts or that each portfolio may offer its shares to
Qualified Plans. Nevertheless, the portfolios' trustees intend to monitor events
in order to identify any material irreconcilable conflicts which may possibly
arise, and to determine what action, if any, should be taken in response to such
conflicts. If such a conflict were to occur, one or more insurance companies'
separate accounts or Qualified Plans might be required to withdraw their
investments in one or more portfolios and shares of another portfolio may be
substituted. This might force a portfolio to sell securities at disadvantageous
prices. In addition, the trustees may refuse to sell shares of any portfolio to
any separate account or Qualified Plan or may suspend or terminate the offering
of shares of any portfolio if such action is required by law or regulatory
authority or is in the best interests of the shareholders of the portfolio.
Selling
Shares of a portfolio may be sold on any business day. Portfolio shares are
sold at net asset value next determined after receipt by the portfolio of a
redemption request in good order from the insurance company as described in the
prospectus of the insurance company's Variable Contract. Sale proceeds will
normally be forwarded by bank wire to the selling insurance company on the next
business day after receipt of the sales instructions by a portfolio but in no
event later than 7 days following receipt of instructions. Each portfolio may
suspend transactions in shares or postpone payment dates when trading on the
New York Stock Exchange is closed or restricted, when an emergency exists that
makes it impracticable for the portfolio to sell or value its portfolio
securities or with the permission of the Securities and Exchange Commission.
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Pioneer Variable Contracts Trust Class II Shares
You can obtain more free information about the portfolios by writing to
Pioneering Services Corporation, 60 State Street, Boston, Massachusetts 02109.
You may also call 1-800-225-6292.
Shareowner reports
Annual and semiannual reports to shareowners provide information about the
portfolios' investments. The annual report discusses market conditions and
investment strategies that significantly affected each portfolio's performance
during its last fiscal year.
Statement of additional information
The statement of additional information provides more detailed information
about the portfolio. It is incorporated by reference into this prospectus.
You can also review each portfolio's shareowner reports, prospectus and
statement of additional information at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. or by calling 1-800-SEC-0330 to
request a copy. The Commission charges a fee for this service. You can get the
same information free from the commission's Internet website
(http://www.sec.gov).
(Investment Company Act file no. 811-08786)
Pioneer Funds Distributor, Inc.
60 State Street
Boston, MA 02109
www.pioneerfunds.com
0699-6647
(C)Pioneer Funds Distributor, Inc.
