-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vvsx9eYbV4L46DPj2bkSsaieM53Glx/aB/gUmhm7gj83YHT2WwLun92CkdC6oeV5 aA73NC7jv/x0ET5KliSEDg== 0000812195-04-000021.txt : 20040305 0000812195-04-000021.hdr.sgml : 20040305 20040305163013 ACCESSION NUMBER: 0000812195-04-000021 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040305 EFFECTIVENESS DATE: 20040305 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIONEER VARIABLE CONTRACTS TRUST /MA/ CENTRAL INDEX KEY: 0000930709 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-08786 FILM NUMBER: 04652466 BUSINESS ADDRESS: STREET 1: 60 STATE ST STREET 2: 19TH FLOOR CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6177427825 MAIL ADDRESS: STREET 1: 60 STATE ST STREET 2: 19TH FLOOR CITY: BOSTON STATE: MA ZIP: 021091820 FORMER COMPANY: FORMER CONFORMED NAME: VARIABLE INSURANCE CONTRACTS TRUST DATE OF NAME CHANGE: 19940929 N-CSR 1 ncsr.txt NCSR OMB APPROVAL OMB Number: 3235-0570 Expires: November 30, 2005 Estimated average burden hours per response..... 5.0 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-08786 Pioneer Variable Contracts Trust (Exact name of registrant as specified in charter) 60 State Street, Boston, MA 02109 (Address of principal executive offices) (ZIP code) Dorothy E. Bourassa, Pioneer Investment Management, Inc., 60 State Street, Boston, MA 02109 (Name and address of agent for service) Registrant's telephone number, including area code: (617) 742-7825 Date of fiscal year end: December 31 Date of reporting period: January 1, 2003 through December 31, 2003 Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507. ITEM 1. REPORTS TO SHAREOWNERS. [PIONEER INVESTMENTS(R) LOGO] PIONEER VARIABLE CONTRACTS TRUST PIONEER EQUITY INCOME VCT PORTFOLIO -- CLASS II SHARES ANNUAL REPORT DECEMBER 31, 2003 PIONEER VARIABLE CONTRACTS TRUST TABLE OF CONTENTS Pioneer Equity Income VCT Portfolio Portfolio and Performance Update 2 Portfolio Management Discussion 3 Schedule of Investments 4 Financial Statements 7 Notes to Financial Statements 11 Report of Independent Auditors 15 Trustees, Officers and Service Providers 16
PIONEER EQUITY INCOME VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO AND PERFORMANCE UPDATE 12/31/03 [CHART] PORTFOLIO DIVERSIFICATION (As a percentage of total investment portfolio) U.S. Common Stocks 93.5% Temporary Cash Investments 3.9% Convertible Preferred Stocks 2.5% Convertible Corporate Bonds 0.1%
[CHART] SECTOR DISTRIBUTION (As a percentage of equity holdings) Financials 21.8% Utilities 13.2% Consumer Discretionary 12.3% Industrials 10.8% Energy 10.7% Health Care 8.4% Telecommunication Services 7.3% Consumer Staples 7.0% Materials 4.6% Information Technology 3.9%
FIVE LARGEST HOLDINGS (As a percentage of equity holdings) 1. Paccar, Inc. 4.49% 2. ChevronTexaco Corp. 4.06 3. ConocoPhillips 3.50 4. Exxon Mobil Corp. 3.15 5. Constellation Energy Group 2.69
Holdings will vary for other periods. This list excludes temporary cash and derivative investments. PRICES AND DISTRIBUTIONS - CLASS II SHARES
12/31/03 12/31/02 Net Asset Value per Share $ 18.19 $ 15.18
DISTRIBUTIONS PER SHARE SHORT-TERM LONG-TERM (1/1/03 - 12/31/03) DIVIDENDS CAPITAL GAINS CAPITAL GAINS $ 0.3272 $ - $ -
PERFORMANCE OF A $10,000 INVESTMENT - CLASS II SHARES The following chart shows the change in value of an investment made in PIONEER EQUITY INCOME VCT PORTFOLIO at net asset value, compared to that of the Russell 1000 Value Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [CHART]
PIONEER EQUITY INCOME VCT PORTFOLIO* RUSSELL 1000 VALUE INDEX+ 3/31/95 $ 10,000 $ 10,000 $ 12,003 $ 12,632 $ 13,791 $ 15,366 12/31/97 $ 18,591 $ 20,773 $ 22,355 $ 24,021 12/31/99 $ 22,256 $ 25,787 $ 25,480 $ 27,597 12/31/2001 $ 23,659 $ 26,054 $ 19,862 $ 22,010 12/31/2003 $ 24,285 $ 28,618
+ Index comparison begins 2/28/95. The Russell 1000 Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growt values. Index returns assume reinvestment of dividends and, unlike Portfolio returns, do not reflect any fees, expenses or sales charges. Portfolio returns are based on net asset value and do not reflect any annuity-related costs. You cannot invest directly in any Index. AVERAGE ANNUAL TOTAL RETURNS+ (As of December 31, 2003) NET ASSET VALUE* Life-of-Class (3/1/95) 10.90% 5 Years 1.67% 1 Year 22.27%
All total returns shown assume reinvestment of distributions at net asset value. + The performance of Class II shares for the period prior to the commencement of operations of Class II shares on September 14, 1999 is based on the performance of Class I shares, reduced to reflect the higher distribution fees of Class II shares. * Portfolio performance does not reflect any variable contract fees, expenses or sales charges. If they had been included, performance would have been lower. See the pages that comprise the inside cover of this report for performance net of any contract fees, expenses or sales charges. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns and principal values fluctuate so that your investment, when redeemed, may be worth more or less than its original cost. The performance table and graph do not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. 2 PIONEER EQUITY INCOME VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO MANAGEMENT DISCUSSION 12/31/03 In the following discussion, John Carey, portfolio manager of Pioneer Equity Income VCT Portfolio, reviews the Portfolio's performance and the investment environment over the twelve months ended December 31, 2003. Q: JOHN, PLEASE GIVE US A BROAD ECONOMIC OVERVIEW AND DISCUSS THE PORTFOLIO'S PERFORMANCE. A: A powerful yearend rally drove stock prices to new highs, especially during the fourth quarter. The outlook for strong improvement in corporate earnings was the main source of investor confidence. Also helping to make the case for stocks were the Federal tax-law changes enacted in May, reducing the tax rates on long-term capital gains and qualified income dividends. At the same time, the weakening dollar and new corporate scandals clouded the horizon and, together with lofty valuations in some sectors and renewed terrorist concerns, led investors to look forward into 2004 with some caution. For the year ended December 31, 2003, Class II shares of Pioneer Equity Income VCT Portfolio performed well on an absolute basis returning 22.27% at net asset value. These results lagged the very strong Russell 1000 Value Index, which returned 30.03% for the same period. Q: WHAT BOOSTED THE PERFORMANCE OF THE PORTFOLIO OVER THE YEAR? A: The brightest spot for the Portfolio was our security selection and overweighting in industrials. In particular, adding over 1.5% of performance during the year was our overweight in PACCAR, a truck manufacturer. The stock returned 90% during the year, due to a strengthening economy and an increase in orders. Deere also performed well, contributing to performance. The stock returned 44% over the year due to an improving global economy and a pick up in global orders for its agricultural equipment products. Q: WHICH HOLDINGS OR SECTORS HURT THE PORTFOLIO? A: Detractors from portfolio performance included our underweights and security selection in the financials and information technology sectors. Charter One Financial, a commercial bank that we added in late February, performed well on an absolute basis by returning over 24% during the year, but underperformed the sector's 35% return on a relative basis. Thus, our overweight position in the stock detracted from relative performance. We also did not own Citigroup, which was a large position in the Index that outperformed. Finally, in information technology, our stocks made money for us but not as much as tech stocks in general. Again, we were underweight in that lower yielding, but strongly performing sector. Q: DID YOU MAKE ANY CHANGES TO THE PORTFOLIO OVER THE YEAR? A: During the year, we made twelve new entries, throughout various market sectors. We added several names with a bit more of a growth dynamic. In the information technology sector we added Automatic Data Processing and Hewlett Packard. ADP is one of the best-known and most respected names in payroll and other transaction processing, with an impressive record of longer term growth, reasonable multiple, and yield of about 1 1/2%. And Hewlett-Packard is prominent in computer printers (and ink cartridges) and also produces many other types of computing gear. It appears to be a beneficiary of the recovery in the technology industry, also sells at a reasonable multiple, and pays a dividend of about 1 1/4%, which is not a lot by the standards of companies in other sectors, but does stand out in the tech sector. In the health-care sector we added Biomet and Pfizer. Biomet is a leading maker of orthopedic implants, principally artificial hips and knees. Pfizer is a major, worldwide pharmaceutical company with good prospects for earnings growth, currently moderate price-to-earnings multiple, and a dividend yield close to 2%. In the telecommunications services sector we added AT&T Corp and Verizon Communications. Other additions throughout the year were: Bank of America, Charter One Financial, and Simon Property Group (financials); Deere (industrials); Coca-Cola (consumer staples); and Vulcan Materials (materials). We deleted fourteen positions. We were essentially (and, fortunately, profitably) redeemed out of our Union Pacific preferreds, and we took profits on our Veeco convertibles. We also deleted: 3M, Consol Energy, Eastman Kodak, Dow Chemical, Del Monte Foods, Schering-Plough, Fifth Third Bancorp, Alliance Capital, DPL, Nicor, American Water Works, and Duke Energy. Q: WHAT IS YOUR OUTLOOK? A: We believe that dividend-paying stocks represent excellent relative value in the current market, which we think may be overextended price-wise in the cases of some stocks and industries. We also think that the tax law changes will provide important underlying demand for the stocks we own over the next several years. We are additionally encouraged by some of the early merger-and-acquisition activity in 2004, as it has been focused so far on two sectors where we are significantly invested, namely financials and telecommunications services. Many forecasts predict higher interest rates by the end of the year. It would in fact be normal to see an interest-rate rise in a strong economy. Meanwhile, earnings are improving at many companies, our portfolio companies included, and investors are returning to the market, boosting demand and thus supporting prices. It's important to remember that interest rates are only one piece of the puzzle and that the reasons for market movements, up and down, are often quite complex. As always, we'll watch all the macroeconomic developments out of the corner of our eye while paying the most attention to what we think really counts in the long run, the underlying earnings trends at individual companies. Thank you for your continued interest. ANY INFORMATION IN THIS SHAREHOLDER REPORT REGARDING MARKET OR ECONOMIC TRENDS OR THE FACTORS INFLUENCING THE PORTFOLIO'S HISTORICAL OR FUTURE PERFORMANCE ARE STATEMENTS OF THE OPINION OF PORTFOLIO MANAGEMENT AS OF THE DATE OF THIS REPORT. THESE STATEMENTS SHOULD NOT BE RELIED UPON FOR ANY OTHER PURPOSES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND THERE IS NO GUARANTEE THAT MARKET FORECASTS DISCUSSED WILL BE REALIZED. [SIDENOTE] The Portfolio's investment adviser, Pioneer Investment Management, Inc., reduced its management fee and certain other expenses; otherwise, returns would have been lower. 3 PIONEER EQUITY INCOME VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST SCHEDULE OF INVESTMENTS 12/31/03
SHARES VALUE CONVERTIBLE PREFERRED STOCKS - 2.5% AUTOMOBILES & COMPONENTS - 1.5% AUTOMOBILE MANUFACTURERS - 1.5% 2,600 General Motors, 5.25%, 3/6/32 $ 69,550 55,600 Ford Capital Trust, 6.5%, 1/15/32 3,105,260 -------------- TOTAL AUTOMOBILES & COMPONENTS $ 3,174,810 -------------- SOFTWARE & SERVICES - 1.0% DATA PROCESSING & OUTSOURCED SERVICES - 1.0% 94,700 Electronic Data, 7.625%, 8/17/04 $ 2,166,263 -------------- TOTAL SOFTWARE & SERVICES $ 2,166,263 -------------- TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $7,238,375) $ 5,341,073 -------------- PRINCIPAL AMOUNT CONVERTIBLE CORPORATE BOND - 0.1% RETAILING - 0.1% APPAREL RETAIL - 0.1% 200,000 Gap Inc., 5.75%, 3/15/09 $ 306,749 -------------- TOTAL RETAILING $ 306,749 -------------- TOTAL CONVERTIBLE CORPORATE BOND (Cost $200,000) $ 306,749 -------------- SHARES COMMON STOCKS - 94.4% ENERGY - 10.4% INTEGRATED OIL & GAS - 10.4% 98,300 ChevronTexaco Corp. $ 8,492,137 111,865 ConocoPhillips 7,334,988 161,066 Exxon Mobil Corp. 6,603,706 -------------- TOTAL ENERGY $ 22,430,831 -------------- MATERIALS - 4.5% COMMODITY CHEMICALS - 1.8% 50,300 Air Products & Chemicals, Inc. $ 2,657,349 27,341 E.I. du Pont de Nemours and Co. 1,254,678 -------------- $ 3,912,027 -------------- CONSTRUCTION MATERIALS - 0.8% 35,000 Vulcan Materials Co. $ 1,664,950 -------------- DIVERSIFIED CHEMICALS - 0.8% 25,300 PPG Industries, Inc. $ 1,619,706 -------------- PAPER PRODUCTS - 0.5% 35,800 Meadwestvaco Corp. $ 1,065,050 -------------- STEEL - 0.6% 19,600 Nucor Corp. $ 1,097,600 20,050 Roanoke Electric Steel Corp. 267,267 -------------- $ 1,364,867 -------------- TOTAL MATERIALS $ 9,626,600 -------------- CAPITAL GOODS - 8.9% AEROSPACE & DEFENSE - 2.8% 51,600 Boeing Co. $ 2,174,424 43,200 General Dynamics Corp. 3,904,848 -------------- $ 6,079,272 -------------- ELECTRICAL COMPONENTS & EQUIPMENT - 1.3% 43,900 Emerson Electric Co. $ 2,842,525 -------------- INDUSTRIAL CONGLOMERATES - 2.9% 10,300 Illinois Tool Works, Inc. $ 864,273 27,900 Johnson Controls, Inc. 3,239,748 22,200 United Technologies Corp. 2,103,894 -------------- $ 6,207,915 -------------- INDUSTRIAL MACHINERY - 1.9% 25,000 Deere & Co. $ 1,626,250 22,000 Gorman-Rupp Co. 580,800 92,200 The Timken Co. 1,849,532 -------------- $ 4,056,582 -------------- TOTAL CAPITAL GOODS $ 19,186,294 -------------- TRANSPORTATION - 1.6% RAILROADS - 1.6% 26,500 Burlington Northern, Inc. $ 857,275 42,500 Norfolk Southern Corp. 1,005,125 71,000 Philadelphia Suburban Corp. 1,569,100 -------------- TOTAL TRANSPORTATION $ 3,431,500 -------------- AUTOMOBILES & COMPONENTS - 4.4% AUTOMOBILE MANUFACTURERS - 4.4% 110,450 PACCAR, Inc. $ 9,401,504 -------------- TOTAL AUTOMOBILES & COMPONENTS $ 9,401,504 -------------- MEDIA - 3.9% MOVIES & ENTERTAINMENT - 1.9% 132,400 Cedar Fair, L.P. $ 4,071,300 -------------- PUBLISHING - 2.0% 40,500 McGraw-Hill Co., Inc. $ 2,831,760 29,900 Tribune Co. 1,542,840 -------------- $ 4,374,600 -------------- TOTAL MEDIA $ 8,445,900 --------------
The accompanying notes are an integral part of these financial statements. 4
SHARES VALUE RETAILING - 2.1% DEPARTMENT STORES - 1.3% 92,825 May Department Stores Co. $ 2,698,423 -------------- GENERAL MERCHANDISE STORES - 0.8% 40,300 Sears, Roebuck and Co. $ 1,833,247 -------------- TOTAL RETAILING $ 4,531,670 -------------- FOOD, BEVERAGE & TOBACCO - 5.9% PACKAGED FOODS & MEATS - 4.3% 147,500 Campbell Soup Co. $ 3,953,000 22,200 General Mills, Inc. 1,005,660 64,100 H.J. Heinz Co., Inc. 2,335,163 96,900 Sara Lee Corp. 2,103,699 -------------- $ 9,397,522 -------------- SOFT DRINKS - 1.6% 12,900 The Coca-Cola Co. $ 654,675 58,600 PepsiCo, Inc. 2,731,932 -------------- $ 3,386,607 -------------- TOTAL FOOD, BEVERAGE & TOBACCO $ 12,784,129 -------------- HOUSEHOLD & PERSONAL PRODUCTS - 0.9% HOUSEHOLD PRODUCTS - 0.9% 39,200 Colgate-Palmolive Co. $ 1,961,960 -------------- TOTAL HOUSEHOLD & PERSONAL PRODUCTS $ 1,961,960 -------------- HEALTH CARE EQUIPMENT & SERVICES - 4.4% HEALTH CARE DISTRIBUTORS - 3.1% 88,900 Abbott Laboratories $ 4,142,740 50,600 Johnson & Johnson 2,613,996 -------------- $ 6,756,736 -------------- HEALTH CARE EQUIPMENT - 1.3% 38,200 Becton, Dickinson & Co. $ 1,571,548 30,000 Biomet, Inc. 1,092,300 -------------- $ 2,663,848 -------------- TOTAL HEALTH CARE EQUIPMENT & SERVICES $ 9,420,584 -------------- PHARMACEUTICALS & BIOTECHNOLOGY - 3.8% PHARMACEUTICALS - 3.8% 57,900 Eli Lilly & Co. $ 4,072,107 74,300 Merck & Co., Inc. 3,432,660 20,000 Pfizer, Inc. 706,600 -------------- $ 8,211,367 -------------- TOTAL PHARMACEUTICALS & BIOTECHNOLOGY $ 8,211,367 -------------- BANKS - 11.8% DIVERSIFIED BANKS - 5.4% 40,000 Bank of America Corp. $ 3,217,200 154,900 Charter One Financial, Inc. 5,351,795 53,700 Wells Fargo & Co. 3,162,393 -------------- $ 11,731,388 -------------- REGIONAL BANKS - 5.9% 62,200 First Tennessee National Corp. $ 2,743,020 87,300 National City Corp. 2,962,962 75,200 SouthTrust Corp. 2,461,296 63,000 SunTrust Banks, Inc. 4,504,500 -------------- $ 12,671,778 -------------- THRIFTS & MORTGAGE FINANCE - 0.5% 24,800 Washington Mutual, Inc. $ 994,976 -------------- TOTAL BANKS $ 25,398,142 -------------- DIVERSIFIED FINANCIALS - 4.1% ASSET MANAGEMENT & CUSTODY BANKS - 2.5% 26,800 Eaton Vance Corp. $ 981,952 93,700 T. Rowe Price Associates, Inc. 4,442,317 -------------- $ 5,424,269 -------------- INVESTMENT BANKING & BROKERAGE - 1.6% 43,100 A.G. Edwards, Inc. $ 1,561,513 32,500 Merrill Lynch & Co., Inc. 1,906,125 -------------- $ 3,467,638 -------------- TOTAL DIVERSIFIED FINANCIALS $ 8,891,907 -------------- INSURANCE - 3.4% PROPERTY & CASUALTY INSURANCE - 3.4% 51,600 Chubb Corp. $ 3,513,960 26,800 Safeco Corp. 1,043,324 68,900 St. Paul Companies, Inc. 2,731,885 -------------- TOTAL INSURANCE $ 7,289,169 -------------- REAL ESTATE - 1.9% REAL ESTATE INVESTMENT TRUSTS - 1.9% 62,000 Equity Office Properties Trust $ 1,776,300 51,600 Simon DeBartolo Group, Inc. 2,391,144 -------------- TOTAL REAL ESTATE $ 4,167,444 -------------- SOFTWARE & SERVICES - 0.9% APPLICATION SOFTWARE - 0.4% 31,000 Microsoft Corp. $ 853,740 -------------- DATA PROCESSING & OUTSOURCED SERVICES - 0.5% 25,000 Automatic Data Processing, Inc. $ 990,250 -------------- TOTAL SOFTWARE & SERVICES $ 1,843,990 -------------- TECHNOLOGY HARDWARE & EQUIPMENT - 1.8% COMPUTER HARDWARE - 1.8% 44,300 Diebold, Inc. $ 2,386,441 40,000 Hewlett-Packard Co. 918,800 6,200 IBM Corp. 574,616 -------------- $ 3,879,857 -------------- TOTAL TECHNOLOGY HARDWARE & EQUIPMENT $ 3,879,857 --------------
The accompanying notes are an integral part of these financial statements. 5
SHARES VALUE TELECOMMUNICATION SERVICES - 7.0% INTEGRATED TELECOMMUNICATION SERVICES - 7.0% 36,100 Alltel Corp. $ 1,681,538 120,000 AT&T Corp. 2,436,000 98,500 BellSouth Corp. 2,787,550 169,800 SBC Communications, Inc. 4,426,686 110,000 Verizon Communications, Inc. 3,858,800 -------------- TOTAL TELECOMMUNICATION SERVICES $ 15,190,574 -------------- UTILITIES - 12.8% ELECTRIC UTILITIES - 8.6% 55,800 American Electric Power Co., Inc. $ 1,702,458 56,300 Consolidated Edison, Inc. 2,421,463 143,500 Constellation Energy Group 5,619,460 33,000 FPL Group, Inc. 2,158,860 90,900 Great Plains Energy, Inc. 2,892,438 64,000 NSTAR 3,104,000 23,700 Southern Co. 716,925 -------------- $ 18,615,604 -------------- GAS UTILITIES - 4.2% 105,900 KeySpan Energy Corp. $ 3,897,120 105,900 Questar Corp. 3,722,385 61,100 Vectren Corp. 1,506,115 -------------- $ 9,125,620 -------------- TOTAL UTILITIES $ 27,741,224 -------------- TOTAL COMMON STOCKS (Cost $166,733,470) $ 203,834,646 -------------- PRINCIPAL AMOUNT VALUE TEMPORARY CASH INVESTMENTS - 4.0% REPURCHASE AGREEMENT - 3.4% $ 7,300,000 UBS Warburg, Inc., 0.73%, Dated 12/31/03, repurchase price of $7,300,000 plus accrued interest on 1/2/04 collateralized by $7,220,000 U.S. Treasury Bill, 7.25%, 5/15/04. $ 7,300,000 -------------- SHARES SECURITY LENDING COLLATERAL - 0.6% 1,280,000 Securities Lending Investment Fund, 1.02% $ 1,280,000 -------------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $8,580,000) $ 8,580,000 -------------- TOTAL INVESTMENT IN SECURITIES - 101.0% (Cost $182,751,845) $ 218,062,468 -------------- OTHER ASSETS AND LIABILITIES - (1.0)% $ (2,073,585) -------------- TOTAL NET ASSETS - 100.0% $ 215,988,883 ==============
The accompanying notes are an integral part of these financial statements. 6 PIONEER EQUITY INCOME VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST FINANCIAL HIGHLIGHTS 12/31/03
9/14/99 YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO CLASS II (a) 12/31/03 12/31/02 12/31/01 12/31/00 12/31/99 Net asset value, beginning of period $ 15.18 $ 18.49 $ 21.37 $ 20.82 $ 21.29 ---------- ---------- ---------- ---------- --------- Increase (decrease) from investment operations: Net investment income $ 0.32 $ 0.31 $ 0.34 $ 0.29 $ 0.08 Net realized and unrealized gain (loss) on investments and foreign currency transactions 3.02 (3.25) (1.84) 2.45 (0.43) ---------- ---------- ---------- ---------- --------- Net increase (decrease) from investment operations $ 3.34 $ (2.94) $ (1.50) $ 2.74 $ (0.35) Distributions to shareholders: Net investment income (0.33) (0.37) (0.32) (0.45) (0.12) Net realized gain -- -- (1.06) (1.74) -- ---------- ---------- ---------- ---------- --------- Net increase (decrease) in net asset value $ 3.01 $ (3.31) $ (2.88) $ 0.55 $ (0.47) ---------- ---------- ---------- ---------- --------- Net asset value, end of period $ 18.19 $ 15.18 $ 18.49 $ 21.37 $ 20.82 ========== ========== ========== ========== ========= Total return* 22.27% (16.05)% (7.15)% 14.49% (1.65)% Ratio of net expenses to average net assets+ 1.02% 1.07% 1.02% 0.96% 0.96%** Ratio of net investment income to average net assets+ 2.29% 2.25% 1.77% 1.99% 1.90%** Portfolio turnover rate 12% 12% 13% 13% 23% Net assets, end of period (in thousands) $ 60,355 $ 27,084 $ 17,948 $ 8,456 $ 178 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.02% 1.07% 1.02% 0.96% 0.96%** Net investment income (loss) 2.29% 2.25% 1.77% 1.99% 1.90%** Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 1.02% 1.07% 1.02% 0.96% 0.96%** Net investment income (loss) 2.29% 2.25% 1.77% 1.99% 1.90%**
(a) Class 2 shares were first publicly offered on September 19, 1999. * 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 with no reduction for fees paid indirectly. The accompanying notes are an integral part of these financial statements. 7 PIONEER EQUITY INCOME VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST STATEMENT OF ASSETS AND LIABILITIES 12/31/03
PIONEER EQUITY- INCOME VCT PORTFOLIO ASSETS: Investment in securities, at value (including securities loaned of $1,236,000) (Cost $182,751,845) $ 218,062,468 Temporary cash investments (at amortized cost) - Cash 125,195 Cash held as collateral for futures contracts - Foreign currencies, at value - Receivables - Investment securities sold - Fund shares sold 292,469 Collateral for securities loaned, at fair value - Variation margin - Dividends, interest and foreign taxes withheld 501,353 Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, open - net - Due from Pioneer Investment Management, Inc. - Other 3,505 --------------- Total assets $ 218,984,990 --------------- LIABILITIES: Payables - Investment securities purchased $ 1,054,116 Fund shares repurchased 458,235 Dividends - Upon return for securities loaned 1,280,000 Variation margin - Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, - Due to bank - Due to affiliates 146,375 Accrued expenses 57,381 Other - --------------- Total liabilities $ 2,996,107 --------------- NET ASSETS: Paid-in capital $ 194,876,933 Accumulated net investment income (loss) 1,156,984 Accumulated undistributed net realized gain (loss) (15,355,657) Net unrealized gain (loss) on: Investments 35,310,623 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - --------------- Total net assets $ 215,988,883 --------------- NET ASSET VALUE PER SHARE: CLASS I: (Unlimited number of shares authorized) Net assets $ 155,633,790 Shares outstanding 8,603,610 =============== Net asset value per share $ 18.09 CLASS II: (Unlimited number of shares authorized) Net assets $ 60,355,093 Shares outstanding 3,318,443 =============== Net asset value per share $ 18.19
The accompanying notes are an integral part of these financial statements. 8 STATEMENTS OF OPERATIONS
PIONEER EQUITY-INCOME VCT PORTFOLIO YEAR ENDED 12/31/03 INVESTMENT INCOME: Dividends $ 5,776,909 Interest 115,649 Income on securities loaned, net 2,903 Other - --------------- Total investment income $ 5,895,461 --------------- EXPENSES: Management fees $ 1,152,064 Transfer agent fees 2,535 Distribution fees (Class II) 100,029 Administrative fees 54,215 Custodian fees 38,541 Professional fees 26,672 Printing 91,566 Fees and expenses of nonaffiliated trustees 4,682 Miscellaneous 11,516 --------------- Total expenses $ 1,481,820 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. - --------------- Net expenses $ 1,481,820 --------------- Net investment income (loss) $ 4,413,641 --------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ (634,370) Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - --------------- $ (634,370) --------------- Change in net unrealized gain or (loss) from: Investments $ 34,115,732 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - --------------- $ 34,115,732 --------------- Net gain (loss) on investments, futures contracts and foreign currency transactions $ 33,481,362 =============== Net increase (decrease) in net assets resulting from operations $ 37,895,003 ===============
The accompanying notes are an integral part of these financial statements. 9 STATEMENTS OF CHANGES IN NET ASSETS
PIONEER EQUITY INCOME VCT PORTFOLIO YEAR YEAR ENDED ENDED 12/31/03 12/31/02 FROM OPERATIONS: Net investment income (loss) $ 4,413,641 $ 4,268,983 Net realized gain (loss) on investments (634,370) (8,261,714) Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions 34,115,732 (27,486,806) -------------- -------------- Net increase (decrease) in net assets resulting from operations $ 37,895,003 $ (31,479,537) -------------- -------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (3,313,897) $ (3,650,009) Class II (860,942) (551,010) Net realized gain Class I - - Class II - - Tax return of capital Class I - - Class II - - -------------- -------------- Total distributions to shareowners $ (4,174,839) $ (4,201,019) -------------- -------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 52,433,019 $ 49,351,660 Reinvestment of distributions 4,174,840 4,201,019 Cost of shares repurchased (34,680,633) (39,497,483) -------------- -------------- Net increase (decrease) in net assets resulting from fund share transactions $ 21,927,226 $ 14,055,196 -------------- -------------- Net increase (decrease) in net assets $ 55,647,390 $ (21,625,360) NET ASSETS: Beginning of year 160,341,493 181,966,853 -------------- -------------- End of year $ 215,988,883 $ 160,341,493 ============== ============== Accumulated undistributed/(distributions in excess of) net investment income (loss) $ 1,156,984 $ 1,149,345 ============== ==============
The accompanying notes are an integral part of these financial statements. 10 PIONEER EQUITY INCOME VCT PORTFOLIO NOTES TO FINANCIAL STATEMENTS 12/31/03 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Pioneer Equity Income Portfolio (the Portfolio) is a Portfolio of Pioneer Variable Contracts Trust (the Trust) is a Delaware business trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of sixteen separate portfolios fourteen of which issue both Class I and Class II shares. (collectively, the Portfolios, individually the Portfolio) as follows: PORTFOLIOS: Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio) Pioneer Europe VCT Portfolio (Europe Portfolio) Pioneer International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio) Pioneer Small Company VCT Portfolio (Small Company Portfolio) Pioneer Mid Cap Value VCT Portfolio (Mid-Cap Value Portfolio) Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio) Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio) Pioneer Fund VCT Portfolio (Fund Portfolio) Pioneer Equity Income VCT Portfolio (Equity-Income Portfolio) Pioneer Balanced VCT Portfolio (Balanced Portfolio) Pioneer High Yield VCT Portfolio (High Yield Portfolio) Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio) Pioneer America Income VCT Portfolio (America Income Portfolio) Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares only) Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only) Portfolio shares may only be purchased by insurance companies for the purpose of Equity Income variable annuity or variable life insurance contracts, and may also be purchased by qualified pension and retirement plans. The investment objective of Equity Income Portfolio is to seek capital appreciation. The financial highlights for the Portfolio's Class II shares are presented in a separate book. The Trust's financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America 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 income, expenses, gains and losses 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 as of 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, based on the last sale price on the principal exchange where they traded, 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. Valuations may be supplemented by dealers and other sources, as required. 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. Temporary cash investments are valued at amortized cost. 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 becomes aware of the ex-dividend data in the exercise of reasonable diligence. Interest income, including interest on income bearing cash accounts, is recorded on the accrual basis, net of unrecoverable foreign taxes withheld at the applicable country rates. All discounts/premiums are accreted/amortized for financial reporting purposes. Gains and losses from sales on investments are calculated on the identified cost method for both financial reporting and federal income tax purposes, and, if applicable, are reported net of foreign taxes on capital gains at the applicable country rates. B. FUTURES CONTRACTS The Portfolio may enter into futures transactions to hedge against changes in interest rates, securities prices, and currency rates or to seek to increase total 11 return. Upon entering into a futures contract, the Portfolio is required to deposit with a broker an amount of cash or securities equal to the minimum "initial margin" requirements of the associated futures exchange. Subsequent payments for futures contracts ("variation margin") are paid or received by the Portfolio, depending on the daily fluctuation in the value of the contracts, and are recorded by the Portfolio as unrealized gains or losses. When the contract is closed, the Portfolios realize a gain or loss equal to the difference between the opening and closing value of the contract. The use of futures contracts involves, to varying degrees, elements of market risk which may exceed the amounts recognized by the Portfolio. Changes in the value of the contracts may not directly correlate to the changes in the value of the underlying securities. These risks may decrease the effectiveness of the Portfolio's hedging and trading strategies and potentially result in a loss. As of December 31, 2003, Equity Income Portfolio had no open contracts. C. FOREIGN CURRENCY TRANSLATION The books and records of the Portfolio 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, 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. D. FORWARD FOREIGN CURRENCY CONTRACTS The Portfolio enters 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 Portfolio's financial statements. The Portfolio records 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. E. 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 shareowners. Therefore, no federal income tax provision is required. The amount and characterization of distributions to shareowners 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. At December 31, 2003, the Portfolio made reclassifications as described below. These reclassifications have no impact on the net asset value of the Portfolio and are designed to present the portfolios' capital accounts on a tax basis.
ACCUMULATED NET ACCUMULATED INVESTMENT REALIZED GAIN/ PORTFOLIO INCOME/(LOSS) LOSS PAID-IN CAPITAL - ----------------------------------------------------------------------------- Equity Income Portfolio $ (231,083) $ 41,857 $ 189,226
Capital loss carryforwards are available to offset future realized capital gains. At December 31, 2003, Equity Income VCT Portfolio had a capital loss carryforward of $15,355,657, of which the following amounts will expire between 2009 and 2011 if not utilized: $6,328,025 in 2009, $6,407,206 in 2010 and $2,620,426 in 2011. 12 The following chart shows the components of distributable earnings (accumulated losses) as of December 31, 2003 and the distributions paid during the year ended December 31, 2003 on a tax basis as of December 31, 2003.
PIONEER PIONEER EQUITY EQUITY INCOME INCOME VCT PORTFOLIO VCT PORTFOLIO 2003 2002 - -------------------------------------------------------------------- DISTRIBUTIONS PAID FROM: Ordinary Income $ 4,174,839 $ 4,201,019 Long-Term capital gain - - ---------------------------- $ 4,174,839 $ 4,201,019 Return of Capital - - ---------------------------- Total distributions $ 4,174,839 $ 4,201,019 ---------------------------- DISTRIBUTABLE EARNINGS (ACCUMULATED LOSSES): Undistributed ordinary income $ 82,058 Undistributed long-term gain/ (capital loss carryforward) (15,355,657) Unrealized appreciation (depreciation) 36,385,549 ------------- Total $ 21,111,950 =============
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily attributable to the tax deferral of losses on wash sales, returns of capital on REITs, and the recognition of unrealized gains or losses on certain futures contracts. F. PORTFOLIO SHARES The Portfolio records sales and repurchases of its portfolio shares as of trade date. Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the principal underwriter for the Trust and a wholly owned indirect subsidiary of UniCredito Italiano S.p.A. (UniCredito Italiano), $246,661 in commissions on the sale of Trust shares for the year ended December 31, 2003. Distribution fees are calculated based on the average daily net asset values attributable to Class I and Class II shares of the Portfolio, respectively. Shareowners of each class share all expenses and fees paid to the transfer agent, Pioneer Investment Management Shareholder Services, Inc. (PIMSS), for its services, which are allocated based on the number of accounts in each class and the ratable allocation of related out-of-pocket expenses (see Note 3). Income, common expenses and realized and unrealized gains and losses are calculated at the Portfolio level and allocated daily to each class of shares based on the respective percentage of adjusted net assets at the beginning of the day. Distributions paid by the Portfolio with respect to each class of shares are calculated in the same manner, at the same time, and in the same amount, except that Class I and Class II shares can bear different transfer agent and distribution fees. Income, expenses (excluding 12b-1 fees) and gains and losses are calculated at the Portfolio level and are allocated daily based on the respective percentage of adjusted net assets at the beginning of the day. Dividends and distributions to shareowners are recorded on the ex-dividend date. G. SECURITIES LENDING The Portfolio lends securities in its portfolio to certain broker-dealers or other institutional investors, with the Portfolio's custodian acting as the lending agent. When entering into a loan, the Portfolio receives collateral which is maintained by the custodian and earns income in the form of negotiated lenders' fees. The Portfolio also continues to receive interest or dividends on the securities loaned, and gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for account of the Trust. The loans are secured by collateral of at least 102%, at all times, of the fair value of the securities loaned. The fair value of the collateral will be adjusted daily to reflect any price fluctuation in the value of the loaned securities. The Trust has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Trust invests cash collateral in the Securities Lending Investment Fund which is managed by Brown Brothers Harriman & Co., the Trust's custodian. H. REPURCHASE AGREEMENTS With respect to repurchase agreements entered into by the Portfolio, 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 Portfolio's custodian, or subcustodian. The Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is responsible for determining that the value of the collateral remains at least equal to the repurchase price. 2. MANAGEMENT AGREEMENT PIM manages the Portfolio, and is a wholly owned indirect subsidiary of UniCredito Italiano. Management fees are calculated daily at the following annual rate of 0.65% of the Portfolio's average daily net assets. In addition, under the management and administration agreements, certain other services and costs, including 13 accounting, regulatory reporting and insurance premiums, are paid by the Portfolio. At December 31, 2003, $132,553 was payable to PIM related to management fees, administrative fees and certain other services. 3. TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. (PIMSS), a wholly owned indirect subsidiary of UniCredito Italiano provides substantially all transfer agent and shareowner services to the Trust at negotiated rates. Included in due to affiliates is $270 in transfer agent fees payable to PIMSS at December 31, 2003. 4. DISTRIBUTION PLANS The Portfolio has adopted a plan of distribution for Class II shares in accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily net assets attributable to Class II shares. Included in due to affiliates is $13,552 payable to PFD at December 31, 2003. 5. AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION At December 31, 2003, the Portfolios' aggregate unrealized appreciation and depreciation based on cost for federal income tax purposes was as follows:
NET GROSS GROSS APPRECIATION/ TAX COST APPRECIATION DEPRECIATION (DEPRECIATION) - ------------------------------------------------------------------------------------------- Equity Income Portfolio $ 181,676,919 $ 41,987,707 $ (5,602,158) $ 36,385,549
6. PORTFOLIO TRANSACTIONS The cost of purchases and the proceeds from sales of investments other than U.S. Government obligations and temporary cash investments for the year ended December 31, 2003, were $42,957,826 and $19,981,321, respectively. 7. CAPITAL SHARES At December 31, 2003, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
'03 SHARES '03 AMOUNT '02 SHARES '02 AMOUNT - ------------------------------------------------------------------------------------------------- EQUITY INCOME PORTFOLIO CLASS I: Shares sold 1,544,529 $ 24,668,979 1,395,275 $ 23,429,706 Reinvestment of distributions 204,954 3,313,898 223,712 3,650,009 Shares repurchased (1,964,325) (30,892,038) (1,716,186) (27,000,779) ---------------------------------------------------------------- Net increase (decrease) (214,842) $ (2,909,161) (97,199) $ 78,936 ================================================================ CLASS II: Shares sold 1,723,515 $ 27,764,040 1,549,025 $ 25,921,954 Reinvestment of distributions 52,432 860,942 34,034 551,010 Shares repurchased (242,114) (3,788,595) (769,373) (12,496,704) ---------------------------------------------------------------- Net increase 1,533,833 $ 24,836,387 813,686 $ 13,976,260 ================================================================
14 PIONEER EQUITY INCOME VCT PORTFOLIO REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF TRUSTEES OF PIONEER VARIABLE CONTRACTS TRUST AND THE CLASS II SHAREOWNERS OF PIONEER EQUITY INCOME VCT PORTFOLIO: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer Equity Income VCT Portfolio, one of the portfolios constituting Pioneer Variable Contracts Trust (the "Trust") as of December 31, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets and financial highlights for each of the two years in the period then ended. 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. The financial highlights for each of the three years in the period ended December 31, 2001 were audited by other auditors who have ceased operations and whose report, dated February 8, 2002, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 Pioneer Equity Income VCT Portfolio of Pioneer Variable Contracts Trust at December 31, 2003, the results of its operations for the year then ended, the changes in its net assets and the financial highlights for each of the two years in the period then ended in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts February 6, 2004 15 PIONEER VARIABLE CONTRACTS TRUST TRUSTEES, OFFICERS AND SERVICE PROVIDERS INVESTMENT ADVISER Pioneer Investment Management, Inc. CUSTODIAN Brown Brothers Harriman & Co. INDEPENDENT AUDITORS Ernst & Young LLP PRINCIPAL UNDERWRITER Pioneer Funds Distributor, Inc. LEGAL COUNSEL Hale and Dorr LLP SHAREOWNER SERVICES AND TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. TRUSTEES AND OFFICERS The Fund's Board of Trustees provides broad supervision over the affairs of the Fund. The officers of the Fund are responsible for the Fund's operations. The Fund's Trustees and officers are listed below, together with their principal occupations during the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of 1940 are referred to as Interested Trustees. Trustees who are not interested persons of the Fund are referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 51 U.S. registered investment portfolios for which Pioneer Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the Portfolio is 60 State Street, Boston, Massachusetts 02109. The Fund's statement of additional information provides more detailed information regarding the Fund's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Fund are available without charge, upon request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. INTERESTED TRUSTEES
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE John F. Cogan, Jr. (77)* Chairman of the Board, Trustee since 1994. Deputy Chairman and a Director Director of Harbor Trustee and President Serves until a successor of Pioneer Global Asset Global Company, Ltd. trustee is elected or Management S.p.A. ("PGAM"); earlier retirement or Non-Executive Chairman and a removal. Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Director of Pioneer Alternative Investment Management Limited (Dublin); President and a Director of Pioneer Alternative Investment Management (Bermuda) Limited and affiliated funds; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel (since 2000, partner prior to 2000), Hale and Dorr LLP (counsel to PIM-USA and the Pioneer Funds) Osbert M. Hood (51)** Trustee and Executive Trustee since June, 2003. President and Chief Executive None Vice President Serves until a successor Officer, PIM-USA since May, trustee is elected or 2003 (Director since January, earlier retirement or 2001); President and Director removal. of Pioneer since May 2003; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Executive Vice President of all of the Pioneer Funds since June 2003; Executive Vice President and Chief Operating Officer of PIM-USA, November 2000-May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999-November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997-November 1999
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. **Mr. Hood is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. 16 INDEPENDENT TRUSTEES
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME, AGE AND ADDRESS WITH THE FUND LENGTH OF SERVICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE Mary K. Bush (55) Trustee Trustee since September, President, Bush International Director of Brady 3509 Woodbine Street, 2000. Serves until a (international financial Corporation Chevy Chase, MD 20815 successor trustee is advisory firm) (industrial elected or earlier identification and retirement or removal. specialty coated material products manufacturer), Millenium Chemicals, Inc. (commodity chemicals), Mortgage Guaranty Insurance Corporation, and R.J. Reynolds Tobacco Holdings, Inc. (tobacco) Richard H. Egdahl, M.D. (77) Trustee Trustee since 1995. Alexander Graham Bell None Boston University Healthcare Serves until a successor Professor of Health Care Entrepreneurship Program, trustee is elected or Entrepreneurship, Boston 53 Bay State Road, earlier retirement or University; Professor of Boston, MA 02215 removal. Management, Boston University School of Management; Professor of Public Health, Boston University School of Public Health; Professor of Surgery, Boston University School of Medicine; and University Professor, Boston University Margaret B.W. Graham (56) Trustee Trustee since September, Founding Director, The None 1001 Sherbrooke 2000. Serves until a Winthrop Group, Inc. Street West, successor trustee is (consulting firm); Professor Montreal, Quebec, Canada elected or earlier of Management, Faculty of retirement or removal. Management, McGill University Marguerite A. Piret (55) Trustee Trustee since 1995. President and Chief Executive None One Boston Place, Serves until a successor Officer, Newbury, Piret & 28th Floor, trustee is elected or Company, Inc. (investment Boston, MA 02108 earlier retirement or banking firm) removal. Stephen K. West (75) Trustee Trustee since 1995. Senior Counsel, Sullivan & Director, The Swiss 125 Broad Street, Serves until a successor Cromwell (law firm) Helvetia Fund, Inc. New York, NY 10004 trustee is elected or (closed-end earlier retirement or investment company) removal. and AMVESCAP PLC (investment managers) John Winthrop (67) Trustee Trustee since September, President, John Winthrop & None One North Adgers Wharf, 2000. Serves until a Co., Inc. (private investment Charleston, SC 29401 successor trustee is firm) elected or earlier retirement or removal.
17 FUND OFFICERS
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE DURING PAST FIVE YEARS HELD BY THIS OFFICER Dorothy E. Bourassa (56) Secretary Serves at the discretion Secretary of PIM-USA; Senior None of board Vice President-Legal of Pioneer; and Secretary/Clerk of most of PIM-USA's subsidiaries since October 2000; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003); and Senior Counsel, Assistant Vice President and Director of Compliance of PIM-USA from April 1998 through October 2000 Christopher J. Kelley (39) Assistant Secretary Serves at the discretion Assistant Vice President and None of board Senior Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001; Vice President and Associate General Counsel from July 1996 to July 2000); Assistant Secretary of all of the Pioneer Funds since September 2003 David C. Phelan (46) Assistant Secretary Serves at the discretion Partner, Hale and Dorr LLP; None of board Assistant Secretary of all of the Pioneer Funds since September 2003 Vincent Nave (58) Treasurer Serves at the discretion Vice President-Fund None of board Accounting, Administration and Custody Services of Pioneer (Manager from September 1996 to February 1999); and Treasurer of all of the Pioneer Funds (Assistant Treasurer from June 1999 to November 2000) Luis I. Presutti (38) Assistant Treasurer Serves at the discretion Assistant Vice President-Fund None of board Accounting, Administration and Custody Services of Pioneer (Fund Accounting Manager from 1994 to 1999); and Assistant Treasurer of all of the Pioneer Funds since November 2000
18
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE DURING PAST FIVE YEARS HELD BY THIS OFFICER Gary Sullivan (45) Assistant Treasurer Serves at the discretion Fund Accounting Manager-Fund None of board Accounting, Administration and Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 Katharine Kim Sullivan (30) Assistant Treasurer Serves at the discretion Fund Administration None of board. Manager-Fund Accounting, Administration and Custody Services since June 2003; Assistant Vice President-Mutual Fund Operations of State Street Corporation from June 2002 to June 2003 (formerly Deutsche Bank Asset Management); Pioneer Fund Accounting, Administration and Custody Services (Fund Accounting Manager from August 1999 to May 2002, Fund Accounting Services Supervisor from 1997 to July 1999); Assistant Treasurer of all of the Pioneer Funds since September 2003
19 THIS PAGE FOR YOUR NOTES. 20 THIS PAGE FOR YOUR NOTES. 21 [PIONEER INVESTMENTS(R) LOGO] 14693-00-0204 [PIONEER INVESTMENTS(R) LOGO] PIONEER VARIABLE CONTRACTS TRUST PIONEER GROWTH SHARES VCT PORTFOLIO -- CLASS II SHARES ANNUAL REPORT DECEMBER 31, 2003 PIONEER VARIABLE CONTRACTS TRUST TABLE OF CONTENTS Pioneer Growth Shares VCT Portfolio Portfolio and Performance Update 2 Portfolio Management Discussion 3 Schedule of Investments 4 Financial Statements 7 Notes to Financial Statements 11 Report of Independent Auditors 15 Trustees, Officers and Service Providers 16
PIONEER GROWTH SHARES VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO AND PERFORMANCE UPDATE 12/31/03 [CHART] PORTFOLIO DIVERSIFICATION (As a percentage of total investment portfolio) U.S. Common Stocks 91.8% Exchange-Traded Fund 4.2% Depositary Receipts for International Stocks 4.0%
[CHART] SECTOR DISTRIBUTION (As a percentage of equity holdings) Information Technology 36.8% Health Care 17.7% Consumer Staples 12.2% Financials 7.9% Industrials 7.9% Consumer Discretionary 7.5% Exchange-Traded Fund 4.2% Telecommunication Services 2.1% Materials 2.1% Energy 1.6%
FIVE LARGEST HOLDINGS (As a percentage of equity holdings) 1. Pfizer, Inc. 7.75% 2. Microsoft Corp. 6.48 3. Intel Corp. 4.54 4. Nasdaq 100 Index Traded Fund 4.15 5. Cisco Systems, Inc. 3.04
Holdings will vary for other periods. This list excludes temporary cash and derivative investments. PRICES AND DISTRIBUTIONS
12/31/03 12/31/02 Net Asset Value per Share $ 12.10 $ 9.70 DISTRIBUTIONS PER SHARE SHORT-TERM LONG-TERM (1/1/03 - 12/31/03) DIVIDENDS CAPITAL GAINS CAPITAL GAINS $ - $ - $ -
PERFORMANCE OF A $10,000 INVESTMENT The following chart shows the change in value of an investment made in PIONEER GROWTH SHARES VCT PORTFOLIO at net asset value, compared to that of the Russell 1000 Growth Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [CHART]
PIONEER GROWTH SHARES S&P 500 RUSSELL 1000 GROWTH VCT PORTFOLIO* INDEX INDEX 10/31/97 $ 10,000 $ 10,000 $ 10,000 $ 10,222 $ 10,643 $ 10,542 $ 13,521 $ 13,686 $ 14,622 12/31/99 $ 14,539 $ 16,565 $ 19,470 $ 13,539 $ 15,060 $ 15,104 12/31/2001 $ 10,934 $ 13,275 $ 12,019 $ 7,099 $ 10,342 $ 8,668 12/31/2003 $ 8,855 $ 13,300 $ 11,247
The Russell 1000 Growth Index contains those Russell 1000 securities with greater-than-average growth orientation. Companies in this index tend to exhibit higher price-to-book and price-to-earnings ratios, lower dividend yields and higher forecasted growth values than the Value universe. 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 Index. AVERAGE ANNUAL TOTAL RETURNS+ (As of December 31, 2003) NET ASSET VALUE* Life-of-Class -1.95% (10/31/97) 5 Years -8.12% 1 Year 24.74%
All total returns shown assume reinvestment of distributions at net asset value. + The performance of Class II shares for the period prior to the commencement of operations of class II shares in May 1, 2000 is based on the performance of Class I shares, reduced to reflect the higher distribution fees of class II shares. * Portfolio performance does not reflect any variable contract fees, expenses or sales charges. If they had been included, performance would have been lower. See the pages that comprise the inside cover of this report for performance net of any contract fees, expenses or sales charges. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns and principal values fluctuate so that your investment, when redeemed, may be worth more or less than its original cost. The performance table and graph do not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. 2 PIONEER GROWTH SHARES VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO MANAGEMENT DISCUSSION 12/31/03 After a slow start, stock prices rose sharply during 2003, helped by a stronger-than-expected economy, rising corporate profits, accommodative monetary and fiscal policies of the federal government, and a lessening of concerns about terrorist activity within the United States. In the following interview, Eric Weigel discusses the factors that influenced the performance of Pioneer Growth Shares VCT Portfolio during the 12-month period ended December 31, 2003. Mr. Weigel leads the Portfolio's management team. Q: HOW DID THE PORTFOLIO PERFORM DURING 2003? A: Pioneer Growth Shares had a very strong year. For the 12 months ended December 31, 2003, the Portfolio's Class II shares returned 24.74%, at net asset value. For the same period, the Russell 1000 Growth Index - the Portfolio's benchmark - returned 29.75%. Q: WHAT WAS THE INVESTMENT ENVIRONMENT LIKE IN 2003? A: The environment was extremely positive for stock investing in general during the final nine months of 2003. In the first weeks of the year, market sentiment was dominated by concerns about the approaching war in Iraq and its potential impact on the economy. Stock prices fell amidst these concerns. However, sentiment turned positive as it began to appear, by mid-March, that the major combat operations in Iraq would end relatively quickly. Then, stocks began climbing and continued their ascent through the remainder of the year. A combination of positive factors helped support the stock market's forward momentum, including: low interest rates and an accommodative monetary policy; new tax cuts and stimulative federal spending; higher-than-expected economic growth rates; and expanding corporate profits. In this positive environment, the most aggressive investment strategies had the greatest positive results as many beaten-down stocks of companies with weak balance sheets and poor prospects rose sharply as economic growth accelerated and business prospects improved dramatically. Technology stocks and consumer discretionary stocks tended to do especially well, as did small- and mid-cap shares. Q: WHAT FACTORS MOST INFLUENCED PORTFOLIO PERFORMANCE? A: Our stock selection in the technology and health care industries helped substantially. Our allocations to domestic mid-cap stocks also tended to support performance. We emphasized technology throughout the year, and many of our stock picks did very well. Intel, for example, which was a major position, rose by more than 100% during the year, while Applied Microcircuits, which produces semiconductors for the wireless sector, gained 62%. EMC, a leader in network storage technology, also had strong performance during the period in which we owned it. In health care, the biggest gainer was Scios, a small pharmaceutical company acquired by Johnson & Johnson at a healthy premium to its stock price. Mylan Laboratories, a generic pharmaceutical company, also was a big gainer as it benefited from the increased pressure to hold down drug costs. On the negative side, several of our major big-cap holdings underperformed the market, holding back performance relative to the benchmark Russell 1000 Growth Index. These disappointing stocks included domestic companies such as Pfizer, Microsoft and Wal-Mart, as well as global, blue-chip companies such as Nokia, Vodaphone and Teva Pharmaceuticals. We also tended to be too defensive in our selections in the consumer discretionary sector and, as a result, did not participate fully in that area's performance. Among individual holdings, Biovail, a specialty pharmaceutical company, was a major disappointment. Some of its new product introductions failed to meet expectations and the stock was also hurt by questions about the corporation's accounting methods. Q: WHAT IS YOUR INVESTMENT OUTLOOK? A: We see good opportunities in the stock market in 2004. Equities continue to offer excellent value, particularly in relation to alternatives such as bonds. The economy clearly is recovering from its three-year slump, and information technology investments by corporations finally have begun to increase. Corporate profits, which rose substantially in 2003, appear headed for another increase during 2004. In this positive environment, we particularly like the prospects of companies in the technology and basic materials sectors. In addition to having significant holdings in several leading tech companies, we have established positions in metals companies whose prospects should improve with the business cycle, including copper producers such as Phelps-Dodge and Freeport- McMoRan. We think the prices of crude oil and natural gas should remain high and believe many energy stocks are selling at attractive prices relative to their earnings potential. We intend to continue to emphasize large-cap growth stocks, including many market-leading blue-chip companies, but it is possible we may also increase our holdings among mid-cap stocks as opportunities present themselves. ANY INFORMATION IN THIS SHAREHOLDER REPORT REGARDING MARKET OR ECONOMIC TRENDS OR THE FACTORS INFLUENCING THE PORTFOLIO'S HISTORICAL OR FUTURE PERFORMANCE ARE STATEMENTS OF THE OPINION OF PORTFOLIO MANAGEMENT AS OF THE DATE OF THIS REPORT. THESE STATEMENTS SHOULD NOT BE RELIED UPON FOR ANY OTHER PURPOSES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND THERE IS NO GUARANTEE THAT MARKET FORECASTS DISCUSSED WILL BE RELIZED. The Portfolio's investment adviser, Pioneer Investment Management, Inc., reduced its management fee and certain other expenses; otherwise, returns would have been lower. 3 PIONEER GROWTH SHARES VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST SCHEDULE OF INVESTMENTS 12/31/03
SHARES VALUE COMMON STOCKS - 93.9% ENERGY - 1.5% INTEGRATED OIL & GAS - 0.8% 7,600 Occidental Petroleum Corp. $ 321,024 ------------- OIL & GAS EXPLRATION & PRODUCTION - 0.7% 4,700 Devon Energy Corp. $ 269,122 ------------- TOTAL ENERGY $ 590,146 ------------- MATERIALS - 2.0% DIVERSIFIED CHEMICAL - 0.7% 4,300 PPG Industries, Inc. $ 275,286 ------------- DIVERSIFIED METALS & MINING - 1.3% 6,900 Freeport-McMoRan Copper & Gold, Inc. (Class B) $ 290,697 3,000 Phelps Dodge Corp.* 228,270 ------------- $ 518,967 ------------- TOTAL MATERIALS $ 794,253 ------------- CAPITAL GOODS - 5.5% ELECTRICAL COMPONENTS & EQUIPMENT - 2.1% 26,400 General Electric Co. $ 817,872 ------------- INDUSTRIAL CONGLOMERATES - 2.1% 3,900 American Standard Companies, Inc.* $ 392,730 4,400 United Technologies Corp. 416,988 ------------- $ 809,718 ------------- INDUSTRIAL MACHINERY - 1.3% 8,500 SPX Corp. $ 499,885 ------------- TOTAL CAPITAL GOODS $ 2,127,475 ------------- COMMERCIAL SERVICES & SUPPLIES - 0.9% DIVERSIFIED COMMERCIAL SERVICES - 0.9% 6,100 H & R Block, Inc. $ 337,757 ------------- TOTAL COMMERCIAL SERVICES & SUPPLIES $ 337,757 ------------- TRANSPORTATION - 1.4% TRUCKING - 1.4% 7,200 United Parcel Service $ 536,760 ------------- TOTAL TRANSPORTATION $ 536,760 ------------- HOTELS, RESTAURANTS & LEISURE - 0.9% RESTAURANTS - 0.9% 10,300 Brinker International, Inc.* $ 341,548 ------------- TOTAL HOTELS, RESTAURANTS & LEISURE $ 341,548 ------------- MEDIA - 3.4% ADVERTISING - 0.9% 3,900 Omnicom Group $ 340,587 ------------- BROADCASTING & CABLE TV - 1.0% 8,100 Clear Channel Communications, Inc. $ 379,323 ------------- MOVIES & ENTERTAINMENT - 1.5% 13,600 Viacom, Inc. (Class B) $ 603,568 ------------- TOTAL MEDIA $ 1,323,478 ------------- RETAILING - 3.0% GENERAL MERCHANDISE STORES - 0.3% 3,500 Family Dollar Stores, Inc. $ 125,580 ------------- HOME IMPROVEMENT RETAIL - 2.3% 10,000 Home Depot, Inc. $ 354,900 9,800 Lowe's Companies, Inc. 542,822 ------------- $ 897,722 ------------- SPECIALTY STORES - 0.4% 3,500 Michaels Stores, Inc. $ 154,700 ------------- TOTAL RETAILING $ 1,178,002 ------------- FOOD & DRUG RETAILING - 3.8% DRUG RETAIL - 1.1% 11,600 Walgreen Co. $ 422,008 ------------- HYPERMARKETS & SUPERCENTERS - 2.7% 19,500 Wal-Mart Stores, Inc. $ 1,034,475 ------------- TOTAL FOOD & DRUG RETAILING $ 1,456,483 ------------- FOOD, BEVERAGE & TOBACCO - 3.4% DISTILLERS & VINTNERS - 1.0% 7,400 Anheuser-Busch Companies, Inc. $ 389,832 ------------- SOFT DRINKS - 1.8% 15,200 PepsiCo, Inc. $ 708,624 ------------- TOBACCO - 0.6% 3,900 Altria Group, Inc. $ 212,238 ------------- TOTAL FOOD, BEVERAGE & TOBACCO $ 1,310,694 ------------- HOUSEHOLD & PERSONAL PRODUCTS - 4.8% HOUSEHOLD PRODUCTS - 2.4% 4,000 Estee Lauder Co. $ 157,040 7,700 Procter & Gamble Co. 769,076 ------------- $ 926,116 ------------- PERSONAL PRODUCTS - 2.4% 16,964 Gillette Co. $ 623,088 5,500 Kimberly-Clark Corp. 324,995 ------------- $ 948,083 ------------- TOTAL HOUSEHOLD & PERSONAL PRODUCTS $ 1,874,199 ------------- HEALTH CARE EQUIPMENT & SERVICES - 6.1% HEALTH CARE DISTRIBUTORS - 2.2% 4,200 Biovail Corp., International* $ 90,258 11,200 Johnson & Johnson 578,592 3,303 Teva Pharmaceutical Industries, Ltd. 187,313 ------------- $ 856,163 -------------
The accompanying notes are an integral part of these financial statements. 4
SHARES VALUE HEALTH CARE EQUIPMENT - 2.9% 7,500 Baxter International, Inc. $ 228,900 14,900 Biomet, Inc. 542,509 6,700 Medtronic, Inc.* 325,687 ------------- $ 1,097,096 ------------- MANAGED HEALTH CARE - 1.0% 4,100 Wellpoint Health Networks Inc.* $ 397,659 ------------- TOTAL HEALTH CARE EQUIPMENT & SERVICES $ 2,350,918 ------------- PHARMACEUTICALS & BIOTECHNOLOGY - 11.3% BIOTECHNOLOGY - 2.1% 6,458 Amgen, Inc.* $ 399,104 11,400 Biogen Idec, Inc.* 419,292 ------------- $ 818,396 ------------- PHARMACEUTICALS - 9.2% 5,900 Forest Laboratories, Inc.* $ 364,620 3,700 Eli Lilly & Co. 260,221 83,421 Pfizer, Inc. 2,947,264 ------------- $ 3,572,105 ------------- TOTAL PHARMACEUTICALS & BIOTECHNOLOGY $ 4,390,501 ------------- BANKS - 2.2% DIVERSIFIED BANKS - 1.2% 15,000 U.S. Bancorp $ 446,700 ------------- THRIFTS & MORTGAGE FINANCE - 1.0% 6,900 Freddie Mac $ 402,408 ------------- TOTAL BANKS $ 849,108 ------------- DIVERSIFIED FINANCIALS - 3.8% ASSET MANAGEMENT & CUSTODY BANKS - 1.2% 6,300 Legg Mason, Inc. $ 486,234 ------------- INVESTMENT BANKING & BROKERAGE - 1.5% 5,900 Goldman Sachs Group, Inc. $ 582,507 ------------- DIVERSIFIED FINANCIAL SERVICES - 1.1% 8,473 Citigroup, Inc. $ 411,279 ------------- TOTAL DIVERSIFIED FINANCIALS $ 1,480,020 ------------- INSURANCE - 1.8% MULTI-LINE INSURANCE - 1.8% 10,300 American International Group, Inc. $ 682,684 ------------- TOTAL INSURANCE $ 682,684 ------------- SOFTWARE & SERVICES - 10.1% APPLICATION SOFTWARE - 7.5% 18,900 Cadence Design System, Inc.* $ 339,822 89,400 Microsoft Corp. 2,462,076 3,500 Symantec Corp.* 121,275 ------------- $ 2,923,173 ------------- DATA PROCESSING & OUTSOURCED SERVICES - 1.6% 10,400 First Data Corp. $ 427,336 7,100 SunGard Data Systems, Inc.* 196,741 ------------- $ 624,077 ------------- HOME ENTERTAINMENT SOFTWARE - 1.0% 13,400 Take-Two Interactive Software, Inc.* $ 386,054 ------------- TOTAL SOFTWARE & SERVICES $ 3,933,304 ------------- TECHNOLOGY HARDWARE & EQUIPMENT - 14.5% COMMUNICATIONS EQUIPMENT - 6.6% 47,600 Cisco Systems, Inc.* $ 1,156,204 7,700 L-3 Communications Holdings, Inc.* 395,472 35,544 Nokia Corp. (A.D.R.) 604,248 7,600 Qualcomm, Inc. 409,868 ------------- $ 2,565,792 ------------- COMPUTER HARDWARE - 3.6% 17,900 Dell, Inc.* $ 607,884 17,300 Hewlett-Packard Co. 397,381 4,000 IBM Corp. 370,720 ------------- $ 1,375,985 ------------- COMPUTER STORAGE & PERIPHERALS - 3.4% 27,700 Lexar Media, Inc.* $ 482,811 13,700 Sandisk Corp.* 837,618 ------------- $ 1,320,429 ------------- ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.9% 1,900 Samsung Electronics Co. (G.D.R.) (144A) $ 355,395 ------------- TOTAL TECHNOLOGY HARDWARE & EQUIPMENT $ 5,617,601 ------------- SEMICONDUCTORS - 11.5% SEMICONDUCTOR EQUIPMENT - 1.6% 16,800 Applied Materials, Inc.* $ 377,160 4,200 KLA-Tencor Corp.* 246,414 ------------- $ 623,574 ------------- SEMICONDUCTORS - 9.9% 10,200 Analog Devices, Inc. $ 465,630 59,200 Applied Micro Circuits Corp.* 354,016 10,300 ATI Technologies, Inc.* 155,736 53,600 Intel Corp. 1,725,920 20,500 Intersil Holding Corp. 509,425 17,200 Micron Technology, Inc.* 231,684 13,300 Texas Instruments, Inc. 390,754 ------------- $ 3,833,165 ------------- TOTAL SEMICONDUCTORS $ 4,456,739 -------------
The accompanying notes are an integral part of these financial statements. 5
SHARES VALUE TELECOMMUNICATION SERVICES - 2.1% WIRELESS TELECOMMUNICATION SERVICES - 2.1% 51,800 AT&T Wireless Services, Inc.* $ 413,882 15,600 Vodafone Group Plc (A.D.R.) 390,624 ------------- $ 804,506 ------------- TOTAL TELECOMMUNICATION SERVICES $ 804,506 ------------- TOTAL COMMON STOCKS (Cost $34,303,928) $ 36,436,176 ------------- EXCHANGE TRADED FUND - 4.1% 43,300 Nasdaq 100 Shares $ 1,577,853 ------------- TOTAL EXCHANGE TRADED FUND (Cost $1,352,182) $ 1,577,853 ------------- TOTAL INVESTMENT IN SECURITIES - 98.0% (Cost $35,656,110) $ 38,014,029 ------------- OTHER ASSETS AND LIABILITIES - 2.0% $ 784,313 ------------- TOTAL NET ASSETS - 100.0% $ 38,798,342 =============
* Non-income producing security (A.D.R.) American Depositary Receipt (G.D.R.) Global Depositary Receipt 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, 2003, the value of these securities amounted to $355,395 or 0.9% of net assets. The accompanying notes are an integral part of these financial statements. 6 PIONEER GROWTH SHARES VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST FINANCIAL HIGHLIGHTS
5/1/00 YEAR ENDED YEAR ENDED YEAR ENDED TO CLASS II (a) 12/31/03 12/31/02 12/31/01 12/31/00 Net asset value, beginning of period $ 9.70 $ 14.94 $ 18.50 $ 21.68 ------------ ------------ ------------ ------------ Increase (decrease) from investment operations: Net investment income $ (0.02) $ (0.13) $ (0.05) $ (0.03) Net realized and unrealized gain (loss) on investments and foreign currency transactions 2.42 (5.11) (3.51) (1.23) ------------ ------------ ------------ ------------ Net increase (decrease) from investment operations $ 2.40 $ (5.24) $ (3.56) $ (1.26) Distributions to shareholders: Net investment income - - - - Net realized gain - - - (1.92) ------------ ------------ ------------ ------------ Net increase (decrease) in net asset value $ 2.40 $ (5.24) $ (3.56) $ (3.18) ------------ ------------ ------------ ------------ Net asset value, end of period $ 12.10 $ 9.70 $ 14.94 $ 18.50 ============ ============ ============ ============ Total return* 24.74% (35.07)% (19.24)% (6.36)% Ratio of net expenses to average net assets+ 1.44% 1.63% 1.58% 1.03%** Ratio of net investment income to average net assets+ (0.40)% (0.64)% (0.61)% (0.33)%** Portfolio turnover rate 58% 86% 111% 95%** Net assets, end of period (in thousands) $ 3,049 $ 263 $ 658 $ 203 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.44% 1.63% 1.58% 0.73%** Net investment income (loss) (0.40)% (0.64)% (0.61)% (0.11)%**
(a) Class 2 shares were first publicly offered on May 1, 2000. * 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 with no reduction for fees paid indirectly. The accompanying notes are an integral part of these financial statements. 7 PIONEER GROWTH SHARES VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST STATEMENT OF ASSETS AND LIABILITIES 12/31/03
PIONEER GROWTH SHARES VCT PORTFOLIO ASSETS: Investment in securities, at value (Cost $35,656,110) $ 38,014,029 Cash 975,158 Cash held as collateral for furtures contracts - Futures collateral - Foreign currencies, at value - Receivables - Investment securities sold 255,045 Fund shares sold 5,311 Variation margin - Dividends, interest and foreign taxes withheld 36,733 Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, open - net - Due from Pioneer Investment Management, Inc. - Other 2,317 -------------- Total assets $ 39,288,593 -------------- LIABILITIES: Payables - Investment securities purchased $ 414,559 Fund shares repurchased 225 Dividends - Upon return of securities loaned - Variation Margin - Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, net - Reserve for repatriation taxes - Due to bank - Due to affiliates 29,178 Accrued expenses 46,289 Other - -------------- Total liabilities $ 490,251 -------------- NET ASSETS: Paid-in capital $ 77,839,446 Accumulated net investment income (loss) - Accumulated undistributed net realized gain (loss) (41,399,023) Net unrealized gain (loss) on: Investments 2,357,919 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - -------------- Total net assets $ 38,798,342 -------------- NET ASSET VALUE PER SHARE: CLASS I: (Unlimited number of shares authorized) Net assets $ 35,749,650 Shares outstanding 2,925,827 -------------- Net asset value per share $ 12.22 CLASS II: (Unlimited number of shares authorized) Net assets $ 3,048,692 Shares outstanding 252,021 -------------- Net asset value per share $ 12.10
The accompanying notes are an integral part of these financial statements. 8 STATEMENT OF OPERATIONS
PIONEER GROWTH SHARES VCT PORTFOLIO YEAR ENDED 12/31/03 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $5,357) $ 361,802 Interest 6,563 Income on securities loaned, net - Other - -------------- Total investment income $ 368,365 -------------- EXPENSES: Management fees $ 249,265 Transfer agent fees 2,670 Distribution fees (Class II) 2,585 Administrative fees 37,381 Custodian fees 20,172 Professional fees 21,774 Printing 46,330 Fees and expenses of nonaffiliated trustees 518 Miscellaneous 7,940 -------------- Total expenses $ 388,635 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. - -------------- Net expenses $ 388,635 -------------- Net investment income (loss) $ (20,270) -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ (3,697,565) Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - -------------- $ (3,697,565) -------------- Change in net unrealized gain or (loss) from: Investments $ 11,680,101 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - $ 11,680,101 -------------- Net gain (loss) on investments, futures contracts and foreign currency transactions $ 7,982,536 ============== Net increase (decrease) in net assets resulting from operations $ 7,962,266 ==============
The accompanying notes are an integral part of these financial statements. 9 STATEMENTS OF CHANGES IN NET ASSETS
PIONEER GROWTH SHARES VCT PORTFOLIO YEAR YEAR ENDED ENDED 12/31/03 12/31/02 FROM OPERATIONS: Net investment income (loss) $ (20,270) $ 4,320 Net realized gain (loss) on investments (3,697,565) (21,487,880) Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions 11,680,101 (2,222,350) -------------- -------------- Net increase (decrease) in net assets resulting from operations $ 7,962,266 $ (23,705,910) -------------- -------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (4,477) $ (55,371) Class II - - Net realized gain Class I - - Class II - - Tax return of capital Class I - - Class II - - -------------- -------------- Total distributions to shareowners $ (4,477) $ (55,371) -------------- -------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 4,104,812 $ 1,191,751 Reinvestment of distributions 4,477 55,371 Cost of shares repurchased (8,277,302) (15,591,853) -------------- -------------- Net increase (decrease) in net assets resulting from fund share transactions $ (4,168,013) $ (14,344,731) -------------- -------------- Net increase (decrease) in net assets $ 3,789,776 $ (38,106,012) -------------- -------------- NET ASSETS: Beginning of year 35,008,566 73,114,578 -------------- -------------- End of year $ 38,798,342 $ 35,008,566 ============== ============== Accumulated undistributed/(Distributions in excess of) net investment income (loss) $ - $ 4,299 ============== ==============
The accompanying notes are an integral part of these financial statements. 10 PIONEER GROWTH SHARES VCT PORTFOLIO NOTES TO FINANCIAL STATEMENTS 12/31/031. 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Pioneer Growth Shares VCT Portfolio is a Portfolio of the Pioneer Variable Contracts Trust (the Trust) which is a Delaware business trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of sixteen separate portfolios fourteen of which issue both Class I and Class II shares (collectively, the Portfolios, individually the Portfolio) as follows: PORTFOLIOS: Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio) Pioneer Europe VCT Portfolio (Europe Portfolio) Pioneer International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio) Pioneer Small Company VCT Portfolio (Small Company Portfolio) Pioneer Mid Cap Value VCT Portfolio (Mid-Cap Value Portfolio) Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio) Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio) Pioneer Fund VCT Portfolio (Fund Portfolio) Pioneer Equity Income VCT Portfolio (Equity-Income Portfolio) Pioneer Balanced VCT Portfolio (Balanced Portfolio) Pioneer High Yield VCT Portfolio (High Yield Portfolio) Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio) Pioneer America Income VCT Portfolio (America Income Portfolio) Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I Shares only) Pioneer Value VCT Portfolio (Value Portfolio) (Class II Shares only) Portfolio shares may only be purchased by insurance companies for the purpose of Growth Shares variable annuity or variable life insurance contracts, and may also be purchased by qualified pension and retirement plans. The financial highlights for the Portfolio's Class I shares are presented in a separate book. The investment objective of Growth Shares Portfolio is to seek capital appreciation. The Trust's financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America 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 income, expenses, gains and losses 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 as of trade date. Net asset values for the portfolio 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. 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 becomes aware of the ex-dividend data in the exercise of reasonable diligence. Interest income, including interest on income bearing cash accounts, is recorded on the accrual basis. 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, and, if applicable, are reported net of foreign taxes on capital gains at the applicable country rates. B. FUTURES CONTRACTS The Portfolio may enter into futures transactions to hedge against changes in interest rates, securities prices, and currency rates or to seek to increase total return. Upon entering into a futures contract, the Portfolio is required to deposit with a broker an amount of cash or securities equal to the minimum "initial margin" requirements of the associated futures exchange. Subsequent payments for futures contracts ("variation margin") are paid or received by the Portfolio, depending on the daily fluctuation in the value of the contracts, and are recorded by the Portfolios as unrealized gains or losses. When the contract is closed, the Portfolio realize a gain or loss equal to the difference between the opening and closing value of the contract. The use of futures contracts involves, to varying degrees, elements of market risk which may exceed the amounts recognized by the Portfolio. 11 Changes in the value of the contracts may not directly correlate to the changes in the value of the underlying securities. These risks may decrease the effectiveness of the Portfolio's hedging and trading strategies and potentially result in a loss. As of December 31, 2003, Growth Shares Portfolio had no open contracts. C. FOREIGN CURRENCY TRANSLATION The books and records of the Portfolio 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, 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. D. FORWARD FOREIGN CURRENCY CONTRACTS The Portfolio enters 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 Portfolio's financial statements. The Portfolio records 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. E. 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 shareowners. Therefore, no federal income tax provision is required. The amount and characterization of distributions to shareowners 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. At December 31, 2003, the Portfolio made reclassifications as described below. These reclassifications have no impact on the net asset value of the Portfolio and are designed to present the portfolios' capital accounts on a tax basis.
