PIONEER OFFERS SMALL-CAP VALUE PRODUCT FOR INSURERS

Plus a Q&A with Pioneer's Ken Fuller, who finds value opportunities abound in the small-cap arena

"While the market is demanding variable products with a complete range of investment styles, most products are loaded with large-cap growth funds and offer limited investment options in small-cap and value boxes," says Tim Stegner, vice president, Pioneer Institutional Alliances. "By offering small-cap value to the insurance industry, we hope to help product managers address investors' demand for this asset class and meet their diversification goals."

And investors' interest in the asset class has increased substantially over the past year. Over $1.4 billion poured into small-cap value portfolios during 2000 (figures through October 2000; Source: Strategic Insight Simfund). This compares to $853 million in sales in all of 1999. The year-over-year monthly sales figures are similarly dramatic--$184 million in sales during October 2000 as compared to $51 million the year earlier period.

Investor interest has been piqued for good reason. According to Lipper Analytics, the performance of small-cap value funds has nearly equaled that of large-cap growth funds with much lower volatility for the 10-year period ended 12/31/00. During that time period, small-cap value funds in the Lipper universe returned an average of 15.61% as compared to 16.96% for their large-cap growth brethren. The risk measure of these returns shows an annualized standard deviation (which measures how an asset's percentage changes over time have varied from the mean) of 14.35 for the small-cap value funds in the universe versus 17.38 for the large-cap growth funds.
(Source: Lipper)

"Today, many insurance product manufacturers are rounding out their portfolio investment options to include a complete array of styles," said John Benvenuto, a consultant at Financial Research Corporation. "The solid performance of small-cap value funds and growing interest in the asset class make a strong case for any variable product to include these options."

Q&A WITH KEN FULLER
LEAD MANAGER, SMALL-CAP EQUITY TEAM

Q: What areas of the small-cap universe are offering value now?

A: Equities in general faced an uncertain investment climate over the past several months. Since August, the market has witnessed a broadening of investor interest-away from technology stocks to other sectors, including health care, financials, and energy. This market rotation means that many technology issues, especially small company stocks, are now much more attractively valued than they were back in March 2000. Other areas of the market continue to offer compelling investment opportunities as well.

We're continuing to find an abundance of opportunities in many sectors, including energy, consumer and financials (REITs). We have been and are particularly optimistic about natural gas stocks, including exploration and land drilling companies. Barring a recession, we believe there will be a shortage of natural gas in the U.S. over the next several years. Demand is increasing and will take several years for the supply to catch up.

Q: What is your current outlook for the tech sector?

A: Despite a great upheaval in the technology sector over the past nine months, we expect superior growth over the longer term in this sector. This growth, coupled with attractive stock valuations, has lead us to an approximate market weighting (versus the Russell 2000 Index) for technology in our small-cap portfolios.

Two segments of technology we like currently are Internet infrastructure and sub-wave length lithography. VEECO Instruments (1.89% of Pioneer Small Company Fund on 12/31/00) supplies optical telecom products for the Internet. Our favorite lithography stock (related to capital spending by the semi-conductor industry) is Dupont Photomasks (2.21% on 12/31/00).

Q: What does the team look for in a stock and how do sectors play into that?

A: Our sector weightings are really a natural fall-out of our stock selection process-rather than a goal in itself. We're basically bottom-up stock pickers. Although we consider the broader economic picture, and general sector characteristics, we focus more on company fundamentals when selecting investments.

We take an issue-by-issue approach, carefully scrutinizing each company-looking for those that are currently out of market favor yet are financially healthy, are priced at least 30% below their all time high, and are capable of doubling their stock price within two to three years. I want to emphasize that the companies we follow are smaller-many do not have any Wall Street coverage worthy of the name "Wall Street," and we are able to get in there and virtually discover them. I like to say that finding a company with value potential is something like watching a hit Broadway play. If you leave the meeting humming the score, it's likely a stock you want to buy.

Q: Who makes up Pioneer's small-cap team and how do you work together?

A: Pioneer's small-cap team includes Tom Crowley, Dave Adams, Ann Marie Hanley, and me. Between us, we have an average of 13 years of industry experience and four years with the team. Each of us functions as stock analyst and portfolio manager-we meet with management, analyze companies, and make buy and sell decisions based on the fundamentals. Together, with an average of one face-to-face company meeting per day each, we meet with about 1,000 companies every year.

Q: Can you give some examples of stocks you like currently?

A: Indicative of our investment approach is a company called Flemming Companies, one of the largest food distribution (to supermarkets etc.) firms in the U.S. (1.41% on 12/31/00). We became interested in the stock after a new management team took control after a very long period of sub par performance. The new CEO cut costs, pruned facilities, and improved the balance sheet. We expect the stock to be discovered in 2001 as earnings growth is less masked by special charges. At year end, the stock was selling at only a modest premium to book value and at a very low price/earnings ratio.

A second example is Sunrise Assisted Living, a chain of assisted living facilities for seniors aged 85 and older (1.83% on 12/31/00). We became interested in the stock after its price fell substantially due to industry concerns of overbuilding. Although the concerns are real, Sunrise has created a defendable niche, building in urban areas and meeting the demand for high-end facilities. In addition, the company has a healthy cash flow and a positive long-term outlook.

Q: What is your outlook for the small-cap market?

A: There has been no shortage of opportunities in the small cap arena in recent months, and we don't expect this scenario to change in the near future. Because small company stocks are effective portfolio diversifiers, and offer outstanding growth potential, we believe they deserve a place in nearly every investment portfolio. While small cap stocks may present greater opportunity for capital appreciation, they also present greater risks than large cap issues.

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Note: Past performance does not guarantee future results. This release should not be deemed as an offer of any fund described within it. There can be no assurance that markets and stocks will perform as expected.

Pioneer Visionsm variable annuities are issued by Allmerica Financial Life Insurance and Annuity Company (Pioneer Visionsm 2 and Pioneer C-Visionsm are issued by First Allmerica Financial Life Insurance Company in NY and HI) under contract form numbers A3025-96 (Pioneer Visionsm 2), A3027-98 (Pioneer C-Visionsm), and A3028-99 (Pioneer XtraVisionsm) located at 440 Lincoln Street, Worcester, MA 01545. Securities are offered by Allmerica Investments, Inc., member NASD/SIPC. Allmerica Financial Life and First Allmerica Financial Life are solely responsible for their own obligations. Pioneer XtraVision and Pioneer C-Vision may not be available in all states. Pioneer Vision 2 and Pioneer XtraVision are subject to a surrender charge for the first 7 and 9 years, respectively. Call for a Pioneer Vision variable annuity information kit, which includes a prospectus detailing charges and expenses. Read it carefully before you invest or send money.

For information on Pioneer Small Company Fund or any Pioneer mutual fund, please request a free kit from your investment representative or Pioneer at 800-225-6292. The kit includes a prospectus describing charges and expenses, and a quarterly fact sheet containing the latest holdings and fund performance. Please read the prospectus carefully before you invest or send money. For information on Pioneer Small Company VCT Portfolio, please call Pioneer Institutional Alliances at 888-622-5190.

Pioneer Funds Distributor, Inc., is the underwriter for the Pioneer mutual funds.