ACCUMULATED ACCUMULATED NET INVESTMENT REALIZED PORTFOLIO INCOME/(LOSS) GAIN/(LOSS) PAID-IN CAPITAL - --------------------------------------------------------------------------------- Growth Shares Portfolio $ 20,448 $ (20,448) $ -
Capital loss carryforwards are available to offset future realized capital gains. At December 31, 2003, Growth Shares VCT Portfolio had a capital loss carryforward of $40,517,554, of which the following amounts will expire between 2008 and 2011 if not utilized: $4,132,928 in 2008, $9,820,202 in 2009, $19,245,183 in 2010 and $7,319,241 in 2011. The Portfolio elected to defer $85,372 in capital losses recognized between November 1, 2003, and December 31, 2003 to its fiscal year ending December 31, 2004. The following chart shows the components of distributable earnings (accumulated losses) as of December 31, 2003 and the distributions paid during the year ended December 31, 2003 on a tax basis as of December 31, 2003.
PIONEER PIONEER GROWTH GROWTH VCT PORTFOLIO VCT PORTFOLIO 2003 2002 - --------------------------------------------------------------------- DISTRIBUTIONS PAID FROM: Ordinary Income $ 4,477 $ 55,371 Long-Term capital gain - - ------------- ------------- $ 4,477 $ 55,371 Return of Capital - - ------------- ------------- Total distributions $ 4,477 $ 55,371 ------------- ------------- DISTRIBUTABLE EARNINGS (ACCUMULATED LOSSES): Undistributed ordinary income $ - Undistributed long-term gain (capital loss carryforward) (40,517,554) Unrealized appreciation/(depreciation) 1,561,822 ------------- Total $ (38,955,732) =============
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily attributable to the tax deferral of losses on wash sales, returns of capital on REITs, and the recognition of unrealized gains or losses on certain futures contracts 12 F. PORTFOLIO SHARES The Portfolio records sales and repurchases of its portfolio shares as of trade date. Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the principal underwriter for the Trust and a wholly owned indirect subsidiary of UniCredito Italiano S.p.A. (UniCredito Italiano), $246,661 in commissions on the sale of Trust shares for the year ended December 31, 2003. Distribution fees are calculated based on the average daily net asset values attributable to Class I and Class II shares of the Portfolio, respectively. Shareowners of each class share all expenses and fees paid to the transfer agent, Pioneer Investment Management Shareholder Services, Inc. (PIMSS), for its services, which are allocated based on the number of accounts in each class and the ratable allocation of related out-of-pocket expenses (see Note 3). Income, common expenses and realized and unrealized gains and losses are calculated at the Portfolio level and allocated daily to each class of shares based on the respective percentage of adjusted net assets at the beginning of the day. Dividends and distributions to shareowners are recorded on the ex-dividend date. Distributions paid by the Portfolio with respect to each class of shares are calculated in the same manner, at the same time, and in the same amount, except that Class I and Class II shares can bear different transfer agent and distribution fees. Income, expenses (excluding 12b-1 fees) and gains and losses are calculated at the Portfolio level and are allocated daily based on the respective percentage of adjusted net assets at the beginning of the day. G. SECURITIES LENDING The Portfolio lends securities in its portfolio to certain broker-dealers or other institutional investors, with the Portfolio's custodian acting as the lending agent. When entering into a loan, the Portfolio receives collateral which is maintained by the custodian and earns income in the form of negotiated lenders' fees. The Portfolio also continues to receive interest or dividends on the securities loaned, and gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for account of the Trust. The loans are secured by collateral of at least 102%, at all times, of the fair value of the securities loaned. The fair value of the collateral will be adjusted daily to reflect any price fluctuation in the value of the loaned securities. The Trust has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Trust invests cash collateral in the Securities Lending Investment Fund which is managed by Brown Brothers Harriman & Co., the Trust's custodian. H. REPURCHASE AGREEMENTS With respect to repurchase agreements entered into by the Portfolio, 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 Portfolio's custodian, or subcustodian. The Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is responsible for determining that the value of the collateral remains at least equal to the repurchase price. 2. MANAGEMENT AGREEMENT PIM manages the Portfolio, and is a wholly owned indirect subsidiary of UniCredito Italiano. Management fees are calculated daily at the following annual rate of 0.70% of the Portfolio's average daily net assets. In addition, under the management and administration agreements, certain other services and costs, including accounting, regulatory reporting and insurance premiums, are paid by the Portfolio. At December 31, 2003, $28,253 was payable to PIM related to management fees, administrative fees and certain other services. 3. TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. (PIMSS), a wholly owned indirect subsidiary of UniCredito Italiano provides substantially all transfer agent and shareowner services to the Trust at negotiated rates. Included in due to affiliates is $250 in transfer agent fees payable to PIMSS at December 31, 2003. 4. DISTRIBUTION PLANS The Portfolio has adopted a plan of distribution for Class II shares in accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily net assets attributable to Class II shares. Included in due to affiliates is $675 payable to PFD at December 31, 2003. 5. AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION At December 31, 2003, the Portfolios' aggregate unrealized appreciation and depreciation based on cost for federal income tax purposes was as follows:
GROSS GROSS NET APPRECIATION/ TAX COST APPRECIATION DEPRECIATION (DEPRECIATION) - -------------------------------------------------------------------------------------------------- Growth Shares Portfolio $ 36,452,207 $ 3,399,151 $ (1,837,329) $ 1,561,822
13 6. PORTFOLIO TRANSACTIONS The cost of purchases and the proceeds from sales of investments other than U.S. Government obligations and temporary cash investments for the year ended December 31, 2003, were $19,973,526 and $24,584,427, respectively. 7. CAPITAL SHARES At December 31, 2003, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
'03 SHARES '03 AMOUNT '02 SHARES '02 AMOUNT - -------------------------------------------------------------------------------------------------------- GROWTH SHARES PORTFOLIO CLASS I: Shares sold 91,892 $ 1,012,931 84,353 $ 1,009,535 Reinvestment of distributions 403 4,477 4,896 55,371 Shares repurchased (731,375) (7,757,809) (1,372,544) (15,216,738) ----------- ------------ ------------ -------------- Net increase (decrease) (639,080) $ (6,740,401) (1,283,295) $ (14,151,832) =========== ============ ============ ============== CLASS II: Shares sold 271,796 $ 3,091,881 16,073 $ 182,216 Reinvestment of distributions - - - - Shares repurchased (46,885) (519,493) (33,024) (375,115) ----------- ------------ ------------ -------------- Net increase (decrease) 224,911 $ 2,572,388 (16,951) $ (192,899) =========== ============ ============ ==============
14 PIONEER GROWTH SHARES VCT PORTFOLIO REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF TRUSTEES OF PIONEER VARIABLE CONTRACTS TRUST AND THE CLASS II SHAREOWNERS OF PIONEER GROWTH SHARES VCT PORTFOLIO: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer Growth Shares VCT Portfolio, one of the portfolios constituting Pioneer Variable Contracts Trust (the "Trust") as of December 31, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets and financial highlights for each of the two years in the period then ended. 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. The financial highlights for each of the two years in the period ended December 31, 2001 were audited by other auditors who have ceased operations and whose report, dated February 8, 2002, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 Pioneer Growth Shares VCT Portfolio of Pioneer Variable Contracts Trust at December 31, 2003, the results of its operations for the year then ended, the changes in its net assets and the financial highlights for each of the two years in the period then ended in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts February 6, 2004 15 PIONEER VARIABLE CONTRACTS TRUST TRUSTEES, OFFICERS AND SERVICE PROVIDERS INVESTMENT ADVISER Pioneer Investment Management, Inc. CUSTODIAN Brown Brothers Harriman & Co. INDEPENDENT AUDITORS Ernst & Young LLP PRINCIPAL UNDERWRITER Pioneer Funds Distributor, Inc. LEGAL COUNSEL Hale and Dorr LLP SHAREOWNER SERVICES AND TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. TRUSTEES AND OFFICERS The Fund's Board of Trustees provides broad supervision over the affairs of the Fund. The officers of the Fund are responsible for the Fund's operations. The Fund's Trustees and officers are listed below, together with their principal occupations during the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of 1940 are referred to as Interested Trustees. Trustees who are not interested persons of the Fund are referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 51 U.S. registered investment portfolios for which Pioneer Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the Portfolio is 60 State Street, Boston, Massachusetts 02109. The Fund's statement of additional information provides more detailed information regarding the Fund's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Fund are available without charge, upon request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. INTERESTED TRUSTEES
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING PAST OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE FIVE YEARS HELD BY THIS TRUSTEE John F. Cogan, Jr. (77)* Chairman of the Board, Trustee since 1994. Deputy Chairman and a Director of Director of Harbor Trustee and President Serves until Pioneer Global Asset Management Global Company, Ltd. success or trustee is S.p.A. ("PGAM"); Non-Executive elected or earlier Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Director of Pioneer Alternative Investment Management Limited (Dublin); President and a Director of Pioneer Alternative Investment Management (Bermuda) Limited and affiliated funds; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel (since 2000, partner prior to 2000), Hale and Dorr LLP (counsel to PIM-USA and the Pioneer Funds) *Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. Osbert M. Hood (51)** Trustee and Executive Trustee since June, President and Chief Executive None Vice President 2003. Serves until a Officer, PIM-USA since May, 2003 success or trustee is (Director since January, 2001); elected or earlier President and Director of Pioneer retirement or removal. since May 2003; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Executive Vice President of all of the Pioneer Funds since June 2003; Executive Vice President and Chief Operating Officer of PIM-USA, November 2000-May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999-November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997-November 1999 **Mr. Hood is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
16 INDEPENDENT TRUSTEES
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING PAST OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE FIVE YEARS HELD BY THIS TRUSTEE Mary K. Bush (55) Trustee Trustee since President, Bush International Director of Brady 3509 Woodbine Street, September, 2000. (international financial advisory Corporation Chevy Chase, MD 20815 Serves until a firm) (industrial successor trustee is identification and elected or earlier specialty coated retirement or removal. material products manufacturer), Millenium Chemicals, Inc. (commodity chemicals), Mortgage Guaranty Insurance Corporation, and R.J. Reynolds Tobacco Holdings, Inc. (tobacco) Richard H. Egdahl, Trustee Trustee since Alexander Graham Bell Professor of None M.D. (77) 1995. Serves until a Health Care Entrepreneurship, Boston University successor trustee is Boston University; Professor of Healthcare elected or earlier Management, Boston University School Entrepreneurship retirement or removal. of Management; Professor of Public Program, Health, Boston University School of 53 Bay State Road, Public Health; Professor of Boston, MA 02215 Surgery, Boston University School of Medicine; and University Professor, Boston University Margaret B.W. Trustee Trustee since Founding Director, The Winthrop None Graham (56) September, 2000. Group, Inc. (consulting firm); 1001 Sherbrooke Serves until a Professor of Management, Faculty of Street West, successor trustee is Management, McGill University Montreal, Quebec, elected or earlier Canada retirement or removal. Marguerite A. Piret (55) Trustee Trustee since 1995. President and Chief Executive None One Boston Place, Serves until a Officer, Newbury, Piret & Company, 28th Floor, successor trustee is Inc. Boston, MA 02108 elected or earlier (investment banking firm) retirement or removal. Stephen K. West (75) Trustee Trustee since 1995. Senior Counsel, Sullivan Director, The Swiss 125 Broad Street, Serves until a & Cromwell (law firm) Helvetia Fund, Inc. New York, NY 10004 successor trustee is (closed-end investment elected or earlier company) and AMVESCAP retirement or removal. PLC (investment managers) John Winthrop (67) Trustee Trustee since President, John Winthrop & Co., Inc. None One North Adgers Wharf, September, 2000. (private investment firm) Charleston, SC 29401 Serves until a successor trustee is elected or earlier retirement or removal.
17 FUND OFFICERS
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING PAST OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE FIVE YEARS HELD BY THIS OFFICER Dorothy E. Bourassa Secretary Serves at the Secretary of PIM-USA; Senior Vice None (56) discretion of board President-Legal of Pioneer; and Secretary/Clerk of most of PIM-USA's subsidiaries since October 2000; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003); and Senior Counsel, Assistant Vice President and Director of Compliance of PIM-USA from April 1998 through October 2000 Christopher J. Kelley Assistant Secretary Serves at the Assistant Vice President and Senior None (39) discretion of board Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001; Vice President and Associate General Counsel from July 1996 to July 2000); Assistant Secretary of all of the Pioneer Funds since September 2003 David C. Phelan (46) Assistant Secretary Serves at the Partner, Hale and Dorr LLP; None discretion of board Assistant Secretary of all of the Pioneer Funds since September 2003 Vincent Nave (58) Treasurer Serves at the Vice President-Fund None discretion of board Accounting, Administration and Custody Services of Pioneer (Manager from September 1996 to February 1999); and Treasurer of all of the Pioneer Funds (Assistant Treasurer from June 1999 to November 2000) Luis I. Presutti (38) Assistant Treasurer Serves at the Assistant Vice President-Fund None discretion of board Accounting, Administration and Custody Services of Pioneer (Fund Accounting Manager from 1994 to 1999); and Assistant Treasurer of all of the Pioneer Funds since November 2000
18
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING PAST OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE FIVE YEARS HELD BY THIS OFFICER Gary Sullivan (45) Assistant Treasurer Serves at the Fund Accounting Manager-Fund None discretion of board Accounting, Administration and Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 Katharine Kim Sullivan Assistant Treasurer Serves at the Fund Administration Manager-Fund None (30) discretion of board Accounting, Administration and Custody Services since June 2003; Assistant Vice President-Mutual Fund Operations of State Street Corporation from June 2002 to June 2003 (formerly Deutsche Bank Asset Management); Pioneer Fund Accounting, Administration and Custody Services (Fund Accounting Manager from August 1999 to May 2002, Fund Accounting Services Supervisor from 1997 to July 1999); Assistant Treasurer of all of the Pioneer Funds since September 2003
19 THIS PAGE FOR YOUR NOTES. 20 THIS PAGE FOR YOUR NOTES. 21 [PIONEER INVESTMENTS(R) LOGO] 14686-00-0204 [PIONEER INVESTMENTS(R) LOGO] PIONEER VARIABLE CONTRACTS TRUST PIONEER REAL ESTATE SHARES VCT PORTFOLIO -- CLASS II SHARES ANNUAL REPORT DECEMBER 31, 2003 PIONEER VARIABLE CONTRACTS TRUST TABLE OF CONTENTS Pioneer Real Estate Shares VCT Portfolio Portfolio and Performance Update 2 Portfolio Management Discussion 3 Schedule of Investments 4 Financial Statements 5 Notes to Financial Statements 9 Report of Independent Auditors 13 Trustees, Officers and Service Providers 14
PIONEER REAL ESTATE SHARES VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO AND PERFORMANCE UPDATE 12/31/03 [CHART] PORTFOLIO DIVERSIFICATION (As a percentage of total investment portfolio) U.S. Common Stocks 90.3% Temporary Cash Investments 9.7%
[CHART] SECTOR DISTRIBUTION (As a percentage of equity holdings) Retail 28.4% Office 20.1% Apartment 18.1% Diversified 11.7% Industrial 8.0% Hotel 7.6% Self-Storage 4.6% Manufactured Homes 1.5%
FIVE LARGEST HOLDINGS (As a percentage of equity holdings) 1. Simon DeBartolo Group, Inc. 5.86% 2. Boston Properties, Inc. 5.03 3. Equity Residential Property Trust 4.43 4. Vornado Realty Trust 4.40 5. ProLogis Trust 4.20
Holdings will vary for other periods. This list excludes temporary cash and derivative investments. PRICES AND DISTRIBUTIONS
12/31/03 12/31/02 Net Asset Value per Share $ 18.55 $ 14.45
DISTRIBUTIONS PER SHARE++ SHORT-TERM LONG-TERM (1/1/03 - 12/31/03) DIVIDENDS CAPITAL GAINS CAPITAL GAINS $ .5626 $ - $ -
++ The Portfolio also paid non-taxable distributions of $0.1997 per Share. PERFORMANCE OF A $10,000 INVESTMENT The following chart shows the change in value of an investment made in PIONEER REAL ESTATE SHARES VCT PORTFOLIO at net asset value, compared to that of the Wilshire Real Estate Securities Index. Portfolio returns are based on net asset value and do not reflect applicable insurance fees and surrender charges. [CHART]
PIONEER REAL ESTATE SHARES VCT PORTFOLIO* S&P 500 INDEX WILSHIRE REAL ESTATE SECURITIES INDEX+ 3/31/95 $ 10,000 $ 10,000 $ 10,000 $ 11,674 $ 12,533 $ 11,322 $ 15,680 $ 15,406 $ 15,497 12/31/97 $ 18,919 $ 20,543 $ 18,565 $ 15,259 $ 26,417 $ 15,330 12/31/99 $ 14,460 $ 31,974 $ 14,841 $ 18,905 $ 29,068 $ 19,403 12/31/2001 $ 20,327 $ 25,623 $ 21,431 $ 20,789 $ 19,961 $ 21,983 12/31/2003 $ 27,952 $ 25,683 $ 30,133
+ Index comparison begins on 2/28/95. The Wilshire Index is a market-capitalization weighted measure of the performance of real estate investment trusts (equity and hybrid) and 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 Index. AVERAGE ANNUAL TOTAL RETURNS+ (As of December 31, 2003) NET ASSET VALUE* Life-of-Class (3/1/95) 12.33% 5 Years 12.87% 1 Year 34.45%
All total returns shown assume reinvestment of distributions at net asset value. + The performance of Class II shares for the period prior to the commencement of operations of Class II shares on May 1, 2000 is based on the performance of Class I shares, reduced to reflect the higher distribution fees of Class II shares. * Portfolio performance does not reflect any variable contract fees, expenses or sales charges. If they had been included, performance would have been lower. See the pages that comprise the inside cover of this report for performance net of any contract fees, expenses or sales charges. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns and principal values fluctuate so that your investment, when redeemed, may be worth more or less than its original cost. The performance table and graph do not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. 2 PIONEER REAL ESTATE SHARES VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO MANAGEMENT DISCUSSION 12/31/03 The 12 months ended December 31, 2003, which constituted the Portfolio's fiscal year, proved to be another extrordinary year for real-estate-related stocks. In fact, the Wilshire Real Estate Securities Index surpassed the Standard & Poor's 500 Index, a broad measure of U.S. stock-market performance, for the fourth year in a row. In this report, Walter Hunnewell, Jr., a member of the Portfolio's management team, discusses the sector's impressive returns and the team's expectations for 2004. Q: WHAT CONTRIBUTED TO SUCH A STRONG RALLY ACROSS THE REAL ESTATE MARKET? A: Undoubtedly, the improving economic outlook contributed to the positive momentum in the real estate sector. In addition, we've seen increasing demand for real estate stocks as an asset class. The relatively high dividend yield of REITs is very attractive to bond investors disappointed with the historically low yields offered by other fixed-income alternatives. This heightened interest helped to push prices higher in 2003. Q: HOW DID THE PORTFOLIO PERFORM IN THIS ENVIRONMENT? A: Very well. For the 12 months ended December 31, 2003, the Portfolio's Class II shares rose 34.45% at net asset value. As strong as the return was, it did fall short of the Wilshire Real Estate Securities Index's return, which was 37.07% for the year. The Portfolio's underperformance relative to this benchmark is due largely to the disappointing performance of a single holding, Apartment Investment & Management, which owns a diverse portfolio of multi-family apartment complexes. Last autumn, this real-estate investment trust (REIT) preannounced disappointing earnings that were driven by lower-than-expected fee income and higher-than-expected apartment-turnover-related expenses. Management, in turn, reduced its dividend significantly, precipitating a sharp decline in its stock. Q: HAS THE PORTFOLIO'S STRATEGY CHANGED IN RESPONSE TO THE IMPROVING ECONOMIC ENVIRONMENT? A: While the Portfolio's overall strategy is unchanged, we have been fine-tuning the Portfolio to help it better respond to the improving outlook. During the last half of the fiscal year, our efforts were focused on increasing the Portfolio's exposure to sectors that tend to rebound early in an economic recovery. We marginally increased the Portfolio's investments in the hospitality group by adding to our Host Marriott position. We also decreased the Portfolio's exposure to office REITs by eliminating our position in Equity Office Properties Trust. We're concerned that the high vacancy rates and the low square foot rates in many of this REIT's metropolitan markets are pressuring revenues and the potential for a dividend reduction. Q: GIVEN THEIR SHORT-TERM LEASES, AREN'T APARTMENTS A TIMELY OPPORTUNITY SINCE THEY CAN RESPOND QUICKLY TO AN IMPROVING ECONOMIC OUTLOOK? A: Generally yes. Unlike office leases, which typically span five to seven years, apartment leases usually run one year. Their shorter duration makes them very responsive to changes in economic growth. Nonetheless, we continue to deemphasize this sector because we would like to see signs of stronger employment numbers, which would positively affect demand for these properties. Also, continuing low interest rates are encouraging potential renters to buy instead of rent, which is further reducing demand. Q: DID RETAIL REITs CONTRIBUTE STRONGLY TO PERFORMANCE? A: Retail REITs turned in the best performance of all the groups in the real estate market for 2003, and our decision to invest heavily in that top-performing group proved to be very positive for your Portfolio. One of the Portfolio's most successful investments was Chelsea Property Group. That REIT is one of the largest owners of outlet shopping centers and has been able to generate some of the highest revenues per square foot in the industry. Towards the end of the reporting period, we pared back investments in General Growth Properties, a large regional mall operator, because of concern over its reliance on floating-rate debt and their need to acquire new properties to support their growth rate. Q: WHAT IS YOUR OUTLOOK FOR 2004? A: We believe that valuation, or the relative price of a REIT, will become more important for investors in 2004, given the strong appreciation we witnessed last year. Since investors seeking the comparatively high dividends offered by REIT investments drove a portion of the appreciation in 2003, we would not be surprised to see some of that demand ease were interest rates to rise. If that comes to pass, we could see some price correction in the REIT market as investors seek lower risk, current yield alternatives. We have positioned the Portfolio to respond to the improving economy while still providing protection from the possibility of a stalled or jobless recovery. Our research efforts will continue to focus on the more dominant REITs, which can generate internal growth from their effective management of the properties they own and which can support their dividend payouts without relying on the sale of assets or cash to meet earnings expectations. ANY INFORMATION IN THIS SHAREHOLDER REPORT REGARDING MARKET OR ECONOMIC TRENDS OR THE FACTORS INFLUENCING THE PORTFOLIO'S HISTORICAL OR FUTURE PERFORMANCE ARE STATEMENTS OF THE OPINION OF PORTFOLIO MANAGEMENT AS OF THE DATE OF THIS REPORT. THESE STATEMENTS SHOULD NOT BE RELIED UPON FOR ANY OTHER PURPOSES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND THERE IS NO GUARANTEE THAT MARKET FORECASTS DISCUSSED WILL BE REALIZED. [SIDENOTE] Real estate investments may be subject to special risks, including risks related to general and local economic conditions and risks related to an individual property. The Portfolio's investment adviser, Pioneer Investment Management, Inc., reduced its management fee and certain other expenses; otherwise, returns would have been lower. 3 PIONEER REAL ESTATE SHARES VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST SCHEDULE OF INVESTMENTS 12/31/03
SHARES VALUE COMMON STOCKS - 93.7% HOTELS, RESTAURANTS & LEISURE - 3.4% HOTELS, RESORTS & CRUISE LINES - 3.4% 68,231 Starwood Hotels & Resorts $ 2,454,268 -------------- TOTAL HOTELS, RESTAURANTS & LEISURE $ 2,454,268 -------------- REAL ESTATE - 90.3% REAL ESTATE MANAGEMENT & Development - 2.7% 11,500 American Financial Realty Trust $ 196,075 70,894 Catellus Development Corp. 1,709,963 -------------- $ 1,906,038 -------------- REAL ESTATE INVESTMENT TRUSTS - 87.6% 16,500 Alexandria Real Estate Equities, Inc. $ 955,350 40,500 AMB Property Corp. 1,331,640 54,900 Apartment Investment & Management Co. 1,894,050 66,000 Archstone Communities Trust 1,846,680 76,440 Arden Realty Group, Inc. 2,319,190 37,773 AvalonBay Communities, Inc. 1,805,549 70,194 Boston Properties, Inc. 3,382,649 31,200 Brandywine Realty Trust 835,224 29,000 Camden Property Trust 1,284,700 31,500 CBL & Associates Properties 1,779,750 30,000 Chelsea Property Group, Inc. 1,644,300 57,000 Duke Realty Investments, Inc. 1,767,000 101,000 Equity Residential Property Trust 2,980,510 6,600 Essex Property Trust, Inc. 423,852 31,000 Federal Realty Investment Trust 1,190,090 84,557 General Growth Properties, Inc. 2,346,457 19,500 Home Properties, Inc.* 787,605 159,284 Host Marriott Corp.* 1,962,379 75,200 Innkeepers USA Trust 629,424 37,000 Liberty Property Trust 1,439,300 34,000 The Macerich Co. 1,513,000 27,000 Manufactured Home Communities, Inc. 1,016,550 12,100 MeriStar Hospitality Corp.* 78,771 43,792 Mills Corp. 1,926,848 29,300 Pan Pacific Retail Properties, Inc. 1,396,145 68,657 Prentiss Properties Trust 2,264,994 88,000 ProLogis Trust 2,823,920 29,000 PS Business Parks, Inc.* 1,196,540 43,200 Public Storage, Inc. 1,874,448 1,615 Public Storage, Inc. (Depository Shares) 48,289 29,000 Regency Centers Corp. 1,155,650 31,000 Shurgard Storage Centers, Inc. 1,167,150 85,000 Simon DeBartolo Group, Inc. 3,938,900 48,374 SL Green Realty Corp. 1,985,753 52,706 Taubman Centers, Inc. 1,085,744 116,238 Trizec Properties, Inc. 1,790,065 48,000 United Dominion Realty Trust 921,600 54,000 Vornado Realty Trust $ 2,956,500 26,000 Weingarten Realty Investors 1,153,100 -------------- $ 62,899,666 -------------- TOTAL REAL ESTATE $ 64,805,704 -------------- TOTAL COMMON STOCKS (Cost $50,559,368) $ 67,259,972 ============== PRINCIPAL AMOUNT TEMPORARY CASH INVESTMENTS - 10.1% REPURCHASE AGREEMENT - 6.6% $ 4,700,000 UBS Warburg, Inc., 0.73%, Dated 12/31/03, repurchase price of $4,700,000 plus accrued interest on 1/2/04 collateralized by $4,770,000 U.S. Treasury Bill, 1.75%, 12/31/04. $ 4,700,000 -------------- SHARES SECURITY LENDING COLLATERAL - 3.5% 2,535,550 Securities Lending Investment Fund, 1.02% $ 2,535,550 -------------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $7,235,550) $ 7,235,550 -------------- TOTAL INVESTMENT IN SECURITIES - 103.8% (Cost $57,794,918) $ 74,495,522 -------------- OTHER ASSETS AND LIABILITIES - (3.8)% $ (2,711,555) -------------- TOTAL NET ASSETS - 100.0% $ 71,783,967 ==============
* Non-income producing security The accompanying notes are an integral part of these financial statements. 4 PIONEER REAL ESTATE SHARES VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST FINANCIAL HIGHLIGHTS
8/1/00(a) YEAR ENDED YEAR ENDED YEAR ENDED TO CLASS II 12/31/03 12/31/02 12/31/01 12/31/00 Net asset value, beginning of period $ 14.45 $ 14.75 $ 14.40 $ 14.55 ---------- ---------- ---------- ---------- Increase (decrease) from investment operations: Net investment income $ 0.68 $ 0.55 $ 0.41 $ 0.32 Net realized and unrealized gain (loss) on investments and foreign currency transactions 4.18 (0.20) 0.63 (0.28) ---------- ---------- ---------- ---------- Net increase (decrease) from investment operations $ 4.86 $ 0.35 $ 1.04 $ 0.04 Distributions to shareholders: Net income (0.56) (0.65) (0.52) (0.09) Tax Return of Capital (0.20) - (0.17) (0.10) ---------- ---------- ---------- ---------- Net increase (decrease) in net asset value $ 4.10 $ (0.30) $ 0.35 $ (0.15) ---------- ---------- ---------- ---------- Net asset value, end of period $ 18.55 $ 14.45 $ 14.75 $ 14.40 ========== ========== ========== ========== Total return* 34.45% 2.28% 7.52% 1.32% Ratio of net expenses to average net assets+ 1.28% 1.32% 1.52% 1.63%** Ratio of net investment income to average net assets+ 4.26% 4.21% 4.36% 7.54%** Portfolio turnover rate 20% 29% 34% 31%** Net assets, end of period (in thousands) $ 39,892 $ 31,985 $ 11,972 $ 1,770 Ratios assuming no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.28% 1.32% 1.52% 1.63%** Net investment income (loss) 4.26% 4.21% 4.36% 7.54%**
(a) Class II shares were first publicly offered on August 1, 2000. * 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. 5 PIONEER REAL ESTATE SHARES VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST STATEMENT OF ASSETS AND LIABILITIES 12/31/03
PIONEER REAL ESTATE SHARES VCT PORTFOLIO ASSETS: Investment in securities, at value (including securities loaned of $2,458,990) (Cost $57,794,918) $ 74,495,522 Temporary cash investments (at amortized cost) - Cash 58,013 Cash held as collateral for futures contracts - Foreign currencies, at value - Receivables - Investment securities sold - Fund shares sold 19,043 Collateral for securities loaned, at fair value - Variation margin - Dividends, interest and foreign taxes withheld 442,427 Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, open - net - Due from Pioneer Investment Management, Inc. - Other 2,429 -------------- Total assets $ 75,017,434 -------------- LIABILITIES: Payables - Investment securities purchased $ 592,783 Fund shares repurchased 3,188 Dividends - Upon return for securities loaned 2,535,550 Variation margin - Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, - Due to bank - Due to affiliates 66,764 Accrued expenses 35,182 Other - -------------- Total liabilities $ 3,233,467 -------------- NET ASSETS: Paid-in capital $ 57,887,258 Accumulated net investment income (loss) 153,315 Accumulated undistributed net realized gain (loss) (2,957,210) Net unrealized gain (loss) on: Investments 16,700,604 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - -------------- Total net assets $ 71,783,967 -------------- NET ASSET VALUE PER SHARE: CLASS I: (Unlimited number of shares authorized) Net assets $ 31,891,493 Shares outstanding 1,717,141 ============== Net asset value per share $ 18.57 CLASS II: (Unlimited number of shares authorized) Net assets $ 39,892,474 Shares outstanding 2,150,591 ============== Net asset value per share $ 18.55
The accompanying notes are an integral part of these financial statements. 6 STATEMENT OF OPERATIONS
PIONEER REAL ESTATE SHARES VCT PORTFOLIO YEAR ENDED 12/31/03 INVESTMENT INCOME: Dividends $ 3,362,660 Interest 13,478 Income on securities loaned, net 2,062 Other - -------------- Total investment income $ 3,378,200 -------------- EXPENSES: Management fees $ 490,974 Transfer agent fees 2,765 Distribution fees (Class II) 80,433 Administrative fees 37,500 Custodian fees 22,433 Professional fees 28,841 Printing 37,446 Fees and expenses of nonaffiliated trustees 2,783 Miscellaneous 8,522 -------------- Total expenses $ 711,697 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. - -------------- Net expenses $ 711,697 -------------- Net investment income (loss) $ 2,666,503 -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ (441,521) Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - -------------- $ (441,521) -------------- Change in net unrealized gain or (loss) from: Investments $ 15,916,594 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - -------------- $ 15,916,594 -------------- Net gain (loss) on investments, futures contracts and foreign currency transactions $ 15,475,073 ============== Net increase (decrease) in net assets resulting from operations $ 18,141,576 ==============
The accompanying notes are an integral part of these financial statements. 7 STATEMENTS OF CHANGES IN NET ASSETS
PIONEER REAL ESTATE SHARES VCT PORTFOLIO YEAR YEAR ENDED ENDED 12/31/03 12/31/02 FROM OPERATIONS: Net investment income (loss) $ 2,666,503 $ 2,492,943 Net realized gain (loss) on investments (441,521) 1,113,384 Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions 15,916,594 (3,941,737) -------------- -------------- Net increase (decrease) in net assets resulting from operations $ 18,141,576 $ (335,410) -------------- -------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (1,049,939) $ (1,521,318) Class II (1,121,546) (1,232,076) Net realized gain Class I - - Class II - - Tax return of capital Class I (372,973) - Class II (398,048) - -------------- -------------- Total distributions to shareowners $ (2,942,506) $ (2,753,394) -------------- -------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 9,753,610 $ 39,665,104 Reinvestment of distributions 2,942,506 2,753,394 Cost of shares repurchased (17,969,003) (22,469,623) -------------- -------------- Net increase (decrease) in net assets resulting from fund share transactions $ (5,272,887) $ 19,948,875 -------------- -------------- Net increase (decrease) in net assets $ 9,926,183 $ 16,860,071 -------------- -------------- NET ASSETS: Beginning of period 61,857,784 44,997,713 -------------- -------------- End of period $ 71,783,967 $ 61,857,784 ============== ============== Accumulated undistributed/(distributions in excess of) net investment income (loss) $ 153,315 $ 137,996 ============== ==============
The accompanying notes are an integral part of these financial statements. 8 PIONEER REAL ESTATE SHARES VCT PORTFOLIO NOTES TO FINANCIAL STATEMENTS 12/31/03 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Pioneer Real Estate VCT Portfolio (the Portfolio) is a Portfolio of the Pioneer Variable Contracts Trust (the Trust) which is a Delaware statutory trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of sixteen separate diversified portfolios fourteen of which issue both Class I and Class II shares (collectively, the Portfolios, individually the Portfolio) as follows: PORTFOLIOS: Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio) Pioneer Europe VCT Portfolio (Europe Portfolio) Pioneer International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio) Pioneer Small Company VCT Portfolio (Small Company Portfolio) Pioneer Mid Cap Value VCT Portfolio (Mid Cap Value Portfolio) Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio) Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio) Pioneer Fund VCT Portfolio (Fund Portfolio) Pioneer Equity Income VCT Portfolio (Equity Income Portfolio) Pioneer Balanced VCT Portfolio (Balanced Portfolio) Pioneer High Yield VCT Portfolio (High Yield Portfolio) Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio) Pioneer America Income VCT Portfolio (America Income Portfolio) Pioneer Money Market VCT Portfolio (Money Market Portfolio)(Class I shares only) Pioneer Value VCT Portfolio (Value Portfolio)(Class II shares only) Portfolio shares may be purchased by insurance companies for the purpose of funding variable annuity or variable life insurance contracts, and may also be purchased by qualified pension and retirement plans. The financial highlights for the Portfolio's Class I shares are presented in a separate book. The investment objective of Real Estate Shares Portfolio pursues long-term capital growth, with current income as a secondary objective. The Trust's financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America 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 income, expenses and gains and losses on investments during the reporting period. 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 as of 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, based on the last sale price on the principal exchange where they traded, are determined as of such times. Temporary cash investments and securities held by Money Market Portfolio are valued at amortized cost. 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 becomes aware of the ex-dividend data in the exercise of reasonable diligence. Interest income, including interest on income bearing cash accounts, is recorded on the accrual basis. Dividend and interest income from foreign securities are reported net of unrecoverable foreign taxes withheld at the applicable country rates. Gains and losses from sales on investments are calculated on the identified cost method for both financial reporting and federal income tax purposes and, if applicable, are reported net of foreign taxes on capital gains at the applicable country rates. Because Real Estate Shares 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 shareowners, and certain REITs have self-liquidation provisions by which mortgages held may be paid in full 9 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. B. FOREIGN CURRENCY TRANSLATION The books and records of the Portfolio 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, 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 The Portfolio enters 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 Portfolio's financial statements. The Portfolio records 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. 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 shareowners. Therefore, no federal income tax provision is required. The amount and characterization of distributions to shareowners 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 Shares 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 will be determined by formal notifications from the REITs subsequent to the calendar year-end. Distributions received from the REITs that are determined to be a return of capital, are recorded by the Trust as a reduction of the cost basis of the securities held. At December 31, 2003, The Portfolio had a capital loss carryforward of $3,310,843, of which the following amounts will expire between 2007 and 2011 $2,238,450 in 2007, $619,294 in 2008 $453,069 in 2011 if not utilized. The following chart shows the components of distributable earnings (accumulated losses) as of December 31, 2003 and the distributions paid during the year ended December 31, 2003 on a tax basis as of December 31, 2003. The tax character of current year distributions will be determined at the end of the current fiscal year.
PIONEER PIONEER REAL ESTATE REAL ESTATE SHARES SHARES VCT PORTFOLIO VCT PORTFOLIO 2003 2002 - ----------------------------------------------------------------------------------- DISTRIBUTIONS PAID FROM: Ordinary Income* $ 2,171,485 $ 2,753,394 Long-Term capital gain - - -------------- -------------- $ 2,171,485 $ 2,753,394 -------------- Return of Capital 771,021 - -------------- -------------- Total distributions $ 2,942,506 $ 2,753,394 -------------- -------------- DISTRIBUTABLE EARNINGS (ACCUMULATED LOSSES): Undistributed ordinary income $ - Undistributed long-term gain/(capital loss carryforward) (2,665,210) Unrealized appreciation/(depreciation) 16,408,604 -------------- Total $ 13,743,394 ==============
* Included in the Fund's distributions from 2003 and 2002 ordinary income is $192,564 and $677,466, respectively, in excess of investment company taxable income, which, in accordance with applicable U.S. tax law, is taxable to shareowners as ordinary income distributions. At December 31, 2003, the Portfolio made reclassifications as described below. These reclassifications have no impact on the net asset value of the Portfolio and are designed to present the portfolios' capital accounts on a tax basis. 10
ACCUMULATED ACCUMULATED NET INVESTMENT REALIZED PORTFOLIO INCOME/(LOSS) GAIN/LOSS PAID-IN CAPITAL - ---------------------------------------------------------------------------- Real Estate Shares Portfolio $ (479,699) $ 644,663 $ (164,964)
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily attributable to the tax deferral of losses on wash sales, returns of capital on REITs, and the recognition of unrealized gains or losses on certain futures contracts. F. PORTFOLIO SHARES The Portfolio records sales and repurchases of its portfolio shares as of trade date. Distribution fees are calculated based on the average daily net asset values attributable to Class I and Class II shares of the Portfolio, respectively. Shareowners of each class share all expenses and fees paid to the transfer agent, Pioneer Investment Management Shareholder Services, Inc. (PIMSS), for its services, which are allocated based on the number of accounts in each class and the ratable allocation of related out-of-pocket expenses (see Note 3). Income, common expenses and realized and unrealized gains and losses are calculated at the Portfolio level and allocated daily to each class of shares based on the respective percentage of adjusted net assets at the beginning of the day. Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the principal underwriter for the Trust and a wholly owned indirect subsidiary of UniCredito Italiano S.p.A. (UniCredito Italiano), $246,661 in commissions on the sale of trust shares for the year ended December 31, 2003. Dividends and distributions to shareowners are recorded on the ex-dividend date. Distributions paid by the Portfolio with respect to each class of shares are calculated in the same manner, at the same time, and in the same amount, except that Class I and Class II shares can bear different transfer agent and distribution fees. Income, expenses (excluding 12b-1 fees) and gains and losses are calculated at the Portfolio level and are allocated daily based on the respective percentage of adjusted net assets at the beginning of the day. G. SECURITIES LENDING The Portfolio lends securities in its portfolio to certain broker-dealers or other institutional investors, with the Portfolio's custodian acting as the lending agent. When entering into a loan, the Portfolio receives collateral which is maintained by the custodian and earns income in the form of negotiated lenders' fees. The Portfolio also continues to receive interest or dividends on the securities loaned, and gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for account of the Trust. The loans are secured by collateral of at least 102%, at all times, of the fair value of the securities loaned. The fair value of the collateral will be adjusted daily to reflect any price fluctuation in the value of the loaned securities. The Trust has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Trust invests cash collateral in the Securities Lending Investment Fund which is managed by Brown Brothers Harriman & Co., the Trust's custodian. H. REPURCHASE AGREEMENTS With respect to repurchase agreements entered into by the Portfolio, 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 Portfolio's custodian, or subcustodian. The Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is responsible for determining that the value of the collateral remains at least equal to the repurchase price. 2. MANAGEMENT AGREEMENT PIM manages the Portfolio, and is a wholly owned indirect subsidiary of UniCredito Italiano. Management fees are calculated daily at the following annual rate of 0.80% of the Portfolio's average daily net assets. In addition, under the management and administration agreement, certain other services and costs, including accounting, regulatory reporting and insurance premiums, are paid by the Portfolio. At December 31, 2003, $57,186 was payable to PIM related to management fees, administrative fees and certain other services. 3. TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. (PIMSS), a wholly owned indirect subsidiary of UniCredito Italiano provides substantially all transfer agent and shareowner services to the Trust at negotiated rates. Included in due to affiliates is $263 in transfer agent fees payable to PIMSS at December 31, 2003. 4. DISTRIBUTION PLANS The Portfolio has adopted a plan of distribution for Class II shares in accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily net assets attributable to Class II shares. Included in due to affiliates is $9,315 payable to PFD at December 31, 2003. 11 5. AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION At December 31, 2003, the Portfolios' aggregate unrealized appreciation and depreciation based on cost for federal income tax purposes was as follows:
NET GROSS GROSS APPRECIATION/ TAX COST APPRECIATION DEPRECIATION (DEPRECIATION) - --------------------------------------------------------------------------------------------------- Real Estate Shares Portfolio $ 58,086,918 $ 16,924,732 $ (516,128) $ 16,408,604
6. PORTFOLIO TRANSACTIONS The cost of purchases and the proceeds from sales of investments other than U.S. Government obligations and temporary cash investments for the year ended December 31, 2003, were $11,753,081 and 18,718,602, respectively. 7. CAPITAL SHARES At December 31, 2003, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
REAL ESTATE SHARES PORTFOLIO 03 SHARES 03 AMOUNT 02 SHARES 02 AMOUNT - ------------------------------------------------------------------------------------------------------ CLASS I: Shares sold 153,884 $ 2,545,266 817,845 $ 12,158,841 Reinvestment of distributions 87,137 1,422,912 100,318 1,521,318 Shares repurchased (588,199) (9,201,017) (1,090,008) (15,874,180) ---------------------------------------------------------------- Net increase (decrease) (347,178) $ (5,232,839) (171,845) $ (2,194,021) ================================================================ CLASS II: Shares sold 424,038 $ 7,208,344 1,775,897 $ 27,506,263 Reinvestment of distributions 92,474 1,519,594 82,099 1,232,076 Shares repurchased (578,790) (8,767,986) (456,793) (6,595,443) ---------------------------------------------------------------- Net increase (62,278) $ (40,048) 1,401,203 $ 22,142,896 ================================================================
12 PIONEER REAL ESTATE SHARES VCT PORTFOLIO REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF TRUSTEES OF PIONEER VARIABLE CONTRACTS TRUST AND THE CLASS II SHAREOWNERS OF PIONEER REAL ESTATE SHARES VCT PORTFOLIO: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer Real Estate Shares VCT Portfolio, one of the portfolios constituting Pioneer Variable Contracts Trust (the "Trust") as of December 31, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets and financial highlights for each of the two years in the period then ended. 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. The financial highlights for each of the two years in the period ended December 31, 2001 were audited by other auditors who have ceased operations and whose report, dated February 8, 2002, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 Pioneer Real Estate Shares VCT Portfolio of Pioneer Variable Contracts Trust at December 31, 2003, the results of its operations for the year then ended, the changes in its net assets and the financial highlights for each of the two years in the period then ended in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts February 6, 2004 13 PIONEER VARIABLE CONTRACTS TRUST TRUSTEES, OFFICERS AND SERVICE PROVIDERS INVESTMENT ADVISER Pioneer Investment Management, Inc. CUSTODIAN Brown Brothers Harriman & Co. INDEPENDENT AUDITORS Ernst & Young LLP PRINCIPAL UNDERWRITER Pioneer Funds Distributor, Inc. LEGAL COUNSEL Hale and Dorr LLP SHAREOWNER SERVICES AND TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. TRUSTEES AND OFFICERS The Fund's Board of Trustees provides broad supervision over the affairs of the Fund. The officers of the Fund are responsible for the Fund's operations. The Fund's Trustees and officers are listed below, together with their principal occupations during the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of 1940 are referred to as Interested Trustees. Trustees who are not interested persons of the Fund are referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 51 U.S. registered investment portfolios for which Pioneer Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the Portfolio is 60 State Street, Boston, Massachusetts 02109. The Fund's statement of additional information provides more detailed information regarding the Fund's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Fund are available without charge, upon request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. INTERESTED TRUSTEES
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr.(77)* Chairman of the Board, Trustee since 1994. Deputy Chairman and a Director of Harbor Global Trustee and President Serves until a Director of Pioneer Global Company, Ltd. successor trustee is Asset Management elected earlier S.p.A. ("PGAM"); retirement or Non-Executive Chairman and removal. a Director of Pioneer Investment Management USA Inc. ("PIM-USA "); Chairman and a Director of Pioneer; Director of Pioneer Alternative Investment Management Limited (Dublin); President and a Director of Pioneer Alternative Investment Management (Bermuda) Limited and affiliated funds; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel (since 2000, partner prior to 2000), Hale and Dorr LLP (counsel to PIM-USA and the Pioneer Funds) Osbert M. Hood (51)** Trustee and Executive Trustee since President and Chief None Vice President June, 2003. Serves Executive Officer, PIM-USA until a successor since May, 2003 (Director trustee is elected since January, 2001); earlier retirement or President and Director of removal. Pioneer since May 2003; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Executive Vice President of all of the Pioneer Funds since June 2003; Executive Vice President and Chief Operating Officer of PIM-USA, November 2000-May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999-November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997-November 1999
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. **Mr. Hood is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. 14 INDEPENDENT TRUSTEES
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME, AGE AND ADDRESS WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE Mary K. Bush (55) Trustee Trustee since President, Bush Director of Brady Corporation 3509 Woodbine Street, September, 2000. International (industrial identification Chevy Chase, MD 20815 Serves until a (international financial and specialty coated material successor trustee is advisory firm) products manufacturer), elected or earlier Millenium Chemicals, retirement or Inc. (commodity chemicals), removal. Mortgage Guaranty Insurance Corporation, and R.J. Reynolds Tobacco Holdings, Inc. (tobacco) Richard H. Egdahl, M.D.(77) Trustee Trustee since 1995. Alexander Graham Bell None Boston University Healthcare Serves until a Professor of Health Care Entrepreneurship Program, successor trustee is Entrepreneurship, Boston 53 Bay State Road, elected or earlier University; Professor of Boston, MA 02215 retirement or Management, Boston removal. University School of Management; Professor of Public Health, Boston University School of Public Health; Professor of Surgery, Boston University School of Medicine; and University Professor, Boston University Margaret B.W. Graham (56) Trustee Trustee since Founding Director, The None 1001 Sherbrooke September, 2000. Winthrop Group, Inc. Street West, Serves until a (consulting firm); Montreal, Quebec, Canada successor trustee is Professor of Management, elected or earlier Faculty of Management, retirement or McGill University removal. Marguerite A. Piret (55) Trustee Trustee since 1995. President and Chief None One Boston Place, Serves until a Executive Officer, Newbury, 28th Floor, successor trustee is Piret & Company, Inc. Boston, MA 02108 elected or earlier (investment banking firm) retirement or removal. Stephen K. West (75) Trustee Trustee since 1995. Senior Counsel, Sullivan & Director, The Swiss Helvetia 125 Broad Street, Serves until a Cromwell (law firm) Fund, Inc. (closed-end New York, NY 10004 successor trustee is investment company) and elected or earlier AMVESCAP PLC (investment retirement or managers) removal. John Winthrop (67) Trustee Trustee since President, John Winthrop & None One North Adgers Wharf, September, 2000. Co., Inc. (private Charleston, SC 29401 Serves until a investment firm) successor trustee is elected or earlier retirement or removal.
15 FUND OFFICERS
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Dorothy E. Bourassa (56) Secretary Serves at the Secretary of PIM-USA; None discretion of board Senior Vice President-Legal of Pioneer; and Secretary/Clerk of most of PIM-USA's subsidiaries since October 2000; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003); and Senior Counsel, Assistant Vice President and Director of Compliance of PIM-USA from April 1998 through October 2000 Christopher J. Kelley (39) Assistant Secretary Serves at the Assistant Vice President None discretion of board and Senior Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001; Vice President and Associate General Counsel from July 1996 to July 2000); Assistant Secretary of all of the Pioneer Funds since September 2003 David C. Phelan (46) Assistant Secretary Serves at the Partner, Hale and Dorr LLP; None discretion of board Assistant Secretary of all of the Pioneer Funds since September 2003 Vincent Nave (58) Treasurer Serves at the Vice President-Fund None discretion of board Accounting, Administration and Custody Services of Pioneer (Manager from September 1996 to February 1999); and Treasurer of all of the Pioneer Funds (Assistant Treasurer from June 1999 to November 2000) Luis I. Presutti (38) Assistant Treasurer Serves at the Assistant Vice None discretion of board President-Fund Accounting, Administration and Custody Services of Pioneer (Fund Accounting Manager from 1994 to 1999); and Assistant Treasurer of all of the Pioneer Funds since November 2000
16
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Gary Sullivan (45) Assistant Treasurer Serves at the Fund Accounting None discretion of board Manager-Fund Accounting, Administration and Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 Katharine Kim Sullivan (30) Assistant Treasurer Serves at the Fund Administration None discretion of board. Manager-Fund Accounting, Administration and Custody Services since June 2003; Assistant Vice President-Mutual Fund Operations of State Street Corporation from June 2002 to June 2003 (formerly Deutsche Bank Asset Management); Pioneer Fund Accounting, Administration and Custody Services (Fund Accounting Manager from August 1999 to May 2002, Fund Accounting Services Supervisor from 1997 to July 1999); Assistant Treasurer of all of the Pioneer Funds since September 2003
17 [PIONEER INVESTMENTS(R) LOGO] 14687-00-0204 [PIONEER INVESTMENTS(R) LOGO] PIONEER VARIABLE CONTRACTS TRUST PIONEER HIGH YIELD VCT PORTFOLIO -- CLASS II SHARES ANNUAL REPORT DECEMBER 31, 2003 PIONEER VARIABLE CONTRACTS TRUST TABLE OF CONTENTS Pioneer High Yield VCT Portfolio Portfolio and Performance Update 2 Portfolio Management Discussion 3 Schedule of Investments 4 Financial Statements 10 Notes to Financial Statements 14 Report of Independent Auditors 18 Trustees, Officers and Service Providers 19
PIONEER HIGH YIELD VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO AND PERFORMANCE UPDATE 12/31/03 [CHART] PORTFOLIO DIVERSIFICATION (As a percentage of total investment in securities) U.S. Corporate Bonds 59.0% Convertible Corporate Bonds 37.6% Temporary Cash Investment 2.7% Convertible Preferred Stocks 0.7%
[CHART] MATURITY DISTRIBUTION (As a percentage of total investment in securities) 0-1 Years 9.2% 1-3 years 23.5% 3-4 years 14.3% 4-6 years 38.9% 6-8 years 10.1% 8+ years 4.0%
FIVE LARGEST HOLDINGS (As a percentage of total long-term holdings) 1. Interpublic Group Inc., 7.25%, 10/15/05 4.10% 2. Bowater Inc., 6.5%, 6/15/13 3.92 3. Sepracor Inc., 5.0%, 2/15/07 3.36 4. Crown Holdings, 9.50%, 3/1/11 2.84 5. Texas Industries Inc., 10.25%, 6/15/11 2.83
Holdings will vary for other periods. This list excludes temporary cash and derivative investments. PRICES AND DISTRIBUTIONS
12/31/03 12/31/02 Net Asset Value per Share $ 11.45 $ 9.28
DISTRIBUTIONS PER SHARE SHORT-TERM LONG-TERM (1/1/03 - 12/31/03) DIVIDENDS CAPITAL GAINS CAPITAL GAINS $ 0.75345 $ - $ -
PERFORMANCE OF A $10,000 INVESTMENT The following chart shows the change in value of an investment made in PIONEER HIGH YIELD VCT PORTFOLIO at net asset value, compared to that of Merrill Lynch (ML) High Yield Master II Index and of the ML Index of Convertible Bonds (Speculative Quality). Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [CHART]
ML INDEX OF CONVERTIBLE BONDS PIONEER HIGH YIELD VCT PORTFOLIO* ML HIGH YIELD MASTER II+ (SPECULATIVE QUALITY) 5/31/2000 $ 10,000 $ 10,000 $ 10,000 12/31/2000 $ 10,608 $ 9,770 $ 8,424 12/31/2001 $ 12,390 $ 10,207 $ 7,882 12/31/2002 $ 12,090 $ 10,013 $ 7,744 12/31/2003 $ 16,022 $ 13,228 $ 10,535
+ Index comparisons begin on 4/30/00. The ML High Yield Master II Index is a broad-based measure of the performance of the non-investment grade U.S. domestic bond market. The ML Index of Convertible Bonds (Speculative Quality) is a market-capitalization weighted index including mandatory and non-mandatory domestic corporate convertible securities. Index returns assume reinvestment of dividends and, unlike Portfolio returns, do not reflect any fees, expenses or sales charges. You cannot invest directly in any Index. AVERAGE ANNUAL TOTAL RETURNS+ (As of December 31, 2003) NET ASSET VALUE* Life-of-Class 13.08% (5/1/00) 1 Year 32.52%
All total returns shown assume reinvestment of distributions at net asset value. + The performance of Class II shares for the period prior to the commencement of operations of Class II shares on May 1, 2001 is based on the performance of Class I shares, reduced to reflect the higher distribution fees of Class II shares. * Portfolio performance does not reflect any variable contract fees, expenses or sales charges. If they had been included, performance would have been lower. See the pages that comprise the inside cover of this report for performance net of any contract fees, expenses or sales charges. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns and principal values fluctuate so that your investment, when redeemed, may be worth more or less than its original cost. The performance table and graph do not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. 2 PIONEER HIGH YIELD VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO MANAGEMENT DISCUSSION 12/31/03 High-yield bonds posted outstanding returns during 2003. Below, portfolio manager Margaret Patel describes the factors leading to the rebound in the high-yield market and what drove the Portfolio's outperformance of its benchmark index. Q: HOW DID THE PORTFOLIO PERFORM? A: During the 12 months ended December 31, 2003, the Portfolio's Class II shares had a total return based on net asset value of 32.52%. By comparison, the Merrill Lynch High Yield Master II Index returned 28.15% while the Merrill Lynch Index of Convertible Bonds (Speculative Quality) returned 35.99%. Q: WHAT WAS THE ENVIRONMENT LIKE FOR THE HIGH-YIELD MARKET DURING 2003? A: A rally starting in the fourth quarter of 2002 continued through 2003. The economy stabilized and showed modest growth. Defaults, which peaked in January 2002, declined significantly. Investors became more comfortable investing in more volatile asset classes. As a result, high-yield bond prices improved relative to other segments of the fixed-income markets. The Federal Reserve Board buoyed investor sentiment by keeping short-term interest rates at historically low levels. Q. WHY DID THE PORTFOLIO OUTPERFORM THE MERRILL LYNCH HIGH YIELD MASTER II INDEX? A: We overweighted positions in industries that were selling at very depressed prices in 2002 that then rebounded significantly as the outlook improved. Included in this group were investments in technology, health care and biotechnology. Technology was the top-performing sector during the year, due to stability in the industry and signs of improving economic growth. The economically sensitive semiconductor industry benefited in particular from investors' improved appetite for cyclical investments. Health care and biotechnology securities also rose as a result of a more positive regulatory backdrop. The Portfolio also benefited from its significant exposure to convertible securities - bonds that are exchangeable for a set number of shares of common stock at a certain price - many of which improved in concert with share-price increases in their underlying stocks during the course of the year. Q: WHICH INVESTMENTS PROVED TO BE SOME OF THE TOP PERFORMERS DURING THE FISCAL YEAR? WHICH DISAPPOINTED? A: During the past 12 months, most of the Portfolio's investments enjoyed significant price appreciation. The technology sector, in particular, continued to show strength in bouncing back from low levels. Within technology, many companies offered stabilizing revenues and an improving revenue outlook. The securities rebounded from extremely depressed prices to reach those that reflected improved stability and growth of revenues and cash flow. Semiconductor-related firms, Cymer, Conexant Systems, Cypress and Emcore, posted very strong performance due to an improved outlook for microchip demand, and because investors became more comfortable investing in volatile pockets of the market. Tesoro Petroleum, a refiner based on the West Coast, benefited from strong demand for refined products and dramatically improving refining margins. Cyclically oriented non-ferrous metals producer Freeport-McMoRan rose due to signs of improving economic growth. AffyMetrix, which produces gene-based testing kits, also offered strong performance due to investor optimism about the firm's prospects. And Lucent Technology rebounded from very depressed price levels. On the down side, Fibermark declined. This producer of specialty fiber-based products suffered from weak demand, pricing pressure among commodity-based portions of the packaging market and the incursion of cheaper-priced imports. Basic chemical producer PolyOne suffered from pricing pressure, soft demand and overcapacity. Q: WHAT IS YOUR OUTLOOK? A: The outlook for high-yield bonds remains positive. This optimism is based on the expectation that the economy will most likely continue to grow at rates above the historical annual average of 3%. With modest growth and declining default rates, we have the potential to benefit from the modest capital appreciation of selected issues. There is strong momentum provided by the Fed's ongoing commitment to provide liquidity to the economy and the markets. The financial markets continue to support riskier credits at a time when short-term interest rates remain at historical lows. ANY INFORMATION IN THIS SHAREHOLDER REPORT REGARDING MARKET OR ECONOMIC TRENDS OR THE FACTORS INFLUENCING THE PORTFOLIO'S HISTORICAL OR FUTURE PERFORMANCE ARE STATEMENTS OF THE OPINION OF PORTFOLIO MANAGEMENT AS OF THE DATE OF THIS REPORT. THESE STATEMENTS SHOULD NOT BE RELIED UPON FOR ANY OTHER PURPOSES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND THERE IS NO GUARANTEE THAT MARKET FORECASTS DISCUSSED WILL BE REALIZED. [SIDENOTE] The Portfolio invests in below investment-grade securities, which may be more volatile and subject to greater price fluctuations than investment-grade securities. The Portfolio's investment adviser, Pioneer Investment Management, Inc., reduced its management fee and certain other expenses; otherwise, returns would have been lower. 3 PIONEER HIGH YIELD VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST SCHEDULE OF INVESTMENTS 12/31/03
S&P/MOODY'S RATINGS SHARES (UNAUDITED) VALUE CONVERTIBLE PREFERRED STOCK - 0.7% DIVERSIFIED FINANCIALS - 0.7% CONSUMER FINANCE - 0.7% 15,000 B-/B2 Nuevo Energy, 5.75%, 12/15/26 $ 607,500 -------------- TOTAL CONVERTIBLE PREFERRED STOCK (Cost $411,975) $ 607,500 -------------- PRINCIPAL AMOUNT CONVERTIBLE CORPORATE BONDS - 36.6% MATERIALS - 1.0% GOLD - 0.4% $ 250,000 BBB+/Baa2 Placer Dome Inc., 2.75%, 10/15/23 (144A) $ 298,195 -------------- SPECIALTY CHEMICALS - 0.6% 1,000,000 BBB/Baa3 RPM International Inc., 1.389%, 5/13/33 $ 543,750 -------------- TOTAL MATERIALS $ 841,945 -------------- CAPITAL GOODS - 4.2% AEROSPACE & DEFENSE - 0.5% 400,000 NR/NR EDO Corp., 5.25%, 4/15/07 $ 446,500 -------------- BUILDING PRODUCTS - 0.7% 500,000 B/NR Lennox International, 6.25%, 6/1/09 $ 602,500 -------------- CONSTUCTION & ENGINEERING - 1.6% 875,000 NR/NR Quanta Services, Inc., 4.0%, 7/1/07 $ 797,344 500,000 NR/NR Quanta Services, Inc., 4.5%, 10/1/23 (144A) 525,000 -------------- $ 1,322,344 -------------- ELECTRICAL COMPONENTS & EQUIPMENT - 1.0% 1,995,000 NR/NR Roper Industries, Inc., 1.4813%, 1/15/34 $ 852,863 -------------- INDUSTRIAL MACHINERY - 0.4% 300,000 BB-/Ba3 Kaydon Corp., 4.0%, 5/23/23 (144A) $ 334,500 -------------- TOTAL CAPITAL GOODS $ 3,558,707 -------------- RETAILING - 0.6% SPECIALTY STORES - 0.6% 500,000 B+/B3 Sonic Automotive, Inc., 5.25%, 5/7/09 $ 487,500 -------------- TOTAL RETAILING $ 487,500 -------------- HEALTH CARE EQUIPMENT & SERVICES - 1.6% HEALTH CARE FACILITIES - 1.6% 400,000 B-/B3 Community Health Systems, 4.25%, 10/15/08 $ 435,000 930,000 B/B3 Lifepoint Hospitals Holdings, 4.5%, 6/1/09 933,488 -------------- $ 1,368,488 -------------- TOTAL HEALTH CARE EQUIPMENT & SERVICES $ 1,368,488 --------------
The accompanying notes are an integral part of these financial statements. 4
S&P/MOODY'S PRINCIPAL RATINGS AMOUNT (UNAUDITED) VALUE PHARMACEUTICALS & BIOTECHNOLOGY - 11.5% BIOTECHNOLOGY - 5.1% $ 1,200,000 NR/NR Affymetrix, Inc., 4.75%, 2/15/07 $ 1,200,000 300,000 NR/NR Cubist Pharmaceuticals, 5.5%, 11/1/08 273,000 1,000,000 NR/NR CV Therapeutics, 4.75%, 3/7/07 913,750 900,000 NR/NR Enzon Inc., 4.5%, 7/1/08 789,750 800,000 CCC/NR Human Genome Sciences, 3.75%, 3/15/07 735,000 400,000 NR/NR Vertex Pharmaceuticals, Inc., 5.0%, 9/19/07 355,000 -------------- $ 4,266,500 -------------- PHARMACEUTICALS - 6.4% 2,000,000 NR/NR Ivax Corp., 4.5%, 5/15/08 $ 2,020,000 300,000 NR/NR Ligand Pharmaceuticals, 6.0%, 11/16/07 749,625 2,800,000 NR/CCC+ Sepracor Inc., 5.0%, 2/15/07 2,684,500 -------------- $ 5,454,125 -------------- TOTAL PHARMACEUTICALS & BIOTECHNOLOGY $ 9,720,625 -------------- INSURANCE - 0.2% PROPERTY & CASUALTY INSURANCE - 0.2% 200,000 BB/Baa3 Ohio Casualty Corp., 5.0%, 3/19/22 $ 209,500 -------------- TOTAL INSURANCE $ 209,500 -------------- SOFTWARE & SERVICES - 1.5% APPLICATION SOFTWARE - 1.5% 500,000 B/NR BEA Systems, Inc., 4.0%, 12/15/06 $ 501,875 200,000 NR/NR Mentor Graphics, 6.875%, 6/15/07 212,750 500,000 NR/NR Serena Software, 1.5%, 12/15/23 (144A) 540,062 -------------- $ 1,254,687 -------------- TOTAL SOFTWARE & SERVICES $ 1,254,687 -------------- TECHNOLOGY HARDWARE & EQUIPMENT - 8.1% COMMUNICATIONS EQUIPMENT - 3.9% 500,000 B-/NR Adaptec, Inc., 3.0%, 3/5/07 $ 500,625 1,500,000 B-/NR Adaptec, Inc., 0.75%, 12/22/23 (144A) 1,543,125 1,020,000 BB+/Ba2 Corning, Inc., 0.6%, 11/1/08 1,263,525 -------------- $ 3,307,275 -------------- COMPUTER STORAGE & PERIPHERALS - 1.2% 700,000 NR/B2 Maxtor Corp., 6.8%, 4/30/10 $ 1,000,125 -------------- ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.0% 300,000 NR/NR Flir Systems, Inc., 3.0%, 6/1/23 (144A) $ 330,000 500,000 NR/NR Veeco Instruments, 4.125%, 12/21/08 514,375 -------------- $ 844,375 -------------- ELECTRONIC MANUFACTURING SERVICES - 1.5% 1,300,000 B+/Ba3 SCI Systems, Inc., 3.0%, 3/15/07 $ 1,228,500 -------------- TECHNOLOGY DISTRIBUTORS - 0.5% 880,000 BBB-/Baa3 Arrow Electronics, Inc., 0.0%, 2/21/21 $ 457,600 -------------- TOTAL TECHNOLOGY HARDWARE & EQUIPMENT $ 6,837,875 --------------
The accompanying notes are an integral part of these financial statements. 5
S&P/MOODY'S PRINCIPAL RATINGS AMOUNT (UNAUDITED) VALUE SEMICONDUCTORS - 7.8% SEMICONDUCTOR EQUIPMENT - 3.7% $ 700,000 B-/NR Advanced Energy Industries, Inc., 5.25%, 11/15/06 $ 714,000 200,000 NR/NR Axcelis Technologies, 4.25%, 1/15/07 191,500 700,000 NR/NR Brooks Automation, Inc., 4.75%, 6/1/08 700,000 1,000,000 B-/NR FEI Company, 5.5%, 8/15/08 992,500 500,000 B/NR LAM Research Corp., 4.0%, 6/1/06 512,500 -------------- $ 3,110,500 -------------- SEMICONDUCTORS - 4.1% 1,825,000 CCC+/NR Conexant Systems, Inc., 4.0%, 2/1/07 $ 1,738,312 580,000 NR/NR Globespan, Inc., 5.25%, 5/15/06 577,100 1,155,000 NR/NR Triquint Semiconductor, 4.0%, 3/1/07 1,108,800 -------------- $ 3,424,212 -------------- TOTAL SEMICONDUCTORS $ 6,534,712 -------------- TOTAL CONVERTIBLE CORPORATE BONDS (Cost $27,027,181) $ 30,814,039 -------------- CORPORATE BONDS - 57.5% ENERGY - 6.5% OIL & GAS EQUIPMENT & Services - 1.2% 200,000 BB-/Ba3 Grant Prideco Escrow, 9.0%, 12/15/09 $ 220,500 700,000 BB/Ba2 Key Energy Services, Inc., 6.375%, 5/1/13 710,500 100,000 B+/B3 Transmontaigne, Inc., 9.125%, 6/1/10 (144A) 107,250 -------------- $ 1,038,250 -------------- OIL & GAS EXPLORATION & Production - 0.8% 100,000 B/B2 Nuevo Energy Co., 9.375%, 10/1/10 $ 109,750 500,000 BB-/Ba3 Tom Brown, Inc., 7.25%, 9/15/13 528,750 -------------- $ 638,500 -------------- OIL & GAS REFINING MARKETING & Transportation - 4.5% 930,000 B/B3 Tesoro Petroleum Corp., 9.0%, 7/1/08 $ 964,875 1,255,000 B/B3 Tesoro Petroleum Corp., 9.625%, 11/1/08 1,336,575 1,400,000 B/B3 Tesoro Petroleum Corp., 9.625%, 4/1/12 1,533,000 -------------- $ 3,834,450 -------------- TOTAL ENERGY $ 5,511,200 -------------- MATERIALS - 12.9% COMMODITY CHEMICALS - 1.8% 1,000,000 BB+/Ba2 Nova Chemicals Corp., 7.4%, 4/1/09 $ 1,050,000 500,000 BB+/Ba2 Nova Chemicals Corp., 7.875%, 9/15/25 515,000 -------------- $ 1,565,000 -------------- CONSTRUCTION MATERIALS - 2.7% 2,000,000 BB-/B1 Texas Industries, Inc., 10.25%, 6/15/11 $ 2,260,000 -------------- METAL & GLASS CONTAINERS - 3.3% 465,000 BB/Ba3 Ball Corp., 6.875%, 12/15/12 $ 485,925 2,000,000 B+/B1 Crown Holdings, 9.5%, 3/1/11 2,265,000 -------------- $ 2,750,925 --------------
The accompanying notes are an integral part of these financial statements. 6
S&P/MOODY'S PRINCIPAL RATINGS AMOUNT (UNAUDITED) VALUE PAPER PRODUCTS - 4.6% $ 685,000 BB+/Ba1 Bowater Canada Finance, 7.95%, 11/15/11 $ 727,425 3,225,000 BB+/Ba1 Bowater, Inc., 6.5%, 6/15/13 3,129,885 -------------- $ 3,857,310 -------------- SPECIALTY CHEMICALS - 0.5% 500,000 BB-/B3 Polyone Corp., 8.875%, 5/1/12 $ 460,000 -------------- TOTAL MATERIALS $ 10,893,235 -------------- CAPITAL GOODS - 10.1% AEROSPACE & DEFENSE - 5.0% 2,000,000 B/B2 DRS Technologies, Inc., 6.875%, 11/1/13 (144A) $ 2,055,000 125,000 B+/B1 Esterline Technologies, 7.75%, 6/15/13 (144A) 134,375 1,000,000 BB-/Ba3 L-3 Communications Corp., 6.125%, 7/15/13 1,007,500 1,000,000 BB-/Ba3 L-3 Communications Corp., 6.125%, 1/15/14 (144A) 1,002,500 -------------- $ 4,199,375 -------------- BUILDING PRODUCTS - 1.1% 850,000 B/B2 NCI Building Systems, Inc., 9.25%, 5/1/09 $ 894,625 -------------- INDUSTRIAL MACHINERY - 4.0% 900,000 B/B3 JLG Industries, Inc., 8.375%, 6/15/12 $ 928,125 500,000 B/B2 Manitowoc Co., Inc., 10.5%, 8/1/12 569,375 800,000 B+/B1 Manitowoc Co., Inc., 7.125%, 11/1/13 827,000 500,000 BB+/Ba3 SPX Corp., 6.25%, 6/15/11 513,750 517,000 BB+/Ba3 SPX Corp., 7.5%, 1/1/13 562,238 -------------- $ 3,400,488 -------------- TOTAL CAPITAL GOODS $ 8,494,488 -------------- TRANSPORTATION - 0.6% AIR FREIGHT & COURIERS - 0.6% 500,000 BB-/B1 Petroleum Helicopters, 9.375%, 5/1/09 $ 531,250 -------------- TOTAL TRANSPORTATION $ 531,250 -------------- AUTOMOBILES & COMPONENTS - 1.4% AUTO PARTS & EQUIPMENT - 1.4% 700,000 B+/B2 Intermet Corp., 9.75%, 6/15/09 $ 717,500 500,000 NR/NR RJ Tower Corp., 12.0%, 6/1/13 492,500 -------------- $ 1,210,000 -------------- TOTAL AUTOMOBILES & COMPONENTS $ 1,210,000 -------------- CONSUMER DURABLES & APPAREL - 2.3% HOMEBUILDING - 2.3% 400,000 BB/Ba2 Beazer Homes USA, 8.375%, 4/15/12 $ 441,000 1,535,000 BB/Ba2 Beazer Homes USA, 6.5%, 11/15/13 (144A) 1,533,081 -------------- $ 1,974,081 -------------- TOTAL CONSUMER DURABLES & APPAREL $ 1,974,081 -------------- MEDIA - 4.5% ADVERTISING - 3.9% 3,000,000 BB+/Baa3 Interpublic Group, Inc., 7.875%, 10/15/05 $ 3,270,000 --------------
The accompanying notes are an integral part of these financial statements. 7
S&P/MOODY'S PRINCIPAL RATINGS AMOUNT (UNAUDITED) VALUE PUBLISHING - 0.6% $ 500,000 B/B2 Houghton Mifflin Co., 8.25%, 2/1/11 $ 535,000 -------------- TOTAL MEDIA $ 3,805,000 -------------- RETAILING - 3.3% DEPARTMENT STORES - 1.8% 1,500,000 BB+/Ba3 J.C. Penney Co., Inc., 7.625%, 3/1/97 $ 1,539,375 -------------- DISTRIBUTORS - 1.5% 1,200,000 B-/B3 Wesco Distribution, Inc., 9.125%, 6/1/08 $ 1,242,000 -------------- TOTAL RETAILING $ 2,781,375 -------------- HEALTH CARE EQUIPMENT & SERVICES - 0.6% HEALTH CARE FACILITIES - 0.6% 500,000 BBB-/Ba1 HCA, Inc., 6.25%, 2/15/13 $ 511,804 -------------- TOTAL HEALTH CARE EQUIPMENT & SERVICES $ 511,804 -------------- PHARMACEUTICALS & BIOTECHNOLOGY - 1.3% PHARMACEUTICALS - 1.3% 204,000 B+/B3 Alpharma, Inc., 8.625%, 5/1/11 (144A) $ 206,550 875,000 BB-/B1 Valeant Pharmaceuticals, 7.0%, 12/15/11 (144A) 901,250 -------------- $ 1,107,800 -------------- TOTAL PHARMACEUTICALS & BIOTECHNOLOGY $ 1,107,800 -------------- REAL ESTATE - 9.8% REAL ESTATE MANAGEMENT & DEVELOPMENT - 5.3% 750,000 BB-/Ba3 Forest City Enterprises, 7.625%, 6/1/15 $ 795,938 800,000 B+/Ba3 LNR Property Corp., 7.625%, 7/15/13 842,000 2,115,000 B+/Ba3 LNR Property Corp., 7.25%, 10/15/13 (144A) 2,152,013 510,000 B+/Ba3 LNR Property Corp., 5.5%, 3/1/23 (144A) 664,912 -------------- $ 4,454,863 -------------- REAL ESTATE INVESTMENT TRUSTS - 4.5% 750,000 B/B3 BF Saul Real Estate Investment Trust, 9.75%, 4/1/08 $ 782,812 1,300,000 B+/Ba3 Crescent Real Estate, 9.25%, 4/15/09 1,430,000 1,500,000 CCC+/B2 Meristar Hospitality Corp., 9.125%, 1/15/11 1,590,000 -------------- $ 3,802,812 -------------- TOTAL REAL ESTATE $ 8,257,675 -------------- TECHNOLOGY HARDWARE & EQUIPMENT - 3.9% ELECTRONIC MANUFACTURING SERVICES - 0.7% 500,000 BB-/Ba2 Sanmina-SCI Corp., 10.375%, 1/15/10 $ 585,000 -------------- TECHNOLOGY DISTRIBUTORS - 3.2% 1,200,000 BBB-/Baa3 Arrow Electronic, Inc., 6.875%, 7/1/13 $ 1,278,674 1,050,000 BBB-/Baa3 Arrow Electronic, Inc., 6.875%, 6/1/18 1,090,367 300,000 BB-/Ba2 Ingram Micro, Inc., 9.875%, 8/15/08 331,500 -------------- $ 2,700,541 -------------- TOTAL TECHNOLOGY HARDWARE & EQUIPMENT $ 3,285,541 -------------- TOTAL CORPORATE BONDS (Cost $45,359,792) $ 48,363,449 --------------
The accompanying notes are an integral part of these financial statements. 8
S&P/MOODY'S RATINGS SHARES (UNAUDITED) VALUE TEMPORARY CASH INVESTMENT - 2.6% SECURITY LENDING COLLATERAL - 2.6% 2,207,733 Securities Lending Investment Fund, 1.02% $ 2,207,733 -------------- TOTAL TEMPORARY CASH INVESTMENT (Cost $2,207,733) $ 2,207,733 -------------- TOTAL INVESTMENT IN SECURITIES - 97.4% (Cost $75,182,311) $ 81,992,721 -------------- OTHER ASSETS AND LIABILITIES - 2.6% $ 2,195,036 -------------- TOTAL NET ASSETS - 100.0% $ 84,187,757 ==============
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 transactionexempt from registration. At December 31, 2003, the value of these securities amounted to $12,327,813 or 14.6% of net assets. The accompanying notes are an integral part of these financial statements. 9 PIONEER HIGH YIELD VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST FINANCIAL HIGHLIGHTS
CLASS II YEAR ENDED YEAR ENDED 5/1/01 TO 12/31/03 12/31/02 12/31/01(a) Net asset value, beginning of period $ 9.28 $ 10.33 $ 10.51 ---------- ---------- ---------- Increase (decrease) from investment operations: Net investment income $ 0.76 $ 0.80 $ 0.60 Net realized and unrealized gain (loss) on investments and foreign currency transactions 2.17 (1.05) (0.07) ---------- ---------- ---------- Net increase (decrease) from investment operations $ 2.93 $ (0.25) $ 0.53 Distributions to shareholders: Net investment income (0.75) (0.80) (0.60) Net realized gain - - (0.11) ---------- ---------- ---------- Net increase (decrease) in net asset value $ 2.18 $ (1.05) $ (0.18) ---------- ---------- ---------- Net asset value, end of period $ 11.46 $ 9.28 $ 10.33 ========== ========== ========== Total return* 32.64% (2.42)% 5.39% Ratio of net expenses to average net assets+ 1.09% 1.82% 1.39%** Ratio of net investment income to average net assets+ 6.33% 8.67% 8.94%** Portfolio turnover rate 48% 42% 36%** Net assets, end of period (in thousands) $ 17,601 $ 228 $ 28 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.09% 1.82% 1.50%** Net investment income (loss) 6.33% 8.67% 8.83%** Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 1.09% 0.97% 0.85% Net investment income (loss) 6.33% 0.01% 0.07%
(a) Class II shares were first publicly offered on May 1, 2001. * Assumes initial investment at net asset value at the beginning of each period, reinvestment of all distributions and the complete redmeption of the investment at net asset value at the end of each period.) ** Annualized. + Ratios with no reduction for fees paid indirectly. The accompanying notes are an integral part of these financial statements. 10 PIONEER HIGH YIELD VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST STATEMENT OF ASSETS AND LIABILITIES 12/31/03
PIONEER HIGH YIELD VCT PORTFOLIO ASSETS: Investment in securities, at value (including securities loaned of $2,158,691) (Cost $75,182,311) $ 81,992,721 Temporary cash investments (at amortized cost) - Cash Cash held as collateral for futures contracts - Foreign currencies, at value - Receivables - Investment securities sold 413,389 Fund shares sold 4,564,496 Collateral for securities loaned, at fair value Variation margin - Dividends, interest and foreign taxes withheld 1,081,782 Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, open - net - Due from Pioneer Investment Management, Inc. - Other 2,357 --------------- Total assets $ 88,054,745 --------------- LIABILITIES: Payables - Investment securities purchased $ 1,279,162 Fund shares repurchased 69,402 Dividends - Upon return for securities loaned 2,207,733 Variation margin Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, - Due to bank 224,892 Due to affiliates 60,219 Accrued expenses 25,580 Other - --------------- Total liabilities $ 3,866,988 --------------- NET ASSETS: Paid-in capital $ 76,934,850 Accumulated net investment income (loss) 42,283 Accumulated undistributed net realized gain (loss) 400,214 Net unrealized gain (loss) on: Investments 6,810,410 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - --------------- Total net assets $ 84,187,757 --------------- NET ASSET VALUE PER SHARE: CLASS I: (Unlimited number of shares authorized) Net assets $ 66,587,008 Shares outstanding 5,815,849 =============== Net asset value per share $ 11.45 CLASS II: (Unlimited number of shares authorized) Net assets $ 17,600,749 Shares outstanding 1,536,447 =============== Net asset value per share $ 11.46
The accompanying notes are an integral part of these financial statements. 11 STATEMENT OF OPERATIONS
PIONEER HIGH YIELD VCT PORTFOLIO YEAR ENDED 12/31/03 INVESTMENT INCOME: Dividends $ 144,018 Interest 4,474,126 Income on securities loaned, net 11,587 Other - --------------- Total investment income $ 4,629,731 --------------- EXPENSES: Management fees $ 373,275 Transfer agent fees 1,601 Distribution fees (Class II) 11,424 Administrative fees 37,500 Custodian fees 19,470 Professional fees 30,622 Printing 39,909 Fees and expenses of nonaffiliated trustees 1,091 Miscellaneous 7,937 --------------- Total expenses $ 522,829 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. - --------------- Net expenses $ 522,829 --------------- Net investment income (loss) $ 4,106,902 --------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ 1,124,588 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - --------------- $ 1,124,588 --------------- Change in net unrealized gain or (loss) from: Investments $ 10,301,474 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - --------------- $ 10,301,474 --------------- Net gain (loss) on investments, futures contracts and foreign currency transactions $ 11,426,062 =============== Net increase (decrease) in net assets resulting from operations $ 15,532,964 ===============
The accompanying notes are an integral part of these financial statements. 12 STATEMENTS OF CHANGES IN NET ASSETS
PIONEER HIGH YIELD VCT PORTFOLIO YEAR YEAR ENDED ENDED 12/31/03 12/31/02 FROM OPERATIONS: Net investment income (loss) $ 4,106,902 $ 3,533,031 Net realized gain (loss) on investments 1,124,588 (323,145) Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions 10,301,474 (3,825,540) --------------- --------------- Net increase (decrease) in net assets resulting from operations $ 15,532,964 $ (615,654) --------------- --------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (3,817,405) $ (3,519,047) Class II (279,944) (17,625) Net realized gain Class I - - Class II - - Tax return of capital Class I - - Class II - - --------------- --------------- Total distributions to shareowners $ (4,097,349) $ (3,536,672) --------------- --------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 45,609,360 $ 23,512,319 Reinvestment of distributions 4,059,022 3,490,787 Cost of shares repurchased (18,254,761) (13,871,749) --------------- --------------- Net increase (decrease) in net assets resulting from fund share transactions $ 31,413,621 $ 13,131,357 --------------- --------------- Net increase (decrease) in net assets $ 42,849,236 $ 8,979,031 --------------- --------------- NET ASSETS: Beginning of year 41,338,521 32,359,490 --------------- --------------- End of year $ 84,187,757 $ 41,338,521 =============== =============== Accumulated undistributed/(distributions in excess of) net investment income (loss) $ 42,283 $ (465) =============== ===============
The accompanying notes are an integral part of these financial statements. 13 PIONEER HIGH YIELD VCT PORTFOLIO NOTES TO FINANCIAL STATEMENTS 12/31/03 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Pioneer High Yield VCT Portfolio (The Portfolio) is a portfolio of Pioneer Variable Contracts Trust (the Trust) which is a Delaware business trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of sixteen separate portfolios, fourteen of which issue both Class I and Class II shares (collectively, the Portfolios, individually the Portfolio) as follows: PORTFOLIOS: Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio) Pioneer Europe VCT Portfolio (Europe Portfolio) Pioneer International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio) Pioneer Small Company VCT Portfolio (Small Company Portfolio) Pioneer Mid Cap Value VCT Portfolio (Mid-Cap Value Portfolio) Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio) Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio) Pioneer Fund VCT Portfolio (Fund Portfolio) Pioneer Equity Income VCT Portfolio (Equity-Income Portfolio) Pioneer Balanced VCT Portfolio (Balanced Portfolio) Pioneer High Yield VCT Portfolio (High Yield Portfolio) Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio) Pioneer America Income VCT Portfolio (America Income Portfolio) Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares only) Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only) Portfolio shares may only be purchased by insurance companies for the purpose of funding variable annuity or variable life insurance contracts, and may also be purchased by qualified pension and retirement plans. The investment objective of High Yield Portfolio is to maximize total return through a combination of income and capital appreciation. The financial highlights for the Portfolio's Class I shares are presented in a separate book. The Trust's financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America 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 income, expenses, gains and losses during the reporting years. 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 as of 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, based on the last sale price on the principal exchange where they traded, 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. Valuations may be supplemented by dealers and other sources, as required. 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 becomes aware of the ex-dividend data in the exercise of reasonable diligence. Interest income, including interest on income bearing cash accounts, is recorded on the accrual basis, net of unrecoverable foreign taxes withheld at the applicable country rates. All discounts/premiums are accreted/amortized for financial reporting purposes. Gains and losses from sales on investments are calculated on the identified cost method for both financial reporting and federal income tax purposes, and, if applicable, are reported net of foreign taxes on capital gains at the applicable country rates. The High Yield Portfolio invests in below investment grade (high yield) debt securities and preferred stocks. These high yield securities may be convertible into equity securities of the issuer. Debt securities rated below 14 investment grade are commonly referred to as "junk bonds" and are considered speculative. These securities involve greater risk of loss, are subject to greater price volatility, and are less liquid, especially during years of economic uncertainty or change, than higher rated debt securities. The Portfolio is not diversified, which means that it can invest a higher percentage of its asset in any one issuer than a diversified fund. Being non-diversified may magnify the fund's losses from adverse events affecting a particular issuer. In addition, the non-diversified Portfolios have concentrations in certain asset types, which may subject the Portfolios to additional risks. Further description of these risks is included in the Trust's Prospectus. B. FOREIGN CURRENCY TRANSLATION The books and records of the Portfolio 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, 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 The Portfolio enters 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 Portfolio's financial statements. The Portfolio records 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. 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 shareowners. Therefore, no federal income tax provision is required. In addition to the requirements of the Internal Revenue Code, the Portfolio may also be required to pay local taxes on the recognition of capital gains and/or the repatriation of foreign currencies in certain countries. During the year ended December 31, 2003, the no such taxes were paid. The amount and characterization of distributions to shareowners 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.
ACCUMULATED NET ACCUMULATED INVESTMENT REALIZED GAIN/ PORTFOLIO INCOME/(LOSS) LOSS PAID-IN CAPITAL - --------------------------------------------------------------------------- High Yield Portfolio $ 33,195 $ (33,195) $ -
At December 31, 2003, the Portfolio made reclassifications as described below. These reclassifications have no impact on the net asset value of the Portfolio and are designed to present the Portfolios' capital accounts on a tax basis. The following chart shows the components of distributable earnings (accumulated losses) as of December 31, 2003 and the distributions paid during the year ended December 31, 2003 on a tax basis as of December 31, 2003.
PIONEER PIONEER HIGH HIGH YIELD YIELD VCT PORTFOLIO VCT PORTFOLIO 2003 2002 - ---------------------------------------------------------------------------- DISTRIBUTIONS PAID FROM: Ordinary Income $ 4,097,349 $ 3,536,672 Long-Term capital gain - - --------------------------- $ 4,097,349 $ 3,536,672 Return of Capital - - --------------------------- Total distributions $ 4,097,349 $ 3,536,672 --------------------------- DISTRIBUTABLE EARNINGS (ACCUMULATED LOSSES): Undistributed ordinary income $ 42,283 Undistributed long-term gain/ (Capital loss carryforward) 400,214 Unrealized appreciation (depreciation) 6,810,410 ------------ Total $ 7,252,907 ============
15 The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily attributable to the tax deferral of losses on wash sales, returns of capital on REITs, and the recognition of unrealized gains or losses on certain futures contracts. F. PORTFOLIO SHARES The Portfolio records sales and repurchases of its portfolio shares as of trade date. Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the principal underwriter for the Trust and a wholly owned indirect subsidiary of UniCredito Italiano S.p.A. (UniCredito Italiano), $246,661 in commissions on the sale of Trust shares for the year ended December 31, 2003. Distribution fees are calculated based on the average daily net asset values attributable to Class I and Class II shares of the Portfolio, respectively. Shareowners of each class share all expenses and fees paid to the transfer agent, Pioneer Investment Management Shareholder Services, Inc. (PIMSS), for its services, which are allocated based on the number of accounts in each class and the ratable allocation of related out-of-pocket expenses (see Note 3). Income, common expenses and realized and unrealized gains and losses are calculated at the Portfolio level and allocated daily to each class of shares based on the respective percentage of adjusted net assets at the beginning of the day. Distributions paid by the Portfolio with respect to each class of shares are calculated in the same manner, at the same time, and in the same amount, except that Class I and Class II shares can bear different transfer agent and distribution fees. Dividends and distributions to shareowners are recorded on the ex-dividend date. Income, expenses (excluding 12b-1 fees) and gains and losses are calculated at the Portfolio level and are allocated daily based on the respective percentage of adjusted net assets at the beginning of the day. G. SECURITIES LENDING The Portfolio lends securities in its portfolio to certain broker-dealers or other institutional investors, with the Portfolio's custodian acting as the lending agent. When entering into a loan, the Portfolio receives collateral which is maintained by the custodian and earns income in the form of negotiated lenders' fees. The Portfolio also continues to receive interest or dividends on the securities loaned, and gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for account of the Trust. The loans are secured by collateral of at least 102%, at all times, of the fair value of the securities loaned. The fair value of the collateral will be adjusted daily to reflect any price fluctuation in the value of the loaned securities. The Trust has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Trust invests cash collateral in the Securities Lending Investment Fund which is managed by Brown Brothers Harriman & Co., the Trust's custodian. H. REPURCHASE AGREEMENTS With respect to repurchase agreements entered into by the Portfolio, 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 Portfolio's custodian, or subcustodian. The Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is responsible for determining that the value of the collateral remains at least equal to the repurchase price. 2. MANAGEMENT AGREEMENT PIM manages the Portfolio, and is a wholly owned indirect subsidiary of UniCredito Italiano. Management fees are calculated daily at the following annual rate of 0.65% of the Portfolio's average daily net assets. The portion of the Portfolios' expenses attributable to Class II (or Class I for shares in the case of High Yield Portfolios) will be reduced only to the extent such expenses are reduced for Class I shares (or Class II shares). Pioneer may subsequently recover reimbursed expenses (within three years of being incurred) from certain Portfolios if the expense ratio of the Class I (or Class II) shares would otherwise be less than the expense limitation of the class. Each class will reimburse PIM no more than the amount by which that class' expenses were reduced. In addition, under the management and administration agreement, certain other services and costs, including accounting, regulatory reporting and insurance premiums, are paid by the Portfolio. At December 31, 2003, $55,214 was payable to PIM related to management fees, administrative fees and certain other services. 3. TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. (PIMSS), a wholly owned indirect subsidiary of UniCredito Italiano provides substantially all transfer agent and shareowner services to the Trust at negotiated rates. Included in due to affiliates is $1,212 in transfer agent fees payable to PIMSS at December 31, 2003. 16 4. DISTRIBUTION PLANS The Portfolio has adopted a plan of distribution for Class II shares in accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily net assets attributable to Class II shares. Included in due to affiliates is $3,793 payable to PFD at December 31, 2003.
NET GROSS GROSS APPRECIATION/ TAX COST APPRECIATION DEPRECIATION (DEPRECIATION) - ----------------------------------------------------------------------------------------------------- High Yield Portfolio $ 75,182,311 $ 6,830,138 $ (19,728) $ 6,810,410
6. AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION At December 31, 2003, the Portfolios' aggregate unrealized appreciation and depreciation based on cost for federal income tax purposes was as follows: 7. PORTFOLIO TRANSACTIONS The cost of purchases and the proceeds from sales of investments other than U.S. Government obligations and temporary cash investments for the year ended December 31, 2003, were $55,315,925 and $27,126,647, respectively. 8. CAPITAL SHARES At December 31, 2003, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
'03 SHARES '03 AMOUNT '02 SHARES '02 AMOUNT - ---------------------------------------------------------------------------------------------------------- HIGH YIELD PORTFOLIO CLASS I: Shares sold 2,515,726 $ 26,817,319 2,364,432 $ 23,267,135 Reinvestment of distributions 357,809 3,779,086 358,882 3,473,162 Shares repurchased (1,491,103) (15,895,254) (1,419,950) (13,834,156) -------------------------------------------------------------------- Net increase 1,382,432 $ 14,701,151 1,303,364 $ 12,906,141 ==================================================================== CLASS II: Shares sold 1,708,526 $ 18,792,041 24,056 $ 254,184 Reinvestment of distributions 25,089 279,836 1,833 17,625 Shares repurchased (221,726) (2,359,507) (4,051) (37.593) -------------------------------------------------------------------- Net increase 1,511,889 $ 16,712,470 21,838 $ 225,216 ====================================================================
17 PIONEER HIGH YIELD VCT PORTFOLIO REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF TRUSTEES OF PIONEER VARIABLE CONTRACTS TRUST AND THE CLASS II SHAREOWNERS OF PIONEER HIGH YIELD VCT PORTFOLIO: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer High Yield VCT Portfolio, one of the portfolios constituting Pioneer Variable Contracts Trust (the "Trust") as of December 31, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets and financial highlights for each of the two years in the period then ended. 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. The financial highlights for each of the two years in the period ended December 31, 2001 were audited by other auditors who have ceased operations and whose report, dated February 8, 2002, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 Pioneer High Yield VCT Portfolio of Pioneer Variable Contracts Trust at December 31, 2003, the results of its operations for the year then ended, the changes in its net assets and the financial highlights for each of the two years in the period then ended in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts February 6, 2004 18 PIONEER VARIABLE CONTRACTS TRUST TRUSTEES, OFFICERS AND SERVICE PROVIDERS INVESTMENT ADVISER Pioneer Investment Management, Inc. CUSTODIAN Brown Brothers Harriman & Co. INDEPENDENT AUDITORS Ernst & Young LLP PRINCIPAL UNDERWRITER Pioneer Funds Distributor, Inc. LEGAL COUNSEL Hale and Dorr LLP SHAREOWNER SERVICES AND TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. TRUSTEES AND OFFICERS The Fund's Board of Trustees provides broad supervision over the affairs of the Fund. The officers of the Fund are responsible for the Fund's operations. The Fund's Trustees and officers are listed below, together with their principal occupations during the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of 1940 are referred to as Interested Trustees. Trustees who are not interested persons of the Fund are referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 51 U.S. registered investment portfolios for which Pioneer Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the Portfolio is 60 State Street, Boston, Massachusetts 02109. The Fund's statement of additional information provides more detailed information regarding the Fund's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Fund are available without charge, upon request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. INTERESTED TRUSTEES
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD BY NAME AND AGE WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS THIS TRUSTEE John F. Cogan, Chairman of the Board, Trustee since 1994. Serves Deputy Chairman and a Director of Harbor Global Jr. (77)* Trustee and President until a successor trustee Director of Pioneer Global Company, Ltd. is elected or earlier Asset Management retirement or removal. S.p.A. ("PGAM"); Non-Executive Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Director of Pioneer Alternative Investment Management Limited (Dublin); President and a Director of Pioneer Alternative Investment Management (Bermuda) Limited and affiliated funds; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel (since 2000,partner prior to 2000), Hale and Dorr LLP (counsel to PIM-USA and the Pioneer Funds) Osbert M. Hood Trustee and Executive Vice Trustee since June, 2003. President and Chief None (51)** President Serves until a successor Executive Officer, PIM-USA trustee is elected or since May, 2003 (Director earlier retirement or since January, 2001); removal. President and Director of Pioneer since May 2003; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Executive Vice President of all of the Pioneer Funds since June 2003; Executive Vice President and Chief Operating Officer of PIM-USA, November 2000-May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999-November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997-November 1999
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. **Mr. Hood is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. 19 INDEPENDENT TRUSTEES
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME, AGE AND ADDRESS WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS TRUSTEE Mary K. Bush (55) Trustee Trustee since September, President, Bush Director of Brady 3509 Woodbine 2000. Serves until a International Corporation (industrial Street, successor trustee is (international financial identification and Chevy Chase, elected or earlier advisory firm) specialty coated material MD 20815 retirement or removal. products manufacturer), Millenium Chemicals, Inc. (commodity chemicals), Mortgage Guaranty Insurance Corporation, and R.J. Reynolds Tobacco Holdings, Inc. (tobacco) Richard H. Trustee Trustee since 1995. Serves Alexander Graham Bell None Egdahl, M.D. (77) until a successor trustee Professor of Health Care Boston University is elected or earlier Entrepreneurship, Boston Healthcare retirement or removal. University; Professor of Entrepreneurship Management, Boston Program, University School of 53 Bay State Management; Professor of Road, Public Health, Boston Boston, MA 02215 University School of Public Health; Professor of Surgery, Boston University School of Medicine; and University Professor, Boston University Margaret B.W. Trustee Trustee since September, Founding Director, The None Graham (56) 2000. Serves until a Winthrop Group, Inc. 1001 Sherbrooke successor trustee is (consulting firm); Street West, elected or earlier Professor of Management, Montreal, Quebec, retirement or removal. Faculty of Management, Canada McGill University Marguerite A. Trustee Trustee since 1995. Serves President and Chief None Piret (55) until a successor trustee Executive Officer, Newbury, One Boston Place, is elected or earlier Piret & Company, Inc. 28th Floor, retirement or removal. (investment banking firm) Boston, MA 02108 Stephen K. West Trustee Trustee since 1995. Serves Senior Counsel, Sullivan & Director, The Swiss (75) until a successor trustee Cromwell (law firm) Helvetia Fund, Inc. 125 Broad Street, is elected or earlier (closed-end investment New York, retirement or removal. company) and AMVESCAP PLC NY 10004 (investment managers) John Winthrop Trustee Trustee since September, President, John Winthrop & None (67) 2000. Serves until a Co., Inc. (private One North Adgers successor trustee is investment firm) Wharf, elected or earlier Charleston, retirement or removal. SC 29401
20 FUND OFFICERS
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Dorothy E. Bourassa Secretary Serves at the discretion Secretary of PIM-USA; None (56) of board Senior Vice President-Legal of Pioneer; and Secretary/Clerk of most of PIM-USA's subsidiaries since October 2000; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003); and Senior Counsel, Assistant Vice President and Director of Compliance of PIM-USA from April 1998 through October 2000 Christopher J. Kelley Assistant Secretary Serves at the discretion Assistant Vice President None (39) of board and Senior Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001; Vice President and Associate General Counsel from July 1996 to July 2000); Assistant Secretary of all of the Pioneer Funds since September 2003 David C. Phelan Assistant Secretary Serves at the discretion Partner, Hale and Dorr LLP; None (46) of board Assistant Secretary of all of the Pioneer Funds since September 2003 Vincent Nave (58) Treasurer Serves at the discretion Vice President-Fund None of board Accounting, Administration and Custody Services of Pioneer (Manager from September 1996 to February 1999); and Treasurer of all of the Pioneer Funds (Assistant Treasurer from June 1999 to November 2000) Luis I. Presutti Assistant Treasurer Serves at the discretion Assistant Vice None (38) of board President-Fund Accounting, Administration and Custody Services of Pioneer (Fund Accounting Manager from 1994 to 1999); and Assistant Treasurer of all of the Pioneer Funds since November 2000
21
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Gary Sullivan Assistant Treasurer Serves at the discretion Fund Accounting None (45) of board Manager-Fund Accounting, Administration and Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 Katharine Kim Assistant Treasurer Serves at the discretion Fund Administration None Sullivan (30) of board. Manager-Fund Accounting, Administration and Custody Services since June 2003; Assistant Vice President-Mutual Fund Operations of State Street Corporation from June 2002 to June 2003 (formerly Deutsche Bank Asset Management); Pioneer Fund Accounting, Administration and Custody Services (Fund Accounting Manager from August 1999 to May 2002, Fund Accounting Services Supervisor from 1997 to July 1999); Assistant Treasurer of all of the Pioneer Funds since September 2003
22 THIS PAGE FOR YOUR NOTES. 23 THIS PAGE FOR YOUR NOTES. 24 THIS PAGE FOR YOUR NOTES. 25 [PIONEER INVESTMENTS(R) LOGO] 14688-00-0204 [PIONEER INVESTMENTS (R) LOGO] PIONEER VARIABLE CONTRACTS TRUST PIONEER SMALL CAP VALUE VCT PORTFOLIO -- CLASS II SHARES ANNUAL REPORT DECEMBER 31, 2003 PIONEER VARIABLE CONTRACTS TRUST TABLE OF CONTENTS Pioneer Small Cap Value VCT Portfolio Portfolio and Performance Update 2 Portfolio Management Discussion 3 Schedule of Investments 4 Financial Statements 8 Notes to Financial Statements 12 Report of Independent Auditors 16 Trustees, Officers and Service Providers 17
PIONEER SMALL CAP VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO AND PERFORMANCE UPDATE 12/31/03 [CHART] PORTFOLIO DIVERSIFICATION (As a percentage of total investment portfolio) U.S. Common Stocks 88.90% Temporary Cash Investment 5.40% Depositary Receipts for International Stocks 4.10% Exchange Traded Funds 1.60%
[CHART] SECTOR DISTRIBUTION (As a percentage of equity holdings) [CHART]
Industrials 21.50% Financials 20.80% Consumer Discretionary 13.40% Information Technology 8.60% Energy 8.40% Health Care 7.70% Utilities 7.50% Materials 6.80% Consumer Staples 2.60% Exchange Traded Funds 1.60% Telecommunication Services 1.10%
FIVE LARGEST HOLDINGS (As a percentage of equity holdings) 1. Southwestern Energy Co. 2.47% 2. Swift Energy Co. 2.27 3. Massey Energy Co. 2.15 4. Insight Enterprises, Inc. 2.11 5. Joy Global, Inc. 1.88
Holdings will vary for other periods. This list excludes temporary cash and derivative investments. PRICES AND DISTRIBUTIONS CLASS II SHARES
12/31/03 5/1/03 Net Asset Value per Share $ 12.47 $ 9.11
DISTRIBUTIONS PER SHARE SHORT-TERM LONG-TERM (1/1/03 - 12/31/03) DIVIDENDS CAPITAL GAINS CAPITAL GAINS $ - $ - $ -
PERFORMANCE OF A $10,000 INVESTMENT CLASS II SHARES The following chart shows the change in value of an investment made in PIONEER SMALL CAP VALUE VCT PORTFOLIO at net asset value, compared to that of the Russell 2000 Value Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges.
PIONEER SMALL CAP VALUE VCT PORTFOLIO* RUSSELL 2000 VALUE INDEX+ 11/30/2001 $ 10,000 $ 10,000 12/31/2001 $ 10,572 $ 10,612 12/31/2002 $ 8,980 $ 9,400 12/31/2003 $ 12,132 $ 13,726
+ Index comparison begins 11/30/01. The Russell 2000 Value Index is a measure of the performance of the value-oriented stocks in the Russell 2000 Index. 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 Index. AVERAGE ANNUAL TOTAL RETURNS (As of December 31, 2003) NET ASSET VALUE* Life-of-Class 10.81% (11/8/01) 1 Year 35.10%
All total returns shown assume reinvestment of distributions at net asset value. + The performance of Class II shares for the period prior to the commencement of operations of Class II shares on May 1, 2003 is based on the performance of Class I shares, reduced to reflect the higher distribution fees of Class II shares. * Portfolio performance does not reflect any variable contract fees, expenses or sales charges. If they had been included, performance would have been lower. See the pages that comprise the inside cover of this report for performance net of any contract fees, expenses or sales charges.+ Index comparison begins 11/30/01. The Russell 2000 Value Index is a measure of the performance of the value-oriented stocks in the Russell 2000 Index. 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 Index. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns and principal values fluctuate so that your investment, when redeemed, may be worth more or less than its original cost. The performance table and graph do not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. 2 PIONEER SMALL CAP VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO MANAGEMENT DISCUSSION 12/31/03 In the following discussion, David Adams and Jack McPherson review the year ended December 31, 2003, and Pioneer Small Cap Value VCT Portfolio's performance over this period. Q. HOW DID PIONEER SMALL CAP VALUE VCT PORTFOLIO PERFORM OVER THIS PERIOD? A. For the twelve months ended December 31, 2003, Pioneer's Small Cap Value VCT Portfolio Class II shares returned 35.10% at net asset value. Those results, while very positive, trailed the 46.03% return on the Russell 2000 Value Index, the Portfolio's benchmark, for the same period. Q. WHAT WERE CONDITIONS LIKE OVER THE PAST YEAR AND HOW DID YOU RESPOND? A. After a long bear market, the stock market turned higher last March when it became clear that the war would not choke off the economic recovery. Stocks generally rose through year end, buoyed by positive economic data. Very small, very speculative issues led the rally, while companies like those we invest in, with solid finances and quantifiable prospects, trailed behind. That split, which is characteristic of the early stages of an economic recovery, accounts for most of the Portfolio's underperformance compared to its benchmark. In particular, underexposure to low-quality issues in technology and biotechnology held back results. Q. WHICH SECTORS OR STOCKS HELPED BOOST PERFORMANCE? A. Our financial services choices outperformed the financial segment of the Portfolio's benchmark. Earlier in the year we favored regional banks with exposure to the very strong mortgage origination market, but lately have been shifting into commercial banks that benefit from an uptick in demand for business lending. Specifically we took some profits in Irwin Financial, a diversified regional bank with exposure to mortgage activity. Real estate investment trusts (REITs) also aided results. Ventas benefited when its primary tenant, a nursing home operator, saw its business improve. Trizec Properties rose after shedding non-productive holdings and installing new management. At Medallion Financial, the taxi-medallion-financing business is recovering from the post-9/11 downturn. The company is in the process of establishing a banking business, which will help to lower the cost of funds to finance customer loans. GrafTech International rose as renewed demand pushed up prices on electrodes for electric arc furnaces. Joy Global, a manufacturer of heavy equipment used in mining operations performed nicely as the outlook for their end markets continues to improve with the global economy. In consumer staples, sales of household and personal products continued to be strong at direct-seller NuSkin, which is active in 30 countries, including China and Japan. Energy holdings also performed well. With insufficient supply and growing demand, the price of North American natural gas is climbing. One beneficiary is Southwestern Energy, which is expanding production. We added to our position in Swift Energy during the year when investors were focusing on disappointing results in their New Zealand properties and ignoring attractive prospects here in the U.S. Our broader view paid off when the shares rose later in the year. Q. WHAT OTHER CHOICES OR STRATEGIES AFFECTED PERFORMANCE? A. The weak economy and management issues pushed down shares of Central Parking; the parking business is inherently profitable and a recovering economy should boost results. We think PRG-Schultz, which provides specialized accounting services to large corporations in a wide variety of industries, performed poorly during the year as the integration of a large acquisition continued to disappoint. Borland Software reported mediocre results during the year, which caused the stock to be down for the year, but we believe that the company's products are crucial to the software development industry and thus will resume growing in 2004. In health care, Kendall International, which conducts new drug research for pharmaceutical firms, fell as product pipelines shrank. Pacificare Health Systems, was a significantly positive holding for the Portfolio as the market began to realize the favorable position the company holds in the Medicare managed-care marketplace, a tool the government believes is imperative to reigning in skyrocketing Medicare costs. The halting rebound in travel and ineffective company management led us to take a loss in our small position in Oneida, which supplies flatware to airlines and hotels. Q. WHAT IS YOUR OUTLOOK FOR NEXT YEAR AS IT AFFECTS SMALL COMPANY STOCKS? A. Although the opposite approach was rewarded in 2003, we are convinced that owning companies with strong finances, reasonable valuations and positive earnings is the right way to position the Portfolio for possible economic growth. That view seemed to be taking hold at yearend, as better quality stocks began to draw more attention. ANY INFORMATION IN THIS SHAREHOLDER REPORT REGARDING MARKET OR ECONOMIC TRENDS OR THE FACTORS INFLUENCING THE PORTFOLIO'S HISTORICAL OR FUTURE PERFORMANCE ARE STATEMENTS OF THE OPINION OF PORTFOLIO MANAGEMENT AS OF THE DATE OF THIS REPORT. THESE STATEMENTS SHOULD NOT BE RELIED UPON FOR ANY OTHER PURPOSES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND THERE IS NO GUARANTEE THAT MARKET FORECASTS DISCUSSED WILL BE REALIZED. [SIDENOTE] Small-capitalization stocks, while offering the potential for higher returns, may be subject to greater short-term price fluctuations than securities of larger companies. The Portfolio's investment adviser, Pioneer Investment Management, Inc., reduced its management fee and certain other expenses; otherwise, returns would have been lower. 3 PIONEER SMALL CAP VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST SCHEDULE OF INVESTMENTS 12/31/03
SHARES VALUE COMMON STOCKS - 83.8% ENERGY - 7.2% OIL & GAS DRILLING - 1.7% 3,400 Atwood Oceanics, Inc.* $ 108,596 13,086 Key Energy Services, Inc.* 134,917 --------------- $ 243,513 --------------- OIL & GAS EQUIPMENT & SERVICES - 1.5% 7,500 Gulfmark Offshore, Inc.* $ 105,000 6,315 Maverick Tube Corp.* 121,564 --------------- $ 226,564 --------------- OIL & GAS EXPLORATION & PRODUCTION - 4.0% 2,900 Penn Virginia Corp. $ 161,385 16,970 Swift Energy Co.* 285,945 691 Tom Brown, Inc.* 22,285 5,219 Unit Corp.* 122,907 --------------- $ 592,522 --------------- TOTAL ENERGY $ 1,062,599 --------------- MATERIALS - 5.8% CONSTRUCTION MATERIALS - 0.1% 350 Ameron International Corp. $ 12,142 --------------- DIVERSIFIED METALS & MINING - 1.8% 13,014 Massey Energy Co. $ 270,691 --------------- METAL & GLASS CONTAINERS - 0.3% 1,562 Jarden Corp.* $ 42,705 --------------- PAPER PACKAGING - 0.1% 650 Kadant, Inc.* $ 14,073 --------------- PAPER PRODUCTS - 1.5% 8,043 Domtar, Inc. $ 100,457 4,300 Flowserve Corp.* 89,784 2,500 Longview Fibre Co. 30,875 --------------- $ 221,116 --------------- SPECIALTY CHEMICALS - 0.5% 2,475 Great Lakes Chemical Corp. $ 67,295 --------------- STEEL - 1.5% 2,250 Carpenter Technology $ 66,533 11,743 Graftech International, Ltd.* 158,531 --------------- $ 225,064 --------------- TOTAL MATERIALS $ 853,086 --------------- CAPITAL GOODS - 7.9% BUILDING PRODUCTS - 0.1% 1,175 Lennox International, Inc. $ 19,623 --------------- CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS - 1.3% 11,475 Wabtec Corp. $ 195,534 --------------- CONSTUCTION & ENGINEERING - 1.0% 3,045 Granite Consturction, Inc. $ 71,527 4,525 Insituform Technologies, Inc.* 74,663 --------------- $ 146,190 --------------- ELECTRICAL COMPONENTS & EQUIPMENT - 0.5% 6,204 Power-One, Inc.* $ 67,189 --------------- INDUSTRIAL CONGLOMERATES - 1.3% 9,685 Cornell Companies, Inc.* $ 132,200 5,046 NN, Inc. 63,529 --------------- $ 195,729 --------------- INDUSTRIAL MACHINERY - 2.9% 9,037 Joy Global, Inc. $ 236,318 1,800 Kaydon Corp. 46,512 1,619 Nacco Industries, Inc. 144,868 --------------- $ 427,698 --------------- TRADING COMPANIES & DISTRIBUTORS - 0.8% 4,928 Applied Industrial Technologies, Inc. $ 117,582 --------------- TOTAL CAPITAL GOODS $ 1,169,545 --------------- COMMERCIAL SERVICES & SUPPLIES - 6.2% COMMERCIAL PRINTING - 1.0% 4,118 John H. Harland Co. $ 112,421 1,200 Valassis Communications, Inc.* 35,220 --------------- $ 147,641 --------------- DIVERSIFIED COMMERCIAL SERVICES - 4.5% 700 Arbitron, Inc.* $ 29,204 9,850 Central Parking Corp. 147,061 2,456 FTI Consulting, Inc.* 57,397 8,760 Profit Recovery Group International* 42,924 3,328 Roto Rooter, Inc. 153,421 13,730 Rent-Way, Inc.* 112,449 4,750 Watson Wyatt & Co. Holdings* 114,713 --------------- $ 657,169 --------------- EMPLOYMENT SERVICES - 0.6% 4,520 Korn/Ferry International* $ 60,297 1,785 Right Management Consultants, Inc.* 33,308 --------------- $ 93,605 --------------- OFFICE SERVICES & SUPPLIES - 0.1% 450 Imagistics International, Inc.* $ 16,875 --------------- TOTAL COMMERCIAL SERVICES & SUPPLIES $ 915,290 --------------- TRANSPORTATION - 4.2% MARINE - 1.6% 10,802 Stelmar Shipping, Ltd. $ 236,132 --------------- RAILROADS - 1.5% 6,912 Genesee & Wyoming, Inc.* $ 217,659 ---------------
The accompanying notes are an integral part of these financial statements. 4
SHARES VALUE TRUCKING - 1.1% 1,400 Central Freight Lines, Inc.* $ 24,850 2,243 Dollar Thrifty Automotive* 58,183 3,150 Forward Air Corp.* 86,625 --------------- $ 169,658 --------------- TOTAL TRANSPORTATION $ 623,449 --------------- AUTOMOBILES & COMPONENTS - 0.7% AUTO PARTS & EQUIPMENT - 0.7% 6,245 Federal Signal Corp. $ 109,412 --------------- TOTAL AUTOMOBILES & COMPONENTS $ 109,412 --------------- CONSUMER DURABLES & APPAREL - 1.7% APPAREL, ACCESSORIES & LUXURY GOODS - 0.8% 9,168 Charming Shoppes, Inc.* $ 49,507 1,875 Kellwood Co. 76,875 --------------- $ 126,382 --------------- FOOTWEAR - 0.9% 7,491 Maxwell Shoe Co., Inc.* $ 127,122 --------------- TOTAL CONSUMER DURABLES & APPAREL $ 253,504 --------------- HOTELS, RESTAURANTS & LEISURE - 0.6% LEISURE FACILITIES - 0.1% 2,630 Bally Total Fitness Holding Corp.* $ 18,410 --------------- RESTAURANTS - 0.5% 3,769 O'Charley's, Inc.* $ 67,654 --------------- TOTAL HOTELS, RESTAURANTS & LEISURE $ 86,064 --------------- MEDIA - 2.2% ADVERTISING - 1.7% 3,816 Equity Marketing, Inc.* $ 53,806 5,144 R.H. Donnelley Corp.*+ 204,937 --------------- $ 258,743 --------------- PUBLISHING - 0.5% 4,715 Advanced Marketing Services, Inc. $ 53,751 700 Information Holdings, Inc.* 15,470 --------------- $ 69,221 --------------- TOTAL MEDIA $ 327,964 --------------- RETAILING - 6.1% APPAREL RETAIL - 0.6% 3,045 Stage Stores, Inc.* $ 84,956 --------------- CATALOG RETAIL - 1.8% 14,125 Insight Enterprises, Inc.* $ 265,550 --------------- GENERAL MERCHANDISE STORES - 0.5% 2,615 Blyth Industries, Inc. $ 84,255 --------------- SPECIALTY STORES - 3.2% 3,550 Claire's Stores, Inc. $ 66,882 5,202 Guitar Center, Inc.* 169,481 7,082 Hancock Fabrics, Inc. 102,547 4,048 School Specialty, Inc.* 137,672 --------------- $ 476,582 --------------- TOTAL RETAILING $ 911,343 --------------- FOOD & DRUG RETAILING - 1.0% FOOD RETAIL - 1.0% 4,208 Fresh Del Monte Produce, Inc. $ 100,277 3,325 Wild Oats Markets, Inc.* 42,992 --------------- TOTAL FOOD & DRUG RETAILING $ 143,269 --------------- HOUSEHOLD & PERSONAL PRODUCTS - 1.2% HOUSEHOLD PRODUCTS - 1.2% 10,804 Nu Skin Enterprises, Inc. $ 184,640 --------------- TOTAL HOUSEHOLD & PERSONAL PRODUCTS $ 184,640 --------------- HEALTH CARE EQUIPMENT & SERVICES - 6.1% HEALTH CARE DISTRIBUTORS - 2.1% 2,685 Amerigroup Corp.* $ 114,515 5,750 Chattem, Inc.* 102,925 5,650 Cross Country Healthcares, Inc.* 84,298 --------------- $ 301,738 --------------- HEALTH CARE EQUIPMENT - 0.1% 225 Analogic Corp. $ 9,225 275 Arrow International, Inc. 6,870 --------------- $ 16,095 --------------- HEALTH CARE FACILITIES - 0.6% 875 Sunrise Senior Living, Inc.* $ 33,898 1,758 Triad Hospitals, Inc.* 58,489 --------------- $ 92,387 --------------- HEALTH CARE SERVICES - 1.9% 4,202 Pediatrix Medical Group, Inc.*+ $ 231,488 2,875 Providence Service Corp.* 46,518 --------------- $ 278,006 --------------- MANAGED HEALTH CARE - 1.4% 3,115 PacifiCare Health Systems* $ 210,574 --------------- TOTAL HEALTH CARE EQUIPMENT & SERVICES $ 898,800 --------------- PHARMACEUTICALS & BIOTECHNOLOGY - 0.5% BIOTECHNOLOGY - 0.5% 11,505 Kendle International, Inc.* $ 72,942 --------------- TOTAL PHARMACEUTICALS & BIOTECHNOLOGY $ 72,942 ---------------
The accompanying notes are an integral part of these financial statements. 5
SHARES VALUE BANKS - 4.8% DIVERSIFIED BANKS - 2.4% 2,606 Banner Corp. $ 65,541 5,305 BankAtlantic Bancorp, Inc. 100,795 800 Local Financial Corp.* 16,672 5,550 Provident Financial Services, Inc. 104,895 4,650 Texas Capital Bancshares, Inc.* 67,248 --------------- $ 355,151 --------------- REGIONAL BANKS - 1.6% 12,000 Cardinal Financial Corp.* $ 99,360 1,105 Irwin Financial Corp. 34,697 400 Sun Bancorp, Inc.* 10,560 3,200 Sterling Bancshares, Inc. 42,656 930 Whitney Holding Corp. 38,121 --------------- $ 225,394 --------------- THRIFTS & MORTGAGE FINANCE - 0.8% 300 Franklin Bank Corp.* $ 5,700 4,225 First Niagara Financial Group, Inc.* 62,995 2,450 Staten Island Bancorp, Inc. 55,125 --------------- $ 123,820 --------------- TOTAL BANKS $ 704,365 --------------- DIVERSIFIED FINANCIALS - 3.3% CONSUMER FINANCE - 1.3% 1,850 American Capital Strategies $ 55,001 15,456 Medallion Financial Corp. 146,677 --------------- $ 201,678 --------------- CONSUMER FINANCE - 1.5% 4,725 Advanta Corp. $ 61,378 3,878 Advanta Corp. (Class B) 49,328 10,000 Rewards Network, Inc.* 106,600 --------------- $ 217,306 --------------- SPECIALIZED FINANCE - 0.5% 2,568 Financial Federal Corp.* $ 78,452 --------------- TOTAL DIVERSIFIED FINANCIALS $ 497,436 --------------- INSURANCE - 4.1% LIFE & HEALTH INSURANCE - 0.5% 2,756 FBL Financial Group, Inc. $ 71,105 --------------- PROPERTY & CASUALTY INSURANCE - 3.1% 1,700 American Safety Insurance Group, Ltd.* $ 22,287 3,101 IPC Holdings, Ltd. 120,753 728 Philadelphia Consolidated Holding Corp.* 35,548 8,400 Quanta Capital Holdings (144A)* 96,600 2,550 RLI Corp. 95,523 1,350 Selective Insurance Group, Inc. 43,686 999 Stewart Information Services Corp. 40,509 --------------- $ 454,906 --------------- REINSURANCE - 0.5% 3,450 Odyssey Re Holdings, Corp. $ 77,798 --------------- TOTAL INSURANCE $ 603,809 --------------- REAL ESTATE - 5.6% REAL ESTATE MANAGEMENT & DEVELOPMENT - 0.5% 2,400 Corrections Corp. of America* $ 69,192 --------------- REAL ESTATE INVESTMENT TRUSTS - 5.1% 4,010 Bedford Property Investors, Inc. $ 114,806 1,453 Entertainment Properties Trust 50,434 2,324 Pennsylvania Real Estate Investment Trust, Inc. 84,361 3,975 Reckson Associates Realty Corp. 96,593 11,065 Trizec Properties, Inc. 170,401 3,896 Universal Health Realty, Inc. 117,270 5,512 Ventas, Inc. 121,264 --------------- $ 755,129 --------------- TOTAL REAL ESTATE $ 824,321 --------------- SOFTWARE & SERVICES - 3.7% APPLICATION SOFTWARE - 1.2% 9,754 SPSS, Inc.* $ 174,402 --------------- DATA PROCESSING & OUTSOURCED SERVICES - 0.7% 4,253 Lightbridge, Inc.* $ 38,702 6,717 Pegusus Systems, Inc.* 70,327 --------------- $ 109,029 --------------- HOME ENTERTAINMENT SOFTWARE - 0.1% 1,025 Plato Learning, Inc.* $ 10,814 --------------- INTERNET SOFTWARE & SERVICES - 0.6% 4,500 Internet Security Systems, Inc* $ 84,735 --------------- SYSTEMS SOFTWARE - 1.1% 11,925 Borland Software Corp.* $ 116,030 4,250 Netiq Corp.* 56,313 --------------- $ 172,343 --------------- TOTAL SOFTWARE & SERVICES $ 551,323 --------------- TECHNOLOGY HARDWARE & EQUIPMENT - 2.1% NETWORKING EQUIPMENT - 0.2% 3,290 Computer Network Tech Corp.* $ 31,387 --------------- COMMUNICATIONS EQUIPMENT - 0.9% 15,525 Remec, Inc.* $ 130,565 --------------- COMPUTER STORAGE & PERIPHERALS - 0.5% 2,600 Electronics For Imaging, Inc.* $ 67,652 --------------- TECHNOLOGY DISTRIBUTORS - 0.5% 1,875 Tech Data Corp.* $ 74,419 --------------- TOTAL TECHNOLOGY HARDWARE & EQUIPMENT $ 304,023 ---------------
The accompanying notes are an integral part of these financial statements. 6
SHARES VALUE SEMICONDUCTORS - 1.5% SEMICONDUCTOR EQUIPMENT - 1.1% 2,243 Advanced Energy Industries, Inc.* $ 58,430 1,687 Brooks Automation, Inc.* 40,775 3,145 Photronics, Inc.* 62,648 --------------- $ 161,853 --------------- SEMICONDUCTORS - 0.4% 4,470 HI/FN Inc.* $ 53,193 384 Power Integrations, Inc.* 12,849 --------------- $ 66,042 --------------- TOTAL SEMICONDUCTORS $ 227,895 --------------- TELECOMMUNICATION SERVICES - 0.9% INTEGRATED TELECOMMUNICATION SERVICES - 0.1% 900 CT Communications, Inc. $ 12,150 --------------- WIRELESS TELECOMMUNICATION SERVICES - 0.8% 13,128 Boston Communications Group, Inc.* $ 121,959 --------------- TOTAL TELECOMMUNICATION SERVICES $ 134,109 --------------- UTILITIES - 6.4% ELECTRIC UTILITIES - 0.6% 6,650 Allegheny Energy, Inc.* $ 84,854 --------------- GAS UTILITIES - 5.0% 3,325 AGL Resources, Inc. $ 96,758 450 New Jersey Resources Corp. 17,330 10,097 NUI Corp. 162,764 3,780 People's Energy Corp. 158,911 13,024 Southwestern Energy Co.* 311,274 --------------- $ 747,037 --------------- MULTI-UTILITIES & UNREGULATED POWER - 0.4% 1,350 Energen Corp. $ 55,391 --------------- UTILITIES - 0.4% 1,675 UGI Corp. $ 56,783 --------------- TOTAL UTILITIES $ 944,065 --------------- TOTAL COMMON STOCKS (Cost $9,876,316) $ 12,403,253 --------------- EXCHANGE TRADED FUNDS - 1.3% 675 Nasdaq 100 Index Traded Fund* $ 24,587 1,075 Russell 2000 Exchange Traded Fund 172,860 --------------- TOTAL EXCHANGE TRADED FUNDS (Cost $144,747) $ 197,447 --------------- TEMPORARY CASH INVESTMENT - 4.8% SECURITY LENDING COLLATERAL - 4.8% 717,616 Securities Lending Investment Fund, 1.02% $ 717,616 --------------- TOTAL TEMPORARY CASH INVESTMENT (Cost $717,616) $ 717,616 --------------- TOTAL INVESTMENT IN SECURITIES - 89.9% (Cost $10,738,679) $ 13,318,316 --------------- OTHER ASSETS AND LIABILITIES - 10.1% $ 1,489,983 --------------- TOTAL NET ASSETS - 100.0% $ 14,808,299 ===============
* Non-income producing security + At December 31, 2003, the following securities have been pledged to cover margin requirements for open futures contracts:
SHARES SECURITY MARKET VALUE 2,385 Pediatrix Medical Group, Inc. $ 131,390 400 R.H. Donnelly Corp. $ 15,936
The accompanying notes are an integral part of these financial statements. 7 PIONEER SMALL CAP VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST FINANCIAL HIGHLIGHTS
5/1/03 TO 12/31/03 CLASS II (a) Net asset value, beginning of period $ 9.11 -------- Increase (decrease) from investment operations: Net investment income $ (0.00) Net realized and unrealized gain (loss) on investments and foreign currency transactions 3.37 -------- Net increase from investment operations $ 3.36 Distributions to shareholders: Net income -- Net realized gain -- -------- Net increase in net asset value $ 3.36 -------- Net asset value, end of period $ 12.47 -------- Total return* 36.88% Ratio of net expenses to average net assets+ 1.58%** Ratio of net investment income to average net assets+ (0.15)%** Portfolio turnover rate 74% Net assets, end of period (in thousands) $ 2,760 Ratios assuming no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 2.65%** Net investment income (loss) (1.22)%** Ratios assuming waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.58%** Net investment income (loss) (0.15)%**
(a) Class II shares were first publicly offered May 1, 2003. * Assumes initial investment at net asset value at the beginning of each period, reinvestment of all distriibutions and the complete redemption of the investment at the net asset value at the end of each period. ** Annualized + ratios assuming no reduction for fee paid indirectly The accompanying notes are an integral part of these financial statements. 8 PIONEER SMALL CAP VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST STATEMENT OF ASSETS AND LIABILITIES 12/31/03
PIONEER SMALL CAP VALUE VCT PORTFOLIO ASSETS: Investment in securities, at value (including securities loaned of $683,740) (Cost $10,738,679) $ 13,318,316 Cash 2,419,350 Cash held as collateral for furtures contracts - Futures collateral - Foreign currencies, at value (Cost $33,892, $0, $75,164) - Receivables - Investment securities sold - Fund shares sold 2,468 Variation margin - Dividends, interest and foreign taxes withheld 15,533 Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, open - net - Due from Pioneer Investment Management, Inc. 8,595 Other 2,111 ------------- Total assets $ 15,766,373 ------------- LIABILITIES: Payables - Investment securities purchased $ 145,829 Fund shares repurchased 30,346 Dividends - Upon return of securities loaned 717,616 Variation Margin 6,800 Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, net - Reserve for repatriation taxes - Due to bank - Due to affiliates 6,814 Accrued expenses 50,669 Other - ------------- Total liabilities $ 958,074 ------------- NET ASSETS: Paid-in capital $ 13,239,354 Accumulated net investment income (loss) 3,664 Accumulated undistributed net realized gain (loss) (1,036,790) Net unrealized gain (loss) on: Investments 2,579,637 Futures contracts 22,434 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - ------------- Total net assets $ 14,808,299 ------------- NET ASSET VALUE PER SHARE: CLASS I: (Unlimited number of shares authorized) Net assets $ 12,048,726 Shares outstanding 963,935 ------------- Net asset value per share $ 12.50 CLASS II: (Unlimited number of shares authorized) Net assets $ 2,759,573 Shares outstanding 221,239 ------------- Net asset value per share $ 12.47
The accompanying notes are an integral part of these financial statements. 9 STATEMENT OF OPERATIONS
PIONEER SMALL CAP VALUE VCT PORTFOLIO YEAR ENDED 12/31/03 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $60) $ 112,876 Interest 5,591 Income on securities loaned, net 1,567 Other - --------------- Total investment income $ 120,034 --------------- EXPENSES: Management fees $ 69,462 Transfer agent fees 1,460 Distribution fees (Class II) 1,413 Administrative fees 37,536 Custodian fees 35,540 Professional fees 24,679 Printing 46,429 Fees and expenses of nonaffiliated trustees 545 Miscellaneous 7,128 --------------- Total expenses $ 224,192 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (106,283) --------------- Net expenses $ 117,909 --------------- Net investment income (loss) $ 2,125 --------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ (393,602) Futures contracts 59,434 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - --------------- $ (334,168) --------------- Change in net unrealized gain or (loss) from: Investments $ 3,326,626 Futures contracts 27,316 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - --------------- $ 3,353,942 --------------- Net gain (loss) on investments, futures contracts and foreign currency transactions $ 3,019,774 =============== Net increase (decrease) in net assets resulting from operations $ 3,021,899 ===============
The accompanying notes are an integral part of these financial statements. 10 STATEMENT OF CHANGES IN NET ASSETS
PIONEER SMALL CAP VALUE VCT PORTFOLIO YEAR YEAR ENDED ENDED 12/31/03 12/31/02 FROM OPERATIONS: Net investment income (loss) $ 2,125 $ (2,200) Net realized gain (loss) on investments (334,168) (704,976) Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions 3,353,942 (768,908) ------------- ------------- Net increase (decrease) in net assets resulting from operations $ 3,021,899 $ (1,476,084) ------------- ------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ - $ (188) Class II - - Net realized gain Class I - (62) Class II - - Tax return of capital Class I - - Class II - - ------------- ------------- Total distributions to shareowners $ - $ (250) ------------- ------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 15,752,093 $ 11,382,894 Reinvestment of distributions - 247 Cost of shares repurchased (10,568,904) (3,807,810) ------------- ------------- Net increase (decrease) in net assets resulting from fund share transactions $ 5,183,189 $ 7,575,331 ------------- ------------- Net increase (decrease) in net assets $ 8,205,088 $ 6,098,997 ------------- ------------- NET ASSETS: Beginning of year 6,603,211 504,214 ------------- ------------- End of year $ 14,808,299 $ 6,603,211 ------------- ------------- Accumulated undistributed/(distributions in excess of) net investment income (loss) $ 3,664 $ 1 ------------- -------------
The accompanying notes are an integral part of these financial statements. 11 PIONEER SMALL CAP VALUE VCT PORTFOLIO NOTES TO FINANCIAL STATEMENTS 12/31/03 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Pioneer Small Cap Value VCT Portfolio (The Portfolio) is a Portfolio of the Pioneer Variable Contracts Trust (the Trust) which is a Delaware business trust registered under the Investment Company Act of 1940 as an open-end management investment company, The Trust consists of sixteen separate portfolios, fourteen of which issue both Class I and Class II shares (collectively, the Portfolios, individually the Portfolio) as follows: PORTFOLIOS: Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio) Pioneer Europe VCT Portfolio (Europe Portfolio) Pioneer International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio) Pioneer Small Company VCT Portfolio (Small Company Portfolio) Pioneer Mid Cap Value VCT Portfolio (Mid-Cap Value Portfolio) Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio) Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio) Pioneer Fund VCT Portfolio (Fund Portfolio) Pioneer Equity Income VCT Portfolio (Equity-Income Portfolio) Pioneer Balanced VCT Portfolio (Balanced Portfolio) Pioneer High Yield VCT Portfolio (High Yield Portfolio) Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio) Pioneer America Income VCT Portfolio (America Income Portfolio) Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares only) Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only) The Portfolio commenced operations on May 1, 2003. Portfolio shares may only be purchased by insurance companies for the purpose of funding variable annuity or variable life insurance contracts, and may also be purchased by qualified pension and retirement plans. The investment objective of Small Cap Value Portfolio is to seek capital appreciation. The financial highlights for the Portfolio's Class I shares are presented in a separate book. Trust's financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America 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 income, expenses, gains and losses during the reporting years. 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 as of 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, based on the last sale price on the principal exchange where they traded, are determined as of such times. 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 becomes aware of the ex-dividend data in the exercise of reasonable diligence. Interest income, including interest on income bearing cash accounts, is recorded on the accrual basis, net of unrecoverable foreign taxes withheld at the applicable country rates. All discounts/premiums are accreted/amortized for financial reporting purposes. 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, and, if applicable, are recorded net of foreign taxes on capital gains at the applicable country rates. Small-capitalization stocks, while offering the potential for higher returns, may be subject to greater short-term price fluctuations than securities of larger companies. B. FUTURES CONTRACTS The Portfolio may enter into futures transactions to hedge against changes in interest rates, securities prices, and currency rates or to seek to increase total return. Upon entering into a futures contract, the Portfolio is required to deposit with a broker an amount of cash or securities equal to the minimum "initial 12 margin" requirements of the associated futures exchange. Subsequent payments for futures contracts ("variation margin") are paid or received by the Portfolio, depending on the daily fluctuation in the value of the contracts, and are recorded by the Portfolio as unrealized gains or losses. When the contract is closed, the Portfolio realize a gain or loss equal to the difference between the opening and closing value of the contract. The use of futures contracts involves, to varying degrees, elements of market risk which may exceed the amounts recognized by the Portfolio. Changes in the value of the contracts may not directly correlate to the changes in the value of the underlying securities. These risks may decrease the effectiveness of the Portfolio's hedging and trading strategies and potentially result in a loss. As of December 31, 2003, open contracts were as follows:
NUMBER OF CONTRACTS SETTLEMENT UNREALIZED PORTFOLIO TYPE LONG/(SHORT) MONTH MARKET VALUE GAIN/(LOSS) - ------------------------------------------------------------------------------------------- Small Cap Value Russell 2000 2 Mar-04 $ 557,200 $ 22,434
C. FOREIGN CURRENCY TRANSLATION The books and records of the Portfolio 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, 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. D. FORWARD FOREIGN CURRENCY CONTRACTS The Portfolio enters 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 Portfolio's financial statements. The Portfolio records 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. E. 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 shareowners. Therefore, no federal income tax provision is required. In addition to the requirements of the Internal Revenue Code, the Portfolio may also be required to pay local taxes on the recognition of capital gains and/or the repatriation of foreign currencies in certain countries. During the year ended December 31, 2003, the no such taxes were paid. The amount and characterization of distributions to shareowners 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. Capital loss carryforwards are available to offset future realized capital gains. At December 31, 2003, Small Cap Value VCT Portfolio had a capital loss carryforward of $513,628, of which the following amounts will expire between 2010 and 2011 if not utilized: $508,141 in 2010, and $5,487 in 2011. At December 31, 2003, the Portfolio made reclassifications as described below. These reclassifications have no impact on the net asset value of the Portfolio and are designed to present the portfolios' capital accounts on a tax basis.
ACCUMULATED NET ACCUMULATED INVESTMENT REALIZED GAIN/ PAID-IN PORTFOLIO INCOME/(LOSS) LOSS CAPITAL - ------------------------------------------------------------------------------- Small Cap Value Portfolio 1,538 2,059 (3,597)
13 The following chart shows the components of distributable earnings (accumulated losses) as of December 31, 2003 and the distributions paid during the year ended December 31, 2003 on a tax basis as of December 31, 2003.
PIONEER PIONEER SMALL CAP SMALL CAP VALUE VALUE VCT PORTFOLIO VCT PORTFOLIO 2003 2002 - --------------------------------------------------------------------------- DISTRIBUTIONS PAID FROM: Ordinary Income $ - $ 188 Long-Term capital gain - 62 ----------------------------- $ - 250 Return of Capital - - ----------------------------- Total distributions $ - $ 250 ----------------------------- DISTRIBUTABLE EARNINGS (ACCUMULATED LOSSES): Undistributed ordinary income $ 3,397 Capital Loss Carryforward (513,628) Unrealized appreciation (depreciation) 2,079,176 ------------- Total $ 1,568,945
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily attributable to the tax deferral of losses on wash sales, returns of capital on REITs, and the recognition of unrealized gains or losses on certain futures contracts. F. PORTFOLIO SHARES The Portfolio records sales and repurchases of its portfolio shares as of trade date. Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the principal underwriter for the Trust and a wholly owned indirect subsidiary of UniCredito Italiano S.p.A. (UniCredito Italiano), $246,661 in commissions on the sale of Trust shares for the year ended December 31, 2003. Dividends and distributions to shareowners are recorded on the ex-dividend date. Distribution fees are calculated based on the average daily net asset values attributable to Class I and Class II shares of the Portfolio, respectively. Shareowners of each class share all expenses and fees paid to the transfer agent, Pioneer Investment Management Shareholder Services, Inc. (PIMSS), for its services, which are allocated based on the number of accounts in each class and the ratable allocation of related out-of-pocket expenses (see Note 3). Income, common expenses and realized and unrealized gains and losses are calculated at the Portfolio level and allocated daily to each class of shares based on the respective percentage of adjusted net assets at the beginning of the day. Distributions paid by the Portfolio with respect to each class of shares are calculated in the same manner, at the same time, and in the same amount, except that Class I and Class II shares can bear different transfer agent and distribution fees. Income, expenses (excluding 12b-1 fees) and gains and losses are calculated at the Portfolio level and are allocated daily based on the respective percentage of adjusted net assets at the beginning of the day. G. SECURITIES LENDING The Portfolio lends securities in its portfolio to certain broker-dealers or other institutional investors, with the Portfolio's custodian acting as the lending agent. When entering into a loan, the Portfolio receives collateral which is maintained by the custodian and earns income in the form of negotiated lenders' fees. The Portfolio also continues to receive interest or dividends on the securities loaned, and gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for account of the Trust. The loans are secured by collateral of at least 102%, at all times, of the fair value of the securities loaned. The fair value of the collateral will be adjusted daily to reflect any price fluctuation in the value of the loaned securities. The Trust has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Trust invests cash collateral in the Securities Lending Investment Fund which is managed by Brown Brothers Harriman & Co., the Trust's custodian. H. REPURCHASE AGREEMENTS With respect to repurchase agreements entered into by the Portfolio, 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 Portfolio's custodian, or subcustodian. The Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is responsible for determining that the value of the collateral remains at least equal to the repurchase price. 2. MANAGEMENT AGREEMENT PIM manages the Portfolio, and is a wholly owned indirect subsidiary of UniCredito Italiano. Management fees are calculated daily at the following annual rate of 0.75% of the Portfolio's average daily net assets. In addition, under the management and administration agreement, certain other services and costs, including accounting, regulatory reporting and insurance premiums, are paid by the Portfolio. At December 31, 2003, $3,125 was payable to PIM related to management fees, administrative fees and certain other services. 14 3. TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. (PIMSS), a wholly owned indirect subsidiary of UniCredito Italiano provides substantially all transfer agent and shareowner services to the Trust at negotiated rates. Included in due to affiliates is $3,125 in transfer agent fees payable to PIMSS at December 31, 2003. 4. DISTRIBUTION PLANS The Portfolio has adopted a plan of distribution for Class II shares in accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily net assets attributable to Class II shares. Included in due to affiliates is $564 payable to PFD at December 31, 2003. 5. AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION At December 31, 2003, the Portfolios' aggregate unrealized appreciation and depreciation based on cost for federal income tax purposes was as follows:
GROSS GROSS NET APPRECIATION/ TAX COST APPRECIATION DEPRECIATION (DEPRECIATION) - --------------------------------------------------------------------------------------------------- Small Cap Value Portfolio $ 11,239,140 $ 2,333,627 $ (254,451) $ 2,079,176
6. PORTFOLIO TRANSACTIONS The cost of purchases and the proceeds from sales of investments other than U.S. Government obligations and temporary cash investments for the year ended December 31, 2003, were $9,709,719 and $5,940,901, respectively. 7. CAPITAL SHARES At December 31, 2003, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
'03 SHARES '03 AMOUNT '02 SHARES '02 AMOUNT - --------------------------------------------------------------------------------------------------- SMALL CAP VALUE PORTFOLIO CLASS I: Shares sold 1,276,588 $ 13,058,675 1,077,831 $ 11,382,891 Reinvestment of distributions - - 23 - Shares repurchased (1,028,432) (10,409,382) (408,459) (3,807,810) ------------------------------------------------------------- Net increase (decrease) 248,156 $ 2,649,293 669,395 $ 7,575,081 ============================================================= CLASS II: Shares sold 235,328 $ 2,693,418 - $ - Reinvestment of distributions - - - - Shares repurchased (14,089) (159,522) - - ------------------------------------------------------------- Net increase (decrease) 221,239 $ 2,533,896 - $ - =============================================================
15 PIONEER SMALL CAP VALUE VCT PORTFOLIO REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF TRUSTEES OF PIONEER VARIABLE CONTRACTS TRUST AND THE CLASS II SHAREOWNERS OF PIONEER SMALL CAP VALUE VCT PORTFOLIO: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer Small Cap Value VCT Portfolio, one of the portfolios constituting Pioneer Variable Contracts Trust (the "Trust"), as of December 31, 2003, and the related statement of operations for the year then ended, and the statements of changes in net assets and financial highlights for each of the two years in the period then ended. 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. The financial highlights for each of the three years in the period ended December 31, 2001 were audited by other auditors who have ceased operations and whose report, dated February 8, 2002, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 Pioneer Small Cap Value VCT Portfolio of Pioneer Variable Contracts Trust at December 31, 2003, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts February 6, 2004 16 PIONEER SMALL CAP VALUE VCT PORTFOLIO TRUSTEES, OFFICERS AND SERVICE PROVIDERS INVESTMENT ADVISER Pioneer Investment Management, Inc. CUSTODIAN Brown Brothers Harriman & Co. INDEPENDENT AUDITORS Ernst & Young LLP PRINCIPAL UNDERWRITER Pioneer Funds Distributor, Inc. LEGAL COUNSEL Hale and Dorr LLP SHAREOWNER SERVICES AND TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. TRUSTEES AND OFFICERS The Fund's Board of Trustees provides broad supervision over the affairs of the Fund. The officers of the Fund are responsible for the Fund's operations. The Fund's Trustees and officers are listed below, together with their principal occupations during the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of 1940 are referred to as Interested Trustees. Trustees who are not interested persons of the Fund are referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 51 U.S. registered investment portfolios for which Pioneer Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the Portfolio is 60 State Street, Boston, Massachusetts 02109. The Fund's statement of additional information provides more detailed information regarding the Fund's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Fund are available without charge, upon request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. INTERESTED TRUSTEES
POSITION HELD TERM OF OFFICE AND LENGTH OF PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND SERVICE PAST FIVE YEARS HELD BY THIS TRUSTEE John F. Cogan, Jr.(77)* Chairman of the Board, Trustee since 1994. Serves Deputy Chairman and a Director of Harbor Trustee and President until a successor trustee Director of Pioneer Global Company, Ltd. is elected or earlier Global Asset Management retirement or removal. S.p.A. ("PGAM"); Non- Executive Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Director of Pioneer Alternative Investment Management Limited (Dublin); President and a Director of Pioneer Alternative Investment Management (Bermuda) Limited and affiliated funds; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel (since 2000, partner prior to 2000), Hale and Dorr LLP (counsel to PIM-USA and the Pioneer Funds) Osbert M. Hood (51)** Trustee and Executive Trustee since June, President and Chief None Vice President 2003. Serves until a Executive Officer, PIM-USA successor trustee is since May, 2003 elected or earlier (Director since retirement or removal. January, 2001); President and Director of Pioneer since May 2003; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Executive Vice President of all of the Pioneer Funds since June 2003; Executive Vice President and Chief Operating Officer of PIM-USA, November 2000-May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999-November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997-November 1999
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. **Mr. Hood is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. 17 INDEPENDENT TRUSTEES
POSITION HELD WITH TERM OF OFFICE AND LENGTH PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME, AGE AND ADDRESS THE FUND OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE Mary K. Bush (55) Trustee Trustee since September, President, Bush Director of Brady 3509 Woodbine Street, 2000. Serves until a International Corporation (industrial Chevy Chase, MD 20815 successor trustee is (international financial identification and elected or earlier advisory firm) specialty coated retirement or removal. material products manufacturer), Millenium Chemicals, Inc. (commodity chemicals), Mortgage Guaranty Insurance Corporation, and R.J. Reynolds Tobacco Holdings, Inc. (tobacco) Richard H. Egdahl, M.D. Trustee Trustee since 1995. Serves Alexander Graham Bell None (77) until a successor trustee Professor of Health Care Boston University is elected or earlier Entrepreneurship, Boston Healthcare retirement or removal. University; Professor of Entrepreneurship Management, Boston Program, University School of 53 Bay State Road, Management; Professor of Boston, MA 02215 Public Health, Boston University School of Public Health; Professor of Surgery, Boston University School of Medicine; and University Professor, Boston University Margaret B. W. Trustee Trustee since Founding Director, The None Graham (56) September, 2000. Serves Winthrop Group, Inc. 1001 Sherbrooke until a successor trustee (consulting firm); Street West, is elected or earlier Professor of Management, Montreal, retirement or removal. Faculty of Quebec, Canada Management, McGill University Marguerite A. Piret (55) Trustee Trustee since 1995. Serves President and Chief None One Boston Place, until a successor trustee Executive 28th Floor, is elected or earlier Officer, Newbury, Piret & Boston, MA 02108 retirement or removal. Company, Inc. (investment banking firm) Stephen K. West (75) Trustee Trustee since 1995. Serves Senior Counsel, Sullivan & Director, The Swiss 125 Broad Street, until a successor trustee Cromwell (law firm) Helvetia Fund, Inc. New York, NY 10004 is elected or earlier (closed-end investment retirement or removal. company) and AMVESCAP PLC (investment managers) John Winthrop (67) Trustee Trustee since President, John Winthrop & None One North Adgers Wharf, September, 2000. Serves Co., Inc. (private Charleston, SC 29401 until a successor trustee investment firm) is elected or earlier retirement or removal.
18 FUND OFFICERS
POSITION HELD WITH TERM OF OFFICE AND LENGTH PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE THE FUND OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE Dorothy E. Bourassa (56) Secretary Serves at the discretion Secretary of PIM-USA; None of board Senior Vice President-Legal of Pioneer; and Secretary/Clerk of most of PIM-USA's subsidiaries since October 2000; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003); and Senior Counsel, Assistant Vice President and Director of Compliance of PIM-USA from April 1998 through October 2000 Christopher J. Kelley Assistant Secretary Serves at the discretion Assistant Vice President None (39) of board and Senior Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001; Vice President and Associate General Counsel from July 1996 to July 2000); Assistant Secretary of all of the Pioneer Funds since September 2003 David C. Phelan (46) Assistant Secretary Serves at the discretion Partner, Hale and Dorr None of board LLP; Assistant Secretary of all of the Pioneer Funds since September 2003 Vincent Nave (58) Treasurer Serves at the discretion Vice President-Fund None of board Accounting, Administration and Custody Services of Pioneer (Manager from September 1996 to February 1999); and Treasurer of all of the Pioneer Funds (Assistant Treasurer from June 1999 to November 2000) Luis I. Presutti (38) Assistant Treasurer Serves at the discretion Assistant Vice None of board President-Fund Accounting, Administration and Custody Services of Pioneer (Fund Accounting Manager from 1994 to 1999); and Assistant Treasurer of all of the Pioneer Funds since November 2000
19
POSITION HELD WITH TERM OF OFFICE AND LENGTH PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE THE FUND OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE Gary Sullivan (45) Assistant Treasurer Since May, 2002. Serves at Fund Accounting None the discretion of board Manager-Fund Accounting, Administration and Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 Katharine Kim Sullivan Assistant Treasurer Serves at the discretion Fund Administration None (30) of board. Manager-Fund Accounting, Administration and Custody Services since June 2003; Assistant Vice President-Mutual Fund Operations of State Street Corporation from June 2002 to June 2003 (formerly Deutsche Bank Asset Management); Pioneer Fund Accounting, Administration and Custody Services (Fund Accounting Manager from August 1999 to May 2002, Fund Accounting Services Supervisor from 1997 to July 1999); Assistant Treasurer of all of the Pioneer Funds since September 2003
20 THIS PAGE FOR YOUR NOTES. 21 [PIONEER INVESTMENTS (R) LOGO] 14689-00-0204 [PIONEER INVESTMENTS(R) LOGO] PIONEER VARIABLE CONTRACTS TRUST PIONEER MID CAP VALUE VCT PORTFOLIO -- CLASS II SHARES ANNUAL REPORT DECEMBER 31, 2003 PIONEER VARIABLE CONTRACTS TRUST TABLE OF CONTENTS Pioneer Mid Cap Value VCT Portfolio Portfolio and Performance Update 2 Portfolio Management Discussion 3 Schedule of Investments 4 Financial Statements 7 Notes to Financial Statements 11 Report of Independent Auditors 15 Trustees, Officers and Service Providers 16
PIONEER MID CAP VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO AND PERFORMANCE UPDATE 12/31/03 [CHART] PORTFOLIO DIVERSIFICATION (As a percentage of total investment portfolio) U.S. Common Stocks 90.6% Temporary Cash Investments 8.3% Depositary Receipts for International Stocks 1.1%
[CHART] SECTOR DISTRIBUTION (As a percentage of equity holdings) Financials 20.6% Industrials 16.1% Health Care 13.4% Consumer Discretionary 11.7% Materials 8.8% Information Technology 8.4% Energy 8.3% Consumer Staples 5.1% Utilities 4.7% Telecommunication Services 2.9%
FIVE LARGEST HOLDINGS (As a percentage of equity holdings) 1. Foot Locker Inc. 2.82% 2. Phelps Dodge Corp. 2.41 3. CIGNA Corp. 2.36 4. American Standard Companies, Inc. 2.23 5. Telephone and Data Systems, Inc. 2.18
Holdings will vary for other periods. This list excludes temporary cash and derivative investments. PRICES AND DISTRIBUTIONS - CLASS II SHARES
12/31/03 12/31/02 Net Asset Value per Share $ 20.32 $ 14.86
DISTRIBUTIONS PER SHARE SHORT-TERM LONG-TERM (1/1/03 - 12/31/03) DIVIDENDS CAPITAL GAINS CAPITAL GAINS $ 0.042 $ - $ -
PERFORMANCE OF A $10,000 INVESTMENT - CLASS II SHARES The following chart shows the change in value of an investment made in PIONEER MID CAP VALUE VCT PORTFOLIO at net asset value, compared to that of the Russell Midcap Value Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [CHART]
PIONEER MIDCAP VALUE VCT PORTFOLIO* S&P 500 INDEX RUSSELL MIDCAP VALUE INDEX+ 3/31/95 $ 10,000 $ 10,000 $ 10,000 $ 11,685 $ 12,533 $ 12,263 $ 13,193 $ 15,406 $ 14,748 12/31/97 $ 16,294 $ 20,543 $ 19,812 $ 14,734 $ 26,417 $ 20,820 12/31/99 $ 16,615 $ 31,974 $ 20,799 $ 19,800 $ 29,068 $ 24,789 12/31/2001 $ 21,032 $ 25,623 $ 25,369 $ 18,639 $ 19,961 $ 22,920 12/31/2003 $ 25,551 $ 25,683 $ 31,641
+ Index comparison begins 2/28/95. The Russell Midcap Value Index measures the performance of the value-oriented stocks in the Russell Midcap Index. 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 any Index. AVERAGE ANNUAL TOTAL RETURNS+ (As of December 31, 2003) NET ASSET VALUE* Life-of-Class (3/1/95) 11.08% 5 Years 11.64% 1 Year 37.09%
All total returns shown assume reinvestment of distributions at net asset value. + The performance of Class II shares for the period prior to the commencement of operations of Class II shares on May 1, 2000 is based on the performance of Class I shares, reduced to reflect the higher distribution fees of Class II shares. * Portfolio performance does not reflect any variable contract fees, expenses or sales charges. If they had been included, performance would have been lower. See the pages that comprise the inside cover of this report for performance net of any contract fees, expenses or sales charges. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns and principal values fluctuate so that your investment, when redeemed, may be worth more or less than its original cost. The performance table and graph do not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. 2 PIONEER MID CAP VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO MANAGEMENT DISCUSSION 12/31/03 After worries about prolonged major combat in Iraq receded early in 2003, investors focused on the economy, where increasing evidence indicated that growth was accelerating and the economy finally was rebounding following three years of sluggish growth. Mid-cap value stocks participated in the general market rise, although smaller companies with more volatile earnings and stock prices tended to lead the market indexes. In the following interview, Rod Wright discusses the market environment and portfolio strategies during the 12 months ended December 31, 2003. Mr. Wright is responsible for day-to-day portfolio supervision of Pioneer Mid Cap Value VCT Portfolio. Q: HOW DID THE PORTFOLIO PERFORM? A: The Portfolio substantially outdistanced the overall market average, while slightly trailing the benchmark for mid-cap value stocks. For the 12 months ended December 31, 2003, the Portfolio's Class II shares had a total return of 37.09% at net asset value, while the Standard & Poor's 500 Index, a common index of the overall market, returned 28.67% and the Russell Midcap Value Index had a total return of 38.07%. Q: WHAT WERE THE PRINCIPAL FACTORS THAT INFLUENCED PERFORMANCE DURING THE 12 MONTHS? A: Two major factors affected the market: Iraq and the economy. Worries about the possibility of war in Iraq held down stock performance early in 2003. However, when major combat operations in Iraq appeared to end quickly in March, investors turned their attention to the domestic economy, where growth was beginning to accelerate, helped by the stimulative monetary and fiscal policies of the federal government. The Federal Reserve Board assured investors that short-term interest rates would remain low, while Congress approved new tax cuts proposed by President Bush, adding liquidity to both the economy and the financial markets. Stock prices began climbing in March and continued their ascent through the end of 2003. While most stocks gained during the period, the greatest performance tended to occur among small-company stocks and stocks of companies most likely to benefit early in an economic recovery. In managing the Portfolio, we try to find good companies selling at attractive prices. We do not invest in stocks based on macroeconomic analysis or expectations for different sectors. Nevertheless, stocks in some sectors performed better than others. Our stock selections in industrials, basic materials and health care all helped performance. However, while the Portfolio's overall performance was excellent in absolute terms, our relatively conservative orientation did not help, particularly our underweight position in technology, where stocks in highly cyclical areas, such as semiconductors, rose dramatically. Performance was also held back by our emphasis on the energy sector. We anticipated correctly that oil and natural gas prices would remain high. Nevertheless, the stocks of these companies did not outperform in 2003. We remain invested in the energy sector. Q: WHAT WERE SOME OF THE INDIVIDUAL HOLDINGS THAT PARTICULARLY AFFECTED PERFORMANCE DURING 2003? A: Several health-care stocks performed extremely well. Manor Care, an exceptionally well-managed nursing-home operator, rose 79% during the year, while IVAX, a manufacturer of generic drugs, gained 96%, and Sybron Dental, which manufactures products used in dental and orthopedic treatment, gained 101%. Among our basic materials positions, Freeport-McMoRan rose by 160%. Phelps Dodge also had significant gains over the year, although we did not own this stock for the entire year. In the industrials sector, we had excellent performance from American Standard, which rose 48%, American Power Conversion, which appreciated 54%, Deere, which gained 41% and Cooper Industries, which rose 61%. In the retail industry, Sears Roebuck was up 89%, while Foot Locker gained 120%. Although we underweighted technology, we did have excellent performance from several tech companies. Amdocs, a transaction and billing processor specializing in the telecommunications services industry, gained 150%, while Symbol Technologies, a leader in developing secure systems for integrating hand-held devices with computer systems, rose 101%. Q: WHAT IS YOUR INVESTMENT OUTLOOK FOR 2004? A: We think that the economic outlook is good and corporate profits should continue to rise. However, our enthusiasm is tempered by our belief that most stock prices already reflect the improving conditions in the economy. We think that the stock market has the potential to produce another year of positive performance in 2004, although perhaps not matching the returns achieved in 2003. Individual security selection should become more important. We will continue to emphasize stock selection, based on our analysis of the fundamental strengths of individual companies in relation to their stock valuations. ANY INFORMATION IN THIS SHAREHOLDER REPORT REGARDING MARKET OR ECONOMIC TRENDS OR THE FACTORS INFLUENCING THE PORTFOLIO'S HISTORICAL OR FUTURE PERFORMANCE ARE STATEMENTS OF THE OPINION OF PORTFOLIO MANAGEMENT AS OF THE DATE OF THIS REPORT. THESE STATEMENTS SHOULD NOT BE RELIED UPON FOR ANY OTHER PURPOSES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND THERE IS NO GUARANTEE THAT MARKET FORECASTS DISCUSSED WILL BE RELIZED. [SIDENOTE] Mid-capitalization stocks, while offering the potential for higher returns, may be subject to greater short-term price fluctuations than securities of larger companies. The Portfolio's investment adviser, Pioneer Investment Management, Inc., reduced its management fee and certain other expenses; otherwise, returns would have been lower. 3 PIONEER MID CAP VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST SCHEDULE OF INVESTMENTS 12/31/03
SHARES VALUE COMMON STOCKS - 97.5% ENERGY - 8.1% INTEGRATED OIL & GAS - 1.0% 88,240 Occidental Petroleum Corp. $ 3,727,258 --------------- OIL & GAS DRILLING - 3.3% 105,915 ENSCO International, Inc. $ 2,877,711 76,430 Nabors Industries, Inc.* 3,171,845 147,030 Transocean Offshore, Inc.* 3,530,190 82,335 Weatherford International, Inc.* 2,964,060 --------------- $ 12,543,806 --------------- OIL & GAS EXPLORATION & PRODUCTION - 2.2% 58,461 Devon Energy Corp. $ 3,347,477 164,685 Pioneer Natural Resources Co.* 5,258,392 --------------- $ 8,605,869 --------------- OIL & GAS REFINING MARKETING & TRANSPORTATION - 1.6% 63,685 Sun Company, Inc. $ 3,257,488 58,635 Valero Energy Corp. 2,717,146 --------------- $ 5,974,634 --------------- TOTAL ENERGY $ 30,851,567 --------------- MATERIALS - 8.6% COMMODITY CHEMICALS - 1.2% 88,245 Air Products & Chemicals, Inc. $ 4,661,983 --------------- DIVERSIFIED CHEMICALS - 1.6% 94,120 PPG Industries, Inc. $ 6,025,562 --------------- DIVERSIFIED METALS & MINING - 3.4% 94,130 Freeport-McMoRan Copper & Gold, Inc. (Class B) $ 3,965,697 117,585 Phelps Dodge Corp.* 8,947,043 --------------- $ 12,912,740 --------------- METAL & GLASS CONTAINERS - 1.0% 64,710 Ball Corp. $ 3,854,775 --------------- PAPER PRODUCTS - 0.6% 70,600 Meadwestvaco Corp. $ 2,100,350 --------------- PRECIOUS METALS & MINERALS - 0.8% 63,145 Newmont Mining Corp. $ 3,069,478 --------------- TOTAL MATERIALS $ 32,624,888 --------------- CAPITAL GOODS - 8.9% AEROSPACE & DEFENSE - 0.6% 23,515 General Dynamics Corp. $ 2,125,521 --------------- ELECTRICAL COMPONENT & EQUIPMENT - 3.0% 129,365 American Power Conversion Corp. $ 3,162,974 82,325 Cooper Industries, Inc. 4,769,087 205,890 Symbol Technologies, Inc. 3,477,482 --------------- $ 11,409,543 --------------- INDUSTRIAL CONGLOMERATES - 3.8% 82,360 American Standard Companies, Inc.* $ 8,293,652 52,920 ITT Industries, Inc. 3,927,193 40,000 Parker Hannifin Corp. 2,380,000 --------------- $ 14,600,845 --------------- INDUSTRIAL MACHINERY - 1.5% 23,540 Deere & Co. $ 1,531,277 64,720 Ingersoll-Rand Co. 4,393,194 --------------- $ 5,924,471 --------------- TOTAL CAPITAL GOODS $ 34,060,380 --------------- COMMERCIAL SERVICES & SUPPLIES - 5.2% DATA PROCESSING SERVICES - 0.7% 99,960 Equifax, Inc. $ 2,449,020 --------------- COMMERCIAL PRINTING - 2.1% 105,900 John H. Harland Co. $ 2,891,070 170,540 R.R. Donnelly & Sons Co., Inc. 5,141,781 --------------- $ 8,032,851 --------------- DIVERSIFIED COMMERCIAL SERVICES - 1.0% 70,610 H & R Block, Inc. $ 3,909,676 --------------- ENVIRONMENTAL SERVICES - 1.4% 211,735 Republic Services, Inc. $ 5,426,768 --------------- TOTAL COMMERCIAL SERVICES & SUPPLIES $ 19,818,315 --------------- TRANSPORTATION - 1.6% AIRLINES - 0.4% 99,610 Southwest Airlines Co. $ 1,607,705 --------------- RAILROADS - 1.2% 70,580 Canadian National Railway Co. $ 4,466,302 --------------- TOTAL TRANSPORTATION $ 6,074,007 --------------- CONSUMER DURABLES & APPAREL - 2.5% APPAREL, ACCESSORIES & LUXURY GOODS - 1.0% 211,710 The Limited Brands, Inc. $ 3,817,131 --------------- LEISURE PRODUCTS - 1.5% 305,830 Mattel, Inc. $ 5,893,344 --------------- TOTAL CONSUMER DURABLES & APPAREL $ 9,710,475 --------------- HOTELS, RESTAURANTS & LEISURE - 3.1% RESTAURANTS - 3.1% 100,000 Brinker International, Inc.* $ 3,316,000 58,785 Outback Steakhouse, Inc. 2,598,885 176,405 Yum Brands, Inc.* 6,068,332 --------------- TOTAL HOTELS, RESTAURANTS & LEISURE $ 11,983,217 ---------------
The accompanying notes are an integral part of these financial statements. 4
SHARES VALUE MEDIA - 1.4% ADVERTISING - 0.6% 23,075 The Interpublic Group of Companies, Inc.* $ 359,970 21,125 Omnicom Group 1,844,846 --------------- $ 2,204,816 --------------- MOVIES & ENTERTAINMENT - 0.8% 152,960 Regal Entertainment Group $ 3,138,739 --------------- TOTAL MEDIA $ 5,343,555 --------------- RETAILING - 4.4% APPAREL RETAIL - 1.2% 129,430 Jones Apparel Group, Inc.* $ 4,559,819 --------------- GENERAL MERCHANDISE STORES - 0.4% 35,380 Sears, Roebuck and Co. $ 1,609,436 --------------- SPECIALTY STORES - 2.8% 447,030 Foot Locker, Inc. $ 10,482,854 --------------- TOTAL RETAILING $ 16,652,109 --------------- FOOD & DRUG RETAILING - 5.0% DRUG RETAIL - 2.1% 223,470 CVS Corp. $ 8,071,736 --------------- FOOD RETAIL - 2.1% 82,380 Albertson's, Inc. $ 1,865,907 235,290 ConAgra, Inc. 6,209,303 --------------- $ 8,075,210 --------------- HYPERMARKETS & SUPERCENTERS - 0.8% 123,470 BJ'S Wholesale Club, Inc.* $ 2,834,871 --------------- TOTAL FOOD & DRUG RETAILING $ 18,981,817 --------------- HEALTH CARE EQUIPMENT & SERVICES - 12.3% HEALTH CARE EQUIPMENT - 3.1% 182,300 Apogent Technologies, Inc.* $ 4,200,192 152,905 Becton, Dickinson & Co. 6,290,512 52,915 Sybron Dental Specialities* 1,486,912 --------------- $ 11,977,616 --------------- HEALTH CARE FACILITIES - 3.7% 141,145 Manor Care, Inc. $ 4,879,383 81,900 Tenet Healthcare Corp.* 1,314,495 241,160 Triad Hospitals, Inc. * 8,023,393 --------------- $ 14,217,271 --------------- HEALTH CARE SERVICES - 2.1% 135,230 Laboratory Corporation of America Holdings* $ 4,996,749 94,100 Lincare Holdings, Inc.* 2,825,823 --------------- $ 7,822,572 --------------- MANAGED HEALTH CARE - 3.4% 152,900 CIGNA Corp. $ 8,791,750 43,545 Wellpoint Health Networks, Inc.* 4,223,430 --------------- $ 13,015,180 --------------- TOTAL HEALTH CARE EQUIPMENT & SERVICES $ 47,032,639 --------------- PHARMACEUTICALS & BIOTECHNOLOGY - 0.7% PHARMACEUTICALS - 0.7% 117,595 IVAX Corp.* $ 2,808,169 --------------- TOTAL PHARMACEUTICALS & BIOTECHNOLOGY $ 2,808,169 --------------- BANKS - 10.4% DIVERSIFIED BANKS - 1.1% 125,602 Charter One Financial, Inc. $ 4,339,549 --------------- REGIONAL BANKS - 5.2% 57,785 Boston Private Financial Holdings, Inc. $ 1,435,379 141,130 KeyCorp 4,137,932 58,865 Marshall & Ilsley Corp. 2,251,586 47,005 North Fork Bancorporation, Inc. 1,902,292 105,840 SouthTrust Corp. 3,464,143 70,575 TCF Financial Corp. 3,624,026 47,050 Zions Bancorporation 2,885,577 --------------- $ 19,700,935 --------------- THRIFTS & MORTGAGE FINANCE - 4.1% 70,533 Countrywide Financial Corp. $ 5,349,953 70,575 GreenPoint Financial Corp. 2,492,709 205,860 The PMI Group, Inc. 7,664,168 --------------- $ 15,506,830 --------------- TOTAL BANKS $ 39,547,314 --------------- DIVERSIFIED FINANCIALS - 4.7% CONSUMER FINANCE - 1.4% 11,714 White Mountains Insurance Group, Ltd. $ 5,387,854 --------------- ASSET MANAGEMENT & CUSTODY BANKS - 1.0% 135,290 Federated Investors, Inc. $ 3,972,114 --------------- CONSUMER FINANCE - 0.4% 124,700 Providian Financial Corp.* $ 1,451,508 --------------- INVESTMENT BANKING & BROKERAGE - 1.9% 111,800 A.G. Edwards, Inc. $ 4,050,514 188,250 Investment Technology Group, Inc.* 3,040,238 --------------- $ 7,090,752 --------------- TOTAL DIVERSIFIED FINANCIALS $ 17,902,228 --------------- INSURANCE - 5.0% INSURANCE BROKERS - 1.9% 123,510 Platinum Underwriter Holdings, Ltd. $ 3,705,300 99,940 Willis Group Holdings, Ltd. 3,404,956 --------------- $ 7,110,256 ---------------
The accompanying notes are an integral part of these financial statements. 5
SHARES VALUE LIFE & HEALTH INSURANCE - 0.9% 70,530 Jefferson - Pilot Corp. $ 3,572,345 --------------- PROPERTY & CASUALTY INSURANCE - 2.2% 58,805 Ambac Financial Group, Inc. $ 4,080,479 111,000 Safeco Corp. 4,321,230 --------------- $ 8,401,709 --------------- TOTAL INSURANCE $ 19,084,310 --------------- SOFTWARE & SERVICES - 2.1% APPLICATION SOFTWARE - 0.5% 88,245 Autodesk, Inc. $ 2,169,062 --------------- DATA PROCESSING & OUTSOURCED SERVICES - 1.6% 141,130 The BISYS Group, Inc.* $ 2,100,014 141,129 SunGard Data Systems, Inc.* 3,910,685 --------------- $ 6,010,699 --------------- TOTAL SOFTWARE & SERVICES $ 8,179,761 --------------- TECHNOLOGY HARDWARE & EQUIPMENT - 6.0% COMMUNICATIONS EQUIPMENT - 0.8% 352,921 Tellabs, Inc.* $ 2,975,124 --------------- COMPUTER HARDWARE - 2.0% 199,960 NCR Corp.* $ 7,758,448 --------------- COMPUTER STORAGE & PERIPHERALS - 1.5% 111,800 Seagate Technology $ 2,113,020 141,200 Storage Technology Corp.* 3,635,900 --------------- $ 5,748,920 --------------- ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.7% 135,280 W.W. Grainger, Inc. $ 6,410,919 --------------- TOTAL TECHNOLOGY HARDWARE & EQUIPMENT $ 22,893,411 --------------- TELECOMMUNICATION SERVICES - 2.8% INTEGRATED TELECOMMUNICATION SERVICES - 2.8% 58,865 Alltel Corp. $ 2,741,932 129,430 Telephone and Data Systems, Inc. 8,095,845 --------------- $ 10,837,777 --------------- TOTAL TELECOMMUNICATION SERVICES $ 10,837,777 --------------- UTILITIES - 4.6% ELECTRIC UTILITIES - 3.6% 82,375 Constellation Energy Group $ 3,225,805 99,950 DTE Energy Co. 3,938,030 64,715 Entergy Corp. 3,697,168 99,979 PG&E Corp.* 2,776,417 --------------- $ 13,637,420 --------------- GAS UTILITIES - 1.0% 105,915 KeySpan Energy Corp. $ 3,897,672 --------------- TOTAL UTILITIES $ 17,535,092 --------------- TOTAL COMMON STOCKS (Cost $303,626,086) $ 371,921,031 --------------- PRINCIPAL AMOUNT VALUE TEMPORARY CASH INVESTMENTS - 8.9% REPURCHASE AGREEMENT - 4.8% $ 18,300,000 UBS Warburg, Inc., 0.73%, Dated 12/31/03, repurchase price of $18,300,000 plus accrued interest on 1/2/04 collateralized by $17,820,000 U.S. Treasury Bill, 5.875%, 11/15/04. $ 18,300,000 --------------- SHARES SECURITY LENDING COLLATERAL - 4.1% 15,456,654 Securities Lending Investment Fund, 1.02% $ 15,456,654 --------------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $33,756,654) $ 33,756,654 --------------- TOTAL INVESTMENT IN SECURITIES - 106.4% (Cost $337,382,740) $ 405,677,685 --------------- OTHER ASSETS AND LIABILITIES - (6.4)% $ (24,320,514) --------------- TOTAL NET ASSETS - 100.0% $ 381,357,171 ===============
* Non-income producing security. The accompanying notes are an integral part of these financial statements. 6 PIONEER MID CAP VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST FINANCIAL HIGHLIGHTS
YEAR ENDED YEAR ENDED YEAR ENDED CLASS II 12/31/03 12/31/02(a) 12/31/01 Net asset value, beginning of period $ 14.86 $ 17.28 $ 17.75 --------------- --------------- --------------- Increase (decrease) from investment operations: Net investment income (loss) $ 0.06 $ 0.04 $ 0.14 Net realized and unrealized gain (loss) on investments and foreign currency transactions 5.44 (1.96) 0.94 --------------- --------------- --------------- Net increase (decrease) from investment operations $ 5.50 $ (1.92) $ 1.08 Distributions to shareholders: Net investment income (0.04) (0.04) (0.08) Net realized gain - (0.46) (1.47) --------------- --------------- --------------- Net increase (decrease) in net asset value $ 5.46 $ (2.42) $ (0.47) --------------- --------------- --------------- Net asset value, end of period $ 20.32 $ 14.86 $ 17.28 =============== =============== =============== Total return* 37.09% (11.38)% 6.22% Ratio of net expenses to average net assets+ 1.00% 1.07% 1.11% Ratio of net investment income to average net assets+ 0.60% 0.24% 0.10% Portfolio turnover rate 52% 68% 95% Net assets, end of period (in thousands) $ 211,120 $ 61,038 $ 10,195 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.00% 1.07% 1.11% Net investment income 0.60% 0.24% 0.10% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 1.00% 1.07% 1.11% Net investment income 0.60% 0.24% 0.10% 5/1/00 TO CLASS II 12/31/00 Net asset value, beginning of period $ 16.89 --------------- Increase (decrease) from investment operations: Net investment income (loss) $ 0.07 Net realized and unrealized gain (loss) on investments and foreign currency transactions 2.01 --------------- Net increase (decrease) from investment operations $ 2.08 Distributions to shareholders: Net investment income (0.13) Net realized gain (1.09) --------------- Net increase (decrease) in net asset value $ 0.86 --------------- Net asset value, end of period $ 17.75 =============== Total return* 13.35% Ratio of net expenses to average net assets+ 1.01%** Ratio of net investment income to average net assets+ 0.37%** Portfolio turnover rate 85%** Net assets, end of period (in thousands) $ 1,943 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.01%** Net investment income 0.37%** Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 1.01 Net investment income 0.37
(a) The per share data presented above is based upon the average shares outstanding for the period presented. * 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 with no reduction for fees paid indirectly. The accompanying notes are an integral part of these financial statements. 7 PIONEER MID CAP VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST STATEMENT OF ASSETS AND LIABILITIES 12/31/03
PIONEER MID-CAP VALUE VCT PORTFOLIO ASSETS: Investment in securities, at value (including securities loaned of $15,029,876) (Cost $337,382,740) $ 405,677,685 Cash - Cash held as collateral for furtures contracts - Futures collateral - Foreign currencies, at value - Receivables - Investment securities sold 1,244,282 Fund shares sold 456,577 Variation margin - Dividends, interest and foreign taxes withheld 343,641 Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, open - net - Due from Pioneer Investment Management, Inc. - Other 3,480 --------------- Total assets $ 407,725,665 --------------- LIABILITIES: Payables - Investment securities purchased $ 10,014,290 Fund shares repurchased 505,758 Dividends - Upon return of securities loaned 15,456,654 Variation Margin - Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, net - Reserve for repartriation taxes - Due to bank 66,575 Due to affiliates 278,822 Accrued expenses 46,395 Other - --------------- Total liabilities $ 26,368,494 --------------- NET ASSETS: Paid-in capital $ 307,670,961 Accumulated net investment income (loss) 1,779,281 Accumulated undistributed net realized gain (loss) 3,611,984 Net unrealized gain (loss) on: Investments 68,294,945 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - --------------- Total net assets $ 381,357,171 --------------- NET ASSET VALUE PER SHARE: CLASS I: (Unlimited number of shares authorized) Net assets $ 170,237,439 Shares outstanding 8,315,885 =============== Net asset value per share $ 20.47 CLASS II: (Unlimited number of shares authorized) Net assets $ 211,119,732 Shares outstanding 10,389,233 =============== Net asset value per share $ 20.32
The accompanying notes are an integral part of these financial statements. 8 STATEMENT OF OPERATIONS
PIONEER MID-CAP VALUE VCT PORTFOLIO YEAR ENDED 12/31/03 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $5,357) $ 3,767,913 Interest 122,801 Income on securities loaned, net 8,170 Other - --------------- Total investment income $ 3,898,884 --------------- EXPENSES: Management fees $ 1,575,711 Transfer agent fees 2,748 Distribution fees (Class II) 272,819 Administrative fees 45,569 Custodian fees 70,486 Professional fees 30,354 Printing 79,656 Fees and expenses of nonaffiliated trustees 5,465 Miscellaneous 12,592 --------------- Total expenses $ 2,095,400 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. - --------------- Net expenses $ 2,095,400 --------------- Net investment income (loss) $ 1,803,484 --------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ 6,028,568 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (23,808) --------------- $ 6,004,760 --------------- Change in net unrealized gain or (loss) from: Investments $ 75,230,670 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - --------------- $ 75,230,670 --------------- Net gain (loss) on investments, futures contracts and foreign currency transactions $ 81,235,430 =============== Net increase (decrease) in net assets resulting from operations $ 83,038,914 ===============
The accompanying notes are an integral part of these financial statements. 9 STATEMENT OF CHANGES IN NET ASSETS
PIONEER MID CAP VALUE VCT PORTFOLIO YEAR YEAR ENDED ENDED 12/31/03 12/31/02 FROM OPERATIONS: Net investment income (loss) $ 1,803,484 $ 692,951 Net realized gain (loss) on investments 6,004,760 (604,669) Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions 75,230,670 (24,313,838) --------------- --------------- Net increase (decrease) in net assets resulting from operations $ 83,038,914 $ (24,225,556) --------------- --------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (438,494) $ (418,823) Class II (236,135) (123,345) Net realized gain Class I - (3,695,361) Class II - (1,420,452) Tax return of capital Class I - - Class II - - --------------- --------------- Total distributions to shareowners $ (674,629) $ (5,657,981) --------------- --------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 161,143,658 $ 113,623,860 Reinvestment of distributions 674,611 5,657,981 Cost of shares repurchased (44,550,616) (46,207,577) --------------- --------------- Net increase (decrease) in net assets resulting from fund share transactions $ 117,267,653 $ 73,074,264 --------------- --------------- Net increase (decrease) in net assets $ 199,631,938 $ 43,190,727 --------------- --------------- NET ASSETS: Beginning of year 181,725,233 138,534,506 --------------- --------------- End of year $ 381,357,171 $ 181,725,233 =============== =============== Accumulated undistributed/(distributions in excess of) net investment income (loss) $ 1,779,281 $ 674,234 =============== ===============
The accompanying notes are an integral part of these financial statements. 10 PIONEER MID CAP VALUE VCT PORTFOLIO NOTES TO FINANCIAL STATEMENTS 12/31/03 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Pioneer Mid Cap Value VCT Portfolio (the Portfolio) is a portfolio of the Pioneer Variable Contracts Trust (the Trust) which is a Delaware business trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of sixteen separate portfolios fourteen of which issue both Class I and Class II shares (collectively, the Portfolios, individually the Portfolio) as follows: PORTFOLIOS: Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio) Pioneer Europe VCT Portfolio (Europe Portfolio) Pioneer International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio) Pioneer Small Company VCT Portfolio (Small Company Portfolio) Pioneer Mid Cap Value VCT Portfolio (Mid-Cap Value Portfolio) Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio) Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio) Pioneer Fund VCT Portfolio (Fund Portfolio) Pioneer Equity Income VCT Portfolio (Equity-Income Portfolio) Pioneer Balanced VCT Portfolio (Balanced Portfolio) Pioneer High Yield VCT Portfolio (High Yield Portfolio) Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio) Pioneer America Income VCT Portfolio (America Income Portfolio) Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares only) Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only) Portfolio shares may only be purchased by insurance companies for the purpose of Mid Cap Value variable annuity or variable life insurance contracts, and may also be purchased by qualified pension and retirement plans. The financial highlights for the Portfolio's Class I shares are presented in a separate book. The investment objective of Mid Cap Value Portfolio is to seek capital appreciation. The Trust's financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America 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 income, expenses, gains and losses 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 as of trade date. Net asset values for the portfolio 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, based on the last sale price on the principal exchange where they traded, are determined as of such times. 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 becomes aware of the ex-dividend data in the exercise of reasonable diligence. Interest income, including interest on income bearing cash accounts, is recorded on the accrual basis, net of unrecoverable foreign taxes withheld at the applicable country rates. All discounts/premiums are accreted/amortized for financial reporting purposes. Gains and losses from sales on investments are calculated on the identified cost method for both financial reporting and federal income tax purposes, and, if applicable, are reported net of foreign taxes on capital gains at the applicable country rates. B. FUTURES CONTRACTS The Portfolio may enter into futures transactions to hedge against changes in interest rates, securities prices, and currency rates or to seek to increase total return. Upon entering into a futures contract, the Portfolio is required to deposit with a broker an amount of cash or securities equal to the minimum "initial margin" requirements of the associated futures exchange. Subsequent payments for futures contracts ("variation margin") are paid or received by the Portfolio, depending on the daily fluctuation in the value of the contracts, and are recorded by the Portfolio as unrealized gains or losses. When the contract is closed, the Portfolio realize a gain or loss equal to the difference between the opening and closing value of the contract. The use of futures contracts involves, to varying 11 degrees, elements of market risk which may exceed the amounts recognized by the Portfolio. Changes in the value of the contracts may not directly correlate to the changes in the value of the underlying securities. These risks may decrease the effectiveness of the Portfolio's hedging and trading strategies and potentially result in a loss. As of December 31, 2003, Mid Cap Value Portfolio had no open contracts. C. FOREIGN CURRENCY TRANSLATION The books and records of the Portfolio 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, 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. D. FORWARD FOREIGN CURRENCY CONTRACTS The Portfolio enters 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 Portfolio's financial statements. The Portfolio records 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. E. 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 shareowners. Therefore, no federal income tax provision is required. The amount and characterization of distributions to shareowners 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. At December 31, 2003, the Portfolio made reclassifications as described below.
ACCUMULATED ACCUMULATED NET INVESTMENT REALIZED PORTFOLIO INCOME/(LOSS) GAIN/(LOSS) PAID-IN CAPITAL - -------------------------------------------------------------------------------------------- Mid Cap Value Portfolio $ (23,808) $ 23,808 $ -
These reclassifications have no impact on the net asset value of the Portfolio and are designed to present the portfolios' capital accounts on a tax basis. The following chart shows the components of distributable earnings (accumulated losses) as of December 31, 2003 and the distributions paid during the year ended December 31, 2003 on a tax basis as of December 31, 2003.
PIONEER PIONEER MID CAP VALUE MID CAP VALUE VCT PORTFOLIO VCT PORTFOLIO 2003 2002 - -------------------------------------------------------------------------- DISTRIBUTIONS PAID FROM: Ordinary Income $ 674,629 $ 960,107 Long-Term capital gain - 4,697,874 ------------- ------------- $ 674,629 $ 5,657,981 Return of Capital - - ------------- ------------- Total distributions $ 674,629 $ 5,657,981 ------------- ------------- DISTRIBUTABLE EARNINGS (ACCUMULATED LOSSES): Undistributed ordinary income $ 3,095,345 Undistributed long-term gain/ (Capital loss carryforward) 4,286,038 Unrealized appreciation/ (depreciation) 66,304,827 ------------- Total $ 73,686,210 =============
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily attributable to the tax deferral of losses on wash sales, returns of capital on REITs, and the recognition of unrealized gains or losses on certain futures contracts. F. PORTFOLIO SHARES The Portfolio records sales and repurchases of its portfolio shares as of trade date. Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the principal underwriter for the Trust and a wholly owned indirect subsidiary of UniCredito Italiano S.p.A. (UniCredito Italiano), $246,661 in commissions on the sale of Trust shares for the year ended December 31, 2003. Distribution fees are calculated based on the average daily net asset values attributable to Class I and Class II shares of the Portfolio, respectively. Shareowners of each class share all expenses and fees 12 paid to the transfer agent, Pioneer Investment Management Shareholder Services, Inc. (PIMSS), for its services, which are allocated based on the number of accounts in each class and the ratable allocation of related out-of-pocket expenses (see Note 3). Income, common expenses and realized and unrealized gains and losses are calculated at the Portfolio level and allocated daily to each class of shares based on the respective percentage of adjusted net assets at the beginning of the day. Dividends and distributions to shareowners are recorded on the ex-dividend date. Distributions paid by the Portfolio with respect to each class of shares are calculated in the same manner, at the same time, and in the same amount, except that Class I and Class II shares can bear different transfer agent and distribution fees. Income, expenses (excluding 12b-1 fees) and gains and losses are calculated at the Portfolio level and are allocated daily based on the respective percentage of adjusted net assets at the beginning of the day. G. SECURITIES LENDING The Portfolio lends securities in its portfolio to certain broker-dealers or other institutional investors, with the Portfolio's custodian acting as the lending agent. When entering into a loan, the Portfolio receives collateral which is maintained by the custodian and earns income in the form of negotiated lenders' fees. The Portfolio also continues to receive interest or dividends on the securities loaned, and gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for account of the Trust. The loans are secured by collateral of at least 102%, at all times, of the fair value of the securities loaned. The fair value of the collateral will be adjusted daily to reflect any price fluctuation in the value of the loaned securities. The Trust has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Trust invests cash collateral in the Securities Lending Investment Fund which is managed by Brown Brothers Harriman & Co., the Trust's custodian. H. REPURCHASE AGREEMENTS With respect to repurchase agreements entered into by the Portfolio, 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 Portfolio's custodian, or subcustodian. The Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is responsible for determining that the value of the collateral remains at least equal to the repurchase price. 2. MANAGEMENT AGREEMENT PIM manages the Portfolio, and is a wholly owned indirect subsidiary of UniCredito Italiano. Management fees are calculated daily at the following annual rate of 0.65% of the Portfolio's average daily net assets. In addition, under the management and administration agreements, certain other services and costs, including accounting, regulatory reporting and insurance premiums, are paid by the Portfolio. At December 31, 2003, $231,420 was payable to PIM related to management fees, administrative fees and certain other services. 3. TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. (PIMSS), a wholly owned indirect subsidiary of UniCredito Italiano provides substantially all transfer agent and shareowner services to the Trust at negotiated rates. Included in due to affiliates is $325 in transfer agent fees payable to PIMSS at December 31, 2003. 4. DISTRIBUTION PLANS The Portfolio has adopted a plan of distribution for Class II shares in accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily net assets attributable to Class II shares. Included in due to affiliates is $47,077 payable to PFD at December 31, 2003. 5. AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION At December 31, 2003, the Portfolio's aggregate unrealized appreciation and depreciation based on cost for federal income tax purposes was as follows:
NET GROSS GROSS APPRECIATION/ TAX COST APPRECIATION DEPRECIATION (DEPRECIATION} - ------------------------------------------------------------------------------------ Mid Cap Value Portfolio $ 339,372,858 $ 67,476,524 $ (1,171,697) $ 66,304,827
13 6. PORTFOLIO TRANSACTIONS The cost of purchases and the proceeds from sales of investments other than U.S. Government obligations and temporary cash investments for the year ended December 31, 2003, were $239,789,590 and $121,251,941, respectively. 7. CAPITAL SHARES At December 31, 2003, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
MID CAP VALUE PORTFOLIO '03 SHARES '03 AMOUNT '02 SHARES '02 AMOUNT - -------------------------------------------------------------------------------------------------------- CLASS I: Shares sold 2,677,744 $ 46,157,551 2,337,210 $ 37,800,042 Reinvestment of distributions 26,084 438,476 247,842 4,114,184 Shares repurchased (2,465,836) (40,592,863) (1,905,763) (29,145,110) ------------------------------------------------------------------------ Net increase 237,992 $ 6,003,164 679,289 $ 12,769,116 ======================================================================== CLASS II: Shares sold 6,515,291 $ 114,986,107 4,505,621 $ 75,823,818 Reinvestment of distributions 14,131 236,135 93,450 1,543,797 Shares repurchased (249,002) (3,957,753) (1,080,224) (17,062,467) ------------------------------------------------------------------------ Net increase 6,280,420 $ 111,264,489 3,518,847 $ 60,305,148 ========================================================================
14 PIONEER MID CAP VALUE VCT PORTFOLIO REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF TRUSTEES OF PIONEER VARIABLE CONTRACTS TRUST AND THE CLASS II SHAREOWNERS OF PIONEER MID CAP VALUE VCT PORTFOLIO: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer Mid Cap Value VCT Portfolio, one of the portfolios constituting Pioneer Variable Contracts Trust (the "Trust") as of December 31, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets and financial highlights for each of the two years in the period then ended. 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. The financial highlights for each of the two years in the period ended December 31, 2001 were audited by other auditors who have ceased operations and whose report, dated February 8, 2002, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 Pioneer Mid Cap Value VCT Portfolio of Pioneer Variable Contracts Trust at December 31, 2003, the results of its operations for the year then ended, the changes in its net assets and the financial highlights for each of the two years in the period then ended in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts February 6, 2004 15 PIONEER VARIABLE CONTRACTS TRUST TRUSTEES, OFFICERS AND SERVICE PROVIDERS INVESTMENT ADVISER Pioneer Investment Management, Inc. CUSTODIAN Brown Brothers Harriman & Co. INDEPENDENT AUDITORS Ernst & Young LLP PRINCIPAL UNDERWRITER Pioneer Funds Distributor, Inc. LEGAL COUNSEL Hale and Dorr LLP SHAREOWNER SERVICES AND TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. TRUSTEES AND OFFICERS The Fund's Board of Trustees provides broad supervision over the affairs of the Fund. The officers of the Fund are responsible for the Fund's operations. The Fund's Trustees and officers are listed below, together with their principal occupations during the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of 1940 are referred to as Interested Trustees. Trustees who are not interested persons of the Fund are referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 51 U.S. registered investment portfolios for which Pioneer Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the Portfolio is 60 State Street, Boston, Massachusetts 02109. The Fund's statement of additional information provides more detailed information regarding the Fund's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Fund are available without charge, upon request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. INTERESTED TRUSTEES
POSITION HELD TERM OF OFFICE AND OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS HELD BY THIS TRUSTEE John F. Cogan, Jr. (77)* Chairman of Trustee since Deputy Chairman and a Director of Pioneer Director of Harbor the Board, 1994. Serves until Global Asset Management S.p.A. ("PGAM"); Global Company, Ltd. Trustee and a successor Non-Executive Chairman and a Director of President trustee is elected Pioneer Investment Management USA or earlier Inc. ("PIM-USA"); Chairman and a Director retirement or of Pioneer; Director of Pioneer Alternative removal. Investment Management Limited (Dublin); President and a Director of Pioneer Alternative Investment Management (Bermuda) Limited and affiliated funds; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel (since 2000, partner prior to 2000),Hale and Dorr LLP (counsel to PIM-USA and the Pioneer Funds) Osbert M. Hood (51)** Trustee and Trustee since President and Chief Executive Officer, None Executive June, 2003. PIM-USA since May, 2003 (Director since Vice Serves until a January, 2001); President and Director of President successor trustee Pioneer since May 2003; Chairman and is elected or Director of Pioneer Investment Management earlier retirement Shareholder Services, Inc. ("PIMSS") since or removal. May 2003; Executive Vice President of all of the Pioneer Funds since June 2003; Executive Vice President and Chief Operating Officer of PIM-USA, November 2000-May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999-November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997-November 1999
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. **Mr. Hood is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. 16 INDEPENDENT TRUSTEES
POSITION HELD TERM OF OFFICE AND OTHER DIRECTORSHIPS NAME, AGE AND ADDRESS WITH THE FUND LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS HELD BY THIS TRUSTEE Mary K. Bush (55) Trustee Trustee since President, Bush International Director of Brady 3509 Woodbine Street, September, 2000. (international financial advisory firm) Corporation (industrial Chevy Chase, MD 20815 Serves until a identification and successor trustee specialty coated is elected or material products earlier retirement manufacturer), or removal. Millenium Chemicals, Inc. (commodity chemicals), Mortgage Guaranty Insurance Corporation, and R.J. Reynolds Tobacco Holdings, Inc. (tobacco) Richard H. Egdahl, M.D. (77) Trustee Trustee since Alexander Graham Bell Professor of Health None Boston University Healthcare 1995. Serves until Care Entrepreneurship, Boston University; Entrepreneurship Program, a successor Professor of Management, Boston University 53 Bay State Road, trustee is elected School of Management; Professor of Public Boston, MA 02215 or earlier Health, Boston University School of Public retirement or Health; Professor of Surgery, Boston removal. University School of Medicine; and University Professor, Boston University Margaret B.W. Graham (56) Trustee Trustee since Founding Director, The Winthrop Group, Inc. None 1001 Sherbrooke September, 2000. (consulting firm); Professor of Management, Street West, Serves until a Faculty of Management, McGill University Montreal, Quebec, Canada successor trustee is elected or earlier retirement or removal. Marguerite A. Piret (55) Trustee Trustee since President and Chief Executive Officer, None One Boston Place, 1995. Serves Newbury, Piret & Company, Inc. (investment 28th Floor, until a successor banking firm) Boston, MA 02108 trustee is elected or earlier retirement or removal. Stephen K. West (75) Trustee Trustee since Senior Counsel, Sullivan & Cromwell (law Director, The Swiss 125 Broad Street, 1995. Serves until firm) Helvetia Fund, Inc. New York, NY 10004 a successor (closed-end investment trustee is elected company) and AMVESCAP or earlier PLC (investment retirement or managers) removal. John Winthrop (67) Trustee Trustee since President, John Winthrop & Co., Inc. None One North Adgers Wharf, September, 2000. (private investment firm) Charleston, SC 29401 Serves until a successor trustee is elected or earlier retirement or removal.
17 FUND OFFICERS
POSITION HELD TERM OF OFFICE AND OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS HELD BY THIS OFFICER Dorothy E. Bourassa (56) Secretary Serves at the Secretary of PIM-USA; Senior Vice None discretion of President-Legal of Pioneer; and board Secretary/Clerk of most of PIM-USA's subsidiaries since October 2000; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003); and Senior Counsel, Assistant Vice President and Director of Compliance of PIM-USA from April 1998 through October 2000 Christopher J. Kelley (39) Assistant Serves at the Assistant Vice President and Senior Counsel None Secretary discretion of of Pioneer since July 2002; Vice President board and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001; Vice President and Associate General Counsel from July 1996 to July 2000); Assistant Secretary of all of the Pioneer Funds since September 2003 David C. Phelan (46) Assistant Serves at the Partner, Hale and Dorr LLP; Assistant None Secretary discretion of Secretary of all of the Pioneer Funds since board September 2003 Vincent Nave (58) Treasurer Serves at the Vice President-Fund Accounting, None discretion of Administration and Custody Services of board Pioneer (Manager from September 1996 to February 1999); and Treasurer of all of the Pioneer Funds (Assistant Treasurer from June 1999 to November 2000) Luis I. Presutti (38) Assistant Serves at the Assistant Vice President-Fund Accounting, None Treasurer discretion of Administration and Custody Services of board Pioneer (Fund Accounting Manager from 1994 to 1999); and Assistant Treasurer of all of the Pioneer Funds since November 2000
18
POSITION HELD TERM OF OFFICE AND OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS HELD BY THIS OFFICER Gary Sullivan (45) Assistant Serves at the Fund Accounting Manager-Fund Accounting, None Treasurer discretion of Administration and Custody Services of board Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 Katharine Kim Sullivan (30) Assistant Serves at the Fund Administration Manager-Fund None Treasurer discretion of Accounting, Administration and Custody board. Services since June 2003; Assistant Vice President-Mutual Fund Operations of State Street Corporation from June 2002 to June 2003 (formerly Deutsche Bank Asset Management); Pioneer Fund Accounting, Administration and Custody Services (Fund Accounting Manager from August 1999 to May 2002, Fund Accounting Services Supervisor from 1997 to July 1999); Assistant Treasurer of all of the Pioneer Funds since September 2003
19 THIS PAGE FOR YOUR NOTES. 20 THIS PAGE FOR YOUR NOTES. 21 [PIONEER INVESTMENTS(R) LOGO] 14691-00-0204 [PIONEER INVESTMENTS(R) LOGO] PIONEER VARIABLE CONTRACTS TRUST PIONEER STRATEGIC INCOME VCT PORTFOLIO -- CLASS II SHARES ANNUAL REPORT DECEMBER 31, 2003 PIONEER VARIABLE CONTRACTS TRUST TABLE OF CONTENTS Pioneer Strategic Income VCT Portfolio Portfolio and Performance Update 2 Portfolio Management Discussion 3 Schedule of Investments 4 Financial Statements 12 Notes to Financial Statements 16 Report of Independent Auditors 20 Trustees, Officers and Service Providers 21
PIONEER STRATEGIC INCOME VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO AND PERFORMANCE UPDATE 12/31/03 [CHART] PORTFOLIO DIVERSIFICATION (As a percentage of total investment portfolio) U.S. Corporate Bonds 51.2% U.S. Government Securities 21.6% Foreign Government Bonds 13.0% Convertible Corporate Bonds 7.4% Temporary Cash Investment 2.0% Asset Backed Securities 1.9% Municipal Bonds 1.1% Sovereign Issue 1.1% Supranational Bonds 0.7%
[CHART] MATURITY DISTRIBUTION (As a percentage of total investment portfolio) 0-1 years 4.0% 1-3 years 29.1% 3-4 years 14.1% 4-6 years 29.4% 6-8 years 19.2% 8+ years 4.2%
FIVE LARGEST HOLDINGS (As a percentage of debt holdings) 1. Government National Mortgage Association, 6.0%, 10/15/33 11.22% 2. Government National Mortgage Association, 6.0%, 5/15/33 3.09 3. Government of France, 3.0%, 7/25/09 2.20 4. Government of Sweden, 5.5%, 10/08/12 1.92 5. U.S. Treasury Notes, 3.5%, 1/15/11 1.43
Holdings will vary for other periods. This list excludes temporary cash and derivative investments. PRICES AND DISTRIBUTIONS - CLASS II SHARES
12/31/03 5/1/03 Net Asset Value per Share $ 11.01 $ 10.41 DISTRIBUTIONS PER SHARE SHORT-TERM LONG-TERM (5/1/03 - 12/31/03) DIVIDENDS CAPITAL GAINS CAPITAL GAINS $ 0.6349 $ - $ -
PERFORMANCE OF A $10,000 INVESTMENT - CLASS II SHARES The following chart shows the change in value of an investment made in PIONEER STRATEGIC INCOME VCT PORTFOLIO at net asset value, compared to that of the Lehman Brothers U.S. Universal Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [CHART]
PIONEER STRATEGIC INCOME VCT PORTFOLIO* LEHMAN U.S. UNIVERSAL INDEX(+) 7/31/1999 $ 10,000 $ 10,000 $ 10,060 $ 10,136 $ 10,488 $ 11,234 12/31/2001 $ 11,184 $ 12,144 $ 12,352 $ 13,338 12/31/2003 $ 15,073 $ 14,117
+ Index comparison begins July 31, 1999. The Lehman Brothers U.S. Universal Index is the union of the U.S. Aggregate Index, the U.S. High Yield Corporate Index, the 144A Index, the Eurodollar Index, the Emerging Markets Index, the non-ERISA portion of the CMBS Index and the CMBS High Yield Index. Municipal debt, private placements and non-dollar-denominated issues are excluded from the Index. 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 Index. AVERAGE ANNUAL TOTAL RETURNS+ (As of December 31, 2003) NET ASSET VALUE* Life-of-Class (7/29/99) 9.70% 1 Year 22.03%
All total returns shown assume reinvestment of distributions at net asset value. + The performance of Class II shares for the period prior to the commencement of operations of Class II shares on May 1, 2003 is based on the performance of Class I shares, reduced to reflect the higher distribution fees of class II shares. * Portfolio performance does not reflect any variable contract fees, expenses or sales charges. If they had been included, performance would have been lower. See the pages that comprise the inside cover of this report for performance net of any contract fees, expenses or sales charges. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns and principal values fluctuate so that your investment, when redeemed, may be worth more or less than its original cost. The performance table and graph do not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. 2 PIONEER STRATEGIC INCOME VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO MANAGEMENT DISCUSSION 12/31/03 Healthy gains in the domestic high-yield and foreign bond markets, two areas emphasized in the Portfolio's strategy, helped propel Strategic Income VCT Portfolio to exceptionally strong returns during 2003. In the following interview, Kenneth J. Taubes discusses the factors that influenced the Portfolio's performance during the year. Mr. Taubes, Director of Pioneer's Fixed Income Group, oversees the team responsible for daily management of the Portfolio. Q: HOW DID THE PORTFOLIO PERFORM DURING THE 12 MONTHS ENDED DECEMBER 31, 2003? A: The Portfolio had excellent performance. During the 12-month period, the Portfolio's Class II shares returned 22.03%. In the same period, the Lehman Brothers U.S. Universal Bond Index had a return of 5.84%. We continue to see good opportunities for our strategy, which emphasizes both diversification among fixed-income sectors and careful security selection within each sector. However, it is important to note that the Portfolio's returns may not be sustainable in the future as market conditions change. Q: WHAT WERE THE PRINCIPAL FACTORS THAT INFLUENCED PERFORMANCE? A: The Portfolio was well positioned to benefit from a convergence of positive trends, including an improving global economy and a weakening dollar. During the year, we typically maintained allocations totaling more than 70% of Portfolio assets in two of the best-performing fixed-income sectors: corporate bonds and foreign bonds. In the United States, conditions were in place for a stronger economy in 2003. The easing of monetary policy, new fiscal stimulus and a weak U.S. dollar all combined to provide an improved backdrop for renewed growth. At the same time, corporations had cut costs and instituted other productivity-enhancing measures that led to increasing profits and, therefore, better corporate security prices as growth accelerated. We maintained more than 40% of assets in domestic high-yield bonds and another 10% in high-yield bonds issued by foreign companies. During the year, the Merrill Lynch High Yield Master II Index, reflecting the domestic market, was up 28.15% and the Merrill Lynch Global High Yield and Emerging Markets Index gained 33.90%. At the same time, we typically allocated another 15-20% of Portfolio assets in non-dollar investments during a period in which the dollar weakened on foreign currency exchanges, increasing the value of investments denominated in foreign currencies. The two largest non-dollar positions were in the euro, which gained 20% versus the U.S. dollar, and the Australian dollar, which rose by 34% against the U.S. currency. Conversely, we de-emphasized the U.S. Treasury market, where interest rates started rising and prices began to decline. At the end of the year, less than 5% of Portfolio assets were invested in Treasuries. We also de-emphasized mortgage securities for much of the year, although we increased our allocation late in 2003 as mortgage refinancing activity began to decline and the prices of existing mortgages stabilized. Q: WHAT SPECIFIC INVESTMENTS SIGNIFICANTLY INFLUENCED PORTFOLIO PERFORMANCE IN 2003? A: The cyclical recovery in the global economy resulted in rising commodity prices, lifting the price of bonds of copper producers such as Phelps-Dodge. Among emerging-markets investments, we had strong results from Ambev, a Brazilian brewing company and MTS, a telecommunications services company serving parts of Russia and the Ukraine. Disappointments included securities issued by chemical companies Huntsman, ICI and Lyondell Chemical. While the prices of raw materials rose, companies were unable to increase their prices, resulting in a squeezing of profit margins. Q: WHAT IS YOUR INVESTMENT OUTLOOK? A: The evidence of a strong economic recovery is becoming increasingly apparent, improving the opportunity for high-yield bonds again to outperform Treasuries and investment-grade corporate bonds. Treasuries and other high-grade securities are vulnerable to potential increases in interest rates. Meanwhile, mortgage-backed securities appear increasingly attractive, as the risks of mortgage prepayments are moderating with the end of material interest-rate declines. We expect to be very selective in investing in emerging markets, where current prices already reflect a very optimistic outlook for the global economy. We anticipate that the U.S. dollar may continue to weaken on international currency markets, but not by as much as in 2003. Overall, we believe the investment environment continues to favor a diversified fixed-income strategy, but investors should not anticipate returns comparable to those achieved during 2003. ANY INFORMATION IN THIS SHAREHOLDER REPORT REGARDING MARKET OR ECONOMIC TRENDS OR THE FACTORS INFLUENCING THE PORTFOLIO'S HISTORICAL OR FUTURE PERFORMANCE ARE STATEMENTS OF THE OPINION OF PORTFOLIO MANAGEMENT AS OF THE DATE OF THIS REPORT. THESE STATEMENTS SHOULD NOT BE RELIED UPON FOR ANY OTHER PURPOSES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND THERE IS NO GUARANTEE THAT MARKET FORECASTS DISCUSSED WILL BE REALIZED. [SIDENOTE] The Portfolio's investment adviser, Pioneer Investment Management, Inc., reduced its management fee and certain other expenses; otherwise, returns would have been lower. International investing may involve special risks, including differences in accounting and currency as well as economic and political instability. 3 PIONEER STRATEGIC INCOME VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST SCHEDULE OF INVESTMENTS 12/31/03
PRINCIPAL S&P/MOODY'S AMOUNT RATINGS USD ($) (UNAUDITED) VALUE CONVERTIBLE CORPORATE BONDS - 7.4% CONSUMER DURABLES & APPAREL - 0.6% LEISURE PRODUCTS - 0.6% 150,000 BBB-/NR Aristocrat Leisure, Ltd., 5.0%, 5/31/06 $ 142,500 ------------ TOTAL CONSUMER DURABLES & APPAREL $ 142,500 ------------ PHARMACEUTICALS & BIOTECHNOLOGY - 1.9% BIOTECHNOLOGY - 1.9% 90,000 NR/NR Affymetrix, Inc., 5.0%, 10/1/06 $ 91,350 150,000 NR/NR CV Therapeutics, 4.75%, 3/7/07 137,063 90,000 CCC/NR Human Genome Sciences, 3.75%, 3/15/07 82,688 140,000 NR/NR Vertex Pharmaceuticals, Inc., 5.0%, 9/19/07 124,250 ------------ $ 435,351 ------------ TOTAL PHARMACEUTICALS & BIOTECHNOLOGY $ 435,351 ------------ TECHNOLOGY HARDWARE & EQUIPMENT - 1.5% COMMUNICATIONS EQUIPMENT - 0.5% 110,000 B+/Ba3 Commscope, Inc., 4.0%, 12/15/06 $ 105,325 ------------ ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.4% 100,000 NR/NR Veeco Instruments, 4.125%, 12/21/08 $ 102,875 ------------ ELECTRONIC MANUFACTURING SERVICES - 0.6% 150,000 B+/Ba3 SCI Systems, Inc., 3.0%, 3/15/07 $ 141,750 ------------ TOTAL TECHNOLOGY HARDWARE & EQUIPMENT $ 349,950 ------------ SEMICONDUCTORS - 3.4% SEMICONDUCTOR EQUIPMENT - 2.5% 175,000 B-/NR Advanced Energy Industries, Inc., 5.25%, 11/15/06 $ 178,500 100,000 NR/NR Axcelis Technologies, 4.25%, 1/15/07 95,750 170,000 NR/NR Brooks Automation, Inc., 4.75%, 6/1/08 170,000 50,000 B-/NR FEI Co., 5.5%, 8/15/08 49,625 85,000 B/NR LAM Research Corp., 4.0%, 6/1/06 87,125 ------------ $ 581,000 ------------ SEMICONDUCTORS - 0.9% 130,000 CCC+/NR Conexant Systems, Inc., 4.0%, 2/1/07 $ 123,825 70,000 NR/NR Triquint Semiconductor, 4.0%, 3/1/07 67,200 ------------ $ 191,025 ------------ $ 772,025 ------------ TOTAL CONVERTIBLE CORPORATE BONDS (Cost $1,439,873) $ 1,699,826 ------------ ASSET BACKED SECURITIES - 1.9% BANKS - 0.9% DIVERSIFIED BANKS - 0.9% DKK 716,188 AA-/Aa2 Nykredit, 5.0%, 10/1/19 $ 123,176 DKK 498,019 AA/Aa2 Nykredit, 5.0%, 10/1/35 81,049 DKK 38,359 AA-/Aa2 Nykredit, 6.0%, 10/1/32 6,658 ------------ $ 210,883 ------------ TOTAL BANKS $ 210,883 ------------
The accompanying notes are an integral part of these financial statements. 4
PRINCIPAL S&P/MOODY'S AMOUNT RATINGS USD ($) (UNAUDITED) VALUE DIVERSIFIED FINANCIALS - 1.0% CONSUMER FINANCE - 0.1% DKK 144,319 AA+/Aa1 RealKredit Danmark, 7.0%, 10/1/32 $ 26,065 ------------ DIVERSIFIED FINANCIAL SERVICES - 0.9% 194,564 Baa2/BBB- PF Export Rec., 6.44%, 6/1/15 (144A) $ 198,350 ------------ TOTAL DIVERSIFIED FINANCIALS $ 224,415 ------------ TOTAL ASSET BACKED SECURITIES (Cost $373,898) $ 435,298 ------------ CORPORATE BONDS - 51.4% ENERGY - 4.2% OIL & GAS DRILLING - 0.8% ITL 275,000,000 BBB-/Baa2 Petroleos Mexicanos, 7.375%, 8/13/07 $ 190,874 ------------ OIL & GAS EQUIPMENT AND SERVICES - 1.0% 150,000 BB/Ba2 Key Energy Services, Inc., 6.375%, 5/1/13 $ 152,250 76,000 B+/B3 Transmontaigne, Inc., 9.125%, 6/1/10 (144A) 81,510 ------------ $ 233,760 ------------ OIL & GAS EXPLRATION & PRODUCTION - 2.0% 100,000 B3/B- Baytex Energy, Ltd., 9.625%, 7/15/10 $ 105,500 100,000 Ba3/BB Cie Generale De Geophysique SA, 10.625%, 11/15/07 106,000 80,000 B/B2 Compton Petroleum Corp., 9.9%, 5/15/09 87,200 50,000 B/B2 Nuevo Energy Co., 9.375%, 10/1/10 54,875 100,000 B2/B Paramount Resources, Ltd., 7.875%, 11/01/10 99,500 ------------ $ 453,075 ------------ OIL & GAS REFINING MARKETING & TRANSPORTATION 0.4% 75,000 B/B3 Tesoro Petroleum Corp., 9.625%, 11/1/08 $ 79,875 ------------ Total Energy $ 957,584 ------------ MATERIALS - 9.9% COMMODITY CHEMICALS - 1.7% 100,000 BB/Ba3 Arco Chemical Co., 9.8%, 2/1/20 $ 100,500 25,000 BB/Ba3 Lyondell Petrochemical Co., 9.875%, 5/1/07 26,375 105,000 BBB-/Ba1 Methanex Corp., 7.75%, 8/15/05 110,775 75,000 BB+/Ba2 Nova Chemicals Corp., 7.0%, 5/15/06 79,125 75,000 BB+/Ba2 Nova Chemicals Corp., 7.4%, 4/1/09 78,750 ------------ $ 395,525 ------------ CONSTRUCTION MATERIALS - 0.9% NOK 2,200,000 NR/NR Kvaerner A.S., 0.0%, 10/30/11 $ 207,703 ------------ DIVERSIFIED CHEMICAL - 0.7% EURO 130,000 B-/Caa1 Huntsman ICI Chemicals LLC, 10.125%, 7/1/09 $ 159,528 ------------ DIVERSIFIED METALS & MINING - 1.2% 140,000 B-/B2 Freeport-McMoRan Copper & Gold, 10.125%, 2/1/10 $ 161,350 100,000 BBB/Ba1 Kennametal, Inc., 7.2%, 6/15/12 106,066 ------------ $ 267,416 ------------
The accompanying notes are an integral part of these financial statements. 5
PRINCIPAL S&P/MOODY'S AMOUNT RATINGS USD ($) (UNAUDITED) VALUE METAL & GLASS CONTAINERS - 1.9% 75,000 BB/Ba3 Ball Corp., 6.875%, 12/15/12 $ 78,375 EURO 150,000 B+/B1 Crown Holdings, 10.25%, 3/1/13 213,333 130,000 B+/B2 Greif Brothers Corp., 8.875%, 8/1/12 143,000 ------------ $ 434,708 ------------ PAPER PACKAGING - 0.3% 10,000 B/B2 Stone Container Corp., 9.75%, 2/1/11 $ 11,050 50,000 B/B2 Stone Container Corp., 8.375%, 7/1/12 54,250 ------------ $ 65,300 ------------ PAPER PRODUCTS - 0.4% 100,000 Ba1/BB+ Abitibi-Consolidated, Inc. 6.00%, 06/20/13 $ 95,940 ------------ SPECIALTY CHEMICALS - 2.4% 100,000 BBB-/Baa3 Ferro Corp., 7.125%, 4/1/28 $ 93,920 20,000 Caa2/B- OM Group, Inc., 9.25%, 12/15/11 20,800 150,000 BB-/B2 Polyone Corp., 8.875%, 5/1/12 138,000 EURO 140,000 BB/Ba2 Rhodia SA, 8.0%, 6/1/10 (144A) 161,227 135,000 B-/B3 United Industries Co., 9.875%, 4/1/09 (144A) 141,413 ------------ $ 555,360 ------------ STEEL - 0.4% 100,000 B1/B+ CSN Islands VIII Corp., 9.75%, 12/16/13 (144A) $ 102,500 ------------ TOTAL MATERIALS $ 2,283,980 ------------ CAPITAL GOODS - 6.1% AEROSPACE & DEFENSE - 1.8% 100,000 B2/B DRS Technologies, Inc., 6.875%, 11/1/13 (144A) $ 102,750 100,000 CCC+/Caa2 Hexcel Corp., 9.75%, 1/15/09 104,750 200,000 BB-/Ba3 L-3 Communications Corp., 6.125%, 7/15/13 201,500 ------------ $ 409,000 ------------ BUILDING PRODUCTS - 0.4% 90,000 B2/B NCI Building Systems, Inc., 9.25%, 5/1/09 $ 94,725 ------------ CONSTRUCTION & FARM MACHINERY & HEAVY TRKS - 0.7% 75,000 Ba2/BB+ Cummins Capital Trust I, 7.125%, 3/1/28 $ 69,750 80,000 B3/B+ NMHG Holding Co., 10.0%, 5/15/09 88,400 ------------ $ 158,150 ------------ CONSTUCTION & ENGINEERING - 0.5% 100,000 B2/B+ North American Energy Partners, 8.75%, 12/1/11 (144A) $ 105,000 ------------ ELECTRICAL COMPONENT & EQUIPMENT - 0.2% 50,000 Ba2/BB- MSW Energy Holdings, 7.375%, 9/1/10 (144A) $ 52,250 ------------ INDUSTRIAL MACHINERY - 2.5% 175,000 B+/B2 JLG Industries, Inc., 8.375%, 6/15/12 $ 180,469 125,000 B+/B2 Manitowoc Co., Inc., 10.5%, 8/1/12 (144A) 142,344 125,000 BB+/Ba3 SPX Corp., 7.5%, 1/1/13 135,938 125,000 BBB/Baa3 Timken Co., 5.75%, 2/15/10 123,565 ------------ $ 582,316 ------------ TOTAL CAPITAL GOODS $ 1,401,441 ------------
The accompanying notes are an integral part of these financial statements. 6
PRINCIPAL S&P/MOODY'S AMOUNT RATINGS USD ($) (UNAUDITED) VALUE COMMERCIAL SERVICES & SUPPLIES - 0.4% ENVIRONMENTAL SERVICES - 0.4% 75,000 B-/B3 IESI Corp., 10.25%, 6/15/12 $ 83,344 ------------ TOTAL COMMERCIAL SERVICES & SUPPLIES $ 83,344 ------------ TRANSPORTATION - 2.2% AIR FREIGHT & COURIERS - 0.9% 100,000 B3/CCC+ Evergreen International Aviation, 12.0%, 5/15/10 (144A) $ 83,125 130,000 BB-/B1 Petroleum Helicopters, 9.375%, 5/1/09 138,125 ------------ $ 221,250 ------------ AIRLINES - 0.6% 85,000 Caa2/CCC AMR Corp., 9.8%, 10/1/21 $ 64,600 35,000 Caa2/CCC AMR Corp., 9.0%, 8/1/12 29,750 50,000 Caa1/B- Northwest Airlines, Inc., 9.875%, 3/15/07 45,500 ------------ $ 139,850 ------------ TRANSPORTATION - 0.7% 150,000 B+/B1 TFM SA De CV, 11.75%, 6/15/09 $ 154,125 ------------ TOTAL TRANSPORTATION $ 515,225 ------------ AUTOMOBILES & COMPONENTS - 0.8% AUTO PARTS & EQUIPMENT - 0.6% 140,000 B+/B2 Intermet Corp., 9.75%, 6/15/09 $ 143,500 ------------ AUTOMOBILE MANUFACTURERS - 0.2% 35,000 BBB/A3 Ford Motor Credit Co., 5.8%, 1/12/09 $ 36,045 ------------ TOTAL AUTOMOBILES & COMPONENTS $ 179,545 ------------ CONSUMER DURABLES & APPAREL - 0.5% HOMEBUILDING - 0.5% 100,000 BB/Ba2 Beazer Homes USA, 8.375%, 4/15/12 $ 110,250 ------------ TOTAL CONSUMER DURABLES & APPAREL $ 110,250 ------------ HOTELS, RESTAURANTS & LEISURE - 1.6% HOTELS, RESORTS & CRUISE LINES - 1.6% 100,000 BBB-/Ba1 Hilton Hotels, 7.625%, 12/1/12 $ 112,375 125,000 B/B2 John Q Hamons Hotels, 8.875%, 5/15/12 137,813 100,000 BB+/Ba1 Starwood Hotels & Resorts, 7.875%, 5/1/12 112,500 ------------ $ 362,688 ------------ TOTAL HOTELS, RESTAURANTS & LEISURE $ 362,688 ------------ MEDIA - 2.1% BROADCASTING & CABLE TV - 1.4% 175,000 BB-/Ba3 Echostar DBS Corp., 6.375%, 10/1/11 (144A) $ 179,375 EURO 100,000 B-/B3 Telenet Communication NV, 9.0%, 12/15/13 (144A) 129,636 ------------ $ 309,011 ------------ PUBLISHING - 0.7% 80,000 BBB-/Baa3 News America Holdings, 8.5%, 2/23/25 $ 100,043 75,000 NR/B2 Quebecor Media, Inc., 13.75%, 7/15/11 66,094 ------------ $ 166,137 ------------ TOTAL MEDIA $ 475,148 ------------
The accompanying notes are an integral part of these financial statements. 7
PRINCIPAL S&P/MOODY'S AMOUNT RATINGS USD ($) (UNAUDITED) VALUE RETAILING - 2.1% DEPARTMENT STORES - 0.4% 90,000 BB+/Ba3 J.C. Penney Co., Inc., 7.625%, 3/1/97 $ 92,363 ------------ DISTRIBUTORS - 0.5% 105,000 B-/B3 Wesco Distribution, Inc., 9.125%, 6/1/08 $ 108,675 ------------ GENERAL MERCHANDISE STORES - 0.5% 100,000 B+/B2 Central Garden, 9.125%, 2/1/13 $ 111,000 ------------ SPECIALTY STORES - 0.7% 60,000 B/B3 Asbury Automotive Group, 8.0%, 3/15/14 (144A) $ 60,300 100,000 BBB-/Baa3 Toys R Us, 7.375%, 10/15/18 99,930 ------------ $ 160,230 ------------ TOTAL RETAILING $ 472,268 ------------ FOOD, BEVERAGE & TOBACCO - 1.4% BREWERS - 1.0% 220,000 BBB-/Baa3 CIA Brasileira De Bebidas, 8.75%, 9/15/13 (144A) $ 233,200 ------------ SOFT DRINKS - 0.4% 80,000 BBB-/Baa3 CIA Brasileira de Bebidas, 10.5%, 12/15/11 $ 93,200 ------------ TOTAL FOOD, BEVERAGE & TOBACCO $ 326,400 ------------ HEALTH CARE EQUIPMENT & SERVICES - 1.2% HEALTH CARE DISTRIBUTORS - 0.3% 60,000 BB+/Ba2 Omnicare, Inc., 6.125%, 6/1/13 $ 60,150 ------------ HEALTH CARE FACILITIES - 0.9% 200,000 BBB-/Ba1 HCA, Inc., 6.3%, 10/1/12 $ 206,203 ------------ TOTAL HEALTH CARE EQUIPMENT & SERVICES $ 266,353 ------------ PHARMACEUTICALS & BIOTECHNOLOGY - 1.2% PHARMACEUTICALS - 1.2% 130,000 B/B3 Alaris Medical, Inc., 7.25%, 7/1/11 $ 134,550 150,000 B+/B3 Alpharma, Inc., 8.625%, 5/1/11 (144A) 151,875 ------------ $ 286,425 ------------ TOTAL PHARMACEUTICALS & BIOTECHNOLOGY $ 286,425 ------------ BANKS - 0.7% DIVERSIFIED BANKS - 0.7% 15,000 BBB/A2 Skandinaviska Enskilda Bank, 8.125%, 9/6/49 (144A) $ 16,887 ------------ TOTAL BANKS $ 16,887 ------------ DIVERSIFIED FINANCIALS - 1.5% DIVERSIFIED FINANCIAL SERVICES - 1.1% 157,000 NR/Caa2 Alamosa Delaware, Inc., 0.0%, 7/31/09 $ 141,300 100,000 BBB/Baa2 Power Receivables Finance, 6.29%, 1/1/12 (144A) 104,270 ------------ $ 245,570 ------------ SPECIALIZED FINANCE - 0.4% 80,000 BBB-/Baa3 GATX Financial Corp., 8.875%, 6/1/09 $ 89,751 ------------ TOTAL DIVERSIFIED FINANCIALS $ 335,321 ------------
The accompanying notes are an integral part of these financial statements. 8
PRINCIPAL S&P/MOODY'S AMOUNT RATINGS USD ($) (UNAUDITED) VALUE INSURANCE - 2.1% LIFE & HEALTH INSURANCE - 0.3% 75,000 B+/B1 Presidential Life Corp., 7.875%, 2/15/09 $ 72,188 ------------ MULTI-LINE INSURANCE - 0.9% 210,000 BB-/B1 Allmerica Financial Corp., 7.625%, 10/15/25 $ 198,450 ------------ REINSURANCE - 0.9% 200,000 BBB-/Baa3 Odyssey Re Holdings, 7.65%, 11/1/13 $ 208,947 ------------ TOTAL INSURANCE $ 479,585 ------------ REAL ESTATE - 4.1% REAL ESTATE MANAGEMENT & DEVELOPMENT - 1.3% 185,000 B-/B3 Forest City Enterprises, 7.625%, 6/1/15 $ 196,331 100,000 BBB-/Baa3 LNR Property Corp., 7.25%, 10/15/13 (144A) 101,750 ------------ $ 298,081 ------------ REAL ESTATE INVESTMENT TRUSTS - 2.8% 140,000 B+/Ba3 BF Saul Real Estate Investment Trust, 9.75%, 4/1/08 $ 146,125 15,000 BBB-/Ba1 Colonial Realty, Senior Note, 7.0%, 7/14/07 16,632 155,000 BBB-/Ba1 Crescent Real Estate, 9.25%, 4/15/09 170,500 90,000 B-/B1 Health Care Real Estate Investment Trust, Inc., 7.5%, 8/15/07 101,383 40,000 BB-/Ba3 Health Care Real Estate Investment Trust, Inc., 8.0%, 9/12/12 46,115 150,000 B+/Ba3 Meristar Hospitality Operations Finance Corp., 10.5%, 6/15/09 162,750 ------------ $ 643,505 ------------ TOTAL REAL ESTATE $ 941,586 ------------ TECHNOLOGY HARDWARE & EQUIPMENT - 3.6% COMMUNICATIONS EQUIPMENT - 1.1% 150,000 BB+/Ba2 Corning, Inc., 6.3%, 3/1/09 $ 155,625 100,000 B-/Caa1 Lucent Technologies, Inc., 5.5%, 11/15/08 93,000 ------------ $ 248,625 ------------ ELECTRONIC MANUFACTURING SERVICES - 0.6% 75,000 BB+/Baa3 Jabil Circuit, Inc., 5.875%, 7/15/10 $ 78,230 50,000 BB-/Ba2 Sanmina-SCI Corp., 10.375%, 1/15/10 58,500 ------------ $ 136,730 ------------ OFFICE ELECTRONICS - 0.5% 120,000 B-/B3 Xerox Corp., 8.0%, 2/1/27 $ 117,900 ------------ TECHNOLOGY DISTRIBUTORS - 1.4% 200,000 BBB-/Baa3 Arrow Electronic, Inc., 6.875%, 7/1/13 $ 213,112 110,000 BB-/Ba2 Ingram Micro, Inc., 9.875%, 8/15/08 121,550 ------------ $ 334,662 ------------ TOTAL TECHNOLOGY HARDWARE & EQUIPMENT $ 837,917 ------------ TELECOMMUNICATION SERVICES - 5.2% INTEGRATED TELECOMMUNICATION SERVICES - 2.1% 95,000 B+/B2 Innova S De R.L., 9.375%, 9/19/13 (144A) $ 97,494 100,000 NR/Baa2 Tele N L Participacoes, 8.0%, 12/18/13 (144A) 98,250 EURO 150,000 NR/Baa3 Telecom Italia, 6.25%, 2/1/12 205,555 75,000 B-/B3 TSI Telecommunication Services, 12.75%, 2/1/09 82,313 ------------ $ 483,612 ------------
The accompanying notes are an integral part of these financial statements. 9
PRINCIPAL S&P/MOODY'S AMOUNT RATINGS USD ($) (UNAUDITED) VALUE WIRELESS TELECOMMUNICATION SERVICES - 3.1% 95,000 CCC+/B3 MetroPCS, Inc., 10.75%, 10/1/11 (144A) $ 94,525 115,000 B+/Ba3 Mobile Telesystems Finance, 8.375%, 10/14/10 (144A) 117,300 150,000 B+/B2 Nextel Communications, 7.375%, 8/1/15 161,250 EURO 105,000 BB-/B1 PTC International Finance II SA, 11.25%, 12/1/09 145,038 CAD 240,000 BB+/Ba3 Rogers Cantel, Inc., 10.5%, 6/1/06 198,114 ------------ $ 716,227 ------------ TOTAL TELECOMMUNICATION SERVICES $ 1,199,839 ------------ UTILITIES - 1.2% ELECTRIC UTILITIES - 0.7% 150,000 BBB/Ba2 CMS Panhandle, 6.5%, 7/15/09 $ 165,596 ------------ MULTI-UTILITIES & UNREGULATED POWER - 0.5% 50,000 B+/B1 Northwest Pipeline Corp., 8.125%, 3/1/10 $ 55,500 30,000 B/B1 Reliant Resources, 9.25%, 7/15/10 (144A) 31,800 30,000 B/B1 Reliant Resources, Inc., 9.5%, 7/15/13 (144A) 32,100 ------------ $ 119,400 ------------ TOTAL UTILITIES $ 284,996 ------------ TOTAL CORPORATE BONDS (Cost $10,831,016) $ 11,816,782 ------------ U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 21.7% 56,097 AAA/Aaa Federal Home Loan Mortgage Corp., 6.0%, 1/1/33 to 2/1/33 $ 57,993 100,000 AAA/Aaa Federal National Mortgage Association, 5.5%, TBA 103,594 200,000 AAA/Aaa Federal National Mortgage Association, 6.0%, TBA 206,499 551,222 AAA/Aaa Federal National Mortgage Association, 6.0%, 7/1/17 to 12/1/33 573,825 AUD 300,000 AAA/Aaa Federal National Mortgage Association, 6.375%, 8/15/07 228,270 42,198 AAA/Aaa Federal National Mortgage Association, 6.5%, 7/1/31 to 2/1/32 44,134 3,324 AAA/Aaa Federal National Mortgage Association, 7.0%, 9/1/29 3,522 465 AAA/Aaa Federal National Mortgage Association, 7.5%, 6/1/30 497 2,431,560 AAA/Aaa Government National Mortgage Association, 6.0%, 6/15/17 to 10/15/33 2,535,399 662,364 AAA/Aaa Government National Mortgage Association, 6.5%, 3/15/29 to 5/15/33 698,514 50,811 AAA/Aaa Government National Mortgage Association, 7.0%, 5/15/23 to 3/15/31 54,399 65,000 AAA/Aaa U.S. Treasury Bond, 3.0%, 7/15/12 72,988 75,000 AAA/Aaa U.S. Treasury Bond, 5.25%, 2/15/29 75,662 270,000 AAA/Aaa U.S. Treasury Notes, 3.5%, 1/15/11 322,859 ------------ TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS (Cost $4,834,538) $ 4,978,155 ------------ FOREIGN GOVERNMENT BONDS - 13.0% ITL 310,000,000 B+/B2 Banco Nac De Desen Econo, 8.0%, 4/28/10 $ 188,044 CAD 200,000 AAA/Aaa Canada Government T-Bill, 5.75%, 9/1/06 164,416 100,000 BB-/B1 Federal Republic of Brazil, 11.0%,1/11/12 116,000 AUD 150,000 AAA/Aaa Government of Australia, 4.0%, 8/20/15 153,293 CAD 27,000 TSY/Tsy Government of Canada, 4.25%, 9/1/08 21,188 CAD 315,000 AAA/Aaa Government of Canada, 5.25%, 6/1/12 254,993 EURO 343,000 AAA/Aaa Government of France, 3.0%, 7/25/09 497,865 SEK 5,000 AAA/Aaa Government of Sweden, 5.25%, 3/15/11 727 SEK 1,150,000 TSY/Aaa Government of Sweden, 8.0%, 8/15/07 181,917 SEK 2,955,000 TSY/Aaa Government of Sweden, 5.5%, 10/8/12 434,626 AUD 332,000 AA/Aa2 Ontario Province, 5.5%, 4/23/13 238,053 265,950 BB/Ba2 Republic of Columbia, 9.75%, 4/9/11 301,853
The accompanying notes are an integral part of these financial statements. 10
PRINCIPAL S&P/MOODY'S AMOUNT RATINGS USD ($) (UNAUDITED) VALUE EURO 125,000 BBB/Baa2 Republic of South Africa, 5.25%, 5/16/13 $ 150,245 145,000 BB/Ba2 Russia Regs., 5.0%, 3/31/30(d) 139,019 SEK 25,000 AA+/Aa1 Swedish Export Credit, 4.1%, 2/13/06 18,125 DEM 180,000 BBB-/Baa3 United Mexican States, 8.25%, 2/24/09 131,859 ------------ TOTAL FOREIGN GOVERNMENT BONDS (Cost $2,417,790) $ 2,992,223 ------------ SUPERNATIONAL BONDS - 0.8% INSURANCE - 0.8% NZD 258,000 AAA/Aaa International Finance Corp., 6.75%, 7/15/09 $ 173,644 ------------ TOTAL SUPRANATIONAL BONDS (Cost $111,543) $ 173,644 ------------ SOVEREIGN ISSUES - 1.1% 75,000 BB-/Ba2 Dominican Republic, 9.04%, 1/23/13 $ 57,000 75,000 BB-/Ba3 Republic of Peru, 9.125%, 2/21/12 83,620 100,000 BB-/Ba3 Republic of Peru, 9.875%, 2/6/15 116,000 ------------ TOTAL SOVERIGN ISSUES (Cost $268,048) $ 256,620 ------------ SHARES RIGHTS/WARRANTS - 0.0% MATERIALS - 0.0% PAPER PRODUCTS - 0.0% 25 Asia Pulp & Paper, 3/15/05* $ - ------------ TOTAL RIGHTS/WARRANTS (Cost $0) $ - ------------ PRINCIPAL AMOUNT USD ($) MUNICIPAL BONDS - 1.1% GOVERNMENT - 1.1% 175,000 B/Caa2 New Jersey Economic Development Authority, 7.0%, 11/15/30 $ 158,692 100,000 NR/NR Wayne Charter County, 6.75%, 12/1/15 88,782 ------------ $ 247,474 ------------ TOTAL MUNICIPAL BONDS (Cost $208,958) $ 247,474 ------------ SHARES TEMPORARY CASH INVESTMENT - 2.0% SECURITY LENDING COLLATERAL - 2.0% 459,289 Securities Lending Investment Fund, 1.02% $ 459,289 ------------ TOTAL TEMPORARY CASH INVESTMENT (Cost $459,289) $ 459,289 ------------ TOTAL INVESTMENT IN SECURITIES - 100.4% (Cost $20,946,954) $ 23,059,311 ------------ OTHER ASSETS AND LIABILITIES - (0.4)% $ (83,462) ------------ TOTAL NET ASSETS - 100.0% $ 22,975,849 ============
(d) Debt obligation initially issued at one coupon which converts to a higher coupon at a specified date. The rate shown is the rate at period end. NR: Not Rated TSY: Treasury Security * Non-income producing security. (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, 2003, the value of these securities amounted to $2,619,231 or 11.4% of total net assets. Note: The Porfolio's investments in mortgage-backed securites of the Government Mortgage Association (GNMA) and the Federal National Mortgage Association (FNMA) 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. Note: Principal amounts are denominated in U.S. dollars unless otherwise noted. DKK Danish Kroner EURO European Dollar SEK Swedish Kroner CAD Canadian Dollar NZD New Zealand Dollar NOK Norweigan Kroner ITL Italian Lira DEM Deutsche Marks TBA (To Be Assigned) Securities are purchased on a forward commitment basis with an approximate (generally plus or minus 2.5%) principal amount and no definite maturity date period. The actual principal amount and maturity date will be determined upon settlement when the specific mortgage pools are assigned. The accompanying notes are an integral part of these financial statements. 11 PIONEER STRATEGIC INCOME VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST FINANCIAL HIGHLIGHTS 12/31/03
5/1/03 TO CLASS II 12/31/03 (a) Net asset value, beginning of period $ 10.41 ----------- Increase (decrease) from investment operations: Net investment income $ 0.41 Net realized and unrealized gain (loss) on investments and foreign currency transactions 0.62 ----------- Net increase (decrease) from investment operations $ 1.03 Distributions to shareholders: Net investment income (0.43) Net realized gain - ----------- Net increase (decrease) in net asset value $ 0.60 ----------- Net asset value, end of period $ 11.01 =========== Total return* 10.90% Ratio of net expenses to average net assets+ 1.49%** Ratio of net investment income to average net assets+ 5.08%** Portfolio turnover rate 68% Net assets, end of period (in thousands) $ 3,663 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.49%** Net investment income (loss) 5.08%**
(a) Class 2 shares were first publicly offered on May 1, 2003. * 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 with no reduction for fees paid indirectly. The accompanying notes are an integral part of these financial statements. 12 PIONEER STRATEGIC INCOME VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST STATEMENT OF ASSETS AND LIABILITIES 12/31/03
PIONEER STRATEGIC INCOME VCT PORTFOLIO ASSETS: Investment in securities, at value (including securities loaned of $449,485) (Cost $20,946,954) $ 23,059,311 Temporary cash investments (at amortized cost) - Cash 391,604 Cash held as collateral for futures contracts - Foreign currencies, at value (Cost $586) 562 Receivables - Investment securities sold 12,703 Fund shares sold 472 Collateral for securities loaned, at fair value - Variation margin - Dividends, interest and foreign taxes withheld 346,029 Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, open - net - Due from Pioneer Investment Management, Inc. - Other 2,442 -------------- Total assets $ 23,813,123 -------------- LIABILITIES: Payables - Investment securities purchased $ 309,927 Fund shares repurchased 263 Dividends 2,756 Upon return for securities loaned 459,289 Variation margin - Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, 25,297 Due to bank - Due to affiliates 20,801 Accrued expenses 18,941 Other - -------------- Total liabilities $ 837,274 -------------- NET ASSETS: Paid-in capital $ 20,263,569 Accumulated net investment income (loss) 152,569 Accumulated undistributed net realized gain (loss) 465,148 Net unrealized gain (loss) on: Investments 2,112,357 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (17,794) -------------- Total net assets $ 22,975,849 -------------- NET ASSET VALUE PER SHARE: CLASS I: (Unlimited number of shares authorized) Net assets $ 19,312,397 Shares outstanding 1,754,102 ============== Net asset value per share $ 11.01 CLASS II: (Unlimited number of shares authorized) Net assets $ 3,663,452 Shares outstanding 332,792 ============== Net asset value per share $ 11.01
The accompanying notes are an integral part of these financial statements. 13 STATEMENT OF OPERATIONS
PIONEER STRATEGIC INCOME VCT PORTFOLIO YEAR ENDED 12/31/03 INVESTMENT INCOME: Dividends $ 303 Interest (net of foreign taxes withheld of $130) 1,293,837 Income on securities loaned, net 2,101 Other - --------------- Total investment income $ 1,296,241 --------------- EXPENSES: Management fees $ 117,620 Transfer agent fees 1,355 Distribution fees (Class II) 2,261 Administrative fees 37,500 Custodian fees 21,095 Professional fees 27,079 Printing 12,703 Fees and expenses of nonaffiliated trustees 545 Miscellaneous 7,362 --------------- Total expenses $ 227,520 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. - --------------- Net expenses $ 227,520 --------------- Net investment income (loss) $ 1,068,721 --------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ 789,760 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (75,859) --------------- $ 713,901 --------------- Change in net unrealized gain or (loss) from: Investments $ 1,690,345 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 5,170 --------------- $ 1,695,515 --------------- Net gain (loss) on investments, futures contracts and foreign currency transactions $ 2,409,416 =============== Net increase (decrease) in net assets resulting from operations $ 3,478,137 ===============
The accompanying notes are an integral part of these financial statements. 14 STATEMENTS OF CHANGES IN NET ASSETS
PIONEER STRATEGIC INCOME VCT PORTFOLIO YEAR YEAR ENDED ENDED 12/31/03 12/31/02 FROM OPERATIONS: Net investment income (loss) $ 1,068,721 $ 713,959 Net realized gain (loss) on investments 713,901 138,737 Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions 1,695,515 332,245 ------------- ------------- Net increase (decrease) in net assets resulting from operations $ 3,478,137 $ 1,184,941 ------------- ------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (1,087,224) $ (692,603) Class II (52,386) - Net realized gain Class I - - Class II - - Tax return of capital Class I - - Class II - - ------------- ------------- Total distributions to shareowners $ (1,139,610) $ (692,603) ------------- ------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 11,160,056 $ 10,603,630 Reinvestment of distributions 1,105,557 660,491 Cost of shares repurchased (6,320,665) (4,543,210) ------------- ------------- Net increase (decrease) in net assets resulting from fund share transactions $ 5,944,948 $ 6,720,911 ------------- ------------- Net increase (decrease) in net assets $ 8,283,475 $ 7,213,249 NET ASSETS: Beginning of year 14,692,374 7,479,125 ------------- ------------- End of year $ 22,975,849 $ 14,692,374 ============= ============= Accumulated undistributed/(distributions in excess of) net investment income (loss) $ 152,569 $ 53,333 ============= =============
The accompanying notes are an integral part of these financial statements. 15 PIONEER STRATEGIC INCOME VCT PORTFOLIO NOTES TO FINANCIAL STATEMENTS 12/31/03 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Pioneer Strategic Income Portfolio (the Portfolio) is a portfolio of the Pioneer Variable Contracts Trust (the Trust) which is a Delaware business trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of sixteen separate portfolios, fourteen of which issue both Class I and Class II shares (collectively, the Portfolios, individually the Portfolio) as follows: PORTFOLIOS: Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio) Pioneer Europe VCT Portfolio (Europe Portfolio) Pioneer International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio) Pioneer Small Company VCT Portfolio (Small Company Portfolio) Pioneer Mid Cap Value VCT Portfolio (Mid-Cap Value Portfolio) Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio) Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio) Pioneer Fund VCT Portfolio (Fund Portfolio) Pioneer Equity Income VCT Portfolio (Equity-Income Portfolio) Pioneer Balanced VCT Portfolio (Balanced Portfolio) Pioneer High Yield VCT Portfolio (High Yield Portfolio) Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio) Pioneer America Income VCT Portfolio (America Income Portfolio) Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares only) Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only) The Portfolio commenced operations on May 1, 2003. Portfolio shares may only be purchased by insurance companies for the purpose of funding variable annuity or variable life insurance contracts, and may also be purchased by qualified pension and retirement plans. The financial highlights for the Portfolio's Class I shares are presented in a separate book. The investment objective of Strategic Income Portfolio is to produce a high level of current income. Trust's financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America 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 income, expenses, gains and losses during the reporting years. 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 as of 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, based on the last sale price on the principal exchange where they traded, are determined as of such times. 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 becomes aware of the ex-dividend data in the exercise of reasonable diligence. Interest income, including interest on income bearing cash accounts, is recorded on the accrual basis, net of unrecoverable foreign taxes withheld at the applicable country rates. All discounts/premiums are accreted/amortized for financial reporting purposes. Temporary cash investments are valued at amortized cost. Fixed income securities are valued at prices supplied by independent pricing services, which consider such factors as Treasury spreads, yields, maturities and ratings. Valuations may be supplemented by dealers and other sources, as required. 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. Gains and losses from sales on investments are calculated on the identified cost method for both financial reporting and federal income tax purposes, and if applicable, are reported net of foreign taxes on capital gains at the applicable country rates. B. FOREIGN CURRENCY TRANSLATION The books and records of the Portfolio 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, 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 16 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 The Portfolio enters 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 Portfolio's financial statements. The Portfolio records 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 8). 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 shareowners. Therefore, no federal income tax provision is required. The amount and characterization of distributions to shareowners 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. At December 31, 2003, the Portfolio made reclassifications as described below. These reclassifications have no impact on the net asset value of the Portfolio and are designed to present the portfolios' capital accounts on a tax basis.
ACCUMULATED ACCUMULATED NET INVESTMENT REALIZED PORTFOLIO INCOME/(LOSS) GAIN/(LOSS) PAID-IN CAPITAL - ---------------------------------------------------------------------------- Strategic Income Portfolio $ 170,125 $ (170,125) $ -
The following chart shows the components of distributable earnings (accumulated losses) as of December 31, 2003 and the distributions paid during the year ended December 31, 2003 on a tax basis as of December 31, 2003.
PIONEER PIONEER STRATEGIC STRATEGIC INCOME INCOME VCT PORTFOLIO VCT PORTFOLIO 2003 2002 - --------------------------------------------------------------------- DISTRIBUTIONS PAID FROM: Ordinary Income $ 1,139,610 $ 692,603 Long-Term capital gain - - ------------- ------------- $ 1,139,610 $ 692,603 Return of Capital - - ------------- ------------- Total distributions $ 1,139,610 $ 692,603 ------------- ------------- DISTRIBUTABLE EARNINGS (ACCUMULATED LOSSES): Undistributed ordinary income $ 380,350 Undistributed long-term gain/ (capital loss carryforward) 212,557 Unrealized appreciation/(depreciation) 2,119,373 ------------- Total $ 2,712,280 =============
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily attributable to the tax deferral of losses on wash sales, returns of capital on REITs, and the recognition of unrealized gains or losses on certain futures contracts. E. PORTFOLIO SHARES The Portfolio records sales and repurchases of its portfolio shares as of trade date. Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the principal underwriter for the Trust and a wholly owned indirect subsidiary of UniCredito Italiano S.p.A. (UniCredito Italiano), $246,661 in commissions on the sale of Trust shares for the year ended December 31, 2003. Distribution fees are calculated based on the average daily net asset values attributable to Class I and Class II shares of the Portfolio, respectively. Shareowners of each class share all expenses and fees paid to the transfer agent, Pioneer Investment Management Shareholder Services, Inc. (PIMSS), for its services, which are allocated based on the number of accounts in each class and the ratable allocation of related out-of-pocket expenses (see Note 3). Income, common expenses and realized and unrealized gains and losses are calculated at the Portfolio level and allocated daily to each class of shares based on the respective percentage of adjusted net assets at the beginning of the day. Dividends and distributions to shareowners are recorded on the ex-dividend date. Distributions paid by the Portfolio with respect to each class of shares are calculated in the same manner, at the same time, and in the same amount, except that Class I and Class II shares can bear different transfer agent and distribution fees. Income, expenses (excluding 12b-1 fees) and gains and losses are calculated at the Portfolio level and are allocated daily based on the respective percentage of adjusted net assets at the beginning of the day. 17 F. SECURITIES LENDING The Portfolio lends securities in its portfolio to certain broker-dealers or other institutional investors, with the Portfolio's custodian acting as the lending agent. When entering into a loan, the Portfolio receives collateral which is maintained by the custodian and earns income in the form of negotiated lenders' fees. The Portfolio also continues to receive interest or dividends on the securities loaned, and gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for account of the Trust. The loans are secured by collateral of at least 102%, at all times, of the fair value of the securities loaned. The fair value of the collateral will be adjusted daily to reflect any price fluctuation in the value of the loaned securities. The Trust has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Trust invests cash collateral in the Securities Lending Investment Fund which is managed by Brown Brothers Harriman & Co., the Trust's custodian. G. REPURCHASE AGREEMENTS With respect to repurchase agreements entered into by the Portfolio, 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 Portfolio's custodian, or subcustodian. The Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is responsible for determining that the value of the collateral remains at least equal to the repurchase price. 2. MANAGEMENT AGREEMENT PIM manages the Portfolio, and is a wholly owned indirect subsidiary of UniCredito Italiano. Management fees are calculated daily at the following annual rate of 0.65% of the Portfolio's average daily net assets. The portion of the Portfolios' expenses attributable to Class II will be reduced only to the extent such expenses are reduced for Class I shares (or Class II shares). Pioneer may subsequently recover reimbursed expenses (within three years of being incurred) from certain Portfolios if the expense ratio of the Class I (or Class II) shares would otherwise be less than the expense limitation of the class. Each class will reimburse PIM no more than the amount by which that class' expenses were reduced. The Expense limit agreement for Strategic Income Portfolio does not provide for the expense reimbursement described above. There can be no assurance that Pioneer will extend any expense limitation beyond December 31, 2003. In addition, under the management and administration agreement, certain other services and costs, including accounting, regulatory reporting and insurance premiums, are paid by the Portfolio. At December 31, 2003, $19,930 was payable to PIM related to management fees, administrative fees and certain other services. 3. TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. (PIMSS), a wholly owned indirect subsidiary of UniCredito Italiano provides substantially all transfer agent and shareowner services to the Trust at negotiated rates. Included in due to affiliates is $125 in transfer agent fees payable to PIMSS at December 31, 2003. 4. DISTRIBUTION PLANS The Portfolio has adopted a plan of distribution for Class II shares in accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily net assets attributable to Class II shares. Included in due to affiliates is $745 payable to PFD at December 31, 2003. 5. AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION At December 31, 2003, the Portfolios' aggregate unrealized appreciation and depreciation based on cost for federal income tax purposes was as follows:
NET GROSS GROSS APPRECIATION/ TAX COST APPRECIATION DEPRECIATION (DEPRECIATION) - ------------------------------------------------------------------------------------ Strategic Income Portfolio $ 20,947,440 $ 2,151,739 $ (39,868) $ 2,111,871
18 6. PORTFOLIO TRANSACTIONS The cost of purchases and the proceeds from sales of investments other than U.S. Government obligations and temporary cash investments for the year ended December 31, 2003, were $11,423,242 and $8,616,511, respectively. The cost of purchases and the proceeds from sales of U.S. Government obligations were, $6,204,459 and $3,537,090, respectively. 7. CAPITAL SHARES At December 31, 2003, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: STRATEGIC INCOME PORTFOLIO CLASS I: Shares sold 712,653 $ 7,385,764 1,135,309 $ 10,603,630 Reinvestment of distributions 100,561 1,053,192 70,392 660,491 Shares repurchased (579,108) (6,045,569) (487,032) (4,543,210 --------------------------------------------------------- Net increase 234,106 $ 2,393,387 718,669 $ 6,720,911 ========================================================= CLASS II: Shares sold 353,538 $ 3,774,292 - $ - Reinvestment of distributions 4,862 52,365 - - Shares repurchased (25,608) (275,096) - - --------------------------------------------------------- Net increase 332,792 $ 3,551,561 - $ - =========================================================
8. FORWARD FOREIGN CURRENCY CONTRACTS During the year ended December 31, 2003, certain Portfolios had entered into various contracts that obligate the Portfolios to deliver currencies at specified future dates. At the maturity of a contract, the Portfolios must make delivery of the foreign currency. Alternatively, prior to the settlement date of a portfolio hedge, the Portfolio may close out such contracts by entering into an offsetting hedge contract. As of December 31, 2003, the portfolio had no open settlement hedges. As of December 31, 2003, the Portfolios' open portfolio hedges were as follows.
NET CONTRACTS TO IN EXCHANGE SETTLEMENT UNREALIZED PORTFOLIO DELIVER FOR DATE VALUE LOSS - -------------------------------------------------------------------------------------------- Strategic Income Portfolio EURO (434,000) $ (530,086) 1/12/04 $ (545,762) $ (15,676) Strategic Income Portfolio EURO (180,000) $ (218,867) 1/15/04 $ (226,332) $ (7,465) Strategic Income Portfolio EURO (245,000) $ (305,907) 1/15/04 $ (308,063) $ (2,156)
19 PIONEER STRATEGIC INCOME VCT PORTFOLIO REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF TRUSTEES OF PIONEER VARIABLE CONTRACTS TRUST AND THE CLASS II SHAREOWNERS OF PIONEER STRATEGIC INCOME VCT PORTFOLIO: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer Strategic Income VCT Portfolio, one of the portfolios constituting Pioneer Variable Contracts Trust (the "Trust"), as of December 31, 2003, and the related statement of operations for the year then ended, and the statements of changes in net assets and financial highlights for each of the two years in the period then ended. 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. The financial highlights for each of the three years in the period ended December 31, 2001 were audited by other auditors who have ceased operations and whose report, dated February 8, 2002, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 Pioneer Strategic Income VCT Portfolio of Pioneer Variable Contracts Trust at December 31, 2003, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts February 6, 2004 20 PIONEER VARIABLE CONTRACTS TRUST TRUSTEES, OFFICERS AND SERVICE PROVIDERS INVESTMENT ADVISER Pioneer Investment Management, Inc. CUSTODIAN Brown Brothers Harriman & Co. INDEPENDENT AUDITORS Ernst & Young LLP PRINCIPAL UNDERWRITER Pioneer Funds Distributor, Inc. LEGAL COUNSEL Hale and Dorr LLP SHAREOWNER SERVICES AND TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. TRUSTEES AND OFFICERS The Fund's Board of Trustees provides broad supervision over the affairs of the Fund. The officers of the Fund are responsible for the Fund's operations. The Fund's Trustees and officers are listed below, together with their principal occupations during the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of 1940 are referred to as Interested Trustees. Trustees who are not interested persons of the Fund are referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 51 U.S. registered investment portfolios for which Pioneer Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the Portfolio is 60 State Street, Boston, Massachusetts 02109. The Fund's statement of additional information provides more detailed information regarding the Fund's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Fund are available without charge, upon request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. INTERESTED TRUSTEES
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (77)* Chairman of the Trustee since Deputy Chairman and a Director of Harbor Global Board, Trustee 1994. Serves until a Director of Pioneer Global Company, Ltd. and President successor trustee is Asset Management S.p.A. elected or earlier ("PGAM"); Non-Executive retirement or removal. Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA "); Chairman and a Director of Pioneer; Director of Pioneer Alternative Investment Management Limited (Dublin); President and a Director of Pioneer Alternative Investment Management (Bermuda) Limited and affiliated funds; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel (since 2000, partner prior to 2000), Hale and Dorr LLP (counsel to PIM-USA and the Pioneer Funds) Osbert M. Hood (51)** Trustee and Trustee since President and Chief None Executive Vice June, 2003. Serves Executive Officer, PIM-USA President until a successor since May, 2003 (Director trustee is since January, 2001); elected or earlier President and Director of retirement or removal. Pioneer since May 2003; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Executive Vice President of all of the Pioneer Funds since June 2003; Executive Vice President and Chief Operating Officer of PIM-USA, November 2000-May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999 -November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997-November 1999
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. **Mr. Hood is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. 21
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME, AGE AND ADDRESS WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS BY THIS TRUSTEE Mary K. Bush (55) Trustee Trustee since President, Bush Director of Brady 3509 Woodbine Street, September, 2000. International (international Corporation (industrial Chevy Chase, MD 20815 Serves until a financial advisory firm) identification and successor trustee is specialty coated elected or earlier material products retirement or manufacturer), Millenium removal. Chemicals, Inc. (commodity chemicals), Mortgage Guaranty Insurance Corporation, and R.J. Reynolds Tobacco Holdings, Inc. (tobacco) Richard H. Egdahl, M.D. (77) Trustee Trustee since Alexander Graham Bell None Boston University Healthcare 1995. Serves until a Professor of Health Care Entrepreneurship Program, successor trustee is Entrepreneurship, Boston 53 Bay State Road, elected or earlier University; Professor of Boston, MA 02215 retirement or Management, Boston removal. University School of Management; Professor of Public Health, Boston University School of Public Health; Professor of Surgery, Boston University School of Medicine; and University Professor, Boston University Margaret B.W. Graham (56) Trustee Trustee since Founding Director, The None 1001 Sherbrooke September, 2000. Winthrop Group, Inc. Street West, Serves until a (consulting firm); Professor Montreal, Quebec, Canada successor trustee is of Management, Faculty of elected or earlier Management, McGill University retirement or removal. Marguerite A. Piret (55) Trustee Trustee since President and Chief None One Boston Place, 1995. Serves until a Executive Officer, Newbury, 28th Floor, successor trustee is Piret & Company, Inc. Boston, MA 02108 elected or earlier (investment banking firm) retirement or removal. Stephen K. West (75) Trustee Trustee since Senior Counsel, Sullivan & Director, The Swiss 125 Broad Street, 1995. Serves until a Cromwell (law firm) Helvetia Fund, Inc. New York, NY 10004 successor trustee is (closed-end investment elected or earlier company) and AMVESCAP retirement or PLC (investment managers) removal. John Winthrop (67) Trustee Trustee since President, John Winthrop & None One North Adgers Wharf, September, 2000. Co., Inc. (private investment Charleston, SC 29401 Serves until a firm) successor trustee is elected or earlier retirement or removal.
22 FUND OFFICERS
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Dorothy E. Bourassa (56) Secretary Serves at the Secretary of PIM-USA; None discretion of board Senior Vice President-Legal of Pioneer; and Secretary/Clerk of most of PIM-USA's subsidiaries since October 2000; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003); and Senior Counsel, Assistant Vice President and Director of Compliance of PIM-USA from April 1998 through October 2000 Christopher J. Kelley (39) Assistant Serves at the Assistant Vice President None Secretary discretion of board and Senior Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001; Vice President and Associate General Counsel from July 1996 to July 2000); Assistant Secretary of all of the Pioneer Funds since September 2003 David C. Phelan (46) Assistant Serves at the Partner, Hale and Dorr LLP; None Secretary discretion of board Assistant Secretary of all of the Pioneer Funds since September 2003 Vincent Nave (58) Treasurer Serves at the Vice President-Fund None discretion of board Accounting, Administration and Custody Services of Pioneer (Manager from September 1996 to February 1999); and Treasurer of all of the Pioneer Funds (Assistant Treasurer from June 1999 to November 2000) Luis I. Presutti (38) Assistant Serves at the Assistant Vice President-Fund None Treasurer discretion of board Accounting, Administration and Custody Services of Pioneer (Fund Accounting Manager from 1994 to 1999); and Assistant Treasurer of all of the Pioneer Funds since November 2000
23
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS BY THIS OFFICER Gary Sullivan (45) Assistant Serves at the Fund Accounting None Treasurer discretion of board Manager-Fund Accounting, Administration and Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 Katharine Kim Sullivan (30) Assistant Serves at the Fund Administration None Treasurer discretion of board. Manager-Fund Accounting, Administration and Custody Services since June 2003; Assistant Vice President-Mutual Fund Operations of State Street Corporation from June 2002 to June 2003 (formerly Deutsche Bank Asset Management); Pioneer Fund Accounting, Administration and Custody Services (Fund Accounting Manager from August 1999 to May 2002, Fund Accounting Services Supervisor from 1997 to July 1999); Assistant Treasurer of all of the Pioneer Funds since September 2003
24 THIS PAGE FOR YOUR NOTES. 25 [PIONEER INVESTMENTS(R) LOGO] 14685-00-0204 [PIONEER INVESTMENTS(R) LOGO] PIONEER VARIABLE CONTRACTS TRUST PIONEER BALANCED VCT PORTFOLIO -- CLASS II SHARES ANNUAL REPORT DECEMBER 31, 2003 PIONEER VARIABLE CONTRACTS TRUST TABLE OF CONTENTS Pioneer Balanced VCT Portfolio Portfolio and Performance Update 2 Portfolio Management Discussion 3 Schedule of Investments 4 Financial Statements 11 Notes to Financial Statements 15 Report of Independent Auditors 19 Trustees, Officers and Service Providers 20
PIONEER BALANCED VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO AND PERFORMANCE UPDATE 12/31/03 [CHART] PORTFOLIO DIVERSIFICATION (As a percentage of total investment portfolio) U.S. Common Stocks 64.5% U.S. Government Securities 19.3% U.S. Corporate Bonds 16.0% Asset Backed Securities 0.2%
[CHART] SECTOR DISTRIBUTION (As a percentage of long-term holdings) Government 19.3% Consumer Staples 16.3% Information Technology 12.4% Financials 11.1% Consumer Discretionary 10.9% Health Care 9.8% Energy 7.3% Industrials 6.9% Materials 4.5% Telecommunication Services 0.6% Utilities 0.9%
FIVE LARGEST HOLDINGS (As a percentage of long-term holdings) 1. Federal Home Loan Mortgage Corp., 6.0%, 1/1/33 4.03% 2. Pfizer, Inc. 3.64 3. Berkshire Hathaway, Inc. (Class B) 3.39 4. Newmont Mining Corp. 3.32 5. Gillette Co. 3.10
Holdings will vary for other periods. This list excludes temporary cash and derivative investments. PRICES AND DISTRIBUTIONS - CLASS II SHARES
12/31/03 5/1/03 Net Asset Value per Share $ 14.02 $ 12.67
DISTRIBUTIONS PER SHARE SHORT-TERM LONG-TERM (5/1/03 - 12/31/03) DIVIDENDS CAPITAL GAINS CAPITAL GAINS $ 0.2537 $ - $ -
PERFORMANCE OF A $10,000 INVESTMENT - CLASS II SHARES The following chart shows the change in value of an investment made in PIONEER BALANCED VCT PORTFOLIO at net asset value, compared to that of the Standard & Poor's (S&P) 500 Index, the Lehman Brothers Aggregate Bond Index and the Russell 3000 Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [CHART]
PIONEER BALANCED VCT PORTFOLIO* LEHMAN AGGREGATE BOND INDEX+ S&P 500 INDEX RUSSELL 3000 INDEX+ 3/31/95 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 11,825 $ 11,279 $ 12,533 $ 12,550 $ 13,412 $ 11,686 $ 15,406 $ 15,288 12/31/97 $ 15,535 $ 12,817 $ 20,543 $ 20,147 $ 15,474 $ 13,929 $ 26,417 $ 25,011 12/31/99 $ 15,825 $ 13,812 $ 31,974 $ 30,238 $ 16,647 $ 15,418 $ 29,068 $ 27,983 12/31/2001 $ 16,230 $ 16,720 $ 25,623 $ 24,776 $ 14,527 $ 18,435 $ 19,961 $ 19,439 12/31/2003 $ 17,258 $ 19,195 $ 25,683 $ 25,477
+ Index comparison begins 2/28/95. 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 Lehman Brothers Aggregate Bond Index is a widely recognized market value-weighted measure of government and corporate securities, agency mortgage pass-through securities, asset-backed securities and commercial mortgage-based securities. The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. Pioneer believes the S&P 500 Index is more representative of the issues in the Portfolio than the Russell 3000 Index and will not provide the Russell 3000 Index in the future. Index returns assume reinvestment of dividends and, unlike Portfolio returns, do not reflect any fees, expenses or sales charges. Portfolio returns are based on net asset value and do not reflect any annuity-related costs. You cannot invest directly in any Index. AVERAGE ANNUAL TOTAL RETURNS+ (As of December 31, 2003) NET ASSET VALUE* Life-of-Class 6.0% (3/1/95) 5 Years 2.21% 1 Year 18.80%
All total returns shown assume reinvestment of distributions at net asset value. + The performance of Class II shares for the period prior to the commencement of operations of Class II shares on May 1, 2003 is based on the performance of Class I shares, reduced to reflect the higher distribution fees of Class II shares. * Portfolio performance does not reflect any variable contract fees, expenses or sales charges. If they had been included, performance would have been lower. See the pages that comprise the inside cover of this report for performance net of any contract fees, expenses or sales charges. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns and principal values fluctuate so that your investment, when redeemed, may be worth more or less than its original cost. The performance table and graph do not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. 2 PORTFOLIO MANAGEMENT DISCUSSION 12/31/03 Rising expectations for an economic recovery helped drive strong performance in both the stock and corporate bond markets during 2003. Lower quality securities in both the equity and fixed-income markets outperformed higher-quality assets as investors anticipated that low short-term interest rates and new tax cuts would help stimulate corporate spending. In the following interview, Timothy Mulrenan, who is responsible for the equity portion of the Portfolio, and Richard Schlanger, who is responsible for the fixed-income portion of the Portfolio discuss the markets and their investment strategies during the 12 months ended December 31, 2003. Q: HOW DID PIONEER BALANCED VCT PORTFOLIO PERFORM DURING 2003? A: The Portfolio had good absolute performance, but its low-risk strategy and its emphasis on investments in high-quality equity and fixed-income securities held back relative returns. For the 12 months ended December 31, 2003, Class II shares of the Portfolio returned 18.80% at net asset value. In comparison, the Portfolio's benchmarks, the S&P 500 Index and the Lehman Brothers Aggregate Bond Index returned 28.67% and 4.10% respectively, for the year ended December 31, 2003. Q: HOW WOULD YOU DESCRIBE THE OVERALL INVESTMENT ENVIRONMENT? A: In the fixed-income market, corporate securities produced impressive returns, with lower-rated high-yield bonds outperforming higher-quality, investment-grade securities. Corporates substantially outperformed Treasury and government-agency bonds, whose yields began increasing as the economic recovery became more evident. In the equity market, investors also became less risk averse. While the general market indexes all registered substantial gains, new money flowed disproportionately toward the more speculative areas, including stocks of very small companies and companies with weaker fundamentals. Investors viewed those areas as the most likely to benefit quickly from a dramatic economic rebound. By industry, the stocks of semiconductor, cyclical and mortgage-related financial companies were among the performance leaders. Companies with stronger fundamentals and more consistent earnings often lagged the indices. Q: WHAT WAS YOUR OVERALL ASSET ALLOCATION TO STOCKS AND FIXED-INCOME ASSETS? A: We began the period with a target allocation of 55% equities and 45% fixed income. When the outlook for stocks began to improve, we raised it to 60% equities and 40% fixed income in March. We maintained that target through the remainder of the year, although the equity portfolio grew to be about 64% of assets by yearend because of the appreciation of stock holdings. Q: WHAT WERE YOUR STRATEGIES IN MANAGING THE FIXED-INCOME PORTFOLIO? A: We gradually increased our high-yield bond holdings during the year - a decision that helped support performance. We began the year with less than 1% of fixed-income assets invested in high-yield bonds, but ended the period with about 7.5% in high yield issues. Our total investments in industrial and utility bonds began the period at about 24% of assets. We raised that position to 40.2% by mid-year, but then reduced it to about 31.4% by December 31 due to corporate sector outperformance. We began to redeploy assets from investment-grade corporates into mortgage-backed securities as interest rates began to stabilize and we began to see less risk of prepayments from existing mortgages. As the spreads (differences between yields) of some corporate bonds narrowed versus Treasuries, we sold several positions, adding other corporate bonds with higher yields. For example, we sold our holdings in bonds issued by MBNA, HSBC, Goldman Sachs and Capital One, while adding the bonds of companies such as Echostar, Arrow Electronics, Jabil Circuits and Florida Power & Light Company. We believed the Federal Reserve was unlikely to raise short-term interest rates soon, and so the Portfolio's duration - or sensitivity to changes in interest rates - ended the year at 4.26 years, to take advantage of higher yields in longer maturity securities. Overall, credit quality remained high, at A+ at the end of the year. (Ratings apply to underlying securities, not Portfolio shares.) Q: WHAT WERE YOUR STRATEGIES IN MANAGING THE EQUITY PORTFOLIO? A: We held to our philosophy of emphasizing high-quality companies with durable franchises, strong managements, reasonable valuations and records of providing high returns on capital. Unfortunately, many of those companies were out of favor for much of the year, and several blue-chip holdings underperformed the market. We emphasized consumer staples, with investments in market-leading companies such as Anheuser-Busch, Gillette, and Wrigley's. All three underperformed the market, despite having consistent earnings growth. At the end of the year, the consumer-staples industry was our largest overweight position. However the Portfolio's performance was hindered by our not holding some tech stocks. Within technology, we tended to own stable growth companies such as Hewlett-Packard, Microsoft, and First Data, while many of the best performers in the industry were in the more volatile semiconductor area. Top performers in the equity portfolio included: Symantec Corp., a leading supplier of Internet security software systems, which gained 70%; Progressive Corp., a well-managed auto-insurance company, which rose 69%; and Newmont Mining, a gold-mining firm that gained 68%. Disappointments included defense contractor Northrop Grumman, which fell in the first half of the year amid fears that defense spending might decline because of the size of the federal deficit. Q: WHAT IS YOUR OUTLOOK FOR THE EQUITY MARKET? A: We believe that the positive economic momentum established during 2003 should continue in 2004, with corporations continuing to show earnings improvement, at least for the first half of the year. However, stock prices already reflect a very optimistic outlook, and so the market's momentum may slow and stock prices may remain in a trading range in the short term. We believe that the very strong relative performance by lower-quality companies may be coming to an end, and the market will begin to favor more stable growth companies that show clear evidence of earnings improvement. Q: WHAT IS YOUR OUTLOOK FOR THE FIXED-INCOME MARKET? A: We think that corporate bonds should continue to outperform Treasuries and government-agency securities in the first part of the year, but the key to the bond market will be tied to Federal Reserve policy. We do not believe that the Fed will raise short-term interest rates early in the year but will rather wait until early in the third calendar quarter. For the immediate future, we anticipate maintaining a relatively long duration to take advantage of the yields in longer-maturity securities. However, we will begin to reduce duration later in anticipation of increases in interest rates. ANY INFORMATION IN THIS SHAREHOLDER REPORT REGARDING MARKET OR ECONOMIC TRENDS OR THE FACTORS INFLUENCING THE PORTFOLIO'S HISTORICAL OR FUTURE PERFORMANCE ARE STATEMENTS OF THE OPINION OF PORTFOLIO MANAGEMENT AS OF THE DATE OF THIS REPORT. THESE STATEMENTS SHOULD NOT BE RELIED UPON FOR ANY OTHER PURPOSES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND THERE IS NO GUARANTEE THAT MARKET FORECASTS DISCUSSED WILL BE REALIZED. [SIDENOTE] The Portfolio's investment adviser, Pioneer Investment Management, Inc., reduced its management fee and certain other expenses; otherwise, returns would have been lower. 3 SCHEDULE OF INVESTMENTS 12/31/03
S&P/MOODY'S RATINGS SHARES (UNAUDITED) VALUE COMMON STOCKS - 62.5% ENERGY - 6.6% INTEGRATED OIL & GAS - 0.8% 8,600 Exxon Mobil Corp. $ 352,600 -------------- OIL & GAS DRILLING - 4.3% 10,700 Encana Corp. $ 422,008 34,500 ENSCO International, Inc. 937,365 25,800 Varco International, Inc.* 532,254 -------------- $ 1,891,627 -------------- OIL & GAS EXPLORATION & PRODUCTION - 1.5% 11,692 Devon Energy Corp. $ 669,484 -------------- TOTAL ENERGY $ 2,913,711 -------------- MATERIALS - 3.2% PRECIOUS METALS & MINERALS - 3.2% 29,200 Newmont Mining Corp. $ 1,419,412 -------------- TOTAL MATERIALS $ 1,419,412 -------------- CAPITAL GOODS - 3.5% AEROSPACE & DEFENSE - 2.8% 12,700 Northrop Grumman Corp. $ 1,214,120 -------------- ELECTRICAL COMPONENT & EQUIPMENT - 0.7% 10,800 Molex, Inc. $ 317,088 -------------- TOTAL CAPITAL GOODS $ 1,531,208 -------------- COMMERCIAL SERVICES & SUPPLIES - 0.6% DIVERSIFIED COMMERCIAL SERVICES - 0.6% 5,000 Cintas Corp. $ 250,650 -------------- TOTAL COMMERCIAL SERVICES & SUPPLIES $ 250,650 -------------- TRANSPORTATION - 1.5% TRUCKING - 1.5% 8,800 United Parcel Service $ 656,040 -------------- TOTAL TRANSPORTATION $ 656,040 -------------- MEDIA - 2.3% BROADCASTING & CABLE TV - 1.1% 3,300 Clear Channel Communications, Inc. $ 154,539 10,000 Comcast Corp. (Special)* 312,800 -------------- $ 467,339 -------------- MOVIES & ENTERTAINMENT - 1.0% 10,140 Viacom, Inc. (Class B) $ 450,013 -------------- PUBLISHING - 0.2% 1,500 McGraw-Hill Co., Inc. $ 104,880 -------------- TOTAL MEDIA $ 1,022,232 -------------- RETAILING - 2.9% GENERAL MERCHANDISE STORES - 2.9% 35,100 Family Dollar Stores, Inc. $ 1,259,388 -------------- TOTAL RETAILING $ 1,259,388 --------------
The accompanying notes are an integral part of these financial statements. 4
S&P/MOODY'S RATINGS SHARES (UNAUDITED) VALUE FOOD & DRUG RETAILING - 6.2% DRUG RETAIL - 0.6% 8,000 CVS Corp. $ 288,960 -------------- FOOD DISTRIBUTORS - 1.7% 12,000 Cardinal Health, Inc. $ 733,920 -------------- FOOD RETAIL - 2.7% 20,900 Wm. Wrigley Jr., Co. $ 1,174,789 -------------- HYPERMARKETS & SUPERCENTERS - 1.2% 10,000 Wal-Mart Stores, Inc. $ 530,500 -------------- TOTAL FOOD & DRUG RETAILING $ 2,728,169 -------------- FOOD, BEVERAGE & TOBACCO - 5.1% DISTILLERS & VINTNERS - 2.7% 23,100 Anheuser-Busch Companies, Inc. $ 1,216,908 -------------- SOFT DRINKS - 2.4% 12,300 The Coca-Cola Co. $ 624,225 9,200 PepsiCo, Inc. 428,904 -------------- $ 1,053,129 -------------- TOTAL FOOD, BEVERAGE & TOBACCO $ 2,270,037 -------------- HOUSEHOLD & PERSONAL PRODUCTS - 4.1% HOUSEHOLD PRODUCTS - 1.1% 12,900 Estee Lauder Co. $ 506,454 -------------- PERSONAL PRODUCTS - 3.0% 36,100 Gillette Co. $ 1,325,953 -------------- TOTAL HOUSEHOLD & PERSONAL PRODUCTS $ 1,832,407 -------------- HEALTH CARE EQUIPMENT & SERVICES - 4.1% HEALTH CARE DISTRIBUTORS - 2.4% 24,900 Wyeth, Inc. $ 1,057,005 -------------- HEALTH CARE EQUIPMENT - 1.7% 20,900 Biomet, Inc. $ 760,969 -------------- TOTAL HEALTH CARE EQUIPMENT & SERVICES $ 1,817,974 -------------- PHARMACEUTICALS & BIOTECHNOLOGY - 4.6% BIOTECHNOLOGY - 0.4% 2,716 Amgen, Inc.* $ 167,849 -------------- PHARMACEUTICALS - 4.2% 6,400 Merck & Co., Inc. $ 295,680 44,088 Pfizer, Inc. 1,557,629 -------------- $ 1,853,309 -------------- TOTAL PHARMACEUTICALS & BIOTECHNOLOGY $ 2,021,158 -------------- DIVERSIFIED FINANCIALS - 1.7% ASSET MANAGEMENT & CUSTODY BANKS - 0.4% 5,500 The Bank of New York Co., Inc. $ 182,160 -------------- CONSUMER FINANCE - 1.3% 12,000 American Express Co. $ 578,760 -------------- TOTAL DIVERSIFIED FINANCIALS $ 760,920 --------------
The accompanying notes are an integral part of these financial statements. 5
S&P/MOODY'S RATINGS SHARES (UNAUDITED) VALUE INSURANCE - 5.8% PROPERTY & CASUALTY INSURANCE - 5.8% 515 Berkshire Hathaway, Inc. (Class B)* $ 1,449,725 13,200 Progressive Corp. 1,103,388 -------------- $ 2,553,113 -------------- TOTAL INSURANCE $ 2,553,113 -------------- SOFTWARE & SERVICES - 7.3% APPLICATION SOFTWARE - 4.4% 32,000 Microsoft Corp. $ 881,280 31,400 Symantec Corp.* 1,088,010 -------------- $ 1,969,290 -------------- DATA PROCESSING & OUTSOURCED SERVICES - 2.9% 31,000 First Data Corp. $ 1,273,790 -------------- TOTAL SOFTWARE & SERVICES $ 3,243,080 -------------- TECHNOLOGY HARDWARE & EQUIPMENT - 2.3% COMPUTER HARDWARE - 2.3% 45,122 Hewlett-Packard Co. $ 1,036,452 -------------- TOTAL TECHNOLOGY HARDWARE & EQUIPMENT $ 1,036,452 -------------- SEMICONDUCTORS - 0.6% 8,900 Intel Corp. $ 286,580 -------------- TOTAL SEMICONDUCTORS $ 286,580 -------------- TOTAL COMMON STOCKS (Cost $23,605,944) $ 27,602,531 -------------- PRINCIPAL AMOUNT ASSET BACKED SECURITY - 0.2% DIVERSIFIED FINANCIALS - 0.2% DIVERSIFIED FINANCIAL SERVICES - 0.2% $ 94,910 BBB-/Baa2 PF Export Receivable, 6.44%, 6/1/15 (144A) $ 96,756 -------------- $ 96,756 -------------- TOTAL ASSET BACKED SECURITY (Cost $94,910) $ 96,756 -------------- CORPORATE BONDS - 15.5% ENERGY - 0.5% INTEGRATED OIL & GAS - 0.3% 30,000 BBB+/Baa1 Occidental Petroleum, 7.65%, 2/15/06 $ 32,874 40,000 BBB+/Baa1 Occidental Petroleum, 6.75%, 1/15/12 45,115 40,000 A-/A3 Philips Petroleum Co., 8.75%, 5/25/10 49,968 -------------- $ 127,957 -------------- OIL & GAS EQUIPMENT AND SERVICES - 0.2% 100,000 BBB/Baa3 Seacor Smit, Inc., 5.875%, 10/1/12 $ 102,286 -------------- TOTAL ENERGY $ 230,243 -------------- MATERIALS - 1.1% DIVERSIFIED METALS & MINING - 0.3% 125,000 BBB-/Baa3 Inco, Ltd., 7.2%, 9/15/32 $ 136,643 --------------
The accompanying notes are an integral part of these financial statements. 6
S&P/MOODY'S PRINCIPAL RATINGS AMOUNT (UNAUDITED) VALUE METAL & GLASS CONTAINERS - 0.1% $ 40,000 BBB/Baa2 Tenneco Packaging, 8.125%, 6/15/17 $ 48,635 -------------- PAPER PRODUCTS - 0.2% 100,000 BB+/Ba1 Abitibi-Consolidated, Inc., 6.95%, 4/1/08 $ 104,787 -------------- SPECIALTY CHEMICALS - 0.5% 100,000 BB-/B3 Polyone Corp., 8.875%, 5/1/12 $ 92,000 100,000 BBB-/Baa3 Ferro Corp., 9.125%, 1/1/09 118,147 -------------- $ 210,147 -------------- TOTAL MATERIALS $ 500,212 -------------- CAPITAL GOODS - 0.8% AEROSPACE & DEFENSE - 0.1% 25,000 BB+/B3 K&F Industries, 9.625%, 12/15/10 $ 28,031 -------------- ELECTRICAL COMPONENTS & EQUIPMENT - 0.2% 75,000 BBB-/Ba1 Thomas & Betts, 7.25%, 6/1/13 $ 77,250 -------------- INDUSTRIAL CONGLOMERATES - 0.2% 55,000 AAA/Aaa General Electric Capital Corp., 6.125%, 2/22/11 $ 60,506 30,000 AAA/Aaa General Electric Capital Corp., 6.75%, 3/15/32 33,214 -------------- $ 93,720 -------------- INDUSTRIAL MACHINERY - 0.3% 150,000 BBB-/Ba1 Timken Co., 5.75%, 2/15/10 $ 148,278 -------------- TOTAL CAPITAL GOODS $ 347,279 -------------- COMMERCIAL SERVICES & SUPPLIES - 0.4% ENVIRONMENTAL SERVICES - 0.4% 150,000 BB-/Ba3 Allied Waste, 7.8756%, 1/1/09 $ 156,375 -------------- TOTAL COMMERCIAL SERVICES & SUPPLIES $ 156,375 -------------- AUTOMOBILES & COMPONENTS - 1.7% AUTOMOBILE MANUFACTURERS - 1.7% 400,000 BBB/Baa1 General Motors, 7.2%, 1/15/11 $ 439,794 175,000 BBB-/A3 Ford Motor Credit Co., 5.8%, 1/12/09 180,224 50,000 BBB-/A3 Ford Motor Credit Co., 9.14%, 12/30/14 52,386 100,000 BB+/Ba1 Hyundai Motor Co, Ltd., 5.3%, 12/19/08 100,299 -------------- $ 772,703 -------------- TOTAL AUTOMOBILES & COMPONENTS $ 772,703 -------------- HOTELS, RESTAURANTS & LEISURE - 0.8% CASINOS & GAMING - 0.3% 25,000 BB+/B1 Turning Stone, 9.125%, 12/15/10 (144A) $ 27,188 75,000 BB+/Ba1 Park Place Entertainment, 7.0%, 4/15/13 (144A) 80,063 -------------- $ 107,251 -------------- HOTELS, RESORTS & CRUISE LINES - 0.5% 200,000 BBB-/Ba1 Hilton Hotels, 7.625%, 12/1/12 $ 224,750 -------------- TOTAL HOTELS, RESTAURANTS & LEISURE $ 332,001 --------------
The accompanying notes are an integral part of these financial statements. 7
S&P/MOODY'S PRINCIPAL RATINGS AMOUNT (UNAUDITED) VALUE MEDIA - 2.3% BROADCASTING & CABLE TV - 1.6% $ 250,000 BBB/Baa3 Comcast Cable Corp., 7.125%, 6/15/13 $ 284,676 240,000 BBB/Baa2 Cox Communications, 7.125%, 10/1/12 276,819 160,000 BB-/Ba3 Echostar DBS Corp., 6.375%, 10/1/11 (144A) 164,000 -------------- $ 725,495 -------------- MOVIES & ENTERTAINMENT - 0.3% 100,000 BBB+/Baa1 AOL Time Warner, Inc., 6.875%, 5/1/12 $ 112,531 -------------- PUBLISHING - 0.4% 170,000 BBB-/Baa3 News America Inc., 7.3%, 4/30/28 $ 189,848 -------------- TOTAL MEDIA $ 1,027,874 -------------- RETAILING - 0.5% DEPARTMENT STORES - 0.3% 100,000 BB+/Ba3 J.C. Penney Co., 8.0%, 3/1/10 $ 114,625 -------------- SPECIALTY STORES - 0.2% 100,000 BBB-/Baa3 Toys "R" Us, 7.875%, 4/15/13 $ 107,575 -------------- TOTAL RETAILING $ 222,200 -------------- FOOD, BEVERAGE & TOBACCO - 0.4% TOBACCO - 0.4% 150,000 BBB/Baa2 Altria Group, Inc., 7.0%, 11/4/13 $ 160,019 -------------- TOTAL FOOD, BEVERAGE & TOBACCO $ 160,019 -------------- HEALTH CARE EQUIPMENT & SERVICES - 0.7% HEALTH CARE FACILITIES - 0.5% 200,000 BBB-/Ba1 HCA, Inc., 6.3%, 10/1/12 $ 206,203 -------------- HEALTH CARE SUPPLIES - 0.2% 100,000 BBB-/Ba1 Bausch & Lomb, 7.125%, 8/1/28 $ 101,500 -------------- TOTAL HEALTH CARE EQUIPMENT & SERVICES $ 307,703 -------------- PHARMACEUTICALS & BIOTECHNOLOGY - 0.1% PHARMACEUTICALS - 0.1% 40,000 AAA/Aaa Pharmacia Corp., 6.6%, 12/1/28 $ 45,043 -------------- TOTAL PHARMACEUTICALS & BIOTECHNOLOGY $ 45,043 -------------- BANKS - 0.5% DIVERSIFIED BANKS - 0.3% 50,000 NR/Aaa KFW-Kredit Wiederaufbau, 2.75%, 5/8/07 $ 49,788 75,000 AA-/Aa2 National Westminster, 7.375%, 10/1/09 87,734 -------------- $ 137,522 -------------- THRIFTS & MORTGAGE FINANCE - 0.2% 100,000 BBB-/Baa3 Sovereign Bank, 5.125%, 3/15/13 $ 99,284 -------------- TOTAL BANKS $ 236,806 -------------- DIVERSIFIED FINANCIALS - 0.6% DIVERSIFIED FINANCIAL SERVICES - 0.4% 100,000 A-/Baa3 Brascan Corp., 5.75%, 3/1/10 $ 105,865 50,000 BBB/Baa1 Norfolk Southern Corp., 7.35%, 5/15/07 56,795 -------------- $ 162,660 --------------
The accompanying notes are an integral part of these financial statements. 8
S&P/MOODY'S PRINCIPAL RATINGS AMOUNT (UNAUDITED) VALUE SPECIALIZED FINANCE - 0.2% $ 100,000 B/B2 MDP Acquistions, 9.625%, 10/1/12 $ 112,000 -------------- TOTAL DIVERSIFIED FINANCIALS $ 274,660 -------------- INSURANCE - 0.8% LIFE & HEALTH INSURANCE - 0.2% 100,000 BBB-/Baa3 Provident Co., 7.0%, 7/15/18 $ 100,514 -------------- PROPERTY & CASUALTY INSURANCE - 0.4% 150,000 BBB+/Baa2 Berkley, 5.875%, 2/15/13 $ 153,196 -------------- REINSURANCE - 0.2% 100,000 BBB-/Baa3 Odyssey Re Holdings, 7.65%, 11/1/13 $ 104,473 -------------- TOTAL INSURANCE $ 358,183 -------------- REAL ESTATE - 1.0% REAL ESTATE INVESTMENT TRUSTS - 1.0% 150,000 BBB-/Baa3 Hospitality Properties Trust, 6.75%, 2/15/13 $ 157,162 175,000 BBB-/Baa3 Health Care REIT, Inc., 7.5%, 8/15/07 197,133 100,000 BBB-/Baa3 Colonial Reality LP, 6.15%, 4/15/13 104,135 -------------- $ 458,430 -------------- TOTAL REAL ESTATE $ 458,430 -------------- TECHNOLOGY HARDWARE & EQUIPMENT - 1.7% COMMUNICATIONS EQUIPMENT - 0.4% 150,000 BB+/Ba3 Rogers Wireless, 9.625%, 5/1/11 $ 179,250 -------------- COMPUTER HARDWARE - 0.9% 250,000 BBB-/Baa3 NCR Corp., 7.125%, 6/15/09 $ 278,833 100,000 BB+/Ba1 Unisys Corp., 6.875%, 3/15/10 108,250 -------------- $ 387,083 -------------- ELECTRONIC MANUFACTURING SERVICES - 0.2% 75,000 BB+/Baa3 Jabil Circuit, Inc., 5.875%, 7/15/10 $ 78,230 -------------- TECHNOLOGY DISTRIBUTORS - 0.2% 100,000 BBB-/Baa3 Arrow Electronic Inc., 6.875%, 7/1/13 $ 106,556 -------------- TOTAL TECHNOLOGY HARDWARE & EQUIPMENT $ 751,119 -------------- TELECOMMUNICATION SERVICES - 0.6% INTEGRATED TELECOMMUNICATION SERVICES - 0.6% 100,000 BBB+/Baa3 International Telecom Satellite, 6.5%, 11/1/13 (144A) $ 104,339 100,000 BBB+/Baa2 Telecom Italia S.p.A. 5.25%, 11/15/13 (144A) 100,199 55,000 A+/A2 Verizon Global, 7.75%, 12/1/30 64,609 -------------- $ 269,147 -------------- TOTAL TELECOMMUNICATION SERVICES $ 269,147 -------------- UTILITIES - 0.9% ELECTRIC UTILITIES - 0.7% 100,000 BBB-/Baa3 FPL Energy America, 6.639%, 6/20/23 (144A) $ 104,252 175,000 BBB-/Baa3 CMS Panhandle, 6.5%, 7/15/09 193,196 -------------- $ 297,448 --------------
The accompanying notes are an integral part of these financial statements. 9
S&P/MOODY'S PRINCIPAL RATINGS AMOUNT (UNAUDITED) VALUE MULTI-UTILITIES & UNREGULATED POWER - 0.2% $ 100,000 B/B1 Reliant Resources, Inc., 9.5%, 7/15/13 (144A) $ 107,000 -------------- TOTAL UTILITIES $ 404,448 -------------- TOTAL CORPORATE BONDS (Cost $6,404,759) $ 6,854,445 -------------- U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 18.7% 175,000 AAA/Aaa Federal Home Loan Mortgage Corp., 6.5%, 11/1/33 $ 183,321 1,671,077 AAA/Aaa Federal Home Loan Mortgage Corp., 6.0%, 1/1/33 1,727,578 57,115 AAA/Aaa Federal Home Loan Mortgage Corp., 6.5%, 5/1/09 60,680 150,000 AAA/Aaa Federal National Mortgage Association 6.0% 30 YR TBA 154,874 110,000 AAA/Aaa Federal National Mortgage Association, 6.125%, 3/15/12 122,515 105,839 AAA/Aaa Federal National Mortgage Association, 6.5%, 4/1/29 111,849 97,577 AAA/Aaa Federal National Mortgage Association, 6.5%, 10/1/32 102,064 171,360 AAA/Aaa Federal National Mortgage Association, 6.5%, 7/1/32 179,223 23,145 AAA/Aaa Federal National Mortgage Association, 6.5%, 10/1/32 24,209 109,403 AAA/Aaa Federal National Mortgage Association, 6.5%, 12/1/21 114,685 33,177 AAA/Aaa Federal National Mortgage Association Pool, 6.5%, 8/1/13 35,188 262,771 AAA/Aaa Federal National Mortgage Association, 5.5%, 2/1/17 272,633 84,911 AAA/Aaa Federal National Mortgage Association, 6.5%, 9/1/32 89,391 149,418 AAA/Aaa Federal National Mortgage Association, 9%, 4/1/33 165,866 249,738 AAA/Aaa Federal National Mortgage Association, 5.5%, 11/1/33 253,117 31,837 AAA/Aaa Federal National Mortgage Association, 6.5%, 8/1/14 33,776 10,000 AAA/Aaa Federal National Mortgage Association, 7.125%, 6/15/10 11,757 150,000 AAA/Aaa Freddie Mac 5.75%, 1/15/12 163,409 49,398 AAA/Aaa Government National Mortgage Association II, 7.5%, 9/20/29 52,639 397,204 AAA/Aaa Government National Mortgage Association, 6.0%, 10/20/33 412,428 193,117 AAA/Aaa Government National Mortgage Association, 6.0%, 9/15/32 200,911 73,208 AAA/Aaa Government National Mortgage Association, 5.5%, 9/15/33 74,637 387,133 AAA/Aaa Government National Mortgage Association, 6.5%, 2/15/29 408,582 598,241 AAA/Aaa Government National Mortgage Association, 6.0%, 9/15/33 622,283 285,000 AAA/Aaa Government National Mortgage Association, 6.5%, 5/15/33 300,479 380,781 AAA/Aaa Government National Mortgage Association, 5.5%, 6/15/33 387,516 294,278 AAA/Aaa Government National Mortgage Association, 5.5%, 7/15/33 299,484 199,381 AAA/Aaa Government National Mortgage Association, 5.5%, 8/15/33 202,907 93,979 AAA/Aaa Government National Mortgage Association, 6.5%, 10/15/28 99,228 45,000 AAA/Aaa TSY INFL IX Notes, 3.375%, 1/15/07 55,449 470,000 AAA/Aaa U.S. Treasury Notes, 4.0%, 11/15/12 465,484 500,000 AAA/Aaa U.S. Treasury Notes, 5.625%, 5/15/08 553,867 300,000 AAA/Aaa U.S. Treasury Notes, 4.75%, 11/15/08 321,164 -------------- $ 8,263,193 -------------- TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS (Cost $8,148,367) $ 8,263,193 -------------- TOTAL INVESTMENT IN SECURITIES - 96.9% (Cost $38,253,980) $ 42,816,925 -------------- OTHER ASSETS AND LIABILITIES - 3.1% $ 1,345,448 -------------- TOTAL NET ASSETS - 100.0% $ 44,162,373 --------------
NR: Not Rated * Non-income producing security. 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, 2003, the value of these securities amounted to $783,798 or 1.8% of net assets. TBA (To Be Assigned) Securities are purchased on a forward commitment basis with an approximate (generally plus or minus 2.5%) principal amount and no definite Maturity date period. The actual principal amount and maturity date will be determined upon settlement when the specific mortgage pools are assigned. The accompanying notes are an integral part of these financial statements. 10 FINANCIAL HIGHLIGHTS 12/31/03
5/1/03 TO CLASS II (a) 12/31/03 Net asset value, beginning of period $ 12.67 ------------ Increase (decrease) from investment operations: Net investment income $ 0.14 Net realized and unrealized gain (loss) on investments and foreign currency transactions 1.40 ------------ Net increase (decrease) from investment operations $ 1.54 Distributions to shareholders: Net investment income (0.19) Net realized gain - ------------ Net increase (decrease) in net asset value $ 1.35 ------------ Net asset value, end of period $ 14.02 ============ Total return* 12.17% Ratio of net expenses to average net assets+ 1.11%** Ratio of net investment income to average net assets+ 1.12%** Portfolio turnover rate 37%** Net assets, end of period (in thousands) $ 3,390 Ratios assuming no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.11%** Net investment income (loss) 1.12%**
(a) Class 2 shares were first publicly offered on May 1, 2003. * 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. 11 STATEMENT OF ASSETS AND LIABILITIES 12/31/03
Pioneer Balanced VCT Portfolio ASSETS: Investment in securities, at value (Cost $38,253,980) $ 42,816,925 Temporary cash investments (at amortized cost) - Cash 1,376,034 Cash held as collateral for futures contracts - Foreign currencies, at value - Receivables - Investment securities sold - Fund shares sold 8,052 Collateral for securities loaned, at fair value - Variation margin - Dividends, interest and foreign taxes withheld 184,828 Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, open - net - Due from Pioneer Investment Management, Inc. - Other 2,342 -------------- Total assets $ 44,388,181 -------------- LIABILITIES: Payables - Investment securities purchased $ 155,575 Fund shares repurchased 5,328 Dividends - Upon return for securities loaned - Variation margin - Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, - Due to bank - Due to affiliates 30,649 Accrued expenses 34,256 Other - -------------- Total liabilities $ 225,808 -------------- NET ASSETS: Paid-in capital $ 45,939,366 Accumulated net investment income (loss) 12,808 Accumulated undistributed net realized gain (loss) (6,352,746) Net unrealized gain (loss) on: Investments 4,562,945 Futures contracts - Foreign currency transactions - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - -------------- Total net assets $ 44,162,373 -------------- NET ASSET VALUE PER SHARE: CLASS I: (Unlimited number of shares authorized) Net assets $ 40,772,755 Shares outstanding 2,904,312 -------------- Net asset value per share $ 14.04 CLASS II: (Unlimited number of shares authorized) Net assets $ 3,389,618 Shares outstanding 241,741 -------------- Net asset value per share $ 14.02
The accompanying notes are an integral part of these financial statements. 12 STATEMENTS OF OPERATIONS
PIONEER BALANCED VCT PORTFOLIO YEAR ENDED 12/31/03 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $224) $ 255,698 Interest (net of foreign taxes withheld of $113) 840,741 Income on securities loaned, net - Other - -------------- Total investment income $ 1,096,439 -------------- EXPENSES: Management fees $ 268,187 Transfer agent fees 1,426 Distribution fees (Class II) 1,729 Administrative fees 37,500 Custodian fees 17,900 Professional fees 26,719 Printing 15,516 Fees and expenses of nonaffiliated trustees 706 Miscellaneous 8,184 -------------- Total expenses $ 377,867 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. - -------------- Net expenses $ 377,867 -------------- Net investment income (loss) $ 718,572 -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ 336,352 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - -------------- $ 336,352 -------------- Change in net unrealized gain or loss from: Investments $ 5,309,842 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - -------------- $ 5,309,842 -------------- Net gain (loss) on investments, futures contracts and foreign currency transactions $ 5,646,194 ============== Net increase (decrease) in net assets resulting from operations $ 6,364,766 ==============
The accompanying notes are an integral part of these financial statements. 13 STATEMENTS OF CHANGES IN NET ASSETS
PIONEER BALANCED VCT PORTFOLIO YEAR YEAR ENDED ENDED 12/31/03 12/31/02 FROM OPERATIONS: Net investment income (loss) $ 718,572 $ 807,085 Net realized gain (loss) on investments 336,352 (5,427,861) Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions 5,309,842 (1,161,669) ---------------- ---------------- Net increase (decrease) in net assets resulting from operations $ 6,364,766 $ (5,782,445) ---------------- ---------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (800,491) $ (838,807) Class II (20,067) Net realized gain Class I - - Class II - - Tax return of capital Class I - - Class II - - ---------------- ---------------- Total distributions to shareowners $ (820,558) $ (838,807) ---------------- ---------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 4,068,440 $ 2,188,541 Reinvestment of distributions 820,551 838,807 Cost of shares repurchased (9,119,455) (10,447,197) ---------------- ---------------- Net increase (decrease) in net assets resulting from fund share transactions $ (4,230,464) $ (7,419,849) ---------------- ---------------- Net increase (decrease) in net assets $ 1,313,744 $ (14,041,101) ---------------- ---------------- NET ASSETS: Beginning of year 42,848,629 56,889,730 ---------------- ---------------- End of year $ 44,162,373 $ 42,848,629 ================ ================ Accumulated undistributed/(distributions in excess of) net investment income (loss) end of year $ 12,808 $ 50,160 ================ ================
The accompanying notes are an integral part of these financial statements. 14 NOTES TO FINANCIAL STATEMENTS 12/31/03 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Pioneer Balanced VCT Portfolio is a portfolio of the Pioneer Variable Contracts Trust (the Trust) which is a Delaware business trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of sixteen separate portfolios fourteen of which issue both Class I and Class II shares (collectively, the Portfolios, individually the Portfolio) as follows: PORTFOLIOS: Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio) Pioneer Europe VCT Portfolio (Europe Portfolio) Pioneer International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio) Pioneer Small Company VCT Portfolio (Small Company Portfolio) Pioneer Mid Cap Value VCT Portfolio (Mid-Cap Value Portfolio) Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio) Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio) Pioneer Fund VCT Portfolio (Fund Portfolio) Pioneer Equity Income VCT Portfolio (Equity-Income Portfolio) Pioneer Balanced VCT Portfolio (Balanced Portfolio) Pioneer High Yield VCT Portfolio (High Yield Portfolio) Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio) Pioneer America Income VCT Portfolio (America Income Portfolio) Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares only) Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only) The Portfolio commenced operations on May 1, 2003. Portfolio shares may only be purchased by insurance companies for the purpose of funding variable annuity or variable life insurance contracts, and may also be purchased by qualified pension and retirement plans. The financial highlights for the Portfolio's Class I shares are presented in a separate book. The investment objectives of Balanced Portfolio are capital growth and current income. Trust's financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America 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 income, expenses, gains and losses during the reporting years. 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 as of trade date. Net asset value for the portfolio is 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, based on the last sale price on the principal exchange where they traded, 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. Valuations may be supplemented by dealers and other sources, as required. 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 becomes aware of the ex-dividend data in the exercise of reasonable diligence. Interest income, including interest on income bearing cash accounts, is recorded on the accrual basis, net of unrecoverable foreign taxes withheld at the applicable country rates. All discounts/premiums are accreted/amortized for financial reporting purposes. 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, and, if applicable, are reported net of foreign taxes on capital gains at the applicable country rates. B. FUTURES CONTRACTS The Portfolio may enter into futures transactions to hedge against changes in interest rates, securities prices, and currency rates or to seek to increase total 15 return. Upon entering into a futures contract, the Portfolio is required to deposit with a broker an amount of cash or securities equal to the minimum "initial margin" requirements of the associated futures exchange. Subsequent payments for futures contracts ("variation margin") are paid or received by the Portfolio, depending on the daily fluctuation in the value of the contracts, and are recorded by the Portfolio as unrealized gains or losses. When the contract is closed, the Portfolio realizes a gain or loss equal to the difference between the opening and closing value of the contract. The use of futures contracts involves, to varying degrees, elements of market risk which may exceed the amounts recognized by the Portfolio. Changes in the value of the contracts may not directly correlate to the changes in the value of the underlying securities. These risks may decrease the effectiveness of the Portfolio's hedging and trading strategies and potentially result in a loss. As of December 31, 2003, the portfolio had no open futures contracts. C. 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 shareowners. Therefore, no federal income tax provision is required. The amount and characterization of distributions to shareowners 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. At December 31, 2003, the Portfolio made reclassifications as described below. These reclassifications have no impact on the net asset value of the Portfolio and are designed to present the portfolios' capital accounts on a tax basis.
ACCUMULATED ACCUMULATED NET INVESTMENT REALIZED PORTFOLIO INCOME/(LOSS) GAIN/(LOSS) PAID-IN CAPITAL Balanced Portfolio 64,634 (64,634) -
Capital loss carryforwards are available to offset future realized capital gains. At December 31, 2003, Balanced VCT Portfolio had a capital loss carryforward of $6,275,373, of which will the following amounts expire between 2006 and 2011 if not utilized: $985,646 in 2006, $2,699,582 in 2010, and $2,590,145, in 2011. The following chart shows the components of distributable earnings (accumulated losses) as of December 31, 2003 and the distributions paid during the year ended December 31, 2003 on a tax basis as of December 31, 2003.
PIONEER PIONEER BALANCED BALANCED VCT PORTFOLIO VCT PORTFOLIO 2003 2002 DISTRIBUTIONS PAID FROM: Ordinary Income $ 820,558 $ 838,807 Long-Term capital gain - - -------------- -------------- $ 820,558 $ 838,807 Return of Capital - - -------------- -------------- Total distributions $ 820,558 $ 838,807 -------------- -------------- DISTRIBUTABLE EARNINGS (ACCUMULATED LOSSES): Undistributed ordinary income $ 400 Undistributed long-term gain/ (capital loss carryforward) (6,275,373) Unrealized appreciation/(depreciation) 4,497,980 -------------- Total $ (1,776,993) ==============
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily attributable to the tax deferral of losses on wash sales, returns of capital on REITs, and the recognition of unrealized gains or losses on certain futures contracts. D. PORTFOLIO SHARES The Portfolio records sales and repurchases of its portfolio shares as of trade date. Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the principal underwriter for the Trust and a wholly owned indirect subsidiary of UniCredito Italiano S.p.A. (UniCredito Italiano), $246,661 in commissions on the sale of Trust shares for the year ended December 31, 2003. Distribution fees are calculated based on the average daily net asset values attributable to Class I and Class II 16 shares of the Portfolio, respectively. Shareowners of each class share all expenses and fees paid to the transfer agent, Pioneer Investment Management Shareholder Services, Inc. (PIMSS), for its services, which are allocated based on the number of accounts in each class and the ratable allocation of related out-of-pocket expenses (see Note 3). Income, common expenses and realized and unrealized gains and losses are calculated at the Portfolio level and allocated daily to each class of shares based on the respective percentage of adjusted net assets at the beginning of the day. Dividends and distributions to shareowners are recorded on the ex-dividend date. Distributions paid by the Portfolio with respect to each class of shares are calculated in the same manner, at the same time, and in the same amount, except that Class I and Class II shares can bear different transfer agent and distribution fees. Income, expenses (excluding 12b-1 fees) and gains and losses are calculated at the Portfolio level and are allocated daily based on the respective percentage of adjusted net assets at the beginning of the day. E. SECURITIES LENDING The Portfolio lends securities in its portfolio to certain broker-dealers or other institutional investors, with the Portfolio's custodian acting as the lending agent. When entering into a loan, the Portfolio receives collateral which is maintained by the custodian and earns income in the form of negotiated lenders' fees. The Portfolio also continues to receive interest or dividends on the securities loaned, and gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for account of the Trust. The loans are secured by collateral of at least 102%, at all times, of the fair value of the securities loaned. The fair value of the collateral will be adjusted daily to reflect any price fluctuation in the value of the loaned securities. The Trust has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Trust invests cash collateral in the Securities Lending Investment Fund which is managed by Brown Brothers Harriman & Co., the Trust's custodian. F. REPURCHASE AGREEMENTS With respect to repurchase agreements entered into by the Portfolio, 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 Portfolio's custodian, or subcustodian. The Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is responsible for determining that the value of the collateral remains at least equal to the repurchase price. 2. MANAGEMENT AGREEMENT PIM manages the Portfolio, and is a wholly owned indirect subsidiary of UniCredito Italiano. Management fees are calculated daily at the following annual rate of 0.65% of the Portfolio's average daily net assets. In addition, under the management and administration agreement, certain other services and costs, including accounting, regulatory reporting and insurance premiums, are paid by the Portfolio. At December 31, 2003, $29,918 was payable to PIM related to management fees, administrative fees and certain other services. 3. TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. (PIMSS), a wholly owned indirect subsidiary of UniCredito Italiano provides substantially all transfer agent and shareowner services to the Trust at negotiated rates. Included in due to affiliates is $35 in transfer agent fees payable to PIMSS at December 31, 2003. 4. DISTRIBUTION PLANS The Portfolio has adopted a plan of distribution for Class II shares in accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily net assets attributable to Class II shares. Included in due to affiliates is $696 payable to PFD at December 31, 2003. 5. AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION At December 31, 2003, the Portfolio's aggregate unrealized appreciation and depreciation based on cost for federal income tax purposes was as follows:
GROSS GROSS APPRECIATION/ TAX COST APPRECIATION DEPRECIATION (DEPRECIATION) Balanced Portfolio $ 38,318,945 $ 4,766,216 $ (268,236) $ 4,497,980
17 6. PORTFOLIO TRANSACTIONS The cost of purchases and the proceeds from sales of investments other than U.S. Government obligations and temporary cash investments for the year ended December 31, 2003, were $10,185,951 and $11,926,106, respectively. The cost of purchase and the proceeds from sales in Net U.S. Government obligations were $4,829,909 and $8,107,674, respectively. 7. CAPITAL SHARES At December 31, 2003, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
BALANCED PORTFOLIO '03 SHARES '03 AMOUNT '02 SHARES '02 AMOUNT CLASS I: Shares sold 58,603 $ 777,329 169,730 $ 2,188,541 Reinvestment of distributions 60,877 800,492 65,588 838,807 Shares repurchased (705,902) (9,066,098) (834,080) (10,447,197) -------------- -------------- -------------- -------------- Net increase (decrease) (586,422) $ (7,488,277) (598,762) $ (7,419,849) ============== ============== ============== ============== CLASS II: Shares sold 244,252 $ 3,291,111 - $ - Reinvestment of distributions 1,455 20,059 - - Shares repurchased (3,966) (53,357) - - -------------- -------------- -------------- -------------- Net increase 241,741 $ 3,257,813 - $ - ============== ============== ============== ==============
18 REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF TRUSTEES OF PIONEER VARIABLE CONTRACTS TRUST AND THE CLASS II SHAREOWNERS OF PIONEER BALANCED INCOME VCT PORTFOLIO: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer Balanced Fund VCT Portfolio, one of the portfolios constituting Pioneer Variable Contracts Trust (the "Trust"), as of December 31, 2003, and the related statement of operations for the year then ended, and the statements of changes in net assets and financial highlights for each of the two years in the period then ended. 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. The financial highlights for each of the three years in the period ended December 31, 2001 were audited by other auditors who have ceased operations and whose report, dated February 8, 2002, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 Pioneer Balanced Income VCT Portfolio of Pioneer Variable Contracts Trust at December 31, 2003, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts February 6, 2004 19 TRUSTEES, OFFICERS AND SERVICE PROVIDERS INVESTMENT ADVISER Pioneer Investment Management, Inc. CUSTODIAN Brown Brothers Harriman & Co. INDEPENDENT AUDITORS Ernst & Young LLP PRINCIPAL UNDERWRITER Pioneer Funds Distributor, Inc. LEGAL COUNSEL Hale and Dorr LLP SHAREOWNER SERVICES AND TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. TRUSTEES AND OFFICERS The Fund's Board of Trustees provides broad supervision over the affairs of the Fund. The officers of the Fund are responsible for the Fund's operations. The Fund's Trustees and officers are listed below, together with their principal occupations during the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of 1940 are referred to as Interested Trustees. Trustees who are not interested persons of the Fund are referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 51 U.S. registered investment portfolios for which Pioneer Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the Portfolio is 60 State Street, Boston, Massachusetts 02109. The Fund's statement of additional information provides more detailed information regarding the Fund's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Fund are available without charge, upon request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. INTERESTED TRUSTEES
POSITION HELD TERM OF OFFICE AND LENGTH PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND OF SERVICE PAST FIVE YEARS HELD BY THIS TRUSTEE John F. Cogan, Jr.(77)* Chairman of the Board, Trustee since 1994. Deputy Chairman and a Director of Harbor Trustee and President Serves until a successor Director of Pioneer Global Company, Ltd. trustee is elected or Global Asset Management earlier retirement or S.p.A. ("PGAM"); removal. Non-Executive Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Director of Pioneer Alternative Investment Management Limited (Dublin); President and a Director of Pioneer Alternative Investment Management (Bermuda) Limited and affiliated funds; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel (since 2000, partner prior to 2000), Hale and Dorr LLP (counsel to PIM-USA and the Pioneer Funds) Osbert M. Hood (51)** Trustee and Executive Trustee since June, President and Chief None Vice President 2003. Serves until a Executive Officer, PIM-USA successor trustee is since May, 2003 (Director elected or earlier since January, 2001); retirement or removal. President and Director of Pioneer since May 2003; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Executive Vice President of all of the Pioneer Funds since June 2003; Executive Vice President and Chief Operating Officer of PIM-USA, November 2000-May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999-November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997-November 1999
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. **Mr. Hood is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. 20 INDEPENDENT TRUSTEES
POSITION HELD TERM OF OFFICE AND LENGTH PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME, AGE AND ADDRESS WITH THE FUND OF SERVICE PAST FIVE YEARS HELD BY THIS TRUSTEE Mary K. Bush (55) Trustee Trustee since President, Bush Director of Brady 3509 Woodbine Street, September, 2000. Serves International Corporation Chevy Chase, MD 20815 until a successor trustee (international financial (industrial is elected or earlier advisory firm) identification and retirement or removal. specialty coated material products manufacturer), Millenium Chemicals, Inc. (commodity chemicals), Mortgage Guaranty Insurance Corporation, and R.J. Reynolds Tobacco Holdings, Inc. (tobacco) Richard H. Egdahl, Trustee Trustee since 1995.Serves Alexander Graham Bell None M.D.(77) until a successor trustee Professor of Health Care Boston University is elected or earlier Entrepreneurship, Boston Healthcare retirement or removal. University; Professor of Entrepreneurship Management, Boston Program, University School of 53 Bay State Road, Management; Professor of Boston, MA 02215 Public Health, Boston University School of Public Health; Professor of Surgery, Boston University School of Medicine; and University Professor, Boston University Margaret B.W. Graham (56) Trustee Trustee since Founding Director, The None 1001 Sherbrooke September, 2000. Serves Winthrop Group, Inc. Street West, until a successor trustee (consulting firm); Montreal, Quebec, Canada is elected or earlier Professor of Management, retirement or removal. Faculty of Management, McGill University Marguerite A. Piret (55) Trustee Trustee since 1995. Serves President and Chief None One Boston Place, until a successor trustee Executive Officer, Newbury, 28th Floor, is elected or earlier Piret & Company, Inc. Boston, MA 02108 retirement or removal. (investment banking firm) Stephen K. West (75) Trustee Trustee since 1995. Serves Senior Counsel, Sullivan & Director, The Swiss 125 Broad Street, until a successor trustee Cromwell (law firm) Helvetia Fund, Inc. New York, NY 10004 is elected or earlier (closed-end investment retirement or removal. company) and AMVESCAP PLC (investment managers) John Winthrop (67) Trustee Trustee since President, John Winthrop & None One North Adgers Wharf, September, 2000. Serves Co., Inc. (private Charleston, SC 29401 until a successor trustee investment firm) is elected or earlier retirement or removal.
21 FUND OFFICERS
POSITION HELD TERM OF OFFICE AND LENGTH PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Dorothy E. Bourassa (56) Secretary Serves at the discretion Secretary of PIM-USA; None of board Senior Vice President-Legal of Pioneer; and Secretary/Clerk of most of PIM-USA's subsidiaries since October 2000; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003); and Senior Counsel, Assistant Vice President and Director of Compliance of PIM-USA from April 1998 through October 2000 Christopher J. Kelley (39) Assistant Secretary Serves at the discretion Assistant Vice President None of board and Senior Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001; Vice President and Associate General Counsel from July 1996 to July 2000); Assistant Secretary of all of the Pioneer Funds since September 2003 David C. Phelan (46) Assistant Secretary Serves at the discretion Partner, Hale and Dorr None of board LLP; Assistant Secretary of all of the Pioneer Funds since September 2003 Vincent Nave (58) Treasurer Serves at the discretion Vice President-Fund None of board Accounting, Administration and Custody Services of Pioneer (Manager from September 1996 to February 1999); and Treasurer of all of the Pioneer Funds (Assistant Treasurer from June 1999 to November 2000) Luis I. Presutti (38) Assistant Treasurer Serves at the discretion Assistant Vice None of board President-Fund Accounting, Administration and Custody Services of Pioneer (Fund Accounting Manager from 1994 to 1999); and Assistant Treasurer of all of the Pioneer Funds since November 2000
22
POSITION HELD TERM OF OFFICE AND LENGTH PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Gary Sullivan (45) Assistant Treasurer Serves at the discretion Fund Accounting None of board Manager-Fund Accounting, Administration and Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 Katharine Kim Sullivan Assistant Treasurer Serves at the discretion Fund Administration None (30) of board. Manager-Fund Accounting, Administration and Custody Services since June 2003; Assistant Vice President-Mutual Fund Operations of State Street Corporation from June 2002 to June 2003 (formerly Deutsche Bank Asset Management); Pioneer Fund Accounting, Administration and Custody Services (Fund Accounting Manager from August 1999 to May 2002, Fund Accounting Services Supervisor from 1997 to July 1999); Assistant Treasurer of all of the Pioneer Funds since September 2003
23 THIS PAGE FOR YOUR NOTES. 24 THIS PAGE FOR YOUR NOTES. 25 [PIONEER INVESTMENTS(R) LOGO] 14695-00-0204 [PIONEER INVESTMENTS(R) LOGO] PIONEER VARIABLE CONTRACTS TRUST PIONEER EMERGING MARKETS VCT PORTFOLIO -- CLASS II SHARES ANNUAL REPORT DECEMBER 31, 2003 PIONEER VARIABLE CONTRACTS TRUST TABLE OF CONTENTS Pioneer Emerging Markets VCT Portfolio Portfolio and Performance Update 2 Portfolio Management Discussion 3 Schedule of Investments 4 Financial Statements 9 Notes to Financial Statements 13 Report of Independent Auditors 17 Trustees, Officers and Service Providers 18
PIONEER EMERGING MARKETS VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO AND PERFORMANCE UPDATE 12/31/03 [CHART] PORTFOLIO DIVERSIFICATION (As a percentage of total investment portfolio) International Common Stocks 59.5% Depositary Receipts for International Stocks 24.5% Temporary Cash Investment 7.6% U.S. Common Stocks 5.5% International Preferred Stocks 2.9%
[CHART] GEOGRAPHICAL DISTRIBUTION (As a percentage of equity holdings) South Korea 15.2% Brazil 13.2% India 13.0% Taiwan 9.3% South Africa 7.4% Thailand 6.1% Russia 5.5% Turkey 4.3% Chile 3.4% Indonesia 2.8% Malaysia 2.8% People's Republic of China 2.5% Hong Kong 2.2% Mexico 2.2% Hungary 1.8% Peru 1.8% Singapore 1.5% Israel 1.2% Poland 1.2% Other (individually less than 1%) 2.6%
FIVE LARGEST HOLDINGS (As a percentage of equity holdings) 1. Petrobras Brasiliero SA (A.D.R.) 2.46% 2. Samsung Electronics Co. 2.01 3. Compania de Minas Buenaventura SA 1.76 4. Lukoil Holding (A.D.R.) 1.67 5. Anglo American Plc 1.59
Holdings will vary for other periods. This list excludes temporary cash and derivative investments. PRICES AND DISTRIBUTIONS
12/31/03 12/31/02 Net Asset Value per Share $ 17.26 $ 10.98
DISTRIBUTIONS PER SHARE SHORT-TERM LONG-TERM (1/1/03 - 12/31/03) DIVIDENDS CAPITAL GAINS CAPITAL GAINS $ 0.0462 $ - $ -
PERFORMANCE OF A $10,000 INVESTMENT The following chart shows the change in value of an investment made in PIONEER EMERGING MARKETS VCT PORTFOLIO at net asset value, compared to that of the Morgan Stanley Capital International (MSCI) Emerging Markets Free Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [CHART]
PIONEER EMERGING MARKETS VCT PORTFOLIO* MSCI EMERGING MARKETS FREE INDEX 10/31/98 $ 10,000 $ 10,000 $ 10,486 $ 10,675 12/31/99 $ 18,695 $ 17,766 $ 12,317 $ 12,330 12/31/2001 $ 11,410 $ 12,037 $ 11,247 $ 11,315 12/31/2003 $ 17,756 $ 15,735
The MSCI Emerging Markets Free Index is an unmanaged, capitalization-weighted measure of 679 securities trading in 26 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 fees, expenses or sales charges. You cannot invest directly in the Index. AVERAGE ANNUAL TOTAL RETURNS+ (As of December 31, 2003) NET ASSET VALUE* Life-of-Class 11.75% (10/30/98) 5 Years 11.11% 1 Year 57.87%
All total returns shown assume reinvestment of distributions at net asset value. + The performance of Class II shares for the period prior to the commencement of operations of Class II shares on May 1, 2000 is based on the performance of Class I shares, reduced to reflect the higher distribution fees of Class II shares. * Portfolio performance does not reflect any variable contract fees, expenses or sales charges. If they had been included, performance would have been lower. See the pages that comprise the inside cover of this report for performance net of any contract fees, expenses or sales charges. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns and principal values fluctuate so that your investment, when redeemed, may be worth more or less than its original cost. The performance table and graph do not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. 2 PIONEER EMERGING MARKETS VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO MANAGEMENT DISCUSSION 12/31/03 For the 12 months ended December 31, 2003, Pioneer Emerging Markets VCT Portfolio's Class II shares delivered a total return at net asset value of 57.87%. Over the same time period, the MSCI Emerging Markets Free Index had a total return of 56.28%. In the following discussion, Mark Madden, portfolio manager of the Pioneer Emerging Markets VCT Portfolio, addresses the factors impacting the Portfolio's performance and the outlook for the emerging markets. Q: WHAT FACTORS INFLUENCED THE PERFORMANCE OF EMERGING MARKETS IN THE 12 MONTHS ENDED DECEMBER 31, 2003? A: After a slow start, emerging markets delivered strong returns this year as a result of accelerating economic growth, attractive stock valuations, strong commodity prices and low interest rates. Equity markets were weak in the first quarter of the year due to concerns relating to the impending war in Iraq and the spread of SARS. Markets began to turn around in April as the war in Iraq proceeded better than expected and the spread of SARS was contained. Equity markets across Asia and Latin America were among the best performing this year, in part because their economies were expected to be among the fastest growing in the world. Valuations in emerging markets are still attractive relative to developed markets and continue to attract global capital. Many emerging market countries are significant exporters of commodities, so rising commodity prices have led to increasing trade surpluses and increasing corporate profitability. As in the developed economies of the United States, Europe and Japan, low interest rates are prevalent in most emerging markets. In some countries that still have high interest rates, such as Brazil and Turkey, inflation and borrowing rates are declining, which we believe will lead to increased local investment in equity markets. Over the last 12 months, the total return for the Portfolio surpassed the benchmark MSCI Emerging Markets Free Index primarily due to good stock selection in India and South Korea and to our emphasis on Brazil. In India, we have been finding a large number of stocks with attractive valuations and strong growth prospects, particularly in the banking and industrial sectors. In South Korea, our positions in shipping and shipbuilding companies did very well as a result of increasing trade, tight shipping capacity, and rapidly increasing freight rates. In Brazil, we owned companies that benefited from lower borrowing costs, a stronger currency and rising domestic consumer demand. Q. WHERE ARE YOU FINDING ATTRACTIVE OPPORTUNITIES IN EMERGING MARKETS? A: In our last annual report, we noted that we were particularly optimistic about the prospects for India, Brazil and Turkey. In the last 12 months, India and Brazil have delivered outstanding returns in the portfolio. Turkey also showed strong positive returns, although its proximity to Iraq has made for more volatile equity prices. In all three countries we continue to see positive trends and, therefore, we have maintained our heavy positions. In India, growth trends remain strong and valuations are still attractive. In Brazil, pent up domestic demand appears to be accelerating. And in Turkey, the investment climate seems increasingly attractive as the government attempts to steer the country toward membership in the European Union. As for sectors, we like the financial sector, which should see improved growth and profitability due to stronger economic growth and potentially higher interest rates. We are less optimistic on the technology sector, where we do not believe stronger demand can be sustained. Technology stock valuations are expensive relative to other sectors, profit margins continue to be under pressure, and a weaker dollar may further erode profit margins of emerging markets firms that export most of their production to the United States. Q: WHAT IS YOUR OUTLOOK? A: Emerging markets have significantly outperformed the S&P 500 Index and the MSCI World Index over the last three years. We continue to be optimistic about the prospects for emerging markets because the same positive trends that have led to this good performance are still in place. We expect some correction in the coming year, but we also are optimistic that the fundamentals of most of the emerging market economies are in a multi-year upswing and that equity returns will be attractive in absolute terms as well as relative to the developed equity markets. Stock valuations in emerging markets are less expensive than developed markets while economic growth rates of developing countries are higher than developed markets. In addition, many companies in emerging markets are gaining global market share by delivering quality products and services at very competitive prices. The main risk to these investments relates to the potential for the current upswing in global growth to falter. On the other hand, if growth is too strong, inflation may accelerate leading to higher interest rates and lower stock valuations. We do expect volatility in emerging markets to remain high but we tend to view that volatility as an opportunity to acquire stocks with strong long-term prospects at attractive prices. ANY INFORMATION IN THIS SHAREHOLDER REPORT REGARDING MARKET OR ECONOMIC TRENDS OR THE FACTORS INFLUENCING THE PORTFOLIO'S HISTORICAL OR FUTURE PERFORMANCE ARE STATEMENTS OF THE OPINION OF PORTFOLIO MANAGEMENT AS OF THE DATE OF THIS REPORT. THESE STATEMENTS SHOULD NOT BE RELIED UPON FOR ANY OTHER PURPOSES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND THERE IS NO GUARANTEE THAT MARKET FORECASTS DISCUSSED WILL BE REALIZED. [SIDENOTE] Investing in emerging markets carries its own set of risks, including but not limited to currency fluctuations and social and economic instability. However, we feel confident that the long-term prospects invite serious consideration. The Portfolio's investment adviser, Pioneer Investment Management, Inc., reduced its management fee and certain other expenses; otherwise, returns would have been lower. 3 PIONEER EMERGING MARKETS VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST SCHEDULE OF INVESTMENTS 12/31/03
SHARES VALUE PREFERRED STOCKS - 3.1% MATERIALS - 0.4% DIVERSIFIED METALS & MINING - 0.4% 259,000 Caemi Mineracao E Metalurgia SA* $ 113,817 -------------- TOTAL MATERIALS $ 113,817 -------------- CAPITAL GOODS - 0.4% AEROSPACE & DEFENSE - 0.4% 4,100 Embraer Aircraft Corp. (A.D.R.) $ 143,623 -------------- TOTAL CAPITAL GOODS $ 143,623 -------------- BANKS - 0.7% DIVERSIFIED BANKS - 0.7% 2,541,700 Banco Itau Holding Financeira $ 252,411 -------------- TOTAL BANKS $ 252,411 -------------- TELECOMMUNICATION SERVICES - 1.1% INTEGRATED TELECOMMUNICATIONS SERVICES - 0.7% 16,401 Tele Norte Leste Participacoes (A.D.R.) $ 253,067 -------------- WIRELESS TELECOMMUNICATIONS SERVICES - 0.4% 4,200 Telemig Celular Participacoes (A.D.R.) $ 134,820 -------------- TOTAL TELECOMMUNICATION SERVICES $ 387,887 -------------- UTILITIES - 0.5% ELECTRIC UTILITIES - 0.5% 23,100 Centrais Electricas Brasileiras SA (A.D.R.) $ 178,153 -------------- TOTAL UTILITIES $ 178,153 -------------- TOTAL PREFERRED STOCKS (Cost $622,427) $ 1,075,891 -------------- COMMON STOCKS - 95.5% ENERGY - 13.1% INTEGRATED OIL & GAS - 8.5% 104,000 CNOOC, Ltd. $ 203,613 63,500 Gas Authority Of India, Ltd. 363,346 6,180 Lukoil Holding (A.D.R.) 576,285 31,700 Petrobras Brasileiro SA Petrobras (A.D.R.) 845,122 3,400 Sibneft (A.D.R.) 97,128 12,800 Surgutneftegaz (A.D.R.) 374,400 17,852,550 Tupras-Turkiye Petrol Rafinerileri AS 148,718 8,300 Yukos 360,013 -------------- $ 2,968,625 -------------- OIL & GAS EXPLORATION & PRODUCTION - 2.5% 393,000 China Petroleum & Chemical $ 175,904 6,100 Mol Magyar Olaj 185,271 111,500 PTT Public Co., Ltd. 520,601 -------------- $ 881,776 -------------- OIL & GAS REFINING MARKETING & TRANSPORTATION - 2.1% 19,000 Bharat Petroleum Corp., Ltd. $ 188,016 12,900 Hindustan Petroleum* 124,038 7,400 Polski Koncern Nafto (G.D.R.) 99,530 9,700 S-OIL Corp. 227,948 2,120 TelecomAsia Corp. Public Co., Ltd.* 70,638 -------------- $ 710,170 -------------- TOTAL ENERGY $ 4,560,571 -------------- MATERIALS - 16.8% ALUMINUM - 0.4% 102,000 Aluminum Corporation of China, Ltd. $ 77,514 1,600 Hindalco Industries, Ltd. 49,523 -------------- $ 127,037 -------------- COMMODITY CHEMICALS - 1.8% 4,769 Daelim Industrial Co. $ 168,106 8,300 Reliance Industries, Ltd. (144A) 260,180 14,621,200 Ultrapar Participacoes SA 188,659 -------------- $ 616,945 -------------- CONSTRUCTION MATERIALS - 1.2% 3,300 Asia Cement Co., Ltd. $ 96,383 29,013,250 Akcansa Cimento AS 83,146 14,400 Siam City Cement Co., Ltd. 82,862 17,900 Siam Cement Co., Ltd. 124,687 2,932 Suez Cement Co. (G.D.R.)* 19,791 -------------- $ 406,869 -------------- DIVERSIFIED CHEMICALS - 0.7% 200 Israel Chemicals, Ltd. $ 284 2,300 LG Chemicals, Ltd. 106,169 258,360 Sinopac Holdings Co. 130,892 -------------- $ 237,345 -------------- DIVERSIFIED METALS & MINING - 3.3% 4,900 Antofagasta Plc $ 92,183 9,700 Companhia Vale do Rio Doce (A.D.R.) 499,647 3,900 Industrias Penoles 17,354 17,200 KGHM Polska Miedz SA* 120,718 4,300 Norilsk Nickel 287,025 149,000 Yanzhou Coal Mining (Class H) 150,655 -------------- $ 1,167,582 -------------- GOLD - 0.3% 14,100 IAMGOLD Corp. $ 97,854 -------------- PAPER PACKAGING - 0.2% 116,000 Lee & Man Paper Manufacturing* $ 91,889 -------------- PAPER PRODUCTS - 0.5% 4,770 Aracruz Cellulose SA (A.D.R.) $ 167,141 --------------
The accompanying notes are an integral part of these financial statements. 4
SHARES VALUE PRECIOUS METALS & MINERALS - 5.5% 25,400 Anglo American Plc $ 545,873 1,750 Anglogold, Ltd. 82,195 11,500 Anglogold, Ltd. (A.D.R.) 537,050 21,400 Compania de Minas Buenaventura SA 605,192 5,100 Gold Fields, Ltd. (A.D.R.) 71,094 5,300 Gold Fields, Ltd. 75,832 -------------- $ 1,917,236 -------------- SPECIALTY CHEMICALS - 0.9% 80,662 Formosa Plastic Corp.* $ 133,051 127,411 Nan Ya Plastics Corp.* 183,892 -------------- $ 316,943 -------------- STEEL - 2.0% 102,106 China Steel Corp., Ltd.* $ 84,813 13,200 Pohang Iron & Steel Co., Ltd. (A.D.R.) 448,404 16,800 Remgro, Ltd. 177,421 -------------- $ 710,638 -------------- TOTAL MATERIALS $ 5,857,479 -------------- CAPITAL GOODS - 2.5% BUILDING PRODUCTS - 0.5% 7,800 Daewoo Heavy Industries & Machinery, Ltd.* $ 100,159 1,900 Hanil Cement Co., Ltd. 97,910 -------------- $ 198,069 -------------- CONSTUCTION & ENGINEERING - 0.7% 119,000 CTCI Corp.* $ 96,392 2,386,626 Enka Insaat VE Sanayi AS 62,023 5,700 LG Construction, Ltd. 85,392 -------------- $ 243,807 -------------- ELECTRICAL COMPONENTS & EQUIPMENT - 0.5% 14,900 Bharat Heavy Electricals (Demat Shares) $ 166,340 -------------- INDUSTRIAL CONGLOMERATES - 0.2% 56,000 China Resources Enterprise, Ltd. $ 63,474 -------------- INDUSTRIAL MACHINERY - 0.6% 187,000 Yungtay Engineering Co, Ltd.* $ 115,670 12,200 Daewoo Heavy Industries & Machinery, Ltd.* 99,935 -------------- $ 215,605 -------------- TOTAL CAPITAL GOODS $ 887,295 -------------- COMMERCIAL SERVICES & SUPPLIES - 0.5% DIVERSIFIED COMMERCIAL SERVICES - 0.5% 3,951 Bidbee Group, Ltd.* $ 20,686 22,356 Bidvest Group, Ltd. 167,208 -------------- TOTAL COMMERCIAL SERVICES & SUPPLIES $ 187,894 -------------- TRANSPORTATION - 1.7% MARINE - 1.5% 109,140 Evergreen Marine Corp.* $ 95,156 5,273 Hanjin Shipping Co., Ltd. 97,804 25,880 Hyundai Merchant Marine Co.* 215,033 19,800 Samsung Heavy Industries Co., Ltd. 109,511 -------------- $ 517,504 -------------- RAILROADS - 0.2% 23,000 Malaysia International Shipping Bhd $ 69,605 -------------- TOTAL TRANSPORTATION $ 587,109 -------------- AUTOMOBILES & COMPONENTS - 3.8% AUTO PARTS & EQUIPMENT - 0.8% 3,300 Hyundai Mobis $ 177,533 28,600 Jardine Cycle & Carriage, Ltd. 97,674 -------------- $ 275,207 -------------- AUTOMOBILE MANUFACTURERS - 3.0% 14,000 Edaran Otomobile Nasional Bhd. $ 28,737 14,000 Great Wall Holdings Co., Ltd.* 29,844 6,430 Hyundai Heavy Industries* 202,371 4,000 Hyundai Motor Co., Ltd. 169,534 7,100 Kia Motors 64,952 16,388,300 Koc Holdings AS* 278,875 99,153 PT Astra Internatiional 58,862 65,800 Sime Darby Bhd 90,042 13,999 Tata Motors 139,159 -------------- $ 1,062,376 -------------- TOTAL AUTOMOBILES & COMPONENTS $ 1,337,583 -------------- CONSUMER DURABLES & APPAREL - 1.2% FOOTWEAR - 0.4% 512,000 Symphony Holdings, Ltd. $ 143,436 -------------- HOMEBUILDING - 0.2% 563,500 Ayala Land, Inc. $ 61,912 -------------- LEISURE PRODUCTS - 0.6% 3,595 Bajaj Auto, Ltd. (Demat Shares) $ 89,863 104,200 Berjaya Sports Toto Bhd 111,329 -------------- $ 201,192 -------------- TOTAL CONSUMER DURABLES & APPAREL $ 406,540 -------------- HOTELS, RESTAURANTS & LEISURE - 0.2% RESTAURANTS - 0.2% 59,500 Kentucky Fried Chicken Bhd $ 69,208 -------------- TOTAL HOTELS, RESTAURANTS & LEISURE $ 69,208 -------------- MEDIA - 1.6% BROADCASTING & CABLE TV - 0.9% 10,700 BEC World Public Co., Ltd. $ 61,031 342,700 United Broadcasting Corp., Plc 246,500 -------------- $ 307,531 -------------- MOVIES & ENTERTAINMENT - 0.4% 322,800 Grammy Enterainment Plc* $ 162,938 --------------
The accompanying notes are an integral part of these financial statements. 5
SHARES VALUE PUBLISHING - 0.3% 16,631 Naspers, Ltd. $ 104,113 -------------- TOTAL MEDIA $ 574,582 -------------- RETAILING - 0.5% GENERAL MERCHANDISE STORES - 0.5% 414,800 Global Green Tech Group $ 71,059 2,200 LG Home Shopping 111,154 -------------- $ 182,213 -------------- TOTAL RETAILING $ 182,213 -------------- FOOD & DRUG RETAILING - 2.9% FOOD DISTRIBUTORS - 0.7% 10,900 Compania Cervecerias Unidas SA $ 234,350 -------------- FOOD RETAIL - 2.2% 12,500 Brasil Distributor Pao Acu (A.D.R.) $ 314,375 3,280 CJ Corp. 170,951 5,700 Distribucion y Servicio D&A SA 117,762 5,961,200 Migros Turk T.A.S. 85,312 410,800 PT Indofood Sukses Makmur Tbk 39,019 5,000 Tiger Brands, Ltd. 59,087 -------------- $ 786,506 -------------- TOTAL FOOD & DRUG RETAILING $ 1,020,856 -------------- FOOD, BEVERAGE & TOBACCO - 4.0% AGRICULTURAL PRODUCTS - 0.5% 39,800 IOI Corp., Bhd $ 80,647 25,000 Makhteshim-Agan Industries, Ltd.* 94,013 -------------- $ 174,660 -------------- DISTILLERS & VINTNERS - 1.2% 3,575,700 Andalou efes Biracilik VE $ 45,062 10,200 Companhia de Bebidas PR (A.D.R.) 260,202 44,000 Grupo Modelo SA de CV 105,335 -------------- $ 410,599 -------------- SOFT DRINKS - 1.3% 16,000 Embotelladora Andina SA (A.D.R.) $ 168,000 1,800 Fomento Economico Mexicano SA de CV 66,384 14,140 Fraser & Neave, Ltd. 104,907 140,600 Sermsuk Public Co., Ltd. 110,890 -------------- $ 450,181 -------------- TOBACCO - 1.0% 15,000 British American Tabacco (Malaysia) Bhd $ 171,711 63,200 PT Gudang Garam Public Co., Ltd. 102,050 186,500 PT Hanjaya Mandala Sampoerna Tbk 99,090 -------------- $ 372,851 -------------- TOTAL FOOD, BEVERAGE & TOBACCO $ 1,408,291 -------------- HOUSEHOLD & PERSONAL PRODUCTS - 0.6% HOUSEHOLD PRODUCTS - 0.6% 3,600 LG Household & Health Care, Ltd.* $ 93,966 23,183,610 Arcelik A.S. 128,752 -------------- $ 222,718 -------------- TOTAL HOUSEHOLD & PERSONAL PRODUCTS $ 222,718 -------------- HEALTH CARE EQUIPMENT & SERVICES - 0.8% HEALTH CARE DISTRIBUTORS - 0.8% 4,630 Teva Pharmaceutical Industries, Ltd. $ 262,567 -------------- TOTAL HEALTH CARE EQUIPMENT & SERVICES $ 262,567 -------------- PHARMACEUTICALS & BIOTECHNOLOGY - 2.2% BIOTECHNOLOGY - 0.7% 230,000 Global Bio-chem Technology Group Co., Ltd.* $ 142,199 3,400 Dr. Reddy's Laboratories (A.D.R.) 107,610 -------------- $ 249,809 -------------- PHARMACEUTICALS - 1.5% 19,400 Aurobindo Pharma, Ltd. $ 183,085 1,475 Gideon Richter (G.D.R) 174,050 6,260 Ranbaxy Laboratories, Ltd. 151,093 -------------- $ 508,228 -------------- TOTAL PHARMACEUTICALS & BIOTECHNOLOGY $ 758,037 -------------- BANKS - 15.1% DIVERSIFIED BANKS - 15.1% 19,689,800 Akbank T.A.S. $ 103,040 10,744 Banco Bradesco SA 283,749 25,600,000 Banco do Brasil SA* 212,595 3,303 Banco Santiago 78,545 12,700 Bangkok Bank, Ltd. (Foreign Shares)* 36,860 90,000 Bank of Baroda 462,659 4,181 Bank Zachodni 84,785 131,500 Canara Bank, Ltd. 394,211 236,960 Chinatrust Financial Holding Co., Ltd.* 238,007 16,800 Commercial International Bank* 59,951 5,500 Hana Bank* 101,553 25,300 Jammu & Kashmir Bank, Ltd. 212,409 124,100 Kasikornbank* 219,244 1,900 Kookmin Bank 71,200 900 Kookmin Bank (A.D.R.) 34,056 58,700 Malayan Banking Bhd 149,067 9,500 MISR International 16,388 342,300 National Finance Public Co., Ltd. 144,272 58,700 Oriental Bank of Commerce* 330,784 7,100 OTP Bank Rt* 91,345 204,600 PT Bank Central Asia Tbk 80,771 1,620,576 PT Lippo Bank* 86,585 75,312 Public Bank Bhd (Foreign) 61,439 86,000 Punjab National Bank 456,178 90,700 Siam Commercial Bank Plc (Foreign)* 123,612 24,400 Standard Bank Group, Ltd. 143,222 16,200 State Bank of India 191,730 2,000 State Bank of India (G.D.R.) 66,750 40,130,800 Turkiye Garanti Bankasi AS* 117,149 39,834,952 Turkiye Is Bankasi (Isbank)* 161,666
The accompanying notes are an integral part of these financial statements. 6
SHARES VALUE (BANKS - CONTINUED) 10,500 Uniao de Bancos Brasileiros SA (G.D.R.) (144A) $ 260,190 211,900 Vijaya Bank/India 195,367 -------------- TOTAL BANKS $ 5,269,379 -------------- DIVERSIFIED FINANCIALS - 5.8% DIVERSIFIED FINANCIAL SERVICES - 5.8% 3,955,000 Alarko Holding A.S. $ 105,598 1,460,000 Bank Mandiri 173,345 492,344 China Development Financial* 240,734 42,000 Citic Pacific, Ltd. 107,113 78,300 FirstRand, Ltd. 104,359 137,000 Fubon Group 131,149 36,327,666 Haci Omer Sabanci Holding AS 172,004 118,200 Kiatnakin Finance Plc 126,038 8,100 Koram Bank 95,174 78,000 MCL Ladn, Ltd. 61,544 293,900 Media Prima Bhd* 114,466 92,157 Old Mutual Plc 153,432 72,166 RMB Holdings, Ltd. 141,091 96,000 Sanlam, Ltd. 125,940 632,700 SM Prime Holdings 74,073 102,500 TISCO Finance Public Co., Ltd.* 84,721 -------------- TOTAL DIVERSIFIED FINANCIALS $ 2,010,781 -------------- INSURANCE - 1.2% LIFE & HEALTH INSURANCE - 0.4% 4,000 China Life Insurance Co. (A.D.R.)* $ 131,880 -------------- MULTI-LINE INSURANCE - 0.5% 3,000 Samsung Fire & Marine Insurance $ 172,472 -------------- PROPERTY & CASUALTY INSURANCE - 0.3% 7,900 Cathay Financial Holding Co., Ltd., (G.D.R.)(144A)* $ 118,500 -------------- TOTAL INSURANCE $ 422,852 -------------- REAL ESTATE - 0.6% REAL ESTATE MANAGEMENT & DEVELOPMENT - 0.6% 274,000 Cathay Real Estate Development Co., Ltd.* $ 102,498 110,000 Marco Polo Developments, Ltd. 119,826 -------------- TOTAL REAL ESTATE $ 222,324 -------------- SOFTWARE & SERVICES - 0.7% APPLICATION SOFTWARE - 0.7% 4,300 Check Point Software Technologies, Ltd.* $ 72,326 1,383 Infosys Technologies, Ltd. 169,112 -------------- TOTAL SOFTWARE & SERVICES $ 241,438 -------------- TECHNOLOGY HARDWARE & EQUIPMENT - 5.7% SEMICONDUCTORS - 1.8% 32,800 Hon Hai Precision Industry* $ 128,978 257,440 Taiwan Semiconductor Manufacturing Co.* 481,515 -------------- $ 610,493 -------------- COMMUNICATIONS EQUIPMENT - 0.7% 12,140 Empresa Nacional De Telecom $ 74,780 9,600 Matav Rt (A.D.R.) 179,616 -------------- $ 254,396 -------------- COMPUTER HARDWARE - 0.4% 109,160 Compal Electronics* $ 149,512 -------------- COMPUTER STORAGE & PERIPHERALS - 0.5% 70,400 Quanta Computer, Inc.* $ 173,149 -------------- ELECTRONIC EQUIPMENT & INSTRUMENTS - 2.1% 770 Samsung Display Devices $ 90,797 197,300 Varitronix International, Ltd. 195,680 53,375 Asustek Computer, Inc.* 117,912 98,455 Phoenixtec Power Co., Ltd.* 115,420 2,450 LG Electronics, Inc.* 120,495 32,150 Elec & Eltek International Co., Ltd.* 84,233 -------------- $ 724,537 -------------- OFFICE ELECTRONICS - 0.2% 5,700 Baiksan OPC Co.* $ 66,018 -------------- TOTAL TECHNOLOGY HARDWARE & EQUIPMENT $ 1,978,105 -------------- SEMICONDUCTORS - 2.6% 1,830 Samsung Electronics $ 692,681 251,621 United Microelectronics Corp., Ltd.* 215,675 -------------- TOTAL SEMICONDUCTORS $ 908,356 -------------- TELECOMMUNICATION SERVICES - 7.4% ALTERNATE CARRIERS - 0.1% 99,300 Singapore Post, Ltd. $ 40,637 -------------- INTEGRATED TELECOMMUNICATION SERVICES - 3.6% 4,200 Brasil Telecom Participacoes SA $ 158,760 4,900 Compania de Telephonos de Chile SA (A.D.R.) 73,255 8,900 PT Indosat Indonesian Satellite Corp. 160,200 12,500 KT Corp. 238,375 11,900 SPT Telecom AS 135,412 8,940 Telekomunik Indonesia SP (A.D.R.) 146,795 7,200 Telefonos de Mexico SA 237,816 29,000 Telekomunikacja Polska SA 117,694 -------------- $ 1,268,307 --------------
The accompanying notes are an integral part of these financial statements. 7
SHARES VALUE WIRELESS TELECOMMUNICATION SERVICES - 3.7% 2,100 China Mobile, Ltd. $ 6,451 146,000 Taiwan Cellular Corp.* 126,863 27,200 Advanced Service Co., Ltd. (Foreign) 58,007 12,400 America Movil, Inc. (A.D.R.) 339,016 11,900 Mobinil-Egyptian Mobile Services 145,753 26,037 SK Telecom Co., Ltd. 485,590 40,900 Venfin Ltd. 128,480 -------------- $ 1,290,160 -------------- TOTAL TELECOMMUNICATION SERVICES $ 2,599,104 -------------- UTILITIES - 3.0% ELECTRIC UTILITIES - 2.6% 4,800 Cemig SA (A.D.R.) $ 88,320 60,000 China Resources Power Holdings 28,015 19,800 Copel, Inc. (A.D.R.) 94,446 156,700 Empresa Nacional de Electricid S.A.* 61,617 2,549,735 Enersis SA* 370,057 6,400 Korea Electric Power Corp. 114,948 4,360 Unified Energy System (G.D.R.) 119,079 -------------- $ 876,482 -------------- GAS UTILITIES - 0.2% 3,200 Gazprom (A.D.R.)* $ 80,832 -------------- WATER UTILITIES - 0.2% 6,000 Cia Saneamento Basic de Estado de Sao Paulo $ 83,400 -------------- TOTAL UTILITIES $ 1,040,714 -------------- CAPITAL GOODS - 0.3% METAL FABRICATORS - 0.3% 4,390 Korea Zinc Co. $ 115,615 -------------- TOTAL CAPITAL GOODS $ 115,615 -------------- COMMUNICATION - 0.4% TELEPHONE - 0.4% 43,200 Mahanagar Telephone (Demat Shares) $ 130,739 -------------- TOTAL COMMUNICATION $ 130,739 -------------- CONSUMER STAPLES - 0.3% RETAIL STORES (FOOD CHAINS) - 0.3% 256,700 Metro Cash and Carry, Ltd.* $ 94,156 -------------- TOTAL CONSUMER STAPLES $ 94,156 -------------- TOTAL COMMON STOCKS (Cost $22,777,237) $ 33,356,506 -------------- RIGHTS/WARRANTS - 0.0% COMMERCIAL SERVICES & SUPPLIES - 0.0% DIVERSIFIED COMMERCIAL SERVICES - 0.0% 1,580 Bidbee Group, Ltd., 12/08/06* $ -- -------------- TOTAL COMMERCIAL SERVICES & SUPPLIES $ -- -------------- TELECOMMUNICATION SERVICES - 0.0% INTEGRATED TELECOMMUNICATION SERVICES - 0.0% 32,210 TelecomAsiaPublic Co., Ltd. (Foreign Shares)* $ -- -------------- TOTAL TELECOMMUNICATION SERVICES $ -- -------------- TOTAL RIGHTS/WARRANTS (Cost $9,538) $ -- -------------- TEMPORARY CASH INVESTMENTS - 8.1% SECURITY LENDING COLLATERAL - 8.1% 2,838,943 Securities Lending Investment Fund, 1.02% $ 2,838,943 -------------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $2,838,943) $ 2,838,943 -------------- TOTAL INVESTMENT IN SECURITIES - 106.7% (Cost $26,248,145)(a) $ 37,271,340 -------------- OTHER ASSETS AND LIABILITIES - (6.7)% $ (2,335,622) -------------- TOTAL NET ASSETS - 100.0% $ 34,935,718 ==============
(A.D.R) American Depositary Receipt (G.D.R) Global Depositary Receipt * Non-Income producing security 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, 2003, the value of these securities amounted to $638,870 or 1.83% of net assets. (a) Distributions of investments by country of issue, as percentage of total equity holdings, (excluding temporary cash investments) is as follows: South Korea 15.2% Brazil 13.2 India 13.0 Taiwan 9.3 South Africa 7.4 Thailand 6.1 Russia 5.5 Turkey 4.3 Chile 3.4 Indonesia 2.8 Malaysia 2.8 People's Republic of China 2.5 Hong Kong 2.2 Mexico 2.2 Hungary 1.8 Peru 1.8 Singapore 1.5 Israel 1.2 Poland 1.2 Other (Individually less than 1%) 2.6 ----- 100.0% =====
The accompanying notes are an integral part of these financial statements. 8 PIONEER EMERGING MARKETS VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST FINANCIAL HIGHLIGHTS
5/1/00(a) YEAR ENDED YEAR ENDED YEAR ENDED TO CLASS II 12/31/03 12/31/02 12/31/01 12/31/00 Net asset value, beginning of period $ 10.98 $ 11.19 $ 12.08 $ 18.02 ---------- ---------- ---------- ---------- Increase (decrease) from investment operations: Net investment income $ 0.12 $ 0.02 $ 0.09 $ (0.02) Net realized and unrealized gain (loss) on investments and foreign currency transactions 6.21 (0.17) (0.98) (5.59) ---------- ---------- ---------- ---------- Net increase (decrease) from investment operations $ 6.33 $ (0.15) $ (0.89) $ (5.61) Distributions to shareholders: Net investment income (0.05) (0.06) -- -- Net realized gain -- -- -- (0.33) ---------- ---------- ---------- ---------- Net increase (decrease) in net asset value $ 6.28 $ (0.21) $ (0.89) $ (5.94) ---------- ---------- ---------- ---------- Net asset value, end of period $ 17.26 $ 10.98 $ 11.19 $ 12.08 ---------- ---------- ---------- ---------- Total return* 57.87% (1.42)% (7.37)% (31.65)% Ratio of net expenses to average net assets+ 1.99% 1.99% 1.90% 2.11%** Ratio of net investment income to average net assets+ 1.04% 0.28% 1.05% (0.73)%** Portfolio turnover rate 79% 124% 175% 156%** Net assets, end of period (in thousands) $ 26,537 $ 8,852 $ 7,861 $ 5,819 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 2.65% 3.11% 4.12% 4.47%** Net investment income (loss) 0.38% (0.84)% (1.17)% (3.09)%** Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 1.99% 1.99% 1.90% 2.09%** Net investment income (loss) 1.04% 0.28% 1.05% (0.71)%**
(a) Class 2 shares were first publicly offered on May 1, 2000. * 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 with no reduction for fees paid indirectly. The accompanying notes are an integral part of these financial statements. 9 PIONEER EMERGING MARKETS VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST STATEMENT OF ASSETS AND LIABILITIES
PIONEER EMERGING MARKETS VCT PORTFOLIO ASSETS: Investment in securities, at value (including securities loaned of $2,719,788) (Cost $26,248,145) $ 37,271,340 Cash 833,181 Cash held as collateral for furtures contracts - Futures collateral - Foreign currencies, at value (Cost $33,892) 34,920 Receivables - Investment securities sold 95,011 Fund shares sold 9,610 Variation margin - Dividends, interest and foreign taxes withheld 122,043 Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, open - net - Due from Pioneer Investment Management, Inc. - Other 5,038 ------------- Total assets $ 38,371,143 ------------- LIABILITIES: Payables - Investment securities purchased $ 30,015 Fund shares repurchased 52,858 Dividends 703 Upon return of securities loaned 2,838,943 Variation Margin - Forward foreign currency settlement contracts, net 951 Forward foreign currency portfolio hedge contracts, net - Reserve for repatriation taxes 383,641 Due to bank - Due to affiliates 42,868 Accrued expenses 83,984 Other 1,462 ------------- Total liabilities $ 3,435,425 ------------- NET ASSETS: Paid-in capital $ 32,214,569 Accumulated net investment income (loss) 198,789 Accumulated undistributed net realized gain (loss) (8,120,086 Net unrealized gain (loss) on: Investments 10,639,554 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 2,892 ------------- Total net assets $ 34,935,718 ------------- NET ASSET VALUE PER SHARE: CLASS I: (Unlimited number of shares authorized) Net assets $ 8,398,731 Shares outstanding 483,442 ------------- Net asset value per share $ 17.37 CLASS II: (Unlimited number of shares authorized) Net assets $ 26,536,987 Shares outstanding 1,537,324 ------------- Net asset value per share $ 17.26
The accompanying notes are an integral part of these financial statements. 10 STATEMENT OF OPERATIONS
PIONEER EMERGING MARKETS VCT PORTFOLIO YEAR ENDED 12/31/03 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $95,365) $ 694,081 Interest (net of foreign taxes withheld of $34) 3,740 Income on securities loaned, net 2,841 Other - ------------- Total investment income $ 700,662 ------------- EXPENSES: Management fees $ 261,882 Transfer agent fees 3,019 Distribution fees (Class II) 41,094 Administrative fees 37,500 Custodian fees 165,770 Professional fees 58,402 Printing 19,664 Fees and expenses of nonaffiliated trustees 13 Miscellaneous 7,503 ------------- Total expenses $ 594,847 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (156,563) ------------- Net expenses $ 438,284 ------------- Net investment income (loss) $ 262,378 ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ 1,273,697 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (86,033) ------------- $ 1,187,664 ------------- Change in net unrealized gain or (loss) from: Investments (the change in reserve for repatriation taxes of $383,641) $ 10,446,858 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 2,622 ------------- $ 10,449,480 ------------- Net gain (loss) on investments, futures contracts and foreign currency transactions $ 11,637,144 ============= Net increase (decrease) in net assets resulting from operations $ 11,899,522 =============
The accompanying notes are an integral part of these financial statements. 11 STATEMENTS OF CHANGES IN NET ASSETS
PIONEER EMERGING MARKETS VCT PORTFOLIO YEAR YEAR ENDED ENDED 12/31/03 12/31/02 FROM OPERATIONS: Net investment income (loss) $ 262,378 $ 72,830 Net realized gain (loss) on investments 1,187,664 (878,970) Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions 10,449,480 220,065 ------------ ------------ Net increase (decrease) in net assets resulting from operations $ 11,899,522 (586,075) ------------ ------------ DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (25,889) $ (59,364) Class II (60,429) (40,352) Net realized gain Class I - - Class II - - Tax return of capital Class I - - Class II - - ------------ ------------ Total distributions to shareowners $ (86,319) $ (99,716) ------------ ------------ FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 16,360,576 $ 10,385,105 Reinvestment of distributions 85,767 99,013 Cost of shares repurchased (8,062,148) (9,817,734) ------------ ------------ Net increase (decrease) in net assets resulting from fund share transactions $ 8,384,195 $ 666,384 ------------ ------------ Net increase (decrease) in net assets $ 20,197,398 $ (19,407) ------------ ------------ NET ASSETS: Beginning of year 14,738,320 14,757,727 ------------ ------------ End of year $ 34,935,718 $ 14,738,320 ============ ============ Accumulated undistributed/(distributions in excess of) net investment income (loss) $ 198,789 $ 55,545 ============ ============
The accompanying notes are an integral part of these financial statements. 12 PIONEER EMERGING MARKETS VCT PORTFOLIO NOTES TO FINANCIAL STATEMENTS 12/31/03 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Pioneer Emerging Markets Portfolio (the Portfolio) is a Portfolio of the Pioneer Variable Contracts Trust (the Trust) which is a Delaware business trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of sixteen separate portfolios fourteen of which issue both Class I and Class II shares (collectively, the Portfolios, individually the Portfolio) as follows: PORTFOLIOS: Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio) Pioneer Europe VCT Portfolio (Europe Portfolio) Pioneer International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio) Pioneer Small Company VCT Portfolio (Small Company Portfolio) Pioneer Mid Cap Value VCT Portfolio (Mid-Cap Value Portfolio) Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio) Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio) Pioneer Fund VCT Portfolio (Fund Portfolio) Pioneer Equity Income VCT Portfolio (Equity-Income Portfolio) Pioneer Balanced VCT Portfolio (Balanced Portfolio) Pioneer High Yield VCT Portfolio (High Yield Portfolio) Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio) Pioneer America Income VCT Portfolio (America Income Portfolio) Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares only) Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only) Portfolio shares may only be purchased by insurance companies for the purpose of funding variable annuity or variable life insurance contracts, and may also be purchased by qualified pension and retirement plans. The financial highlights for the Portfolio's Class I shares are presented in a separate book. The investment objective of Emerging Markets VCT Portfolio is to seek long-term capital growth. The Trust's financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America 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 income, expenses, gains and losses during the reporting years. 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 as of 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, based on the last sale price on the principal exchange where they traded, are determined as of such times. 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 becomes aware of the ex-dividend data in the exercise of reasonable diligence. Interest income, including interest on income bearing cash accounts, is recorded on the accrual basis, net of unrecoverable foreign taxes withheld at the applicable country rates. All discounts/premiums are accreted/amortized for financial reporting purposes. Gains and losses from sales on investments are calculated on the identified cost method for both financial reporting and federal income tax purposes, and, if applicable, are reported net of foreign taxes on capital gains at the applicable country rates. The Portfolio's investments in emerging markets or countries with limited or developing markets may subject the Portfolio to a greater degree of risk than in a developed market. Risks associated with these developing markets include political, social or economic factors and may affect the price of the Portfolio's investments and income generated by these investments, as well as the Portfolio's ability to repatriate such amounts. B. FOREIGN CURRENCY TRANSLATION The books and records of the Portfolio are maintained in U.S. dollars. Amounts denominated in foreign currencies are translated into U.S. dollars using current exchange rates. 13 Net realized gains and losses on foreign currency transactions represent, 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 The Portfolio enters 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 Portfolio's financial statements. The Portfolio records 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. 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 shareowners. Therefore, no federal income tax provision is required. In addition to the requirements of the Internal Revenue Code, the Portfolio may also be required to pay local taxes on the recognition of capital gains and/or the repatriation of foreign currencies in certain countries. During the year ended December 31, 2003, no such taxes were paid. In determining the daily net asset value, the Portfolio estimates the reserve for such taxes, if any, associated with investments in certain countries. The estimated reserve for taxes on capital gains is based on the net unrealized appreciation on certain portfolio securities, the holding year of such securities and the related tax rates, tax loss carryforward (if applicable) and other such factors. The estimated reserve for taxes on repatriation of foreign currencies is based on principal balances and/or unrealized appreciation of applicable securities, the holding year of such investments and the related tax rates and other such factors. As of December 31, 2003, the Portfolio had $383,641 in reserves related to taxes on the repatriation of foreign currencies. The amount and characterization of distributions to shareowners 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. At December 31, 2003, the Portfolio made reclassifications as described below. These reclassifications have no impact on the net asset value of the Portfolio and are designed to present the Portfolios' capital accounts on a tax basis.
ACCUMULATED NET ACCUMULATED INVESTMENT REALIZED GAIN/ PORTFOLIO INCOME/(LOSS) (LOSS) PAID-IN CAPITAL - ---------------------------------------------------------------------------------------------------- Emerging Markets Portfolio $ (32,815) $ 32,815 $ -
Capital loss carryforwards are available to offset future realized capital gains. At December 31, 2003, Emerging Markets VCT Portfolio had a capital loss carryforward of $7,611,017 of which the following amounts will expire between 2008 and 2010 if not utilized: $1,376,025 in 2008, $5,058,209 in 2009 and $1,176,783 in 2010. The following chart shows the components of distributable earnings (accumulated losses) as of December 31, 2003 and the distributions paid during the year ended December 31, 2003 on a tax basis as of December 31, 2003.
PIONEER PIONEER EMERGING EMERGING MARKETS MARKETS VCT PORTFOLIO VCT PORTFOLIO 2003 2002 - ----------------------------------------------------------------------------- DISTRIBUTIONS PAID FROM: Ordinary Income $ 86,319 $ 99,716 Long-Term capital gain - - ------------- ------------- $ 86,319 $ 99,716 Return of Capital - - ------------- ------------- Total distributions $ 86,319 $ 99,716 ------------- ------------- DISTRIBUTABLE EARNINGS (ACCUMULATED LOSSES): Undistributed ordinary income $ 261,372 Undistributed long-term gain/ (Capital loss carryforward) (7,611,017) Unrealized appreciation (depreciation) 10,070,794 ------------- Total $ 2,721,149 =============
14 The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily attributable to the tax deferral of losses on wash sales, returns of capital on REITs, and the recognition of unrealized gains or losses on certain futures contracts. E. PORTFOLIO SHARES The Portfolio records sales and repurchases of its portfolio shares as of trade date. Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the principal underwriter for the Trust and a wholly owned indirect subsidiary of UniCredito Italiano S.p.A. (UniCredito Italiano), $246,661 in commissions on the sale of Trust shares for the year ended December 31, 2003. Distribution fees are calculated based on the average daily net asset values attributable to Class I and Class II shares of the Portfolio, respectively. Shareowners of each class share all expenses and fees paid to the transfer agent, Pioneer Investment Management Shareholder Services, Inc. (PIMSS), for its services, which are allocated based on the number of accounts in each class and the ratable allocation of related out-of-pocket expenses (see Note 3). Income, common expenses and realized and unrealized gains and losses are calculated at the Portfolio level and allocated daily to each class of shares based on the respective percentage of adjusted net assets at the beginning of the day. Dividends and distributions to shareowners are recorded on the ex-dividend date. Distributions paid by the Portfolio with respect to each class of shares are calculated in the same manner, at the same time, and in the same amount, except that Class I and Class II shares can bear different transfer agent and distribution fees. Income, expenses (excluding 12b-1 fees) and gains and losses are calculated at the Portfolio level and are allocated daily based on the respective percentage of adjusted net assets at the beginning of the day. F. SECURITIES LENDING The Portfolio lends securities in its portfolio to certain broker-dealers or other institutional investors, with the Portfolio's custodian acting as the lending agent. When entering into a loan, the Portfolio receives collateral which is maintained by the custodian and earns income in the form of negotiated lenders' fees. The Portfolio also continues to receive interest or dividends on the securities loaned, and gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for account of the Trust. The loans are secured by collateral of at least 102%, at all times, of the fair value of the securities loaned. The fair value of the collateral will be adjusted daily to reflect any price fluctuation in the value of the loaned securities. The Trust has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Trust invests cash collateral in the Securities Lending Investment Fund which is managed by Brown Brothers Harriman & Co., the Trust's custodian. G. REPURCHASE AGREEMENTS With respect to repurchase agreements entered into by the Portfolio, 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 Portfolio's custodian, or subcustodian. The Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is responsible for determining that the value of the collateral remains at least equal to the repurchase price. 2. MANAGEMENT AGREEMENT PIM manages the Portfolio, and is a wholly owned indirect subsidiary of UniCredito Italiano. Management fees are calculated daily at the following annual rate of 1.15% of the Portfolio's average daily net assets. The portion of the Portfolio's expenses attributable to Class II will be reduced only to the extent such expenses are reduced for Class I shares (or Class II shares). Pioneer may subsequently recover reimbursed expenses (within three years of being incurred) from certain Portfolios if the expense ratio of the Class I (or Class II) shares would otherwise be less than the expense limitation of the class. Each class will reimburse PIM no more than the amount by which that class' expenses were reduced. The Expense limit agreement for Emerging Markets Portfolio does not provide for the expense reimbursement described above. There can be no assurance that Pioneer will extend any expense limitation beyond December 31, 2003. In addition, under the management and administration agreement, certain other services and costs, including accounting, regulatory reporting and insurance premiums, are paid by the Portfolio. At December 31, 2003, $36,629 was ayable to PIM related to management fees, administrative fees and certain other services. 3. TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. (PIMSS), a wholly owned indirect subsidiary of UniCredito Italiano provides substantially all transfer agent and shareowner services to the Trust at negotiated rates. Included in due to affiliates is $250 in transfer agent fees payable to PIMSS at December 31, 2003. 15 4. DISTRIBUTION PLANS The Portfolio has adopted a plan of distribution for Class II shares in accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily net assets attributable to Class II shares. Included in due to affiliates is $5,989 payable to PFD at December 31, 2003. 5. AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION At December 31, 2003, the Portfolios' aggregate unrealized appreciation and depreciation based on cost for federal income tax purposes was as follows:
NET GROSS GROSS APPRECIATION/ TAX COST APPRECIATION DEPRECIATION (DEPRECIATION) - --------------------------------------------------------------------------------------------------------- Emerging Markets Portfolio $ 26,820,748 $ 10,713,464 $ (262,872) $ 10,450,592
6. PORTFOLIO TRANSACTIONS The cost of purchases and the proceeds from sales of investments other than U.S. Government obligations and temporary cash investments for the year ended December 31, 2003, were $25,297,617 and $17,366,463, respectively. 7. CAPITAL SHARES At December 31, 2003, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
'03 SHARES '03 AMOUNT '02 SHARES '02 AMOUNT - -------------------------------------------------------------------------------------------------------- EMERGING MARKETS PORTFOLIO CLASS I: Shares sold 143,611 $ 1,837,255 379,032 $ 4,494,546 Reinvestment of distributions 2,017 25,338 4,888 58,661 Shares repurchased (195,769) (2,390,909) (464,371) (5,189,233) --------------------------------------------------------------- Net increase (decrease) (50,141) $ (528,316) (80,451) (636,026) =============================================================== CLASS II: Shares sold 1,162,017 $ 14,523,321 496,055 $ 5,890,559 Reinvestment of distributions 4,838 60,429 3,374 40,352 Shares repurchased (435,883) (5,671,239) (395,832) (4,628,501) --------------------------------------------------------------- Net increase (decrease) 730,972 $ 8,912,511 103,597 $ 1,302,410 ===============================================================
8. FORWARD FOREIGN CURRENCY CONTRACTS During the year ended December 31, 2003, certain Portfolios had entered into various contracts that obligate the Portfolios to deliver currencies at specified future dates. At the maturity of a contract, the Portfolios must make delivery of the foreign currency. Alternatively, prior to the settlement date of a portfolio hedge, the Portfolio may close out such contracts by entering into an offsetting hedge contract. As of December 31, 2003, the Portfolio had no outstanding portfolio hedges. Outstanding forward currency settlement contracts were as follows:
NET SETTLEMENT RECEIVABLE/ PORTFOLIO GROSS RECEIVABLE DATE GROSS PAYABLE (PAYABLE) - ----------------------------------------------------------------------------------------------------------------- Emerging Markets Portfolio $ 18,429 1/2/04 $ (18,819) $ (390) Emerging Markets Portfolio $ 1,703 1/2/04 $ 1,703 $ - Emerging Markets Portfolio $ 7,473 1/2/04 $ (7,488) $ (15) Emerging Markets Portfolio $ 41,359 1/2/04 $ (42,441) $ (1,082) Emerging Markets Portfolio $ 21,120 1/2/04 $ 20,582 $ 536
16 PIONEER EMERGING MARKETS VCT PORTFOLIO REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF TRUSTEES OF PIONEER VARIABLE CONTRACTS TRUST AND THE CLASS II SHAREOWNERS OF PIONEER EMERGING MARKETS VCT PORTFOLIO: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer Emerging Markets VCT Portfolio, one of the portfolios constituting Pioneer Variable Contracts Trust (the "Trust") as of December 31, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets and financial highlights for each of the two years in the period then ended. 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. The financial highlights for each of the two years in the period ended December 31, 2001 were audited by other auditors who have ceased operations and whose report, dated February 8, 2002, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 Pioneer Emerging Markets VCT Portfolio of Pioneer Variable Contracts Trust at December 31, 2003, the results of its operations for the year then ended, the changes in its net assets and the financial highlights for each of the two years in the period then ended in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts February 6, 2004 17
PIONEER VARIABLE CONTRACTS TRUST TRUSTEES AND OFFICERS The Fund's Board of Trustees provides broad supervision over the TRUSTEES, OFFICERS AND SERVICE PROVIDERS affairs of the Fund. The officers of the Fund are responsible for the Fund's operations. The Fund's Trustees and officers are listed below, INVESTMENT ADVISER together with their principal occupations during the past five years. Pioneer Investment Management, Inc. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of 1940 are referred to as CUSTODIAN Interested Trustees. Trustees who are not interested persons of the Brown Brothers Harriman & Co. Fund are referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 51 U.S. registered investment INDEPENDENT AUDITORS portfolios for which Pioneer Investment Management, Inc. ("Pioneer") Ernst & Young LLP serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the Portfolio is 60 State PRINCIPAL UNDERWRITER Street, Boston, Massachusetts 02109. Pioneer Funds Distributor, Inc. The Fund's statement of additional information provides more detailed LEGAL COUNSEL information regarding the Fund's Trustees and is available upon Hale and Dorr LLP request, without charge, by calling 1-800-225-6292. SHAREOWNER SERVICES AND TRANSFER AGENT Proxy Voting Policies and Procedures of the Fund are available without Pioneer Investment Management Shareholder Services, Inc. charge, upon request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com.
INTERESTED TRUSTEES
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE John F. Cogan, Jr. (77)* Chairman of the Board, Trustee since 1994. Deputy Chairman and a Director of Harbor Trustee and President Serves until a Director of Pioneer Global Company, Ltd. successor trustee is Global Asset Management elected or earlier S.p.A. ("PGAM"); retirement or removal. Non-Executive Chairman and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Director of Pioneer Alternative Investment Management Limited (Dublin); President and a Director of Pioneer Alternative Investment Management (Bermuda) Limited and affiliated funds; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel (since 2000, partner prior to 2000), Hale and Dorr LLP (counsel to PIM-USA and the Pioneer Funds) Osbert M. Hood (51)** Trustee and Executive Trustee since June, President and Chief None Vice President 2003. Serves until a Executive Officer, successor trustee is PIM-USA since May, 2003 elected or earlier (Director since January, retirement or removal. 2001); President and Director of Pioneer since May 2003; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Executive Vice President of all of the Pioneer Funds since June 2003; Executive Vice President and Chief Operating Officer of PIM-USA, November 2000-May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999-November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997-November 1999 *Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. **Mr. Hood is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
18 INDEPENDENT TRUSTEES
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME, AGE AND ADDRESS WITH THE FUND LENGTH OF SERVICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE Mary K. Bush (55) Trustee Trustee since September, President, Bush Director of Brady Corporation 3509 Woodbine Street, 2000. Serves until a International (industrial identification Chevy Chase, MD 20815 successor trustee is (international financial and specialty coated material elected or earlier advisory firm) products manufacturer), retirement or removal. Millenium Chemicals, Inc. (commodity chemicals), Mortgage Guaranty Insurance Corporation, and R.J. Reynolds Tobacco Holdings, Inc. (tobacco) Richard H. Egdahl, M.D. (77) Trustee Trustee since 1995. Alexander Graham Bell None Boston University Healthcare Serves until a successor Professor of Health Care Entrepreneurship Program, trustee is elected or Entrepreneurship, Boston 53 Bay State Road, earlier retirement or University; Professor of Boston, MA 02215 removal. Management, Boston University School of Management; Professor of Public Health, Boston University School of Public Health; Professor of Surgery, Boston University School of Medicine; and University Professor, Boston University Margaret B.W. Graham (56) Trustee Trustee since September, Founding Director, The None 1001 Sherbrooke 2000. Serves until a Winthrop Group, Inc. Street West, successor trustee is (consulting firm); Montreal, Quebec, Canada elected or earlier Professor of Management, retirement or removal. Faculty of Management, McGill University Marguerite A. Piret (55) Trustee Trustee since 1995. President and Chief None One Boston Place, Serves until a successor Executive Officer, 28th Floor, trustee is elected or Newbury, Piret & Company, Boston, MA 02108 earlier retirement or Inc. (investment banking removal. firm) Stephen K. West (75) Trustee Trustee since 1995. Senior Counsel, Sullivan Director, The Swiss Helvetia 125 Broad Street, Serves until a successor & Cromwell (law firm) Fund, Inc. (closed-end New York, NY 10004 trustee is elected or investment company) and earlier retirement or AMVESCAP PLC (investment removal. managers) John Winthrop (67) Trustee Trustee since September, President, John Winthrop None One North Adgers Wharf, 2000. Serves until a & Co., Inc. (private Charleston, SC 29401 successor trustee is investment firm) elected or earlier retirement or removal.
19 FUND OFFICERS
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE DURING PAST FIVE YEARS HELD BY THIS OFFICER Dorothy E. Bourassa (56) Secretary Serves at the discretion Secretary of PIM-USA; None of board Senior Vice President-Legal of Pioneer; and Secretary/Clerk of most of PIM-USA's subsidiaries since October 2000; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003); and Senior Counsel, Assistant Vice President and Director of Compliance of PIM-USA from April 1998 through October 2000 Christopher J. Kelley (39) Assistant Serves at the discretion Assistant Vice President None Secretary of board and Senior Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001; Vice President and Associate General Counsel from July 1996 to July 2000); Assistant Secretary of all of the Pioneer Funds since September 2003 David C. Phelan (46) Assistant Serves at the discretion Partner, Hale and Dorr None Secretary of board LLP; Assistant Secretary of all of the Pioneer Funds since September 2003 Vincent Nave (58) Treasurer Serves at the discretion Vice President-Fund None of board Accounting, Administration and Custody Services of Pioneer (Manager from September 1996 to February 1999); and Treasurer of all of the Pioneer Funds (Assistant Treasurer from June 1999 to November 2000) Luis I. Presutti (38) Assistant Serves at the discretion Assistant Vice None Treasurer of board President-Fund Accounting, Administration and Custody Services of Pioneer (Fund Accounting Manager from 1994 to 1999); and Assistant Treasurer of all of the Pioneer Funds since November 2000
20
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE DURING PAST FIVE YEARS HELD BY THIS OFFICER Gary Sullivan (45) Assistant Serves at the discretion Fund Accounting None Treasurer of board Manager-Fund Accounting, Administration and Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 Katharine Kim Sullivan (30) Assistant Serves at the discretion Fund Administration None Treasurer of board. Manager-Fund Accounting, Administration and Custody Services since June 2003; Assistant Vice President-Mutual Fund Operations of State Street Corporation from June 2002 to June 2003 (formerly Deutsche Bank Asset Management); Pioneer Fund Accounting, Administration and Custody Services (Fund Accounting Manager from August 1999 to May 2002, Fund Accounting Services Supervisor from 1997 to July 1999); Assistant Treasurer of all of the Pioneer Funds since September 2003
21 THIS PAGE FOR YOUR NOTES. 22 [PIONEER INVESTMENTS(R) LOGO] 14681-00-0204 [PIONEER INVESTMENTS(R) LOGO] PIONEER VARIABLE CONTRACTS TRUST PIONEER SMALL COMPANY VCT PORTFOLIO -- CLASS II SHARES ANNUAL REPORT DECEMBER 31, 2003 PIONEER VARIABLE CONTRACTS TRUST TABLE OF CONTENTS Pioneer Small Company VCT Portfolio Portfolio and Performance Update 2 Portfolio Management Discussion 3 Schedule of Investments 4 Financial Statements 8 Notes to Financial Statements 12 Report of Independent Auditors 16 Trustees, Officers and Service Providers 17
PIONEER SMALL COMPANY VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO AND PERFORMANCE UPDATE 12/31/03 [CHART] PORTFOLIO DIVERSIFICATION (As a percentage of total investment portfolio) U.S. Common Stocks 84.9% Temporary Cash Investment 11.7% Depositary Receipts for International Stocks 2.8% International Common Stocks 0.6%
[CHART] SECTOR DISTRIBUTION (As a percentage of equity holdings) Financials 22.9% Industrials 14.1% Consumer Discretionary 13.9% Information Technology 13.9% Health Care 12.5% Energy 8.0% Materials 5.5% Consumer Staples 4.0% Utilities 2.7% Telecommunication Services 2.5%
FIVE LARGEST HOLDINGS (As a percentage of equity holdings) 1. Idine Rewards Network, Inc. 3.06% 2. FTI Consulting, Inc. 2.45 3. Forest Oil Corp. 2.13 4. UniSource Energy Corp. 1.81 5. Whitney Holding Corp. 1.60
Holdings will vary for other periods. This list excludes temporary cash and derivative investments. PRICES AND DISTRIBUTIONS - CLASS II SHARES
12/31/03 12/31/02 Net Asset Value per Share $ 11.35 $ 9.07 DISTRIBUTIONS PER SHARE SHORT-TERM LONG-TERM (1/1/03 - 12/31/03) DIVIDENDS CAPITAL GAINS CAPITAL GAINS $ - $ - $ -
PERFORMANCE OF A $10,000 INVESTMENT - CLASS II SHARES The following chart shows the change in value of an investment made in PIONEER SMALL COMPANY VCT PORTFOLIO at net asset value, compared to that of the Russell 2000 Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges.
PIONEER SMALL COMPANY VCT PORTFOLIO* RUSSELL 2000 INDEX+ 1/31/2001 $ 10,000 $ 10,000 12/31/2001 $ 10,479 $ 9,741 12/31/2002 $ 8,683 $ 7,747 12/31/2003 $ 10,865 $ 11,406
+ Index comparison begins 1/31/01. The Russell 2000 Index is an unmanaged measure of the 2,000 smallest stocks, based on capitalization, in the Russell 3000 Index. 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 Index. AVERAGE ANNUAL TOTAL RETURNS+ (As of December 31, 2003) NET ASSET VALUE* Life-of-Class (1/19/01) 4.40% 1 Year 25.14%
All total returns shown assume reinvestment of distributions at net asset value. + The performance of Class II shares for the period prior to the commencement of operations of Class II shares on July 31, 2001 is based on the performance of Class I shares, reduced to reflect the higher distribution fees of Class II shares. * Portfolio performance does not reflect any variable contract fees, expenses or sales charges. If they had been included, performance would have been lower. See the pages that comprise the inside cover of this report for performance net of any contract fees, expenses or sales charges. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns and principal values fluctuate so that your investment, when redeemed, may be worth more or less than its original cost. The performance table and graph do not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. 2 PIONEER SMALL COMPANY VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO MANAGEMENT DISCUSSION 12/31/03 Q: HOW DID PIONEER SMALL COMPANY VCT PORTFOLIO PERFORM OVER THIS PERIOD? A: For the twelve months ended December 31, 2003, Class II shares of the Portfolio returned 25.14% at net asset value. This result trailed the Portfolio's benchmark, the Russell 2000 Index, which returned 47.25% over the same period. Q: PLEASE DESCRIBE HOW SMALL-COMPANY STOCKS FARED LAST YEAR AND HOW THE PORTFOLIO WAS AFFECTED. A: Fears that the Iraq war would stifle the economic recovery evaporated early in 2003 with the end of initial combat operations. As uncertainty gave way to confidence in the economic expansion, stocks in all capitalization ranges began to move higher. And, as is typical early in a recovery, the most speculative issues outpaced stocks of better quality. That performance disparity between high and low quality stocks accounts for most of the Portfolio's underperformance relative to its benchmark. Nevertheless, we stuck with our quality focus. The tide appeared to turn in our direction at yearend when investors began to back away from speculative issues and higher-quality stocks performed better. Q: WHAT WERE THE PORTFOLIO'S STRENGTHS AND WEAKNESSES LAST YEAR? A: In health care, underrepresentation among the more speculative biotech industry and high-valuation medical devices companies held back results. Within the health care services area, AMN Healthcare Services gained less than the sector, as demand for temporary nursing staff was weak. Orthodontic Centers of America suffered as consumers postponed costly procedures during the economic weakness and as the acquisition of a competitor turned contentious; we had been cutting back on this holding before most of this unfolded and have since eliminated our position entirely. First Health Group, a managed care services company, declined during the year due to disappointing results while many of its peers experienced strong price appreciation. Sunrise Assisted Living contributed nicely to performance as the company continues to successfully execute a strategic shift in its business. Parexel International also added to performance as the company experienced improving results. Among financial services firms, we downplayed interest rate-sensitive banks in favor of companies with the potential to increase earnings in an economic expansion. Real estate investment trusts (REITs) added to Portfolio returns. Healthcare Realty Trust, which owns and manages medical office buildings, showed a solid gain. In consumer-related sectors, Canadian movie and television producer Alliance Atlantis, distributor of The Lord of the Rings films and producers of the CSI television shows, benefited from box office success and improved finances. Rewards Network, which provides business services to restaurants while marketing meal discounts to consumers, retreated in the fourth quarter on profit taking, but was a positive contributor for the year. Sales of health and diet products continue strong at NuSkin, which is already active in China and expanding in Japan. Two other consumer stocks disappointed: AFC Enterprises, franchisor of Church's Fried Chicken, Seattle's Best and Popeye's, fell victim to management missteps; and Genesco failed to keep up with fashion trends in its teen-oriented Journeys shoe outlets. Q: WHAT OTHER STOCKS OR SECTORS HAD AN IMPACT ON PERFORMANCE? A: Being underweight technology stocks hurt relative performance, as many lower-quality tech stocks rallied sharply. Our overweight position in energy was a negative for much of the year, but patience was rewarded by a fourth-quarter rally in this sector. Earlier, we took a loss in PetroQuest Energy when exploration efforts came up short; shares later fell further. FTI Consulting, whose bankruptcy-consulting services tend to suffer in an improving economic environment, rebounded somewhat in the fourth quarter as diversification efforts are beginning to pay off. Princeton Review, which provides classroom and other services to students, parents and educational institutions, rose slightly. And improved earnings at defense-services contractor AAR Corp. pushed shares sharply higher. Q: WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD? A: With investors beginning to focus on better-quality stocks, we believe low-quality, unprofitable issues will lose favor. And if, as we expect, the economy expands further in 2004, the companies we have selected based on their attractive valuations and positive earnings prospects should, we believe, continue to do well. ANY INFORMATION IN THIS SHAREHOLDER REPORT REGARDING MARKET OR ECONOMIC TRENDS OR THE FACTORS INFLUENCING THE PORTFOLIO'S HISTORICAL OR FUTURE PERFORMANCE ARE STATEMENTS OF THE OPINION OF PORTFOLIO MANAGEMENT AS OF THE DATE OF THIS REPORT. THESE STATEMENTS SHOULD NOT BE RELIED UPON FOR ANY OTHER PURPOSES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND THERE IS NO GUARANTEE THAT MARKET FORECASTS DISCUSSED WILL BE REALIZED. [SIDENOTE] Small-capitalization stocks, while offering the potential for higher returns, may be subject to greater short-term price fluctuations than securities of larger companies. The Portfolio's investment adviser, Pioneer Investment Management, Inc., reduced its management fee and certain other expenses; otherwise, returns would have been lower. 3 PIONEER SMALL COMPANY VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST SCHEDULE OF INVESTMENTS 12/31/03
SHARES VALUE COMMON STOCKS - 87.3% ENERGY - 7.0% OIL & GAS DRILLING - 2.6% 2,275 Atwood Oceanics, Inc.* $ 72,664 3,400 Grant Prideco, Inc.* 44,268 7,150 Key Energy Services, Inc.* 73,717 2,813 Patterson Energy, Inc.* 92,604 --------------- $ 283,253 --------------- OIL & GAS EQUIPMENT & SERVICES - 0.9% 1,350 Gulfmark Offshore, Inc.* $ 18,900 4,075 Maverick Tube Corp.* 78,444 --------------- $ 97,344 --------------- OIL & GAS EXPLORATION & PRODUCTION - 2.8% 7,150 Forest Oil Corp.* $ 204,276 2,028 Spinnaker Exploration Co.* 65,444 1,200 Tom Brown, Inc.* 38,700 --------------- $ 308,420 --------------- OIL & GAS REFINING MARKETING & TRANSPORTATION - 0.7% 4,700 Plains Resources, Inc.* $ 75,435 --------------- TOTAL ENERGY $ 764,452 --------------- MATERIALS - 4.8% COMMODITY CHEMICALS - 0.9% 4,550 Airgas, Inc. $ 97,734 --------------- MATERIALS - 0.6% 850 Mega Blocks, Inc.* $ 15,125 2,950 Mega Blocks, Inc. (144A)* 52,493 --------------- $ 67,618 --------------- METAL & GLASS CONTAINERS - 0.3% 675 Kennametal, Inc. $ 26,831 --------------- PAPER PRODUCTS - 0.7% 5,850 Wausau-Mosinee Paper Corp. $ 79,092 --------------- PRECIOUS METALS & MINERALS - 1.3% 11,400 Agnico Eagle Mines, Ltd. $ 137,598 --------------- SPECIALTY CHEMICALS - 0.6% 6,925 Wellman, Inc. $ 70,704 --------------- STEEL - 0.4% 3,525 Graftech International, Ltd.* $ 47,588 --------------- TOTAL MATERIALS $ 527,165 --------------- CAPITAL GOODS - 3.7% AEROSPACE & DEFENSE - 1.3% 8,125 AAR Corp.* $ 121,469 1,300 Intrado, Inc.* 28,535 --------------- $ 150,004 --------------- CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS - 1.2% 7,550 Wabtec Corp. $ 128,652 --------------- CONSTRUCTION & ENGINEERING - 0.2% 1,200 Insituform Technologies, Inc.* $ 19,800 --------------- ELECTRICAL COMPONENT & EQUIPMENT - 1.0% 9,925 Power-One, Inc.* $ 107,488 --------------- TOTAL CAPITAL GOODS $ 405,944 --------------- COMMERCIAL SERVICES & SUPPLIES - 7.4% DATA PROCESSING SERVICES - 0.6% 2,100 Gartner Group, Inc.* $ 23,751 1,625 TALX Corp. 37,424 --------------- $ 61,175 --------------- COMMERCIAL PRINTING - 1.1% 4,300 John H. Harland Co. $ 117,390 --------------- DIVERSIFIED COMMERCIAL SERVICES - 4.6% 3,951 The Brinks Co. $ 89,332 10,050 FTI Consulting, Inc.* 234,869 2,275 Kroll, Inc.* 59,150 2,950 Regis Corp. 116,584 --------------- $ 499,935 --------------- EMPLOYMENT SERVICES - 1.0% 11,700 The Princeton Review, Inc.* $ 114,075 --------------- ENVIRONMENTAL SERVICES - 0.1% 3,400 Newpark Resources, Inc.* $ 16,286 --------------- TOTAL COMMERCIAL SERVICES & SUPPLIES $ 808,861 --------------- TRANSPORTATION - 1.2% TRUCKING - 1.2% 2,325 Dollar Thrifty Automotive GP* $ 60,311 1,800 Forward Air Corp.* 49,500 1,000 Overnite Corp.* 22,750 --------------- TOTAL TRANSPORTATION $ 132,561 --------------- CONSUMER DURABLES & APPAREL - 3.8% APPAREL, ACCESSORIES & LUXURY GOODS - 0.7% 14,200 Charming Shoppes, Inc.* $ 76,680 --------------- HOUSEWARES & SPECIALTIES - 1.5% 6,700 Tupperware Corp. $ 116,178 1,700 Yankee Candle, Co.* 46,461 --------------- $ 162,639 --------------- LEISURE PRODUCTS - 0.4% 3,075 The Nautilus Group, Inc. $ 43,204 --------------- PHOTOGRAPHIC PRODUCTS - 0.3% 3,525 Creo Products* $ 36,308 --------------- TEXTILES - 0.9% 15,386 Unifi, Inc.* $ 99,240 --------------- TOTAL CONSUMER DURABLES & APPAREL $ 418,071 ---------------
The accompanying notes are an integral part of these financial statements. 4
SHARES VALUE HOTELS, RESTAURANTS & LEISURE - 2.3% LEISURE FACILITIES - 0.2% 3,775 Bally Total Fitness Holding Corp.* $ 26,425 --------------- RESTAURANTS - 2.1% 1,206 Applebee's International, Inc. $ 47,360 1,600 CEC Entertainment, Inc.* 75,824 5,900 O'Charley's, Inc.* 105,905 --------------- $ 229,089 --------------- TOTAL HOTELS, RESTAURANTS & Leisure $ 255,514 --------------- MEDIA - 2.1% MOVIES & ENTERTAINTAINMENT - 1.2% 8,850 Alliance Atlantis Communications, Inc.* $ 135,582 --------------- PUBLISHING - 0.9% 4,825 Journal Register Co.* $ 99,878 --------------- TOTAL MEDIA $ 235,460 --------------- RETAILING - 3.9% APPAREL RETAIL - 0.8% 4,250 Genesco Inc.* $ 64,303 575 Gildan Activewer, Inc.* 17,756 --------------- $ 82,059 --------------- CATALOG RETAIL - 0.3% 1,600 Insight Enterprises, Inc.* $ 30,080 --------------- COMPUTER & ELECTRONICS RETAIL - 0.6% 6,575 Inter-TAN, Inc.* $ 66,539 --------------- GENERAL MERCHANDISE STORES - 0.9% 3,300 Tuesday Morning Corp.* $ 99,825 --------------- SPECIALTY STORES - 1.3% 800 Guitar Center, Inc.* $ 26,064 3,450 School Specialty, Inc.* 117,335 --------------- $ 143,399 --------------- TOTAL RETAILING $ 421,902 --------------- FOOD & DRUG RETAILING - 1.2% FOOD DISTRIBUTORS - 0.7% 1,739 The J.M. Smucker Co. $ 78,759 --------------- FOOD RETAIL - 0.5% 1,350 Fresh Del Monte Produce, Inc.* $ 32,171 1,700 Wild Oats Markets, Inc.* 21,981 --------------- $ 54,152 --------------- TOTAL FOOD & DRUG RETAILING $ 132,911 --------------- FOOD, BEVERAGE & TOBACCO - 1.1% AGRICULTURAL PRODUCTS - 1.1% 3,420 Corn Products International, Inc. $ 117,819 --------------- TOTAL FOOD, BEVERAGE & TOBACCO $ 117,819 --------------- HOUSEHOLD & PERSONAL PRODUCTS - 1.3% HOUSEHOLD PRODUCTS - 1.3% 8,350 Nu Skin Enterprises, Inc. $ 142,702 --------------- TOTAL HOUSEHOLD & PERSONAL PRODUCTS $ 142,702 --------------- HEALTH CARE EQUIPMENT & SERVICES - 10.5% HEALTH CARE DISTRIBUTORS - 1.8% 5,087 AMN Healthcare Services* $ 87,293 1,500 Chattem, Inc.* 26,850 5,725 Cross Country Healthcares, Inc.* 85,417 --------------- $ 199,560 --------------- HEALTH CARE EQUIPMENT - 1.2% 5,500 Haemonetics Corp.* $ 131,395 --------------- HEALTH CARE FACILITIES - 2.4% 2,500 Lifepoint Hospitals, Inc.* $ 73,625 3,327 Sunrise Senior Living, Inc.* 128,888 1,050 Universal Health Services, Inc. (Class B) 56,406 --------------- $ 258,919 --------------- HEALTH CARE SERVICES - 3.5% 19,625 Hooper Holmes, Inc. $ 121,283 1,300 Pediatrix Medical Group, Inc.* 71,617 5,925 Providence Service Corp.* 95,867 5,796 Parexel International Corp.* 94,243 --------------- $ 383,010 --------------- HEALTH CARE SUPPLIES - 0.9% 2,700 Charles River Laboratories International, Inc.* $ 92,691 --------------- MANAGED HEALTH CARE - 0.7% 4,175 First Health Group Corp.* $ 81,246 --------------- TOTAL HEALTH CARE EQUIPMENT & SERVICES $ 1,146,821 --------------- PHARMACEUTICALS & BIOTECHNOLOGY - 0.4% BIOTECHNOLOGY - 0.4% 3,750 Cubist Pharmaceuticals, Inc.* $ 45,600 --------------- TOTAL PHARMACEUTICALS & BIOTECHNOLOGY $ 45,600 --------------- BANKS - 6.0% DIVERSIFIED BANKS - 0.6% 3,625 Provident Financial Services, Inc. $ 68,513 --------------- REGIONAL BANKS - 1.7% 2,300 Sterling Bancshares, Inc. $ 30,659 3,727 Whitney Holding Corp. 152,770 --------------- $ 183,429 --------------- THRIFTS & MORTGAGE FINANCE - 3.7% 5,100 Commercial Federal Corp. $ 136,221 5,696 Staten Island Bancorp, Inc. 128,160 3,000 Webster Financial Corp. 137,580 --------------- $ 401,961 --------------- TOTAL BANKS $ 653,903 ---------------
The accompanying notes are an integral part of these financial statements. 5
SHARES VALUE DIVERSIFIED FINANCIALS - 6.2% CONSUMER FINANCE - 0.4% 1,387 American Capital Strategies $ 41,236 --------------- CONSUMER FINANCE - 4.0% 11,303 Advanta Corp. (Class B) $ 143,774 27,497 Idine Rewards Network, Inc.* 293,118 --------------- $ 436,892 --------------- MULTI-SECTOR HOLDING - 1.1% 2,600 Leucadia National Corp. $ 119,860 --------------- DIVERSIFIED FINANCIAL SERVICES - 0.7% 2,075 Gabelli Asset Management, Inc. $ 82,585 --------------- TOTAL DIVERSIFIED FINANCIALS $ 680,573 --------------- INSURANCE - 2.8% MULTI-LINE INSURANCE - 0.4% 1,700 Max Re Capital, Ltd. $ 38,148 --------------- PROPERTY & CASUALTY INSURANCE - 2.4% 1,300 American Safety Insurance Group, Ltd.* $ 17,043 1,270 First American Corp. 37,808 6,800 Quanta Capital Holdings (144A)* 78,200 4,170 Selective Insurance Group, Inc. 134,941 --------------- $ 267,992 --------------- TOTAL INSURANCE $ 306,140 --------------- REAL ESTATE - 5.0% REAL ESTATE INVESTMENT TRUSTS - 5.0% 2,050 Colonial Properties Trust $ 81,180 1,425 Camden Property Trust 63,128 3,317 Healthcare Realty Trust, Inc. 118,583 7,407 Innkeepers USA Trust 61,997 3,590 Prentiss Properties Trust 118,434 2,850 Shurgard Storage Centers, Inc. 107,303 --------------- TOTAL REAL ESTATE $ 550,625 --------------- SOFTWARE & SERVICES - 5.5% APPLICATION SOFTWARE - 3.8% 4,600 American Management Systems, Inc.* $ 69,322 2,008 Fair Isaac & Co., Inc. 98,713 2,450 Manhattan Associates, Inc.* 67,718 5,500 Mercury Computer Systems, Inc.* 136,950 1,900 Verint Systems, Inc.* 42,864 --------------- $ 415,567 --------------- HOME ENTERTAINMENT SOFTWARE - 0.9% 9,475 Plato Learning, Inc.* $ 99,961 --------------- INTERNET SOFTWARE & SERVICES - 0.3% 3,900 Lionbridge Technologies, Inc.* $ 37,479 --------------- SYSTEMS SOFTWARE - 0.5% 5,100 Borland Software Corp.* $ 49,623 --------------- TOTAL SOFTWARE & SERVICES $ 602,630 --------------- TECHNOLOGY HARDWARE & EQUIPMENT - 3.0% COMMUNICATIONS EQUIPMENT - 0.8% 2,375 Avocent Corp.* $ 86,735 --------------- ELECTRONIC MANUFACTURING SERVICES - 1.3% 8,150 Plexus Corp.* $ 139,936 --------------- TECHNOLOGY DISTRIBUTORS - 0.9% 2,600 Tech Data Corp.* $ 103,194 --------------- TOTAL TECHNOLOGY HARDWARE & EQUIPMENT $ 329,865 --------------- SEMICONDUCTORS - 3.6% SEMICONDUCTOR EQUIPMENT - 2.5% 1,676 ATMI, Inc.* $ 38,783 748 Cymer, Inc.* 34,550 2,051 DuPont Photomasks, Inc.* 49,511 3,746 Photronics, Inc.* 74,620 1,926 Varian Semiconductor Equipment Associates, Inc.* 84,147 --------------- $ 281,611 --------------- SEMICONDUCTORS - 1.1% 3,525 Power Integrations, Inc.* $ 117,947 --------------- TOTAL SEMICONDUCTORS $ 399,558 --------------- TELECOMMUNICATION SERVICES - 2.2% INTEGRATED TELECOMMUNICATION SERVICES - 1.5% 6,975 Aeroflex Inc.* $ 81,538 6,359 CT Communications Inc. 85,847 --------------- $ 167,385 --------------- WIRELESS TELECOMMUNICATION SERVICES - 0.7% 7,750 Boston Communications Group, Inc.* $ 71,998 --------------- TOTAL TELECOMMUNICATION SERVICES $ 239,383 --------------- UTILITIES - 2.3% ELECTRIC UTILITIES - 1.6% 7,039 UniSource Energy Corp. $ 173,582 --------------- GAS UTILITIES - 0.7% 1,925 People's Energy Corp. $ 80,914 --------------- TOTAL UTILITIES $ 254,496 --------------- TOTAL COMMON STOCKS (Cost $8,298,594) $ 9,572,956 ---------------
The accompanying notes are an integral part of these financial statements. 6
SHARES VALUE TEMPORARY CASH INVESTMENT - 11.6% SECURITY LENDING COLLATERAL - 11.6% 1,272,844 Securities Lending Investment Fund, 1.02% $ 1,272,844 --------------- TOTAL COMMERCIAL PAPER $ 1,272,844 --------------- TOTAL TEMPORARY CASH INVESTMENT (Cost $1,272,844) $ 1,272,844 --------------- TOTAL INVESTMENT IN SECURITIES - 98.9% (Cost $9,571,438) $ 10,845,800 --------------- OTHER ASSETS AND LIABILITIES - 1.1% $ 124,729 --------------- TOTAL NET ASSETS - 100.0% $ 10,970,529 ===============
* Non-income producing security 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, 2003, the value of these securities amounted to $130,693 or 1.2% of net assets. The accompanying notes are an integral part of these financial statements. 7 PIONEER SMALL COMPANY VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST FINANCIAL HIGHLIGHTS 12/31/03
YEAR YEAR 8/1/01 ENDED ENDED TO 12/31/03 12/31/02 12/31/01(a) CLASS II Net asset value, beginning of period $ 9.07 $ 10.95 $ 11.18 ---------- ---------- ---------- Increase (decrease) from investment operations: Net investment income $ (0.01) $ (0.01) $ - Net realized and unrealized gain (loss) on investments and foreign currency transactions 2.29 (1.87) (0.23) ---------- ---------- ---------- Net increase (decrease) from investment operations $ 2.28 $ (1.88) $ (0.23) Distributions to shareholders: Net investment income - - - Net realized gain - - - ---------- ---------- ---------- Net increase (decrease) in net asset value $ 2.28 $ (1.88) $ (0.23) ---------- ---------- ---------- Net asset value, end of period $ 11.35 $ 9.07 $ 10.95 ========== ========== ========== Total return* 25.14% (17.14)% (2.06)% Ratio of net expenses to average net assets+ 1.52% 1.58% 1.68%** Ratio of net investment income to average net assets+ (0.23)% (0.18)% 0.01%** Portfolio turnover rate 38% 53% 72% Net assets, end of period (in thousands) $ 7,095 $ 3,419 $ 938 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 2.67% 2.98% 6.71%** Net investment income (loss) (1.38)% (1.58)% 5.02%**
(a) Class 2 shares were first publicly offered on August 1, 2001. * 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 with no reduction for fees paid indirectly. The accompanying notes are an integral part of these financial statements. 8 PIONEER SMALL COMPANY VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST STATEMENT OF ASSETS AND LIABILITIES 12/31/03
PIONEER SMALL COMPANY VCT PORTFOLIO ASSETS: Investment in securities, at value (including securities loaned of $1,222,378) (Cost $9,571,438) $ 10,845,800 Cash 1,412,806 Cash held as collateral for furtures contracts - Futures collateral 17,500 Foreign currencies, at value - Receivables - Investment securities sold - Fund shares sold 6,569 Variation margin - Dividends, interest and foreign taxes withheld 8,349 Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, open - net - Due from Pioneer Investment Management, Inc. 3,952 Other 2,029 --------------- Total assets $ 12,297,005 --------------- LIABILITIES: Payables - Investment securities purchased $ - Fund shares repurchased 828 Dividends - Upon return of securities loaned 1,272,844 Variation Margin 3,400 Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, - Reserve for repatriation taxes - Due to bank - Due to affiliates 6,002 Accrued expenses 43,402 Other - --------------- Total liabilities $ 1,326,476 --------------- NET ASSETS: Paid-in capital $ 10,399,433 Accumulated net investment income (loss) 1,986 Accumulated undistributed net realized gain (loss) (716,740) Net unrealized gain (loss) on: Investments 1,274,362 Futures contracts 11,218 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - --------------- Total net assets $ 10,970,529 --------------- NET ASSET VALUE PER SHARE: CLASS I: (Unlimited number of shares authorized) Net assets $ 3,875,232 Shares outstanding 338,811 --------------- Net asset value per share $ 11.44 CLASS II: (Unlimited number of shares authorized) Net assets $ 7,095,297 Shares outstanding 625,380 --------------- Net asset value per share $ 11.35
The accompanying notes are an integral part of these financial statements. 9 STATEMENT OF OPERATIONS
PIONEER SMALL COMPANY VCT PORTFOLIO YEAR ENDED 12/31/03 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $33) $ 91,471 Interest 4,100 Income on securities loaned, net 4,724 Other - --------------- Total investment income $ 100,295 --------------- EXPENSES: Management fees $ 58,653 Transfer agent fees 3,118 Distribution fees (Class II) 10,949 Administrative fees 37,413 Custodian fees 23,416 Professional fees 23,398 Printing 35,762 Fees and expenses of nonaffiliated trustees 545 Miscellaneous 7,122 --------------- Total expenses $ 200,376 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (90,919) --------------- Net expenses $ 109,457 --------------- Net investment income (loss) $ (9,162) --------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ (345,200) Futures contracts 49,017 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (86) --------------- $ (296,269) --------------- Change in net unrealized gain or (loss) from: Investments $ 2,150,870 Futures contracts 20,982 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (3) --------------- $ 2,171,849 --------------- Net gain (loss) on investments, futures contracts and foreign currency transactions $ 1,875,580 =============== Net increase (decrease) in net assets resulting from operations $ 1,866,418 ===============
The accompanying notes are an integral part of these financial statements. 10 STATEMENTS OF CHANGES IN NET ASSETS
PIONEER SMALL COMPANY VCT PORTFOLIO YEAR YEAR ENDED ENDED 12/31/03 12/31/02 FROM OPERATIONS: Net investment income (loss) $ (9,162) $ (2,253) Net realized gain (loss) on investments (296,269) (290,679) Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions 2,171,849 (1,085,816) --------------- --------------- Net increase (decrease) in net assets resulting from operations $ 1,866,418 $ (1,378,748) --------------- --------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ - $ (1,223) Class II - (819) Net realized gain Class I - - Class II - - Tax return of capital Class I - - Class II - - --------------- --------------- Total distributions to shareowners $ - $ (2,042) --------------- --------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 6,156,243 $ 6,456,212 Reinvestment of distributions - 2,009 Cost of shares repurchased (3,911,566) (1,530,967) --------------- --------------- Net increase (decrease) in net assets resulting from fund share transactions $ 2,244,677 $ 4,927,254 --------------- --------------- Net increase (decrease) in net assets $ 4,111,095 $ 3,546,464 --------------- --------------- NET ASSETS: Beginning of period 6,859,434 3,312,970 --------------- --------------- End of period $ 10,970,529 $ 6,859,434 =============== =============== Accumulated undistributed/(Distributions in excess of) net investment income (loss) $ 1,986 $ 615 =============== ===============
The accompanying notes are an integral part of these financial statements. 11 PIONEER SMALL COMPANY VCT PORTFOLIO NOTES TO FINANCIAL STATEMENTS 12/31/03 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Pioneer Small Company VCT Portfolio (the Portfolio) is a Portfolio of Pioneer Variable Contracts Trust (the Trust) which is a Delaware business trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of sixteen separate portfolios fourteen of which issue both Class I and Class II shares (collectively, the Portfolios, individually the Portfolio) as follows: PORTFOLIOS: Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio) Pioneer Europe VCT Portfolio (Europe Portfolio) Pioneer International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio) Pioneer Small Company VCT Portfolio (Small Company Portfolio) Pioneer Mid Cap Value VCT Portfolio (Mid-Cap Value Portfolio) Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio) Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio) Pioneer Fund VCT Portfolio (Fund Portfolio) Pioneer Equity Income VCT Portfolio (Equity-Income Portfolio) Pioneer Balanced VCT Portfolio (Balanced Portfolio) Pioneer High Yield VCT Portfolio (High Yield Portfolio) Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio) Pioneer America Income VCT Portfolio (America Income Portfolio) Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares only) Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only) Portfolio shares may only be purchased by insurance companies for the purpose of funding variable annuity or variable life insurance contracts, and may also be purchased by qualified pension and retirement plans. The financial highlights for the Portfolio's Class II shares are presented in a separate book. The investment objective of Small Company Portfolio is to seek capital appreciation. Trust's financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America 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 income, expenses, gains and losses during the reporting years. 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 as of trade date. Net asset values for the portfolio 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, based on the last sale price on the principal exchange where they traded, are determined as of such times. 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 becomes aware of the ex-dividend data in the exercise of reasonable diligence. Interest income, including interest on income bearing cash accounts, is recorded on the accrual basis, net of unrecoverable foreign taxes withheld at the applicable country rates. All discounts/premiums are accreted/amortized for financial reporting purposes. 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 and, if applicable, are reported net of foreign taxes on capital gains at the applicable country rates. Small-capitalization stocks, while offering the potential for higher returns, may be subject to greater short-term price fluctuations than securities of larger companies. B. FUTURES CONTRACTS The Portfolio may enter into futures transactions to hedge against changes in interest rates, securities prices, and currency rates or to seek to increase total return. Upon entering into a futures contract, the Portfolio is required to deposit with a broker an amount of cash or securities equal to the minimum "initial margin" requirements of the associated futures 12 exchange. Subsequent payments for futures contracts ("variation margin") are paid or received by the Portfolio, depending on the daily fluctuation in the value of the contracts, and are recorded by the Portfolio as unrealized gains or losses. When the contract is closed, the Portfolio realize a gain or loss equal to the difference between the opening and closing value of the contract. The use of futures contracts involves, to varying degrees, elements of market risk which may exceed the amounts recognized by the Portfolio. Changes in the value of the contracts may not directly correlate to the changes in the value of the underlying securities. These risks may decrease the effectiveness of the Portfolio's hedging and trading strategies and potentially result in a loss. As of December 31, 2003, open contracts were as follows:
NUMBER OF CONTRACTS SETTLEMENT UNREALIZED PORTFOLIO TYPE LONG/(SHORT) MONTH MARKET VALUE GAIN/(LOSS) - ------------------------------------------------------------------------------------------ Small Company Russell 2000 1 Mar-04 $ 278,600 $ 11,218
C. FOREIGN CURRENCY TRANSLATION The books and records of the Portfolio 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, 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. D. FORWARD FOREIGN CURRENCY CONTRACTS The Portfolio enters 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 Portfolio's financial statements. The Portfolio records 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. E. 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 shareowners. Therefore, no federal income tax provision is required. In addition to the requirements of the Internal Revenue Code, the Portfolio may also be required to pay local taxes on the recognition of capital gains and/or the repatriation of foreign currencies in certain countries. During the year ended December 31, 2003, the no such taxes were paid. The amount and characterization of distributions to shareowners 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. Capital loss carryforwards are available to offset future realized capital gains. At December 31, 2003, Small Company VCT Portfolio had a capital loss carryforward of $613,173, of which the following amounts will expire between 2009 and 2011 if not utilized: $92,858 in 2009, $235,402 in 2010, and $284,913 in 2011. At December 31, 2003, the Portfolio made reclassifications as described below. These reclassifications have no impact on the net asset value of the Portfolio and are designed to present the portfolios' capital accounts on a tax basis.
ACCUMULATED NET ACCUMULATED INVESTMENT REALIZED GAIN/ PORTFOLIO INCOME/(LOSS) LOSS PAID-IN CAPITAL - ------------------------------------------------------------------------------- Small Company Portfolio $ 10,533 $ 5,469 $ (16,002)
13 The following chart shows the components of distributable earnings (accumulated losses) as of December 31, 2003 and the distributions paid during the year ended December 31, 2003 on a tax basis as of December 31, 2003.
PIONEER PIONEER SMALL COMPANY SMALL COMPANY VCT PORTFOLIO VCT PORTFOLIO 2003 2002 - ------------------------------------------------------------------------ DISTRIBUTIONS PAID FROM: Ordinary Income $ - $ 2,042 Long-Term capital gain - - ------------------------------ $ - 2,042 Return of Capital - - ------------------------------ Total distributions $ - $ 2,042 ------------------------------ DISTRIBUTABLE EARNINGS (ACCUMULATED LOSSES): Undistributed ordinary income $ - Undistributed long-term gain/ (capital loss carryforward) (613,173) Unrealized appreciation (depreciation) 1,184,269 ------------- Total $ 571,096
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily attributable to the tax deferral of losses on wash sales, returns of capital on REITs, and the recognition of unrealized gains or losses on certain futures contracts. F. PORTFOLIO SHARES The Portfolio records sales and repurchases of its portfolio shares as of trade date. Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the principal underwriter for the Trust and a wholly owned indirect subsidiary of UniCredito Italiano S.p.A. (UniCredito Italiano), $246,661 in commissions on the sale of Trust shares for the year ended December 31, 2003. Distribution fees are calculated based on the average daily net asset values attributable to Class I and Class II shares of the Portfolio, respectively. Shareowners of each class share all expenses and fees paid to the transfer agent, Pioneer Investment Management Shareholder Services, Inc. (PIMSS), for its services, which are allocated based on the number of accounts in each class and the ratable allocation of related out-of-pocket expenses (see Note 3). Income, common expenses and realized and unrealized gains and losses are calculated at the Portfolio level and allocated daily to each class of shares based on the respective percentage of adjusted net assets at the beginning of the day. Dividends and distributions to shareowners are recorded on the ex-dividend date. Distributions paid by the Portfolio with respect to each class of shares are calculated in the same manner, at the same time, and in the same amount, except that Class I and Class II shares can bear different transfer agent and distribution fees. Income, expenses (excluding 12b-1 fees) and gains and losses are calculated at the Portfolio level and are allocated daily based on the respective percentage of adjusted net assets at the beginning of the day. G. SECURITIES LENDING The Portfolio lends securities in its portfolio to certain broker-dealers or other institutional investors, with the Portfolio's custodian acting as the lending agent. When entering into a loan, the Portfolio receives collateral which is maintained by the custodian and earns income in the form of negotiated lenders' fees. The Portfolio also continues to receive interest or dividends on the securities loaned, and gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for account of the Trust. The loans are secured by collateral of at least 102%, at all times, of the fair value of the securities loaned. The fair value of the collateral will be adjusted daily to reflect any price fluctuation in the value of the loaned securities. The Trust has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Trust invests cash collateral in the Securities Lending Investment Fund which is managed by Brown Brothers Harriman & Co., the Trust's custodian. H. REPURCHASE AGREEMENTS With respect to repurchase agreements entered into by the Portfolio, 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 Portfolio's custodian, or subcustodian. The Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is responsible for determining that the value of the collateral remains at least equal to the repurchase price. 2. MANAGEMENT AGREEMENT PIM manages the Portfolio, and is a wholly owned indirect subsidiary of UniCredito Italiano. Management fees are calculated daily at the following annual rate of 0.75% of the Portfolio's average daily net assets. In addition, under the management and administration agreement, certain other services and costs, including accounting, regulatory reporting and insurance premiums, are paid by the Portfolio. At December 31, 2003, $3,125 was payable to PIM related to management fees, administrative fees and certain other services. 14 3. TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. (PIMSS), a wholly owned indirect subsidiary of UniCredito Italiano provides substantially all transfer agent and shareowner services to the Trust at negotiated rates. Included in due to affiliates is $1,258 in transfer agent fees payable to PIMSS at December 31, 2003. 4. DISTRIBUTION PLANS The Portfolio has adopted a plan of distribution for Class II shares in accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily net assets attributable to Class II shares. Included in due to affiliates is $1,619 payable to PFD at December 31, 2003. 5. AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION At December 31, 2003, the Portfolios' aggregate unrealized appreciation and depreciation based on cost for federal income tax purposes was as follows:
GROSS GROSS NET APPRECIATION/ TAX COST APPRECIATION DEPRECIATION (DEPRECIATION) - ----------------------------------------------------------------------------------------------- Small Company Portfolio $ 9,661,531 $ 1,465,340 $ (281,071) $ 1,184,269
6. PORTFOLIO TRANSACTIONS The cost of purchases and the proceeds from sales of investments other than U.S. Government obligations and temporary cash investments for the year ended December 31, 2003, were $4,176,885 and $2,669,753, respectively. 7. CAPITAL SHARES At December 31, 2003, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
SMALL COMPANY PORTFOLIO '03 SHARES '03 AMOUNT '02 SHARES '02 AMOUNT - --------------------------------------------------------------------------------------------- CLASS I: Shares sold 286,397 $ 2,774,242 273,309 $ 2,966,433 Reinvestment of distributions - - 108 1,190 Shares repurchased (324,514) (3,132,628) (112,938) (1,132,691) ------------------------------------------------------------- Net increase (38,117) $ (358,386) 160,479 $ 1,834,932 ============================================================= CLASS II: Shares sold 328,726 $ 3,382,001 333,230 $ 3,489,779 Reinvestment of distributions - - 75 819 Shares repurchased (80,215) (778,938) (42,070) (398,276) ------------------------------------------------------------- Net increase 248,511 2,603,063 291,235 3,092,322 =============================================================
15 PIONEER SMALL COMPANY VCT PORTFOLIO REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF TRUSTEES OF PIONEER VARIABLE CONTRACTS TRUST AND THE CLASS II SHAREOWNERS OF PIONEER SMALL COMPANY VCT PORTFOLIO: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer Small Company VCT Portfolio, one of the portfolios constituting Pioneer Variable Contracts Trust (the "Trust") as of December 31, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets and financial highlights for each of the two years in the period then ended. 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. The financial highlights for the period ended December 31, 2001 were audited by other auditors who have ceased operations and whose report, dated February 8, 2002, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 Pioneer Small Company VCT Portfolio of Pioneer Variable Contracts Trust at December 31, 2003, the results of its operations for the year then ended, the changes in its net assets and the financial highlights for each of the two years in the period then ended in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts February 6, 2004 16 PIONEER VARIABLE CONTRACTS TRUST TRUSTEES, OFFICERS AND SERVICE PROVIDERS INVESTMENT ADVISER Pioneer Investment Management, Inc. CUSTODIAN Brown Brothers Harriman & Co. INDEPENDENT AUDITORS Ernst & Young LLP PRINCIPAL UNDERWRITER Pioneer Funds Distributor, Inc. LEGAL COUNSEL Hale and Dorr LLP SHAREOWNER SERVICES AND TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. TRUSTEES AND OFFICERS The Fund's Board of Trustees provides broad supervision over the affairs of the Fund. The officers of the Fund are responsible for the Fund's operations. The Fund's Trustees and officers are listed below, together with their principal occupations during the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of 1940 are referred to as Interested Trustees. Trustees who are not interested persons of the Fund are referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 51 U.S. registered investment portfolios for which Pioneer Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the Portfolio is 60 State Street, Boston, Massachusetts 02109. The Fund's statement of additional information provides more detailed information regarding the Fund's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Fund are available without charge, upon request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. INTERESTED TRUSTEES
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS TRUSTEE John F. Cogan, Jr. (77)* Chairman of the Trustee since Deputy Chairman and a Director of Director of Harbor Board, Trustee 1994. Serves until a Pioneer Global Asset Management Global Company, Ltd. and President successor trustee is S.p.A. ("PGAM"); Non-Executive elected or earlier Chairman and a Director of Pioneer retirement or removal. Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Director of Pioneer Alternative Investment Management Limited (Dublin); President and a Director of Pioneer Alternative Investment Management (Bermuda) Limited and affiliated funds; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel (since 2000, partner prior to 2000), Hale and Dorr LLP (counsel to PIM-USA and the Pioneer Funds) Osbert M. Hood (51)** Trustee and Trustee since President and Chief Executive None Executive Vice June, 2003. Serves until Officer, PIM-USA since May, 2003 President a successor trustee is (Director since January, 2001); elected or earlier President and Director of Pioneer retirement or removal. since May 2003; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Executive Vice President of all of the Pioneer Funds since June 2003; Executive Vice President and Chief Operating Officer of PIM-USA, November 2000 - May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999-November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997-November 1999
*Mr.Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. **Mr.Hood is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. 17 INDEPENDENT TRUSTEES
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME, AGE AND ADDRESS WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS TRUSTEE Mary K. Bush (55) Trustee Trustee since President, Bush International Director of Brady 3509 Woodbine Street, September, 2000. (international financial advisory Corporation Chevy Chase, MD 20815 Serves until a firm) (industrial successor trustee is identification and elected or earlier specialty coated retirement or removal. material products manufacturer), Millenium Chemicals, Inc. (commodity chemicals), Mortgage Guaranty Insurance Corporation, and R.J. Reynolds Tobacco Holdings, Inc. (tobacco) Richard H. Egdahl, M.D. (77) Trustee Trustee since Alexander Graham Bell Professor of None Boston University 1995. Serves until a Health Care Entrepreneurship, Boston Healthcare successor trustee is University; Professor of Management; Entrepreneurship elected or earlier Professor of Public Health, Boston Program, retirement or removal. University School of Public Health; 53 Bay State Road, Professor of Surgery, Boston Boston, MA 02215 University School of Medicine; and University Professor, Boston University Margaret B.W. Graham (56) Trustee Trustee since Founding Director, The Winthrop None 1001 Sherbrooke September,2000. Serves Group, Inc. (consulting firm); Street West, until a successor Professor of Management, Faculty of Montreal, Quebec, Canada trustee is elected or Management, McGill University earlier retirement or removal. Marguerite A. Piret (55) Trustee Trustee since President and Chief Executive None One Boston Place, 1995. Serves until a Officer, Newbury, Piret & Company, 28th Floor, successor trustee is Inc. (investment banking firm) Boston, MA 02108 elected or earlier retirement or removal. Stephen K. West (75) Trustee Trustee since Senior Counsel, Sullivan & Cromwell Director, The Swiss 125 Broad Street, 1995. Serves until a (law firm) Helvetia Fund, Inc. New York, NY 10004 successor trustee is (closed-end elected or earlier investment company) retirement or removal. and AMVESCAP PLC (investment managers) John Winthrop (67) Trustee Trustee since President, John Winthrop & Co., Inc. None One North Adgers Wharf, September,2000. Serves (private investment firm) Charleston, SC 29401 until a successor trustee is elected or earlier retirement or removal.
18 FUND OFFICERS
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Dorothy E. Bourassa (56) Secretary Serves at the Secretary of PIM-USA; Senior Vice None discretion of board President-Legal of Pioneer; and Secretary/Clerk of most of PIM-USA's subsidiaries since October 2000; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003); and Senior Counsel, Assistant Vice President and Director of Compliance of PIM-USA from April 1998 through October 2000 Christopher J. Kelley (39) Assistant Serves at the Assistant Vice President and Senior None Secretary discretion of board Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001; Vice President and Associate General Counsel from July 1996 to July 2000); Assistant Secretary of all of the Pioneer Funds since September 2003 David C. Phelan (46) Assistant Serves at the Partner, Hale and Dorr LLP; Assistant None Secretary discretion of board Secretary of all of the Pioneer Funds since September 2003 Vincent Nave (58) Treasurer Serves at the Vice President-Fund Accounting, None discretion of board Administration and Custody Services of Pioneer (Manager from September 1996 to February 1999); and Treasurer of all of the Pioneer Funds (Assistant Treasurer from June 1999 to November 2000) Luis I. Presutti (38) Assistant Serves at the Assistant Vice President-Fund None Treasurer discretion of board Accounting, Administration and Custody Services of Pioneer (Fund Accounting Manager from 1994 to 1999); and Assistant Treasurer of all of the Pioneer Funds since November 2000
19
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Gary Sullivan (45) Assistant Serves at the Fund Accounting Manager -- Fund None Treasurer discretion of board Accounting, Administration and Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 Katharine Kim Sullivan (30) Assistant Serves at the Fund Administration Manager -- Fund None Treasurer discretion of board. Accounting, Administration and Custody Services since June 2003; Assistant Vice President -- Mutual Fund Operations of State Street Corporation from June 2002 to June 2003 (formerly Deutsche Bank Asset Management); Pioneer Fund Accounting, Administration and Custody Services (Fund Accounting Manager from August 1999 to May 2002, Fund Accounting Services Supervisor from 1997 to July 1999); Assistant Treasurer of all of the Pioneer Funds since September 2003
20 THIS PAGE FOR YOUR NOTES. 21 [PIONEER INVESTMENTS(R) LOGO] 14690-00-0204 [PIONEER INVESTMENTS(R) LOGO] PIONEER VARIABLE CONTRACTS TRUST PIONEER FUND VCT PORTFOLIO -- CLASS II SHARES ANNUAL REPORT DECEMBER 31, 2003 PIONEER VARIABLE CONTRACTS TRUST TABLE OF CONTENTS Pioneer Fund VCT Portfolio Portfolio and Performance Update 2 Portfolio Management Discussion 3 Schedule of Investments 4 Financial Statements 7 Notes to Financial Statements 11 Report of Independent Auditors 15 Trustees, Officers and Service Providers 16
PIONEER FUND VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO AND PERFORMANCE UPDATE 12/31/03 [CHART] PORTFOLIO DIVERSIFICATION (As a percentage of total investment portfolio) U.S. Common Stocks 85.5% Temporary Cash Investments 8.6% Depositary Receipts for International Stocks 4.0% International Common Stocks 1.9%
[CHART] SECTOR DISTRIBUTION (As a percentage of equity holdings) Information Technology 18.4% Financials 16.2% Industrials 14.0% Consumer Discretionary 11.1% Consumer Staples 10.7% Health Care 10.3% Energy 7.7% Materials 6.3% Telecommunication Services 3.5% Utilities 1.8%
FIVE LARGEST HOLDINGS (As a percentage of equity holdings) 1. ChevronTexaco Corp. 3.07% 2. IBM Corp. 2.36 3. Exxon Mobil Corp. 1.94 4. SBC Communications, Inc. 1.83 5. Rio Tinto Plc 1.79
Holdings will vary for other periods. This list excludes temporary cash and derivative investments. PRICES AND DISTRIBUTIONS
12/31/03 12/31/02 Net Asset Value per Share $ 18.66 $ 15.25
DISTRIBUTIONS PER SHARE SHORT-TERM LONG-TERM (1/1/03 - 12/31/03) DIVIDENDS CAPITAL GAINS CAPITAL GAINS $ 0.1461 $ - $ -
PERFORMANCE OF A $10,000 INVESTMENT The following chart shows the change in value of an investment made in PIONEER FUND VCT PORTFOLIO at net asset value, compared to that of the Standard & Poor's (S&P) 500 Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [CHART]
PIONEER FUND VCT PORTFOLIO* S&P 500 INDEX 10/31/97 $ 10,000 $ 10,000 12/31/97 $ 10,545 $ 10,643 $ 13,257 $ 13,686 12/31/99 $ 15,312 $ 16,565 $ 15,561 $ 15,060 12/31/2001 $ 13,836 $ 13,275 $ 11,173 $ 10,342 12/31/2003 $ 13,791 $ 13,300
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 markets. Index returns assume reinvestment of dividends and, unlike Portfolio returns, do not reflect any fees, expenses or sales charges. Portfolio returns are based on net asset value and do not reflect any annuity-related costs. You cannot invest directly in the Index. AVERAGE ANNUAL TOTAL RETURNS+ (As of December 31, 2003) NET ASSET VALUE* Life-of-Class (10/31/97) 5.35% 5 Years 0.79% 1 Year 23.44%
All total returns shown assume reinvestment of distributions at net asset value. + The performance of Class II shares for the period prior to the commencement of operations of Class II shares on May 1, 2000 is based on the performance of Class I shares, reduced to reflect the higher distribution fees of Class II shares. * Portfolio performance does not reflect any variable contract fees, expenses or sales charges. If they had been included, performance would have been lower. See the pages that comprise the inside cover of this report for performance net of any contract fees, expenses or sales charges. Past performance does not guarantee future results. Returns and principal values fluctuate so that your investment, when redeemed, may be worth more or less than its original cost. The performance table and graph do not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. 2 PIONEER FUND VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO MANAGEMENT DISCUSSION 12/31/03 In the following discussion, John Carey, portfolio manager of Pioneer Fund VCT Portfolio, comments on the performance of the Portfolio, as well as the economy over the past twelve months. Q: PLEASE DISCUSS THE STOCK MARKET IN 2003 AND THE INVESTMENT RESULTS OF PIONEER FUND VCT PORTFOLIO. A: Strong corporate-earnings comparisons led investors to push share prices higher during 2003. Confidence in the economic recovery built gradually during the year, as the positive effects of historically low interest rates, Federal income-tax cuts, and the weak U.S. dollar converged to revive industrial America. Growth in capital spending, especially in information technology, accompanied continued strong consumer activity to support big gains in the gross domestic product numbers in the second half of the year. While some of the worries that investors have had over the past couple of years - namely, corporate scandals, the terrorist threat, and government budget deficits - threatened to bubble over from time to time, they evidently did not seem to discourage too many people from buying shares once again. So, after approximately three years of "bearish" market conditions, the U.S. stock market generated large gains in 2003. We are pleased to report positive results for Pioneer Fund VCT Portfolio. For the year as a whole, Class II Shares of the Portfolio showed a total return at net asset value of 23.44%, versus a total return on the Standard & Poor's 500 Index of 28.67%. Taking the year as a whole, our strongest performance contribution came from our investment exposure to materials, particularly metals and mining. Phelps Dodge (copper), Alcoa (aluminum), and Rio Tinto (diversified mining) all did extremely well for us, and we also realized a large percentage gain on our position in Newmont Mining (gold) when we sold it in the fourth quarter. We likewise did quite well with our investments in financials, where our successful stock selection more than made up for our underweight position in that sharply appreciating sector. One of our standout gainers was T. Rowe Price, which shot up more than 70%. Finally, in industrials, an above-average performing sector where we were overweight, we had exceptional performance from PACCAR (heavy trucks) and Caterpillar (construction equipment). With respect to sector investments that detracted from relative performance, consumer discretionary was the major culprit, followed at a distance by consumer staples, health care, and utilities. Both of the consumer sectors saw the biggest returns from turnaround stories; we favored, as we usually do, the stronger and steadier consumer businesses. For instance, retailers that had struggled during the recession came back to life and excited investors as the economy recovered. We had maintained positions in companies that had held up relatively well in the recession and then did not show such dramatic improvement. Q: CAN YOU DISCUSS YOUR TECHNOLOGY INVESTMENTS AND HOW THEY FARED DURING THE YEAR? A: Technology was a profitable area for Pioneer Fund VCT Portfolio in 2003. Our investments in technology rose in value by more than 40%. We owned many of the top-performing tech names, though our smaller positions relative to their market weights in two of the very biggest large cap winners, Cisco Systems and Intel, slightly impaired our relative returns. As long-term investments, we have also favored some of the information-technology services companies, such as Automatic Data Processing, DST, and Fiserv, all of which lagged the overall tech sector in a year when investors were again intrigued with internet stocks and, it seemed, almost any stock that had fallen to very, very low price levels. Strongest contributions to performance came from our overweight positions in the fabulously performing Applied Materials (up more than 70%), Altera (up more than 80%), and Texas Instruments (up more than 90%). As we look ahead over the next couple of years, we believe there will be continued opportunities for profits from technology investments. However, we would be dumbstruck if the technology sector notched another year of such extraordinary performance relative to the rest of the market. Our emphasis will continue to be on more conservatively priced names in the sector. Accordingly, during the second half of the year, we added shares of Hewlett-Packard, a specialist in computer printing, but also large scale provider of many other types of computer gear, and sold our positions in Electronic Arts and Veeco Instruments after the stocks had recorded large increases in price. Q: YOU'VE TOUCHED ALREADY ON SOME OF YOUR RECENT CHANGES IN THE PORTFOLIO. DID YOU MAKE OTHER CHANGES AS WELL? A: Yes, aside from the changes we made in our technology and materials holdings, we added four stocks to the Portfolio in the second half, and we deleted six. Biomet is a leading manufacturer of orthopedic implants, principally artificial knees and hips, and impresses us with its outstanding management and strong future earnings potential. Charter One Financial, an Ohio-based bank, has a conservative lending record, tight cost controls, attractive returns, and dividend yield above 3%. Philadelphia Suburban is one of the most important remaining publicly traded water utilities in the U.S., with an unbroken record of annual dividend payments going back to 1939. Shareowners will also note a small holding in Medco Health Solutions, a pharmacy benefit manager "spun out" to us by its former parent, Merck. We booked substantial gains on three of our financial stocks, Huntington Bancshares, Morgan Stanley, and Marsh & McLennan. Finally, we disposed of another stock we had received in a distribution, Del Monte Foods, and we sold Dow Chemical. Q: WHAT IS YOUR OUTLOOK FOR 2004? A: While we maintain a cautious approach with respect to balance sheets, we see increasing evidence that the strong economic recovery is assisting companies that are financially weaker and, if not altogether curing, at least alleviating some of their financial problems. We shall therefore be looking especially hard during the coming months for companies falling into that category. Without dipping very far down on the quality scale, we do want our shareowners to benefit from some of the above-average appreciation potential existing in such special situations and contrarian stories. Otherwise, we think that investors will do well to focus more on dividends this year, particularly in view of the Federal tax law change and the reduced, maximum 15% rate on qualified dividends. It may well be a bumpier year, with interest rates likely to rise and all the heated election-year debate. There might also be rotation out of some stocks and sectors that have risen to high price-to-earnings multiples and perhaps into some stocks and sectors that underperformed in 2003. On the whole we remain positive in our outlook because of the good prognosis for corporate earnings. Thank you for your continued support. ANY INFORMATION IN THIS SHAREHOLDER REPORT REGARDING MARKET OR ECONOMIC TRENDS OR THE FACTORS INFLUENCING THE PORTFOLIO'S HISTORICAL OR FUTURE PERFORMANCE ARE STATEMENTS OF THE OPINION OF PORTFOLIO MANAGEMENT AS OF THE DATE OF THIS REPORT. THESE STATEMENTS SHOULD NOT BE RELIED UPON FOR ANY OTHER PURPOSES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND THERE IS NO GUARANTEE THAT MARKET FORECASTS DISCUSSED WILL BE RELIZED. [SIDENOTE] The Portfolio's investment adviser, Pioneer Investment Management, Inc., reduced its management fee and certain other expenses; otherwise, returns would have been lower. 3 PIONEER FUND VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST SCHEDULE OF INVESTMENTS 12/31/03
SHARES VALUE COMMON STOCKS - 93.7% ENERGY - 7.2% INTEGRATED OIL & GAS - 6.4% 80,552 ChevronTexaco Corp. $ 6,958,887 22,272 ConocoPhillips 1,460,375 107,438 Exxon Mobil Corp. 4,404,958 31,593 Royal Dutch Petroleum Co. 1,655,157 23,956 Shell Transport & Trading Co. (A.D.R.) 1,078,739 ------------------ $ 15,558,116 ------------------ OIL & GAS DRILLING - 0.8% 37,870 Smith International, Inc.* $ 1,572,362 12,240 Transocean Offshore, Inc.* 293,882 ------------------ $ 1,866,244 ------------------ TOTAL ENERGY $ 17,424,360 ------------------ MATERIALS - 5.9% ALUMINUM - 1.0% 60,153 Alcoa, Inc. $ 2,285,814 ------------------ COMMODITY CHEMICALS - 1.1% 20,818 Air Products & Chemicals, Inc. $ 1,099,815 34,836 E.I. du Pont de Nemours and Co. 1,598,624 ------------------ $ 2,698,439 ------------------ DIVERSIFIED CHEMICALS - 0.4% 16,633 PPG Industries, Inc. $ 1,064,845 ------------------ DIVERSIFIED METALS & MINING - 2.7% 31,698 Phelps Dodge Corp.* $ 2,411,901 147,818 Rio Tinto Plc* 4,060,488 ------------------ $ 6,472,389 ------------------ PAPER PRODUCTS - 0.7% 57,800 Meadwestvaco Corp. $ 1,719,550 ------------------ TOTAL MATERIALS $ 14,241,037 ------------------ CAPITAL GOODS - 7.9% AEROSPACE & DEFENSE - 2.3% 21,446 Boeing Co. $ 903,734 35,045 General Dynamics Corp. 3,167,718 31,175 Lockheed Martin Corp. 1,602,395 ------------------ $ 5,673,847 ------------------ ELECTRICAL COMPONENT & EQUIPMENT - 0.6% 16,633 Emerson Electric Co. $ 1,076,987 12,449 General Electric Co. 385,670 ------------------ $ 1,462,657 ------------------ INDUSTRIAL CONGLOMERATES - 2.7% 18,621 Illinois Tool Works, Inc. $ 1,562,488 20,504 Johnson Controls, Inc. 2,380,924 28,246 United Technologies Corp. 2,676,873 ------------------ $ 6,620,285 ------------------ INDUSTRIAL MACHINERY - 2.3% 30,338 Caterpillar, Inc. $ 2,518,661 45,297 Deere & Co. 2,946,570 ------------------ $ 5,465,231 ------------------ TOTAL CAPITAL GOODS $ 19,222,020 ------------------ COMMERCIAL SERVICES & SUPPLIES - 1.6% EMPLOYMENT SERVICES - 0.7% 75,217 Robert Half International, Inc.* $ 1,755,565 ------------------ OFFICE SERVICES & SUPPLIES - 0.9% 42,473 Canon, Inc. (A.D.R.) $ 2,023,414 ------------------ TOTAL COMMERCIAL SERVICES & SUPPLIES $ 3,778,979 ------------------ TRANSPORTATION - 3.6% AIRLINES - 0.8% 124,176 Southwest Airlines Co. $ 2,004,201 ------------------ RAILROADS - 2.3% 36,301 Burlington Northern, Inc. $ 1,174,337 131,812 Norfolk Southern Corp. 3,117,354 13,468 Philadelphia Suburban Corp. 297,643 14,332 Union Pacific Corp. 995,787 ------------------ $ 5,585,121 ------------------ TRUCKING - 0.5% 15,274 United Parcel Service $ 1,138,677 ------------------ TOTAL TRANSPORTATION $ 8,727,999 ------------------ AUTOMOBILES & COMPONENTS - 1.0% AUTOMOBILE MANUFACTURERS - 1.0% 27,984 PACCAR, Inc. $ 2,381,998 ------------------ TOTAL AUTOMOBILES & COMPONENTS $ 2,381,998 ------------------ CONSUMER DURABLES & APPAREL - 0.1% PHOTOGRAPHIC PRODUCTS - 0.1% 8,369 Eastman Kodak Co. $ 214,832 ------------------ TOTAL CONSUMER DURABLES & APPAREL $ 214,832 ------------------ MEDIA - 5.8% ADVERTISING - 1.2% 32,012 Omnicom Group $ 2,795,608 ------------------ PUBLISHING - 4.6% 15,901 Dow Jones & Co., Inc. $ 792,665 33,042 Elsevier NV 409,629 36,405 Gannett Co. 3,245,870 106,300 John Wiley & Sons, Inc. 2,766,989 57,119 McGraw-Hill Co., Inc. 3,993,760 ------------------ $ 11,208,913 ------------------ TOTAL MEDIA $ 14,004,521 ------------------ RETAILING - 3.5% DEPARTMENT STORES - 0.6% 48,045 May Department Stores Co. $ 1,396,668 ------------------
The accompanying notes are an integral part of these financial statements. 4
SHARES VALUE GENERAL MERCHANDISE STORES - 1.9% 26,258 Family Dollar Stores, Inc. $ 942,137 98,546 Target Corp. 3,784,166 ------------------ $ 4,726,303 ------------------ HOME IMPROVEMENT RETAIL - 0.8% 35,673 Lowe's Companies, Inc. $ 1,975,927 ------------------ SPECIALTY STORES - 0.2% 14,646 Barnes & Noble, Inc.* $ 481,121 ------------------ TOTAL RETAILING $ 8,580,019 ------------------ FOOD & DRUG RETAILING - 3.3% DRUG RETAIL - 1.5% 101,579 Walgreen Co. $ 3,695,444 ------------------ FOOD DISTRIBUTORS - 1.0% 61,512 Sysco Corp. $ 2,290,092 ------------------ HYPERMARKETS & SUPERCENTERS - 0.8% 35,987 Wal-Mart Stores, Inc. $ 1,909,110 ------------------ TOTAL FOOD & DRUG RETAILING $ 7,894,646 ------------------ FOOD, BEVERAGE & TOBACCO - 4.5% PACKAGED FOODS & MEATS - 3.6% 63,291 Campbell Soup Co. $ 1,696,199 33,058 General Mills, Inc. 1,497,527 53,562 H.J. Heinz Co., Inc. 1,951,264 20,295 Hershey Foods Corp. 1,562,512 91,118 Sara Lee Corp. 1,978,172 ------------------ $ 8,685,674 ------------------ SOFT DRINKS - 0.9% 47,808 PepsiCo, Inc. $ 2,228,809 ------------------ TOTAL FOOD, BEVERAGE & TOBACCO $ 10,914,483 ------------------ HOUSEHOLD & PERSONAL PRODUCTS - 2.3% HOUSEHOLD PRODUCTS - 2.3% 48,227 Colgate-Palmolive Co. $ 2,413,761 31,907 Procter & Gamble Co. 3,186,871 ------------------ $ 5,600,632 ------------------ TOTAL HOUSEHOLD & PERSONAL PRODUCTS $ 5,600,632 ------------------ HEALTH CARE EQUIPMENT & SERVICES - 4.3% HEALTH CARE DISTRIBUTORS - 2.3% 43,205 Abbott Laboratories $ 2,013,353 68,103 Johnson & Johnson 3,518,201 ------------------ $ 5,531,554 ------------------ HEALTH CARE EQUIPMENT - 1.3% 52,830 Becton, Dickinson & Co. $ 2,173,426 31,593 Biomet, Inc. 1,150,301 ------------------ $ 3,323,727 ------------------ HEALTH CARE SERVICES - 0.1% 6,054 Medco Health Solutions, Inc.* $ 205,775 ------------------ MANAGED HEALTH CARE - 0.6% 12,763 United Healthcare Group, Inc. $ 742,551 6,800 Wellpoint Health Networks, Inc.* 659,532 ------------------ $ 1,402,083 ------------------ TOTAL HEALTH CARE EQUIPMENT & SERVICES $ 10,463,139 ------------------ PHARMACEUTICALS & BIOTECHNOLOGY - 5.3% PHARMACEUTICALS - 5.3% 32,221 Eli Lilly & Co. $ 2,266,103 49,900 Merck & Co., Inc. 2,305,380 41,218 Novartis AG (A.D.R.) 1,891,494 56,073 Pfizer, Inc. 1,981,059 13,704 Roche Holdings AG (A.D.R.) 1,378,910 171,356 Schering-Plough Corp. 2,979,881 ------------------ $ 12,802,827 ------------------ TOTAL PHARMACEUTICALS & BIOTECHNOLOGY $ 12,802,827 ------------------ BANKS - 6.1% DIVERSIFIED BANKS - 1.7% 21,002 Bank of America Corp. $ 1,689,191 10,000 Charter One Financial, Inc. 345,500 33,267 Wells Fargo & Co. 1,959,094 ------------------ $ 3,993,785 ------------------ REGIONAL BANKS - 3.6% 25,526 First Tennessee National Corp. $ 1,125,697 102,730 National City Corp. 3,486,656 44,031 SunTrust Banks, Inc. 3,148,217 17,470 Zions Bancorporation 1,071,435 ------------------ $ 8,832,005 ------------------ THRIFTS & MORTGAGE FINANCE - 0.8% 46,778 Washington Mutual, Inc. $ 1,876,733 ------------------ TOTAL BANKS $ 14,702,523 ------------------ DIVERSIFIED FINANCIALS - 5.9% ASSET MANAGEMENT & CUSTODY BANKS - 4.1% 78,146 The Bank of New York Co., Inc. $ 2,588,196 33,372 Federated Investors, Inc. 979,802 56,177 State Street Corp. 2,925,698 73,648 T. Rowe Price Associates, Inc. 3,491,652 ------------------ $ 9,985,348 ------------------ CONSUMER FINANCE - 0.7% 34,418 American Express Co. $ 1,659,980 ------------------ INVESTMENT BANKING & BROKERAGE - 1.1% 44,670 Merrill Lynch & Co., Inc. $ 2,619,896 ------------------ TOTAL DIVERSIFIED FINANCIALS $ 14,265,224 ------------------
The accompanying notes are an integral part of these financial statements. 5
SHARES VALUE INSURANCE - 3.3% MULTI-LINE INSURANCE - 0.9% 33,581 American International Group, Inc. $ 2,225,749 ------------------ PROPERTY & CASUALTY INSURANCE - 2.4% 41,531 Chubb Corp. $ 2,828,261 24,898 Safeco Corp. 969,279 47,313 St. Paul Companies, Inc. 1,875,960 ------------------ $ 5,673,500 ------------------ TOTAL INSURANCE $ 7,899,249 ------------------ SOFTWARE & SERVICES - 6.0% APPLICATION SOFTWARE - 3.4% 32,325 Adobe Systems, Inc. $ 1,270,373 36,405 BMC Software, Inc.* 678,953 107,751 Microsoft Corp. 2,967,463 23,434 Symantec Corp.* 811,988 74,694 Synopsys, Inc.* 2,521,669 ------------------ $ 8,250,446 ------------------ DATA PROCESSING & OUTSOURCED SERVICES - 2.6% 35,464 Automatic Data Processing, Inc. $ 1,404,729 39,439 Computer Sciences Corp.* 1,744,387 19,667 DST Systems, Inc.* 821,294 38,498 Electronic Data Systems Corp. 944,741 22,963 Fiserv, Inc.* 907,268 16,006 SunGard Data Systems, Inc.* 443,526 ------------------ $ 6,265,945 ------------------ TOTAL SOFTWARE & SERVICES $ 14,516,391 ------------------ TECHNOLOGY HARDWARE & EQUIPMENT - 6.7% COMMUNICATIONS EQUIPMENT - 2.6% 39,648 Cisco Systems, Inc.* $ 963,050 170,200 Motorola, Inc. 2,394,714 115,702 Nokia Corp (A.D.R.) 1,966,934 19,249 Qualcomm, Inc. 1,038,099 ------------------ $ 6,362,797 ------------------ COMPUTER HARDWARE - 4.1% 54,922 Dell, Inc.* $ 1,865,151 20,609 Diebold, Inc. 1,110,207 17,889 Hewlett-Packard Co. 410,910 57,746 IBM Corp. 5,351,899 227,585 Sun Microsystems, Inc.* 1,021,857 ------------------ $ 9,760,024 ------------------ TOTAL TECHNOLOGY HARDWARE & EQUIPMENT $ 16,122,821 ------------------ SEMICONDUCTORS - 4.6% SEMICONDUCTOR EQUIPMENT - 1.6% 108,798 Applied Materials, Inc.* $ 2,442,515 34,732 Novellus Systems, Inc.* 1,460,481 ------------------ $ 3,902,996 ------------------ SEMICONDUCTORS - 3.0% 18,307 Altera Corp.* $ 415,569 114,028 Intel Corp. 3,671,702 110,900 Texas Instruments, Inc. 3,258,242 ------------------ $ 7,345,513 ------------------ TOTAL SEMICONDUCTORS $ 11,248,509 ------------------ TELECOMMUNICATION SERVICES - 3.3% INTEGRATED TELECOMMUNICATION SERVICES - 3.3% 16,947 Alltel Corp. $ 789,391 105,241 BellSouth Corp. 2,978,320 159,326 SBC Communications, Inc. 4,153,629 ------------------ $ 7,921,340 ------------------ TOTAL TELECOMMUNICATION SERVICES $ 7,921,340 ------------------ UTILITIES - 1.7% ELECTRIC UTILITIES - 1.1% 24,270 American Electric Power Co., Inc. $ 740,478 26,363 Consolidated Edison, Inc. 1,133,873 24,584 Southern Co. 743,666 ------------------ $ 2,618,017 ------------------ GAS UTILITIES - 0.6% 20,295 KeySpan Energy Corp. $ 746,856 27,932 Vectren Corp. 688,524 ------------------ $ 1,435,380 ------------------ TOTAL UTILITIES $ 4,053,397 ------------------ TOTAL COMMON STOCKS (Cost $205,141,694) $ 226,980,946 ------------------ PRINCIPAL AMOUNT TEMPORARY CASH INVESTMENTS - 8.8% REPURCHASE AGREEMENT - 6.4% $ 15,500,000 UBS Warburg, Inc., 0.73%, Dated 12/31/03, repurchase price of $15,500,000 plus accrued interest on 1/2/04 collateralized by $14,639,000 U.S. Treasury Bill, 6.75%, 5/15/05. $ 15,500,000 ------------------ SHARES SECURITY LENDING COLLATERAL - 2.4% 5,965,628 Securities Lending Investment Fund, 1.02% $ 5,965,628 ------------------ TOTAL TEMPORARY CASH INVESTMENTS (Cost $21,465,628) $ 21,465,628 ------------------ TOTAL INVESTMENT IN SECURITIES - 102.5% (Cost $226,607,322) $ 248,446,574 ------------------ OTHER ASSETS AND LIABILITIES - (2.5)% $ (6,119,521) ------------------ TOTAL NET ASSETS - 100.0% $ 242,327,053 ==================
* Non-income producing security. (A.D.R.) American Depositary Receipt The accompanying notes are an integral part of these financial statements. 6 PIONEER FUND VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST FINANCIAL HIGHLIGHTS 12/31/03
5/1/00 YEAR ENDED YEAR ENDED YEAR ENDED TO CLASS II 12/31/03 12/31/02 12/31/01 12/31/00(a) Net asset value, beginning of period $ 15.25 $ 19.05 $ 22.65 $ 23.28 ---------- ---------- ---------- ----------- Increase (decrease) from investment operations: Net investment income $ 0.14 $ 0.13 $ 0.14 $ 0.12 Net realized and unrealized gain (loss) on investments and foreign currency transactions 3.42 (3.78) (2.59) (0.45) ---------- ---------- ---------- ----------- Net increase (decrease) from investment operations $ 3.56 $ (3.65) $ (2.45) $ (0.33) Distributions to shareholders: Net investment income (0.15) (0.15) (0.13) (0.17) Net realized gain - - (1.02) (0.13) ---------- ---------- ---------- ----------- Net increase (decrease) in net asset value $ 3.41 $ (3.80) $ (3.60) $ (0.63) ---------- ---------- ---------- ----------- Net asset value, end of period $ 18.66 $ 15.25 $ 19.05 $ 22.65 ========== ========== ========== =========== Total return* 23.44% (19.25)% (11.09)% (1.61)% Ratio of net expenses to average net assets+ 1.00% 1.06% 1.04% 0.93%** Ratio of net investment income to average net assets+ 0.87% 0.84% 0.49% 0.47%** Portfolio turnover rate 11% 11% 7% 19%** Net assets, end of period (in thousands) $ 87,488 $ 36,218 $ 12,674 $ 2,894 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.00% 1.06% 1.04% 0.93%** Net investment income (loss) 0.87% 0.84% 0.49% 0.47%**
(a) Class II shares were first publicly offered on May 1, 2000. * 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 with no reduction for fees paid indirectly. The accompanying notes are an integral part of these financial statements. 7 PIONEER FUND VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST STATEMENTS OF ASSETS AND LIABILITIES 12/31/03
PIONEER FUND VCT PORTFOLIO ASSETS: Investment in securities, at value (including securities loaned of $5,797,208) (Cost $226,607,322) $ 248,446,574 Temporary cash investments (at amortized cost) - Cash 151,806 Cash held as collateral for futures contracts - Foreign currencies, at value - Receivables - - Investment securities sold - Fund shares sold 157,089 Collateral for securities loaned, at fair value - Variation margin - Dividends, interest and foreign taxes withheld 285,889 Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, open - net - Due from Pioneer Investment Management, Inc. - Other 3,765 -------------- Total assets $ 249,045,123 -------------- LIABILITIES: Payables - Investment securities purchased $ 452,923 Fund shares repurchased 79,830 Dividends - Upon return for securities loaned 5,965,628 Variation margin - Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, - Due to bank - Due to affiliates 178,318 Accrued expenses 41,371 Other - -------------- Total liabilities $ 6,718,070 -------------- NET ASSETS: Paid-in capital $ 254,614,639 Accumulated net investment income (loss) - Accumulated undistributed net realized gain (loss) (34,126,838) Net unrealized gain (loss) on: Investments 21,839,252 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - -------------- Total net assets $ 242,327,053 -------------- NET ASSET VALUE PER SHARE: CLASS I: (Unlimited number of shares authorized) Net assets $ 154,839,149 Shares outstanding 8,281,639 ============== Net asset value per share $ 18.70 CLASS II: (Unlimited number of shares authorized) Net assets $ 87,487,904 Shares outstanding 4,689,411 ============== Net asset value per share $ 18.66
The accompanying notes are an integral part of these financial statements. 8
PIONEER FUND VCT PORTFOLIO YEAR ENDED 12/31/03 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $26,971) $ 3,589,887 Interest 97,024 Income on securities loaned, net 2,951 Other - ------------- Total investment income $ 3,689,862 ------------- EXPENSES: Management fees $ 1,257,325 Transfer agent fees 3,007 Distribution fees (Class II) 132,897 Administrative fees 69,528 Custodian fees 41,989 Professional fees 29,811 Printing 51,466 Fees and expenses of nonaffiliated trustees 5,053 Miscellaneous 11,913 ------------- Total expenses $ 1,602,989 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. - ------------- Net expenses $ 1,602,989 ------------- Net investment income (loss) $ 2,086,873 ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ (8,524,893) Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (409) ------------- $ (8,525,302) ------------- Change in net unrealized gain or (loss) from: Investments $ 49,662,141 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - ------------- $ 49,662,141 ------------- Net gain (loss) on investments, futures contracts and foreign currency transactions $ 41,136,839 ============= Net increase (decrease) in net assets resulting from operations $ 43,223,712 =============
The accompanying notes are an integral part of these financial statements. 9 STATEMENT OF CHANGES IN NET ASSETS
PIONEER FUND VCT PORTFOLIO YEAR YEAR ENDED ENDED 12/31/03 12/31/02 FROM OPERATIONS: Net investment income (loss) $ 2,086,873 $ 2,080,084 Net realized gain (loss) on investments (8,525,302) (18,575,951) Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions 49,662,141 (27,945,273) -------------- -------------- Net increase (decrease) in net assets resulting from operations $ 43,223,712 $ (44,441,140) -------------- -------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (1,580,150) $ (1,805,575) Class II (520,900) (263,066) Net realized gain Class I - - Class II - - Tax return of capital Class I - - Class II - - -------------- -------------- Total distributions to shareowners $ (2,101,050) $ (2,068,641) -------------- -------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 58,651,489 $ 54,299,089 Reinvestment of distributions 2,101,050 2,068,642 Cost of shares repurchased (37,658,369) (43,581,678) -------------- -------------- Net increase (decrease) in net assets resulting from fund share transactions $ 23,094,170 $ 12,786,053 -------------- -------------- Net increase (decrease) in net assets $ 64,216,832 $ (33,723,728) -------------- -------------- NET ASSETS: Beginning of year 178,110,221 211,833,949 -------------- -------------- End of year $ 242,327,053 $ 178,110,221 ============== ============== Accumulated undistributed/(distributions in excess of) net investment income (loss) $ - $ 10,888 ============== ==============
The accompanying notes are an integral part of these financial statements. 10 PIONEER FUND VCT PORTFOLIO NOTES TO FINANCIAL STATEMENTS 12/31/03 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Pioneer Fund VCT Portfolio (the Portfolio) a Portfolio of Pioneer Variable Contracts Trust (the Trust) which is a Delaware business trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of sixteen separate portfolios, fourteen of which issue both Class I and Class II shares (collectively, the Portfolios, individually the Portfolio) as follows: PORTFOLIOS: Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio) Pioneer Europe VCT Portfolio (Europe Portfolio) Pioneer International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio) Pioneer Small Company VCT Portfolio (Small Company Portfolio) Pioneer Mid Cap Value VCT Portfolio (Mid-Cap Value Portfolio) Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio) Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio) Pioneer Fund VCT Portfolio (Fund Portfolio) Pioneer Equity Income VCT Portfolio (Equity-Income Portfolio) Pioneer Balanced VCT Portfolio (Balanced Portfolio) Pioneer High Yield VCT Portfolio (High Yield Portfolio) Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio) Pioneer America Income VCT Portfolio (America Income Portfolio) Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares only) Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only) Portfolio shares may only be purchased by insurance companies for the purpose of funding variable annuity or variable life insurance contracts, and may also be purchased by qualified pension and retirement plans. The investment objective of Fund Portfolio is to seek capital appreciation. The financial highlights for the Portfolio's Class I shares are presented in a separate book. The Trust's financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America 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 income, expenses, gains and losses 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 as of trade date. Net asset values for the portfolio 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. 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 becomes aware of the ex-dividend data in the exercise of reasonable diligence. Interest income, including interest on income bearing cash accounts, is recorded on the accrual basis. 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, and, if applicable, are reported net of foreign taxes on capital gains at the applicable country rates. B. FUTURES CONTRACTS The Portfolio may enter into futures transactions to hedge against changes in interest rates, securities prices, and currency rates or to seek to increase total return. Upon entering into a futures contract, the Portfolio is required to deposit with a broker an amount of cash or securities equal to the minimum "initial margin" requirements of the associated futures exchange. Subsequent payments for futures contracts ("variation margin") are paid or received by the Portfolio, depending on the daily fluctuation in the value of the contracts, and are recorded by the Portfolio as unrealized gains or losses. When the contract is closed, the Portfolio realize a gain or loss equal to the difference between the opening and closing value of the contract. The use of futures contracts involves, to varying degrees, elements of market risk which may exceed the amounts recognized by the Portfolio. Changes in the value of the contracts may not directly correlate to the changes in the value of the underlying securities. These risks may decrease the effectiveness of the Portfolio's hedging and trading strategies and potentially result in a loss. As of December 31, 2003, Fund Portfolio had no open contracts. 11 C. FOREIGN CURRENCY TRANSLATION The books and records of the Portfolio 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, 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. D. FORWARD FOREIGN CURRENCY CONTRACTS The Portfolio enters 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 Portfolio's financial statements. The Portfolio records 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. E. 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 shareowners. Therefore, no federal income tax provision is required. The amount and characterization of distributions to shareowners 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. At December 31, 2003, the Portfolio made reclassifications as described below. These reclassifications have no impact on the net asset value of the Portfolio and are designed to present the portfolio's capital accounts on a tax basis.
ACCUMULATED NET ACCUMULATED INVESTMENT REALIZED GAIN/ PORTFOLIO INCOME/(LOSS) LOSS PAID-IN CAPITAL - ------------------------------------------------------------------------------- Fund Portfolio 3,289 409 (3,698)
Capital loss carryforwards are available to offset future realized capital gains. At December 31, 2003, Fund VCT Portfolio had a capital loss carryforward of $33,944,745, of which the following amounts if not utilized: $6,699,261 in 2009, $14,227,957 in 2010 and $13,017,527 in 2011 will expire between 2009 and 2011. The following chart shows the components of distributable earnings (accumulated losses) as of December 31, 2003 and the distributions paid during the year ended December 31, 2003 on a tax basis as of December 31, 2003.
PIONEER PIONEER FUND FUND VCT PORTFOLIO VCT PORTFOLIO 2003 2002 - ------------------------------------------------------------------------------------------ DISTRIBUTIONS PAID FROM: Ordinary Income $ 2,101,050 $ 2,068,641 Long-Term capital gain - - -------------- -------------- 2,101,050 2,068,641 Return of Capital - - -------------- -------------- Total distributions $ 2,101,050 $ 2,068,641 -------------- -------------- DISTRIBUTABLE EARNINGS (ACCUMULATED LOSSES): Undistributed ordinary income $ - Undistributed long-term gain/ (Capital loss carryforward) (33,944,745) Unrealized appreciation (depreciation) 21,657,159 -------------- Total $ (12,287,586) ==============
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily attributable to the tax deferral of losses on wash sales, returns of capital on REITs, and the recognition of unrealized gains or losses on certain futures contracts. F. PORTFOLIO SHARES The Portfolio records sales and repurchases of its portfolio shares as of trade date. Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the principal underwriter for the Trust and a wholly owned indirect subsidiary of UniCredito Italiano S.p.A. (Unicredito Italiano), $246,661 in commissions on the sale of Trust shares for the year ended December 31, 2003. Distribution fees are calculated based on the average daily net asset values attributable to Class I and Class II shares of the Portfolio, respectively. Shareowners of each class share all expenses and fees paid to the transfer agent, Pioneer Investment 12 Management Shareholder Services, Inc. (PIMSS), for its services, which are allocated based on the number of accounts in each class and the ratable allocation of related out-of-pocket expenses (see Note 3). Income, common expenses and realized and unrealized gains and losses are calculated at the Portfolio level and allocated daily to each class of shares based on the respective percentage of adjusted net assets at the beginning of the day. Distributions paid by the Portfolio with respect to each class of shares are calculated in the same manner, at the same time, and in the same amount, except that Class I and Class II shares can bear different transfer agent and distribution fees. Income, expenses (excluding 12b-1 fees) and gains and losses are calculated at the Portfolio level and are allocated daily based on the respective percentage of adjusted net assets at the beginning of the day. Dividends and distributions to shareowners are recorded on the ex-dividend date. G. SECURITIES LENDING The Portfolio lends securities in its portfolio to certain broker-dealers or other institutional investors, with the Portfolio's custodian acting as the lending agent. When entering into a loan, the Portfolio receives collateral which is maintained by the custodian and earns income in the form of negotiated lenders' fees. The Portfolio also continues to receive interest or dividends on the securities loaned, and gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for account of the Trust. The loans are secured by collateral of at least 102%, at all times, of the fair value of the securities loaned. The fair value of the collateral will be adjusted daily to reflect any price fluctuation in the value of the loaned securities. The Trust has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Trust invests cash collateral in the Securities Lending Investment Fund which is managed by Brown Brothers Harriman & Co., the Trust's custodian. H. REPURCHASE AGREEMENTS With respect to repurchase agreements entered into by the Portfolio, 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 Portfolio's custodian, or subcustodian. The Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is responsible for determining that the value of the collateral remains at least equal to the repurchase price. 2. MANAGEMENT AGREEMENT PIM manages the Portfolio, and is a wholly owned indirect subsidiary of UniCredito Italiano. Management fees are calculated daily at the following annual rate of 0.65% of the Portfolio's average daily net assets. In addition, under the management and administration agreements, certain other services and costs, including accounting, regulatory reporting and insurance premiums, are paid by the Portfolio. At December 31, 2003, $158,290 was payable to PIM related to management fees, administrative fees and certain other services. 3. TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. (PIMSS), a wholly owned indirect subsidiary of UniCredito Italiano provides substantially all transfer agent and shareowner services to the Trust at negotiated rates. Included in due to affiliates is $534 in transfer agent fees payable to PIMSS at December 31, 2003. 4. DISTRIBUTION PLANS The Portfolio has adopted a plan of distribution for Class II shares in accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily net assets attributable to Class II shares. Included in due to affiliates is $19,494 payable to PFD at December 31, 2003. 5. AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION At December 31, 2003, the Portfolios' aggregate unrealized appreciation and depreciation based on cost for federal income tax purposes was as follows:
NET GROSS GROSS APPRECIATION/ TAX COST APPRECIATION DEPRECIATION (DEPRECIATION) - ------------------------------------------------------------------------------------------ Fund Portfolio $ 226,789,415 $ 36,208,962 $ (14,551,803) $ 21,657,159
13 6. PORTFOLIO TRANSACTIONS The cost of purchases and the proceeds from sales of investments other than U.S. Government obligations and temporary cash investments for the year ended December 31, 2003, were $36,818,387 and $20,713,340, respectively. 7. CAPITAL SHARES At December 31, 2003, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
FUND PORTFOLIO '03 SHARES '03 AMOUNT '02 SHARES '02 AMOUNT - ------------------------------------------------------------------------------------------------ CLASS II: Shares sold 519,126 $ 8,479,870 724,147 $ 12,875,126 Reinvestment of distributions 94,945 1,580,150 108,860 1,805,576 Shares repurchased (1,616,113) (25,664,887) (1,989,049) (32,131,119) ---------------------------------------------------------- Net increase (1,002,042) $ (15,504,867) (1,156,042) $ (17,450,417) ========================================================== CLASS II: Shares sold 3,031,681 $ 50,171,619 2,408,611 $ 41,423,963 Reinvestment of distributions 30,685 520,900 16,342 263,066 Shares repurchased (747,392) (12,093,482) (715,895) (11,450,559) ---------------------------------------------------------- Net increase 2,314,974 $ 38,599,037 1,709,058 $ 30,236,470 ==========================================================
14 PIONEER VARIABLE CONTRACTS TRUST REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF TRUSTEES OF PIONEER VARIABLE CONTRACTS TRUST AND THE CLASS II SHAREOWNERS OF PIONEER FUND VCT PORTFOLIO: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer Fund VCT Portfolio, one of the portfolios constituting Pioneer Variable Contracts Trust (the "Trust") as of December 31, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets and financial highlights for each of the two years in the period then ended. 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. The financial highlights for each of the three years in the period ended December 31, 2001 were audited by other auditors who have ceased operations and whose report, dated February 8, 2002, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 Pioneer Fund VCT Portfolio of Pioneer Variable Contracts Trust at December 31, 2003, the results of its operations for the year then ended, the changes in its net assets and the financial highlights for each of the two years in the period then ended in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts February 6, 2004 15 PIONEER VARIABLE CONTRACTS TRUST TRUSTEES, OFFICERS AND SERVICE PROVIDERS INVESTMENT ADVISER Pioneer Investment Management, Inc. CUSTODIAN Brown Brothers Harriman & Co. INDEPENDENT AUDITORS Ernst & Young LLP PRINCIPAL UNDERWRITER Pioneer Funds Distributor, Inc. LEGAL COUNSEL Hale and Dorr LLP SHAREOWNER SERVICES AND TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. TRUSTEES AND OFFICERS The Fund's Board of Trustees provides broad supervision over the affairs of the Fund. The officers of the Fund are responsible for the Fund's operations. The Fund's Trustees and officers are listed below, together with their principal occupations during the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of 1940 are referred to as Interested Trustees. Trustees who are not interested persons of the Fund are referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 51 U.S. registered investment portfolios for which Pioneer Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the Portfolio is 60 State Street, Boston, Massachusetts 02109. The Fund's statement of additional information provides more detailed information regarding the Fund's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Fund are available without charge, upon request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. INTERESTED TRUSTEES
POSITION HELD TERM OF OFFICE AND OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS HELD BY THIS TRUSTEE John F. Cogan, Jr. (77)* Chairman of Trustee since 1994. Deputy Chairman and a Director of Pioneer Director of Harbor the Board, Serves until a Global Asset Management S.p.A. ("PGAM"); Global Company, Ltd. Trustee and successor or Non-Executive Chairman and a Director of President trustee is elected Pioneer Investment Management USA Inc. or earlier ("PIM-USA"); Chairman and a Director of retirement or Pioneer; Director of Pioneer Alternative removal. Investment Management Limited (Dublin); President and a Director of Pioneer Alternative Investment Management (Bermuda) Limited and affiliated funds; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel (since 2000, partner prior to 2000), Hale and Dorr LLP (counsel to PIM-USA and the Pioneer Funds) Osbert M. Hood (51)** Trustee and Trustee since June, President and Chief Executive Officer, None Executive 2003. PIM-USA since May, 2003 (Director since Vice Serves until a January, 2001); President and Director of President successor or Pioneer since May 2003; Chairman and trustee is elected Director of Pioneer Investment Management or earlier Shareholder Services, Inc. ("PIMSS") since retirement or May 2003; Executive Vice President of all removal. of the Pioneer Funds since June 2003; Executive Vice President and Chief Operating Officer of PIM-USA, November 2000-May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999-November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997-November 1999
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. **Mr. Hood is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. 16 INDEPENDENT TRUSTEES
POSITION HELD TERM OF OFFICE AND OTHER DIRECTORSHIPS NAME, AGE AND ADDRESS WITH THE FUND LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS HELD BY THIS TRUSTEE Mary K. Bush (55) Trustee Trustee since President, Bush International Director of Brady 3509 Woodbine Street, September, 2000. (international financial advisory firm) Corporation Chevy Chase, MD 20815 Serves until a (industrial successor trustee identification and is elected or specialty coated earlier retirement material products or removal. manufacturer), Millenium Chemicals, Inc. (commodity chemicals), Mortgage Guaranty Insurance Corporation, and R.J. Reynolds Tobacco Holdings, Inc. (tobacco) Richard H. Egdahl, M.D. (77) Trustee Trustee since 1995. Alexander Graham Bell Professor of Health None Boston University Healthcare Serves until a Care Entrepreneurship, Boston University; Entrepreneurship Program, successor trustee Professor of Management, Boston University 53 Bay State Road, is elected or School of Management; Professor of Public Boston, MA 02215 earlier retirement Health, Boston University School of Public or removal. Health; Professor of Surgery, Boston University School of Medicine; and University Professor, Boston University Margaret B.W. Graham (56) Trustee Trustee since Founding Director, The Winthrop Group, Inc. None 1001 Sherbrooke Street West, September, 2000. (consulting firm); Professor of Management, Montreal, Quebec, Canada Serves until a Faculty of Management, McGill University successor trustee is elected or earlier retirement or removal. Marguerite A. Piret (55) Trustee Trustee since 1995. President and Chief Executive Officer, None One Boston Place, 28th Floor, Serves until a Newbury, Piret & Company, Inc. Boston, MA 02108 successor trustee (investment banking firm) is elected or earlier retirement or removal. Stephen K. West (75) Trustee Trustee since 1999. Senior Counsel, Sullivan & Cromwell (law Director, The Swiss 125 Broad Street, Serves until a firm) Helvetia Fund, Inc. New York, NY 10004 successor trustee (closed-end is elected or investment company) earlier retirement and AMVESCAP PLC or removal. (investment managers) John Winthrop (67) Trustee Trustee since President, John Winthrop & Co., Inc. None One North Adgers Wharf, September, 2000. (private investment firm) Charleston, SC 29401 Serves until a successor trustee is elected or earlier retirement or removal.
17 FUND OFFICERS
POSITION HELD TERM OF OFFICE AND OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS HELD BY THIS TRUSTEE Dorothy E. Bourassa (56) Secretary Since November, Secretary of PIM-USA; Senior Vice None 2000. President-Legal of Pioneer; and Serves at the Secretary/Clerk of most of PIM-USA's discretion of subsidiaries since October 2000; Secretary board of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003); and Senior Counsel, Assistant Vice President and Director of Compliance of PIM-USA from April 1998 through October 2000 Christopher J. Kelley (39) Assistant Serves at the Assistant Vice President and Senior Counsel None Secretary discretion of of Pioneer since July 2002; Vice President board and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001; Vice President and Associate General Counsel from July 1996 to July 2000); Assistant Secretary of all of the Pioneer Funds since September 2003 David C. Phelan (46) Assistant Serves at the Partner, Hale and Dorr LLP; Assistant None Secretary discretion of Secretary of all of the Pioneer Funds since board September 2003 Vincent Nave (58) Treasurer Since November, Vice President-Fund Accounting, None 2000. Administration and Custody Services of Serves at the Pioneer (Manager from September 1996 to discretion of February 1999); and Treasurer of all of the board Pioneer Funds (Assistant Treasurer from June 1999 to November 2000) Luis I. Presutti (38) Assistant Since November, Assistant Vice President-Fund Accounting, None Treasurer 2000. Administration and Custody Services of Serves at the Pioneer (Fund Accounting Manager from 1994 discretion of to 1999); and Assistant Treasurer of all of board the Pioneer Funds since November 2000
18 FUND OFFICERS
POSITION HELD TERM OF OFFICE AND OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS HELD BY THIS TRUSTEE Gary Sullivan (45) Assistant Since May, 2002. Fund Accounting Manager-Fund Accounting, None Treasurer Serves at the Administration and Custody Services of discretion of Pioneer; and Assistant Treasurer of all of board the Pioneer Funds since May 2002 Katharine Kim Sullivan (30) Assistant Serves at the Fund Administration Manager-Fund None Treasurer discretion of Accounting, Administration and Custody board. Services since June 2003; Assistant Vice President-Mutual Fund Operations of State Street Corporation from June 2002 to June 2003 (formerly Deutsche Bank Asset Management); Pioneer Fund Accounting, Administration and Custody Services (Fund Accounting Manager from August 1999 to May 2002, Fund Accounting Services Supervisor from 1997 to July 1999); Assistant Treasurer of all of the Pioneer Funds since September 2003
19 THIS PAGE FOR YOUR NOTES. 20 THIS PAGE FOR YOUR NOTES. 21 [PIONEER INVESTMENTS(R) LOGO] 14692-00-0204 [PIONEER INVESTMENTS(R) LOGO] PIONEER VARIABLE CONTRACTS TRUST PIONEER VALUE VCT PORTFOLIO -- CLASS II SHARES ANNUAL REPORT DECEMBER 31, 2003 PIONEER VARIABLE CONTRACTS TRUST TABLE OF CONTENTS Pioneer Value VCT Portfolio Portfolio and Performance Update 2 Portfolio Management Discussion 3 Schedule of Investments 4 Financial Statements 7 Notes to Financial Statements 11 Report of Independent Auditors 14 Trustees, Officers and Service Providers 15
PIONEER VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO AND PERFORMANCE UPDATE 12/31/03 [CHART] PORTFOLIO DIVERSIFICATION (As a percentage of total investment portfolio) U.S. Common Stocks 94.3% Depositary Receipts for International Stocks 4.7% International Common Stocks 1.0%
[CHART] SECTOR DISTRIBUTION (As a percentage of equity holdings) Financials 29.7% Energy 13.8% Industrials 11.0% Consumer Discretionary 9.7% Health Care 8.7% Information Technology 8.5% Materials 6.3% Telecommunication Services 5.3% Consumer Staples 5.3% Utilities 1.7%
FIVE LARGEST HOLDINGS (As a percentage of equity holdings) 1. Citigroup, Inc. 5.01% 2. Bank of America Corp. 2.78 3. Exxon Mobil Corp. 2.51 4. Freddie Mac 2.39 5. Time Warner, Inc. 2.39
PRICES AND DISTRIBUTIONS--CLASS II SHARES
12/31/03 5/1/03 Net Asset Value per Share $ 12.04 $ 10.00
DISTRIBUTIONS PER SHARE SHORT-TERM LONG-TERM (5/1/03 - 12/31/03) DIVIDENDS CAPITAL GAINS CAPITAL GAINS $ - $ - $ -
PERFORMANCE OF A $10,000 INVESTMENT--CLASS II SHARES The following chart shows the change in value of an investment made in PIONEER VALUE VCT PORTFOLIO at net asset value, compared to that of the Russell 1000 Value Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [CHART]
PIONEER VALUE RUSSELL 1000 VCT PORTFOLIO* VALUE INDEX 5/1/2003 $ 10,000 $ 10,000 12/31/2003 $ 11,633 $ 11,800
The Russell 1000 Value Index is a measure of the performance of the value-oriented stocks in the Russell 1000 Index. Index returns assume reinvestment of dividends and, unlike Portfolio returns, do not reflect any fees, expenses or sales charges. Portfolio returns are based on net asset value and do not reflect any annuity-related costs. You cannot invest directly in the Index. AVERAGE ANNUAL TOTAL RETURNS (As of December 31, 2003) NET ASSET VALUE* Life-of-Class (5/1/03) 20.40%
All total returns shown assume reinvestment of distributions at net asset value. * Portfolio performance does not reflect any variable contract fees, expenses or sales charges. If they had been included, performance would have been lower. This Portfolio report must be preceded or accompanied by a variable contract separate account report for the contracts through which the Portfolio is available. The separate account's report contains Portfolio performance net of any contract fees, expenses or sales charges. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns and principal values fluctuate so that your investment, when redeemed, may be worth more or less than its original cost. The performance table and graph do not reflect the deduction of taxes that a shareowner would pay on distributions or redemption of shares. 2 PIONEER VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO MANAGEMENT DISCUSSION 12/31/03 For Pioneer Value VCT Portfolio's first annual report to shareowners, portfolio manager J. Rodman Wright describes the economic background and investment strategies that have affected results for the Portfolio since it began operating in May. Q: HOW DID THE PORTFOLIO PERFORM DURING ITS FIRST EIGHT MONTHS OF OPERATION? A: From its inception on May 1, 2003, through yearend, Class II shares of the Portfolio returned 20.40% at net asset value. That result trailed the 25.62% return on the Russell 1000 Value Index, the Portfolio's benchmark, for the period from April 30, 2003 through December 31, 2003. Results for this eight-month period were very positive, although the market's more speculative tone relative to ours caused returns to lag the benchmark. As often happens early in an economic recovery, stocks that had declined the most - typically smaller, lower quality issues - rebounded the fastest; our benchmark index contains several companies of that kind. Meanwhile, large, high-quality companies of the type we invest in also moved up, but less dramatically. Q: WHICH SECTORS OR STOCKS HAD THE GREATEST IMPACT ON RESULTS? A: Industrial companies, especially metals producers, delivered favorable results. As recovering world economies drove demand, Freeport-McMoRan and Alcoa were beneficiaries. In the consumer-discretionary sector, we bought Sears after its stock fell following a series of missteps. Sears has since begun turning itself around. Sale of the credit-card unit brought more money than expected, and the purchase of catalogue-merchant Land's End gave Sears access to higher quality goods while opening a new distribution channel for Land's End. Sears has also announced a share-repurchase program. Energy was another area of good performance. We were overweight compared to our benchmark in this sector, and our energy selections also outperformed those in the benchmark. Suncor Energy, which extracts oil from Canada's vast oil-bearing sand deposits, or shale, was an outstanding performer. High oil prices brought profits despite the high fixed costs associated with the extraction process. Overweight positions in U.S.-based Anadarko and Occidental Petroleum, a more integrated global company, also boosted returns, as both stocks rose. Our limited exposure to underperforming ExxonMobil was also beneficial. Q: WHICH AREAS HELD BACK RESULTS? A: In technology, we were overweighted compared to our benchmark in the weak software sector, but underweight in the better-performing hardware area. Inadequate exposure to semiconductor stocks, which rose sharply late in the year, also hurt relative returns. In financial services, good stock selection was not enough to make up for being underweighted in banks and diversified financial companies, and results were generally disappointing among insurance stocks. In health care, large pharmaceutical companies, including Pfizer and Merck performed poorly. Q: WHAT IS YOUR OUTLOOK FOR THE ECONOMY AND FOR VALUE STOCKS OVER THE NEXT SEVERAL MONTHS? A: We are optimistic on the overall economy, which is still benefiting from historically low interest rates and huge tax cuts. Despite the market's substantial rise over the last nine months, we are still finding attractive values. Corporate earnings seem likely to expand further, but some of that earnings potential may already be reflected in stock prices. In that case, the market may pause to let earnings catch up to expectations. ANY INFORMATION IN THIS SHAREHOLDER REPORT REGARDING MARKET OR ECONOMIC TRENDS OR THE FACTORS INFLUENCING THE PORTFOLIO'S HISTORICAL OR FUTURE PERFORMANCE ARE STATEMENTS OF THE OPINION OF PORTFOLIO MANAGEMENT AS OF THE DATE OF THIS REPORT. THESE STATEMENTS SHOULD NOT BE RELIED UPON FOR ANY OTHER PURPOSES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND THERE IS NO GUARANTEE THAT MARKET FORECASTS DISCUSSED WILL BE RELIZED. [SIDENOTE] The Portfolio's investment adviser, Pioneer Investment Management, Inc., reduced its management fee and certain other expenses; otherwise, returns would have been lower. 3 PIONEER VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST SCHEDULE OF INVESTMENTS 12/31/03
SHARES VALUE COMMON STOCKS - 97.1% ENERGY - 13.4% INTEGRATED OIL & GAS - 7.4% 174 BP Amoco Plc (A.D.R.) $ 8,587 265 ChevronTexaco Corp. 22,893 529 ConocoPhillips 34,687 1,008 Exxon Mobil Corp. 41,328 446 Occidental Petroleum Corp. 18,839 --------------- $ 126,334 --------------- OIL & GAS DRILLING - 2.5% 615 ENSCO International, Inc. $ 16,710 215 Nabors Industries, Inc.* 8,923 702 Transocean Offshore, Inc.* 16,855 --------------- $ 42,488 --------------- OIL & GAS EXPLORATION & PRODUCTION - 3.5% 330 Anadarko Petroleum Corp. $ 16,833 239 Devon Energy Corp. 13,685 1,140 Suncor Energy, Inc. 28,568 --------------- $ 59,086 --------------- TOTAL ENERGY $ 227,908 --------------- MATERIALS - 6.2% ALUMINUM - 0.6% 266 Alcoa, Inc. $ 10,108 --------------- COMMODITY CHEMICALS - 1.5% 222 Air Products & Chemicals, Inc. $ 11,728 288 E.I. du Pont de Nemours and Co. 13,216 --------------- $ 24,944 --------------- DIVERSIFIED CHEMICALS - 0.9% 222 PPG Industries, Inc. $ 14,212 --------------- DIVERSIFIED METALS & MINING - 1.6% 417 Freeport-McMoRan Copper & Gold, Inc. (Class B) $ 17,568 134 Phelps Dodge Corp.* 10,196 --------------- $ 27,764 --------------- METAL & GLASS CONTAINERS - 0.8% 223 Ball Corp. $ 13,284 --------------- PAPER PRODUCTS - 0.8% 222 Weyerhaeuser Co. $ 14,208 --------------- TOTAL MATERIALS $ 104,520 --------------- CAPITAL GOODS - 5.5% AEROSPACE & DEFENSE - 1.0% 182 Northrop Grumman Corp. $ 17,399 --------------- INDUSTRIAL CONGLOMERATES - 4.5% 330 Donaldson Co., Inc. $ 19,523 109 Parker Hannifin Corp. 6,486 1,050 Tyco International, Ltd. 27,825 230 United Technologies Corp. 21,797 --------------- $ 75,631 --------------- TOTAL CAPITAL GOODS $ 93,030 --------------- COMMERCIAL SERVICES & SUPPLIES - 1.8% ENVIRONMENTAL SERVICES - 1.8% 1,044 Waste Management, Inc. $ 30,902 --------------- TOTAL COMMERCIAL SERVICES & SUPPLIES $ 30,902 --------------- TRANSPORTATION - 3.3% AIRLINES - 0.6% 700 Southwest Airlines Co. $ 11,298 --------------- RAILROADS - 1.7% 218 Canadian National Railway Co. $ 13,795 218 Union Pacific Corp. 15,147 --------------- $ 28,942 --------------- TRUCKING - 1.0% 220 United Parcel Service $ 16,401 --------------- TOTAL TRANSPORTATION $ 56,641 --------------- HOTELS, RESTAURANTS & LEISURE - 1.9% RESTAURANTS - 1.9% 1,315 McDonald's Corp. $ 32,651 --------------- TOTAL HOTELS, RESTAURANTS & LEISURE $ 32,651 --------------- MEDIA - 7.3% BROADCASTING & CABLE TV - 2.7% 345 Clear Channel Communications, Inc. $ 16,156 547 Comcast Corp.* 17,980 305 Cox Communications, Inc.* 10,507 --------------- $ 44,643 --------------- MOVIES & ENTERTAINMENT - 3.7% 2,188 Time Warner, Inc.* $ 39,362 526 Viacom, Inc. (Class B) 23,344 --------------- $ 62,706 --------------- PUBLISHING - 0.9% 177 Gannett Co. $ 15,781 --------------- TOTAL MEDIA $ 123,130 --------------- RETAILING - 0.3% GENERAL MERCHANDISE STORES - 0.3% 100 Sears, Roebuck and Co. $ 4,549 --------------- TOTAL RETAILING $ 4,549 --------------- FOOD & DRUG RETAILING - 1.9% FOOD RETAIL - 1.9% 434 Kraft Foods, Inc. $ 13,984 594 Kroger Co.* 10,995 27 Nestle SA (Registered Shares) 6,735 --------------- $ 31,714 --------------- TOTAL FOOD & DRUG RETAILING $ 31,714 --------------- FOOD, BEVERAGE & TOBACCO - 2.3% PACKAGED FOODS & MEATS - 1.1% 875 Sara Lee Corp. $ 18,996 ---------------
The accompanying notes are an integral part of these financial statements. 4
SHARES VALUE SOFT DRINKS - 1.2% 436 PepsiCo, Inc. $ 20,326 --------------- TOTAL FOOD, BEVERAGE & TOBACCO $ 39,322 --------------- HOUSEHOLD & PERSONAL PRODUCTS - 0.9% PERSONAL PRODUCTS - 0.9% 262 Kimberly-Clark Corp. $ 15,482 --------------- TOTAL HOUSEHOLD & PERSONAL PRODUCTS $ 15,482 --------------- HEALTH CARE EQUIPMENT & SERVICES - 4.0% HEALTH CARE DISTRIBUTORS - 0.6% 195 Johnson & Johnson $ 10,074 --------------- HEALTH CARE FACILITIES - 2.2% 808 HCA, Inc. $ 34,712 121 Tenet Healthcare Corp.* 1,942 --------------- $ 36,654 --------------- MANAGED HEALTH CARE - 1.2% 214 Wellpoint Health Networks, Inc.* $ 20,756 --------------- TOTAL HEALTH CARE EQUIPMENT & SERVICES $ 67,484 --------------- PHARMACEUTICALS & BIOTECHNOLOGY - 4.5% PHARMACEUTICALS - 4.5% 654 Merck & Co., Inc. $ 30,215 760 Pfizer, Inc. 26,851 1,047 Schering-Plough Corp. 18,207 --------------- $ 75,273 --------------- TOTAL PHARMACEUTICALS & BIOTECHNOLOGY $ 75,273 --------------- BANKS - 12.1% DIVERSIFIED BANKS - 7.7% 569 Bank of America Corp. $ 45,765 391 Charter One Financial, Inc. 13,509 262 Fleet Boston Financial Corp. 11,436 942 U.S. Bancorp 28,053 525 Wells Fargo & Co. 30,917 --------------- $ 129,680 --------------- REGIONAL BANKS - 0.5% 219 North Fork Bancorporation, Inc. $ 8,863 --------------- THRIFTS & MORTGAGE FINANCE - 3.9% 277 Countrywide Financial Corp. $ 21,010 675 Freddie Mac 39,366 155 Washington Mutual, Inc. 6,219 --------------- $ 66,595 --------------- TOTAL BANKS $ 205,138 --------------- DIVERSIFIED FINANCIALS - 10.5% ASSET MANAGEMENT & CUSTODY BANKS - 1.2% 634 The Bank of New York Co., Inc. $ 20,998 --------------- CONSUMER FINANCE - 0.9% 310 American Express Co. $ 14,951 --------------- INVESTMENT BANKING & BROKERAGE - 3.5% 194 Goldman Sachs Group, Inc. $ 19,154 264 Lehman Brothers Holdings, Inc. 20,386 349 Merrill Lynch & Co., Inc. 20,469 --------------- $ 60,009 --------------- DIVERSIFIED FINANCIAL SERVICES - 4.9% 1,697 Citigroup, Inc. $ 82,372 --------------- TOTAL DIVERSIFIED FINANCIALS $ 178,330 --------------- INSURANCE - 6.2% INSURANCE BROKERS - 1.0% 356 Marsh & McLennan Co., Inc. $ 17,049 --------------- MULTI-LINE INSURANCE - 1.4% 350 American International Group, Inc. $ 23,198 --------------- PROPERTY & CASUALTY INSURANCE - 3.8% 171 Ambac Financial Group, Inc. $ 11,866 330 Allstate Corp. 14,197 11 Berkshire Hathaway, Inc. (Class B)* 30,965 110 Chubb Corp. 7,491 --------------- $ 64,519 --------------- TOTAL INSURANCE $ 104,766 --------------- SOFTWARE & SERVICES - 2.8% APPLICATION SOFTWARE - 0.3% 194 Microsoft Corp. $ 5,343 --------------- DATA PROCESSING & OUTSOURCED SERVICES - 2.5% 410 Automatic Data Processing, Inc. $ 16,240 634 First Data Corp. 26,051 --------------- $ 42,291 --------------- TOTAL SOFTWARE & SERVICES $ 47,634 --------------- TECHNOLOGY HARDWARE & EQUIPMENT - 5.0% COMMUNICATIONS EQUIPMENT - 1.1% 1,357 Motorola, Inc. $ 19,093 --------------- COMPUTER HARDWARE - 2.6% 1,661 Hewlett-Packard Co. $ 38,153 67 IBM Corp. 6,210 --------------- $ 44,363 --------------- ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.3% 746 Koninklijke Philips Electronics $ 21,701 --------------- TOTAL TECHNOLOGY HARDWARE & EQUIPMENT $ 85,157 --------------- SEMICONDUCTORS - 0.4% 105 Intel Corp. $ 3,381 128 Texas Instruments, Inc. 3,761 --------------- $ 7,142 --------------- TOTAL SEMICONDUCTORS $ 7,142 ---------------
The accompanying notes are an integral part of these financial statements. 5
SHARES VALUE TELECOMMUNICATION SERVICES - 5.1% INTEGRATED TELECOMMUNICATION SERVICES - 3.4% 480 Alltel Corp. $ 22,358 809 AT&T Corp. 16,423 658 BellSouth Corp. 18,621 --------------- $ 57,402 --------------- WIRELESS TELECOMMUNICATION SERVICES - 1.7% 1,830 AT&T Wireless Services, Inc.* $ 14,622 4,102 Vodafone Group Plc 10,131 193 Vodafone Group Plc (A.D.R.) 4,833 --------------- $ 29,586 --------------- TOTAL TELECOMMUNICATION SERVICES $ 86,988 --------------- UTILITIES - 1.7% ELECTRIC UTILITIES - 1.7% 436 Dominion Resources, Inc. $ 27,830 --------------- TOTAL UTILITIES $ 27,830 --------------- TOTAL INVESTMENT IN SECURITIES - 97.1% (Cost $1,506,791) $ 1,645,591 --------------- OTHER ASSETS AND LIABILITIES - 2.9% $ 49,867 --------------- TOTAL NET ASSETS - 100.0% $ 1,695,458 ===============
* Non-income producing security (A.D.R.) American depositary receipt The accompanying notes are an integral part of these financial statements. 6 PIONEER VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST FINANCIAL HIGHLIGHTS 12/31/03
5/1/03 TO CLASS II (a) 12/31/03 Net asset value, beginning of period $ 10.00 ------------ Increase (decrease) from investment operations: Net investment income $ 0.01 Net realized and unrealized gain (loss) on investments and foreign currency transactions 2.03 ------------ Net increase (decrease) from investment operations $ 2.04 ------------ Distributions to shareowners: Net investment income - Net realized gain - ------------ Net increase (decrease) in net asset value $ 2.04 ------------ Net asset value, end of period $ 12.04 ------------ Total return* 20.40% Ratio of net expenses to average net assets 1.50%** Ratio of net investment income to average net assets 0.27%** Portfolio turnover rate 24.2% Net assets, end of period (in thousands) $ 1,695 Ratios with no waiver of management fees and assumption of expenses by PIM: Net expenses 10.93%** Net investment loss (9.16)%** Ratios with waiver of management fees and assumption of expenses by PIM: Net expenses 1.50%** Net investment income 0.27%**
(a) Class II shares were first publicly offered on May 1, 2003. * Assumes initial investment at net asset value at the beginning of the period, reinvestment of all distributions and the complete redemption of the investment at net asset value at the end of the period. ** Annualized. + Ratios with no reduction for fees paid indirectly. The accompanying notes are an integral part of these financial statements. 7 PIONEER VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST STATEMENT OF ASSETS AND LIABILITIES 12/31/03
PIONEER VALUE VCT PORTFOLIO ASSETS: Investment in securities, at value (cost $1,506,791) $ 1,645,591 Cash 152,725 Futures collateral Foreign currencies, at value - Receivables - Investment securities sold - Fund shares sold 318 Variation margin - Dividends, interest and foreign taxes withheld 1,888 Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, open-net - Due from Pioneer Investment Management, Inc. 25,125 Other 2,020 ------------ Total assets $ 1,827,667 ------------ LIABILITIES: Payables - Investment securities purchased $ 108,436 Fund shares repurchased - Dividends - Upon return of securities loaned - Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, open-net - Variation margin - Due to bank - Due to affiliates 320 Accrued expenses 23,453 Other - ------------ Total liabilities $ 133,209 ------------ NET ASSETS: Paid-in capital $ 1,557,445 Accumulated undistributed net investment income 1,075 Accumulated net realized loss (1,864) Net unrealized gain on: Investments 138,800 Futures contracts - Forward foreign currency contracts and other assets - and liabilities denominated in foreign currencies 2 Other - ------------ Total net assets $ 1,695,458 ------------ NET ASSET VALUE PER SHARE: CLASS II: (Unlimited number of shares authorized) Net assets $ 1,695,458 Shares outstanding 140,844 ------------ Net asset value per share $ 12.04 ------------
The accompanying notes are an integral part of these financial statements. 8 STATEMENT OF OPERATIONS FOR THE PERIOD FROM 5/1/03 (COMMENCEMENT OF OPERATIONS) TO 12/31/03
PIONEER VALUE VCT PORTFOLIO INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $28) $ 7,112 Interest 116 Income on securities loaned, net - Other - ------------ Total investment income $ 7,228 ------------ EXPENSES: Management fees $ 3,067 Transfer agent fees - Distribution fees (Class II) 1,022 Administrative fees - Custodian fees 17,807 Professional fees 18,600 Printing 1,845 Fees and expenses of nonaffiliated trustees 350 Miscellaneous 2,005 ------------ Total expenses $ 44,696 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (38,563) Net expenses $ 6,133 ------------ Net investment income (loss) $ 1,095 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized loss from: Investments $ (1,864) Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies $ (175) ------------ $ (2,039) ------------ Change in net unrealized gain from: Investments $ 138,800 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies $ 2 ------------ $ 138,802 ------------ Net gain on investments, futures contracts and foreign currency transactions $ 136,763 ------------ Net increase in net assets resulting from operations $ 137,858 ============
The accompanying notes are an integral part of these financial statements. 9 STATEMENT OF CHANGES IN NET ASSETS FOR THE PERIOD FROM 5/1/03 (COMMENCEMENT OF OPERATIONS) TO 12/31/03
PIONEER VALUE VCT PORTFOLIO 5/1/03 TO 12/31/03 FROM OPERATIONS: Net investment income $ 1,095 Net realized gain (loss) on investments (2,039) Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions 138,802 ------------ Net increase (decrease) in net assets resulting from operations $ 137,858 ------------ DISTRIBUTIONS TO SHAREOWNERS: Net investment income: Class I $ - Class II - Net realized gain Class I - Class II - Tax return of Capital Class I - Class II - ------------ Total distributions to shareowners $ - ------------ FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 1,646,040 Reinvestment of distributions - Cost of shares repurchased (88,440) ------------ Net increase in net assets resulting from fund share transactions $ 1,557,600 ------------ Net increase in net assets $ 1,695,458 ------------ NET ASSETS: Beginning of period - ------------ End of period $ 1,695,458 ============ Accumulated undistributed net investment income, end of period $ 1,075 ============
The accompanying notes are an integral part of these financial statements. 10 PIONEER VALUE VCT NOTES TO FINANCIAL STATEMENTS 12/31/03 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Pioneer Value VCT Portfolio (The Portfolio) is a Portfolio of the Pioneer Variable Contracts Trust (the Trust), which is a Delaware business trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of sixteen separate portfolios, fourteen of which issued both Class I and Class II shares (collectively, the Portfolios, individually the Portfolio) as follows: PORTFOLIOS: Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio) Pioneer Europe VCT Portfolio (Europe Portfolio) Pioneer International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio) Pioneer Small Company VCT Portfolio (Small Company Portfolio) Pioneer Mid Cap Value VCT Portfolio (Mid-Cap Value Portfolio) Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio) Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio) Pioneer Fund VCT Portfolio (Fund Portfolio) Pioneer Equity Income VCT Portfolio (Equity-Income Portfolio) Pioneer Balanced VCT Portfolio (Balanced Portfolio) Pioneer High Yield VCT Portfolio (High Yield Portfolio) Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio) Pioneer America Income VCT Portfolio (America Income Portfolio) Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I Shares only) Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only) [The Value VCT Portfolio commenced operations on May 1, 2003.] Portfolio shares may only be purchased by insurance companies for the purpose of funding variable annuity or variable life insurance contracts, and may also be purchased by qualified pension and retirement plans. The financial statements and financial highlights of all other portfolios are presented in separate books. The investment objective of Value Portfolio is to seek capital appreciation. The Trust's financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America 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 income, expenses and gains and losses 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 as of trade date. The net asset value of the Portfolio is 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. 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 becomes aware of the ex-dividend data in the exercise of reasonable diligence. Interest income, including interest on income bearing cash accounts, is recorded on the accrual basis. 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, and, if applicable, are reported net of foreign taxes on capital gains at the applicable country rates. B. FUTURES CONTRACTS The Portfolio may enter into futures transactions to hedge against changes in interest rates, securities prices, and currency rates or to seek to increase total return. Upon entering into a futures contract, the Portfolio is required to deposit with a broker an amount of cash or securities equal to the minimum "initial margin" requirements of the associated futures exchange. Subsequent payments for futures contracts ("variation margin") are paid or received by the Portfolio, depending on the daily fluctuation in the value of the contracts, and are recorded by the Portfolio as unrealized gains or losses. When the contract is closed, the Portfolio realizes a gain or loss equal to the difference between the opening and closing value of the contract. The use of futures contracts involves, to varying degrees, elements of market risk which may exceed the amounts recognized by the Portfolio. Changes in the value of the contracts may not directly correlate to the changes in the value of the underlying securities. These risks may decrease the effectiveness of the Portfolio's hedging and trading strategies and potentially result in a loss. As of December 31, 2003, Value Portfolio had no open contracts. 11 C. FOREIGN CURRENCY TRANSLATION The books and records of the Portfolio 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, 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. D. FORWARD FOREIGN CURRENCY CONTRACTS The Portfolio enters 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 Portfolio's financial statements. The Portfolio records 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. E. 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 shareowners. Therefore, no federal income tax provision is required. The amount and characterization of distributions to shareowners 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. At December 31, 2003, the Portfolio made reclassifications as described below. These reclassifications have no impact on the net asset value of the Portfolio and are designed to present the portfolios' capital accounts on a tax basis.
ACCUMULATED NET ACCUMULATED INVESTMENT REALIZED GAIN/ PORTFOLIO INCOME/(LOSS) LOSS PAID-IN CAPITAL - --------------------------------------------------------------------------------------- Value Portfolio (20) 175 (155)
The following shows the components of distributable earnings on a federal income tax basis at December 31, 2003.
PIONEER VALUE VCT PORTFOLIO 2003 - ------------------------------------------------------------------- DISTRIBUTABLE EARNINGS (ACCUMULATED LOSSES): Undistributed ordinary income $ 2,543 Undistributed long-term gain/(capital loss carryforward) - Unrealized appreciation (depreciation) 135,470 ========== Total $ 138,013 ==========
There were no distributions paid during the period ended December 31, 2003. The difference between book basis and tax basis unrealized appreciation is attributable to the tax deferral on wash sales. F. PORTFOLIO SHARES The Portfolio records sales and repurchases of its portfolio shares as of trade date. Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the principal underwriter for the Trust and a wholly owned indirect subsidiary of UniCredito Italiano S.p.A. (UniCredito Italiano), $246,661 in commissions on the sale of Trust shares for the period ended December 31, 2003. Dividends and distributions to shareowners are recorded on the ex-dividend date. G. SECURITIES LENDING The Portfolio lends securities in its portfolio to certain broker-dealers or other institutional investors, with the Portfolio's custodian acting as the lending agent. When entering into a loan, the Portfolio receives collateral which is maintained by the custodian and earns income in the form of negotiated lenders' fees. The Portfolio also continues to receive interest or dividends on the securities loaned, and gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for account of the Trust. The loans are secured by collateral of at least 102%, at all times, of the fair value of the securities loaned. The fair value of the collateral will be adjusted daily to reflect any price fluctuation in the value of the loaned securities. The Trust has the right under the lending agreement to recover the securities on loan from the borrower on demand. The 12 Trust invests cash collateral in the Securities Lending Investment Fund which is managed by Brown Brothers Harriman & Co., the Trust's custodian. H. REPURCHASE AGREEMENTS With respect to repurchase agreements entered into by the Portfolio, 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 Portfolio's custodian, or subcustodian. The Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is responsible for determining that the value of the collateral remains at least equal to the repurchase price. 2. MANAGEMENT AGREEMENT PIM manages the Portfolio, and is a wholly owned indirect subsidiary of UniCredito Italiano. Management fees are calculated daily at the following annual rate of 0.75% of the Portfolio's average daily net assets. In addition, under the management and administration agreements, certain other services and costs, including accounting, regulatory reporting and insurance premiums, are paid by the Portfolio. At December 31, 2003, there was no payable to PIM related to management fees, administrative fees and certain other services. Through December 31, 2003, PIM has agreed not to impose all or a portion of its management fee and, if necessary, to limit other ordinary operating expenses to the extent required to reduce Class II expenses to 1.50% of the average daily net assets attributable to Class II shares. As of December 31, 2003 there were no Class I shares outstanding. 3. TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. (PIMSS), a wholly owned indirect subsidiary of UniCredito Italiano provides substantially all transfer agent and shareowner services to the Trust at negotiated rates. Included in due to affiliates is $0 in transfer agent fees payable to PIMSS at December 31, 2003. 4. DISTRIBUTION PLANS The Portfolio has adopted a plan of distribution for Class II shares in accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily net assets attributable to Class II shares. Included in due to affiliates is $320 payable to PFD at December 31, 2003. 5. AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION At December 31, 2003, the Portfolio's aggregate unrealized appreciation and depreciation based on cost for federal income tax purposes was as follows:
GROSS GROSS NET APPRECIATION/ TAX COST APPRECIATION DEPRECIATION (DEPRECIATION) - ------------------------------------------------------------------------------------------------ Value Portfolio $ 1,510,663 $ 137,068 $ (2,140) $ 134,928
6. PORTFOLIO TRANSACTIONS The cost of purchases and the proceeds from sales of investments other than U.S. Government obligations and temporary cash investments for the period ended December 31, 2003, were $1,670,750 and $162,095, respectively. 7. CAPITAL SHARES At December 31, 2003, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
'03 SHARES '03 AMOUNT - ----------------------------------------------------------------- VALUE PORTFOLIO CLASS II: Shares sold 148,910 $ 1,646,041 Reinvestment of distributions - - Shares repurchased (8,066) (88,440) ---------------------------- Net increase 140,844 $ 1,557,601 ============================
13 PIONEER VALUE VCT PORTFOLIO REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF TRUSTEES OF PIONEER VARIABLE CONTRACTS TRUST AND THE CLASS II SHAREOWNERS OF PIONEER VALUE VCT PORTFOLIO: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer Value VCT Portfolio, one of the portfolios constituting Pioneer Variable Contracts Trust (the "Trust") as of December 31, 2003, and the related statement of operations, the statement of changes in net assets and financial highlights for the period from May 1, 2003 (commencement of operations) to December 31, 2003. 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 audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. 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 and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 audit provides 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 Pioneer Value VCT Portfolio of Pioneer Variable Contracts Trust at December 31, 2003, the results of its operations, the changes in its net assets and the financial highlights for the period from May 1, 2003 (commencement of operations) to December 31, 2003, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts February 6, 2004 14 PIONEER VARIABLE CONTRACTS TRUST TRUSTEES, OFFICERS AND SERVICE PROVIDERS INVESTMENT ADVISER Pioneer Investment Management, Inc. CUSTODIAN Brown Brothers Harriman & Co. INDEPENDENT AUDITORS Ernst & Young LLP PRINCIPAL UNDERWRITER Pioneer Funds Distributor, Inc. LEGAL COUNSEL Hale and Dorr LLP SHAREOWNER SERVICES AND TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. TRUSTEES AND OFFICERS The Fund's Board of Trustees provides broad supervision over the affairs of the Fund. The officers of the Fund are responsible for the Fund's operations. The Fund's Trustees and officers are listed below, together with their principal occupations during the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of 1940 are referred to as Interested Trustees. Trustees who are not interested persons of the Fund are referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 51 U.S. registered investment portfolios for which Pioneer Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the Portfolio is 60 State Street, Boston, Massachusetts 02109. The Fund's statement of additional information provides more detailed information regarding the Fund's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Fund are available without charge, upon request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. INTERESTED TRUSTEES
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE FUND LENGTH OF SERVICE DURING PAST FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (77)* Chairman of the Board, Trustee since Deputy Chairman and a Director of Harbor Global Trustee and President 1994. Serves until a Director of Pioneer Company, Ltd. successor trustee is Global Asset Management elected or earlier S.p.A. ("PGAM"); retirement or Non-Executive Chairman removal. and a Director of Pioneer Investment Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Director of Pioneer Alternative Investment Management Limited (Dublin); President and a Director of Pioneer Alternative Investment Management (Bermuda) Limited and affiliated funds; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel (since 2000, partner prior to 2000), Hale and Dorr LLP (counsel to PIM-USA and the Pioneer Funds) Osbert M. Hood (51)** Trustee and Executive Trustee since President and Chief None Vice President June, 2003. Serves Executive Officer, until a successor PIM-USA since May, 2003 trustee is elected or (Director since January, earlier retirement or 2001); President and removal. Director of Pioneer since May 2003; Chairman and Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Executive Vice President of all of the Pioneer Funds since June 2003; Executive Vice President and Chief Operating Officer of PIM-USA, November 2000-May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999-November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997- November 1999
* Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. ** Mr. Hood is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. 15 INDEPENDENT TRUSTEES
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS HELD NAME, AGE AND ADDRESS WITH THE FUND LENGTH OF SERVICE DURING PAST FIVE YEARS BY THIS TRUSTEE Mary K. Bush (55) Trustee Trustee since President, Bush Director of Brady 3509 Woodbine Street, September, 2000. International Corporation (industrial Chevy Chase, MD 20815 Serves until a (international financial identification and successor trustee is advisory firm) specialty coated material elected or earlier products manufacturer), retirement or Millenium Chemicals, Inc. removal. (commodity chemicals), Mortgage Guaranty Insurance Corporation, and R.J. Reynolds Tobacco Holdings, Inc. (tobacco) Richard H. Egdahl, M.D. (77) Trustee Trustee since 1995. Alexander Graham Bell None Boston University Healthcare Serves until a Professor of Health Care Entrepreneurship Program, successor trustee is Entrepreneurship, Boston 53 Bay State Road, elected or earlier University; Professor of Boston, MA 02215 retirement or Management, Boston removal. University School of Management; Professor of Public Health, Boston University School of Public Health; Professor of Surgery, Boston University School of Medicine; and University Professor, Boston University Margaret B.W. Graham (56) Trustee Trustee since Founding Director, The None 1001 Sherbrooke September, 2000. Winthrop Group, Inc. Street West, Serves until a (consulting firm); Montreal, Quebec, Canada successor trustee is Professor of Management, elected or earlier Faculty of Management, retirement or McGill University removal. Marguerite A. Piret (55) Trustee Trustee since 1995. President and Chief None One Boston Place, Serves until a Executive Officer, 28th Floor, successor trustee is Newbury, Piret & Company, Boston, MA 02108 elected or earlier Inc. retirement or (investment banking firm) removal. Stephen K. West (75) Trustee Trustee since 1995. Senior Counsel, Sullivan Director, The Swiss 125 Broad Street, Serves until a & Cromwell (law firm) Helvetia Fund, Inc. New York, NY 10004 successor trustee is (closed-end investment elected or earlier company) and AMVESCAP PLC retirement or (investment managers) removal. John Winthrop (67) Trustee Trustee since President, John Winthrop None One North Adgers Wharf, September, 2000. & Co., Inc. Charleston, SC 29401 Serves until a (private investment firm) successor trustee is elected or earlier retirement or removal.
16 FUND OFFICERS
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE FUND LENGTH OF SERVICE DURING PAST FIVE YEARS BY THIS OFFICER Dorothy E. Bourassa (56) Secretary Serves at the Secretary of PIM-USA; None discretion of board Senior Vice President-Legal of Pioneer; and Secretary/Clerk of most of PIM-USA's subsidiaries since October 2000; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003); and Senior Counsel, Assistant Vice President and Director of Compliance of PIM-USA from April 1998 through October 2000 Christopher J. Kelley (39) Assistant Secretary Serves at the Assistant Vice President None discretion of board and Senior Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001; Vice President and Associate General Counsel from July 1996 to July 2000); Assistant Secretary of all of the Pioneer Funds since September 2003 David C. Phelan (46) Assistant Secretary Serves at the Partner, Hale and Dorr None discretion of board LLP; Assistant Secretary of all of the Pioneer Funds since September 2003 Vincent Nave (58) Treasurer Serves at the Vice President-Fund None discretion of board Accounting, Administration and Custody Services of Pioneer (Manager from September 1996 to February 1999); and Treasurer of all of the Pioneer Funds (Assistant Treasurer from June 1999 to November 2000) Luis I. Presutti (38) Assistant Treasurer Serves at the Assistant Vice None discretion of board President-Fund Accounting, Administration and Custody Services of Pioneer (Fund Accounting Manager from 1994 to 1999); and Assistant Treasurer of all of the Pioneer Funds since November 2000
17
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE FUND LENGTH OF SERVICE DURING PAST FIVE YEARS BY THIS OFFICER Gary Sullivan (45) Assistant Treasurer Serves at the Fund Accounting None discretion of board Manager-Fund Accounting, Administration and Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 Katharine Kim Sullivan (30) Assistant Treasurer Serves at the Fund Administration None discretion of board. Manager-Fund Accounting, Administration and Custody Services since June 2003; Assistant Vice President-Mutual Fund Operations of State Street Corporation from June 2002 to June 2003 (formerly Deutsche Bank Asset Management); Pioneer Fund Accounting, Administration and Custody Services (Fund Accounting Manager from August 1999 to May 2002, Fund Accounting Services Supervisor from 1997 to July 1999); Assistant Treasurer of all of the Pioneer Funds since September 2003
18 THIS PAGE FOR YOUR NOTES. 19 THIS PAGE FOR YOUR NOTES. 20 THIS PAGE FOR YOUR NOTES. 21 [PIONEER INVESTMENTS(R) LOGO] 14694-00-0204 [PIONEER INVESTMENTS(R) LOGO] PIONEER VARIABLE CONTRACTS TRUST PIONEER MID CAP VALUE VCT PORTFOLIO -- CLASS I SHARES ANNUAL REPORT DECEMBER 31, 2003 PIONEER VARIABLE CONTRACTS TRUST TABLE OF CONTENTS Pioneer Mid Cap Value VCT Portfolio Portfolio and Performance Update 2 Portfolio Management Discussion 3 Schedule of Investments 4 Financial Statements 7 Notes to Financial Statements 11 Report of Independent Auditors 15 Trustees, Officers and Service Providers 16
PIONEER MID CAP VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO AND PERFORMANCE UPDATE 12/31/03 [CHART] PORTFOLIO DIVERSIFICATION (As a percentage of total investment portfolio) U.S. Common Stocks 90.6% Temporary Cash Investments 8.3% Depositary Receipts for International Stocks 1.1%
[CHART] SECTOR DISTRIBUTION (As a percentage of equity holdings) Financials 20.6% Industrials 16.1% Health Care 13.4% Consumer Discretionary 11.7% Materials 8.8% Information Technology 8.4% Energy 8.3% Consumer Staples 5.1% Utilities 4.7% Telecommunication Services 2.9%
FIVE LARGEST HOLDINGS (As a percentage of equity holdings) 1. Foot Locker Inc. 2.82% 2. Phelps Dodge Corp. 2.41 3. CIGNA Corp. 2.36 4. American Standard Companies, Inc. 2.23 5. Telephone and Data Systems, Inc. 2.18
Holdings will vary for other periods. This list excludes temporary cash and derivative investments. PRICES AND DISTRIBUTIONS
12/31/03 12/31/02 Net Asset Value per Share $ 20.47 $ 14.94 DISTRIBUTIONS PER SHARE SHORT-TERM LONG-TERM (1/1/03 - 12/31/03) DIVIDENDS CAPITAL GAINS CAPITAL GAINS $ 0.0567 $ - $ -
PERFORMANCE OF A $10,000 INVESTMENT The following chart shows the change in value of an investment made in PIONEER MID CAP VALUE VCT PORTFOLIO at net asset value, compared to that of the Russell Midcap Value Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges.
PIONEER MID CAP VALUE VCT PORTFOLIO* RUSSELL MIDCAP VALUE INDEX+ 3/31/1995 $ 10,000 $ 10,000 $ 11,819 $ 12,263 $ 13,596 $ 14,748 12/31/1997 $ 16,952 $ 19,812 $ 16,271 $ 20,820 12/31/1999 $ 18,407 $ 20,799 $ 21,721 $ 24,789 12/31/2001 $ 23,130 $ 25,369 $ 20,537 $ 22,920 12/31/2003 $ 28,234 $ 31,641
+ Index comparison begins 2/28/95. The Russell Midcap Value Index measures the performance of the value-oriented stocks in the Russell Midcap Index. 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 any Index. AVERAGE ANNUAL TOTAL RETURNS (As of December 31, 2003) NET ASSET VALUE* Life-of-Class 12.34% (3/1/95) 5 Years 11.64% 1 Year 37.48%
All total returns shown assume reinvestment of distributions at net asset value. * Portfolio performance does not reflect any variable contract fees, expenses or sales charges. If they had been included, performance would have been lower. See the pages that comprise the inside cover of this report for performance net of any contract fees, expenses or sales charges. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns and principal values fluctuate so that your investment, when redeemed, may be worth more or less than its original cost. The performance table and graph do not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. 2 PIONEER MID CAP VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO MANAGEMENT DISCUSSION 12/31/03 After worries about prolonged major combat in Iraq receded early in 2003, investors focused on the economy, where increasing evidence indicated that growth was accelerating and the economy finally was rebounding following three years of sluggish growth. Mid-cap value stocks participated in the general market rise, although smaller companies with more volatile earnings and stock prices tended to lead the market indexes. In the following interview, Rod Wright discusses the market environment and portfolio strategies during the 12 months ended December 31, 2003. Mr. Wright is responsible for day-to-day portfolio supervision of Pioneer Mid Cap Value VCT Portfolio. Q: HOW DID THE PORTFOLIO PERFORM? A: The Portfolio substantially outdistanced the overall market average, while slightly trailing the benchmark for mid-cap value stocks. For the 12 months ended December 31, 2003, the Portfolio's Class I shares had a total return of 37.48% at net asset value, while the Standard & Poor's 500 Index, a common index of the overall market, returned 28.67% and the Russell Midcap Value Index had a total return of 38.07%. Q: WHAT WERE THE PRINCIPAL FACTORS THAT INFLUENCED PERFORMANCE DURING THE 12 MONTHS? A: Two major factors affected the market: Iraq and the economy. Worries about the possibility of war in Iraq held down stock performance early in 2003. However, when major combat operations in Iraq appeared to end quickly in March, investors turned their attention to the domestic economy, where growth was beginning to accelerate, helped by the stimulative monetary and fiscal policies of the federal government. The Federal Reserve Board assured investors that short-term interest rates would remain low, while Congress approved new tax cuts proposed by President Bush, adding liquidity to both the economy and the financial markets. Stock prices began climbing in March and continued their ascent through the end of 2003. While most stocks gained during the period, the greatest performance tended to occur among small-company stocks and stocks of companies most likely to benefit early in an economic recovery. In managing the Portfolio, we try to find good companies selling at attractive prices. We do not invest in stocks based on macroeconomic analysis or expectations for different sectors. Nevertheless, stocks in some sectors performed better than others. Our stock selections in industrials, basic materials and health care all helped performance. However, while the Portfolio's overall performance was excellent in absolute terms, our relatively conservative orientation did not help, particularly our underweight position in technology, where stocks in highly cyclical areas, such as semiconductors, rose dramatically. Performance was also held back by our emphasis on the energy sector. We anticipated correctly that oil and natural gas prices would remain high. Nevertheless, the stocks of these companies did not outperform in 2003. We remain invested in the energy sector. Q: WHAT WERE SOME OF THE INDIVIDUAL HOLDINGS THAT PARTICULARLY AFFECTED PERFORMANCE DURING 2003? A: Several health-care stocks performed extremely well. Manor Care, an exceptionally well-managed nursing-home operator, rose 79% during the year, while IVAX, a manufacturer of generic drugs, gained 96%, and Sybron Dental, which manufactures products used in dental and orthopedic treatment, gained 101%. Among our basic materials positions, Freeport-McMoRan rose by 160%. Phelps Dodge also had significant gains over the year, although we did not own this stock for the entire year. In the industrials sector, we had excellent performance from American Standard, which rose 48%, American Power Conversion, which appreciated 54%, Deere, which gained 41% and Cooper Industries, which rose 61%. In the retail industry, Sears Roebuck was up 89%, while Foot Locker gained 120%. Although we underweighted technology, we did have excellent performance from several tech companies. Amdocs, a transaction and billing processor specializing in the telecommunications services industry, gained 150%, while Symbol Technologies, a leader in developing secure systems for integrating hand-held devices with computer systems, rose 101%. Q: WHAT IS YOUR INVESTMENT OUTLOOK FOR 2004? A: We think that the economic outlook is good and corporate profits should continue to rise. However, our enthusiasm is tempered by our belief that most stock prices already reflect the improving conditions in the economy. We think that the stock market has the potential to produce another year of positive performance in 2004, although perhaps not matching the returns achieved in 2003. Individual security selection should become more important. We will continue to emphasize stock selection, based on our analysis of the fundamental strengths of individual companies in relation to their stock valuations. ANY INFORMATION IN THIS SHAREHOLDER REPORT REGARDING MARKET OR ECONOMIC TRENDS OR THE FACTORS INFLUENCING THE PORTFOLIO'S HISTORICAL OR FUTURE PERFORMANCE ARE STATEMENTS OF THE OPINION OF PORTFOLIO MANAGEMENT AS OF THE DATE OF THIS REPORT. THESE STATEMENTS SHOULD NOT BE RELIED UPON FOR ANY OTHER PURPOSES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND THERE IS NO GUARANTEE THAT MARKET FORECASTS DISCUSSED WILL BE RELIZED. [SIDENOTE] Mid-capitalization stocks, while offering the potential for higher returns, may be subject to greater short-term price fluctuations than securities of larger companies. The Portfolio's investment adviser, Pioneer Investment Management, Inc., reduced its management fee and certain other expenses; otherwise, returns would have been lower. 3 PIONEER MID CAP VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST SCHEDULE OF INVESTMENTS 12/31/03
SHARES VALUE COMMON STOCKS - 97.5% ENERGY - 8.1% INTEGRATED OIL & GAS - 1.0% 88,240 Occidental Petroleum Corp. $ 3,727,258 -------------- OIL & GAS DRILLING - 3.3% 105,915 ENSCO International, Inc. $ 2,877,711 76,430 Nabors Industries, Inc.* 3,171,845 147,030 Transocean Offshore, Inc.* 3,530,190 82,335 Weatherford International, Inc.* 2,964,060 -------------- $ 12,543,806 -------------- OIL & GAS EXPLORATION & PRODUCTION - 2.2% 58,461 Devon Energy Corp. $ 3,347,477 164,685 Pioneer Natural Resources Co.* 5,258,392 -------------- $ 8,605,869 -------------- OIL & GAS REFINING MARKETING & TRANSPORTATION - 1.6% 63,685 Sun Company, Inc. $ 3,257,488 58,635 Valero Energy Corp. 2,717,146 -------------- $ 5,974,634 -------------- TOTAL ENERGY $ 30,851,567 -------------- MATERIALS - 8.6% COMMODITY CHEMICALS - 1.2% 88,245 Air Products & Chemicals, Inc. $ 4,661,983 -------------- DIVERSIFIED CHEMICALS - 1.6% 94,120 PPG Industries, Inc. $ 6,025,562 -------------- DIVERSIFIED METALS & MINING - 3.4% 94,130 Freeport-McMoRan Copper & Gold, Inc. (Class B) $ 3,965,697 117,585 Phelps Dodge Corp.* 8,947,043 -------------- $ 12,912,740 -------------- METAL & GLASS CONTAINERS - 1.0% 64,710 Ball Corp. $ 3,854,775 -------------- PAPER PRODUCTS - 0.6% 70,600 Meadwestvaco Corp. $ 2,100,350 -------------- PRECIOUS METALS & MINERALS - 0.8% 63,145 Newmont Mining Corp. $ 3,069,478 -------------- TOTAL MATERIALS $ 32,624,888 -------------- CAPITAL GOODS - 8.9% AEROSPACE & DEFENSE - 0.6% 23,515 General Dynamics Corp. $ 2,125,521 -------------- ELECTRICAL COMPONENT & EQUIPMENT - 3.0% 129,365 American Power Conversion Corp. $ 3,162,974 82,325 Cooper Industries, Inc. 4,769,087 205,890 Symbol Technologies, Inc. 3,477,482 -------------- $ 11,409,543 -------------- INDUSTRIAL CONGLOMERATES - 3.8% 82,360 American Standard Companies, Inc.* $ 8,293,652 52,920 ITT Industries, Inc. 3,927,193 40,000 Parker Hannifin Corp. 2,380,000 -------------- $ 14,600,845 -------------- INDUSTRIAL MACHINERY - 1.5% 23,540 Deere & Co. $ 1,531,277 64,720 Ingersoll-Rand Co. 4,393,194 -------------- $ 5,924,471 -------------- TOTAL CAPITAL GOODS $ 34,060,380 -------------- COMMERCIAL SERVICES & SUPPLIES - 5.2% DATA PROCESSING SERVICES - 0.7% 99,960 Equifax, Inc. $ 2,449,020 -------------- COMMERCIAL PRINTING - 2.1% 105,900 John H. Harland Co. $ 2,891,070 170,540 R.R. Donnelly & Sons Co., Inc. 5,141,781 -------------- $ 8,032,851 -------------- DIVERSIFIED COMMERCIAL SERVICES - 1.0% 70,610 H & R Block, Inc. $ 3,909,676 -------------- ENVIRONMENTAL SERVICES - 1.4% 211,735 Republic Services, Inc. $ 5,426,768 -------------- TOTAL COMMERCIAL SERVICES & SUPPLIES $ 19,818,315 -------------- TRANSPORTATION - 1.6% AIRLINES - 0.4% 99,610 Southwest Airlines Co. $ 1,607,705 -------------- RAILROADS - 1.2% 70,580 Canadian National Railway Co. $ 4,466,302 -------------- TOTAL TRANSPORTATION $ 6,074,007 -------------- CONSUMER DURABLES & APPAREL - 2.5% APPAREL, ACCESSORIES & LUXURY GOODS - 1.0% 211,710 The Limited Brands, Inc. $ 3,817,131 -------------- LEISURE PRODUCTS - 1.5% 305,830 Mattel, Inc. $ 5,893,344 -------------- TOTAL CONSUMER DURABLES & APPAREL $ 9,710,475 -------------- HOTELS, RESTAURANTS & LEISURE - 3.1% RESTAURANTS - 3.1% 100,000 Brinker International, Inc.* $ 3,316,000 58,785 Outback Steakhouse, Inc. 2,598,885 176,405 Yum Brands, Inc.* 6,068,332 -------------- TOTAL HOTELS, RESTAURANTS & LEISURE $ 11,983,217 --------------
The accompanying notes are an integral part of these financial statements. 4
SHARES VALUE MEDIA - 1.4% ADVERTISING - 0.6% 23,075 The Interpublic Group of Companies, Inc.* $ 359,970 21,125 Omnicom Group 1,844,846 -------------- $ 2,204,816 -------------- MOVIES & ENTERTAINMENT - 0.8% 152,960 Regal Entertainment Group $ 3,138,739 -------------- TOTAL MEDIA $ 5,343,555 -------------- RETAILING - 4.4% APPAREL RETAIL - 1.2% 129,430 Jones Apparel Group, Inc.* $ 4,559,819 -------------- GENERAL MERCHANDISE STORES - 0.4% 35,380 Sears, Roebuck and Co. $ 1,609,436 -------------- SPECIALTY STORES - 2.8% 447,030 Foot Locker, Inc. $ 10,482,854 -------------- TOTAL RETAILING $ 16,652,109 -------------- FOOD & DRUG RETAILING - 5.0% DRUG RETAIL - 2.1% 223,470 CVS Corp. $ 8,071,736 -------------- FOOD RETAIL - 2.1% 82,380 Albertson's, Inc. $ 1,865,907 235,290 ConAgra, Inc. 6,209,303 -------------- $ 8,075,210 -------------- HYPERMARKETS & SUPERCENTERS - 0.8% 123,470 BJ'S Wholesale Club, Inc.* $ 2,834,871 -------------- TOTAL FOOD & DRUG RETAILING $ 18,981,817 -------------- HEALTH CARE EQUIPMENT & SERVICES - 12.3% HEALTH CARE EQUIPMENT - 3.1% 182,300 Apogent Technologies, Inc.* $ 4,200,192 152,905 Becton, Dickinson & Co. 6,290,512 52,915 Sybron Dental Specialities* 1,486,912 -------------- $ 11,977,616 -------------- HEALTH CARE FACILITIES - 3.7% 141,145 Manor Care, Inc. $ 4,879,383 81,900 Tenet Healthcare Corp.* 1,314,495 241,160 Triad Hospitals, Inc. * 8,023,393 -------------- $ 14,217,271 -------------- HEALTH CARE SERVICES - 2.1% 135,230 Laboratory Corporation of America Holdings* $ 4,996,749 94,100 Lincare Holdings, Inc.* 2,825,823 -------------- $ 7,822,572 -------------- MANAGED HEALTH CARE - 3.4% 152,900 CIGNA Corp. $ 8,791,750 43,545 Wellpoint Health Networks, Inc.* 4,223,430 -------------- $ 13,015,180 -------------- TOTAL HEALTH CARE EQUIPMENT & SERVICES $ 47,032,639 -------------- PHARMACEUTICALS & BIOTECHNOLOGY - 0.7% PHARMACEUTICALS - 0.7% 117,595 IVAX Corp.* $ 2,808,169 -------------- TOTAL PHARMACEUTICALS & BIOTECHNOLOGY $ 2,808,169 -------------- BANKS - 10.4% DIVERSIFIED BANKS - 1.1% 125,602 Charter One Financial, Inc. $ 4,339,549 -------------- REGIONAL BANKS - 5.2% 57,785 Boston Private Financial Holdings, Inc. $ 1,435,379 141,130 KeyCorp 4,137,932 58,865 Marshall & Ilsley Corp. 2,251,586 47,005 North Fork Bancorporation, Inc. 1,902,292 105,840 SouthTrust Corp. 3,464,143 70,575 TCF Financial Corp. 3,624,026 47,050 Zions Bancorporation 2,885,577 -------------- $ 19,700,935 -------------- THRIFTS & MORTGAGE FINANCE - 4.1% 70,533 Countrywide Financial Corp. $ 5,349,953 70,575 GreenPoint Financial Corp. 2,492,709 205,860 The PMI Group, Inc. 7,664,168 -------------- $ 15,506,830 -------------- TOTAL BANKS $ 39,547,314 -------------- DIVERSIFIED FINANCIALS - 4.7% CONSUMER FINANCE - 1.4% 11,714 White Mountains Insurance Group, Ltd. $ 5,387,854 -------------- ASSET MANAGEMENT & CUSTODY BANKS - 1.0% 135,290 Federated Investors, Inc. $ 3,972,114 -------------- CONSUMER FINANCE - 0.4% 124,700 Providian Financial Corp.* $ 1,451,508 -------------- INVESTMENT BANKING & BROKERAGE - 1.9% 111,800 A.G. Edwards, Inc. $ 4,050,514 188,250 Investment Technology Group, Inc.* 3,040,238 -------------- $ 7,090,752 -------------- TOTAL DIVERSIFIED FINANCIALS $ 17,902,228 -------------- INSURANCE - 5.0% INSURANCE BROKERS - 1.9% 123,510 Platinum Underwriter Holdings, Ltd. $ 3,705,300 99,940 Willis Group Holdings, Ltd. 3,404,956 -------------- $ 7,110,256 --------------
The accompanying notes are an integral part of these financial statements. 5
SHARES VALUE LIFE & HEALTH INSURANCE - 0.9% 70,530 Jefferson - Pilot Corp. $ 3,572,345 -------------- PROPERTY & CASUALTY INSURANCE - 2.2% 58,805 Ambac Financial Group, Inc. $ 4,080,479 111,000 Safeco Corp. 4,321,230 -------------- $ 8,401,709 -------------- TOTAL INSURANCE $ 19,084,310 -------------- SOFTWARE & SERVICES - 2.1% APPLICATION SOFTWARE - 0.5% 88,245 Autodesk, Inc. $ 2,169,062 -------------- DATA PROCESSING & OUTSOURCED SERVICES - 1.6% 141,130 The BISYS Group, Inc.* $ 2,100,014 141,129 SunGard Data Systems, Inc.* 3,910,685 -------------- $ 6,010,699 -------------- TOTAL SOFTWARE & SERVICES $ 8,179,761 -------------- TECHNOLOGY HARDWARE & EQUIPMENT - 6.0% COMMUNICATIONS EQUIPMENT - 0.8% 352,921 Tellabs, Inc.* $ 2,975,124 -------------- COMPUTER HARDWARE - 2.0% 199,960 NCR Corp.* $ 7,758,448 -------------- COMPUTER STORAGE & PERIPHERALS - 1.5% 111,800 Seagate Technology $ 2,113,020 141,200 Storage Technology Corp.* 3,635,900 -------------- $ 5,748,920 -------------- ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.7% 135,280 W.W. Grainger, Inc. $ 6,410,919 -------------- TOTAL TECHNOLOGY HARDWARE & EQUIPMENT $ 22,893,411 -------------- TELECOMMUNICATION SERVICES - 2.8% INTEGRATED TELECOMMUNICATION SERVICES - 2.8% 58,865 Alltel Corp. $ 2,741,932 129,430 Telephone and Data Systems, Inc. 8,095,845 -------------- $ 10,837,777 -------------- TOTAL TELECOMMUNICATION SERVICES $ 10,837,777 -------------- UTILITIES - 4.6% ELECTRIC UTILITIES - 3.6% 82,375 Constellation Energy Group $ 3,225,805 99,950 DTE Energy Co. 3,938,030 64,715 Entergy Corp. 3,697,168 99,979 PG&E Corp.* 2,776,417 -------------- $ 13,637,420 -------------- GAS UTILITIES - 1.0% 105,915 KeySpan Energy Corp. $ 3,897,672 -------------- TOTAL UTILITIES $ 17,535,092 -------------- TOTAL COMMON STOCKS (Cost $303,626,086) $ 371,921,031 -------------- PRINCIPAL AMOUNT VALUE TEMPORARY CASH INVESTMENTS - 8.9% REPURCHASE AGREEMENT - 4.8% $ 18,300,000 UBS Warburg, Inc., 0.73%, Dated 12/31/03, repurchase price of $18,300,000 plus accrued interest on 1/2/04 collateralized by $17,820,000 U.S. Treasury Bill, 5.875%, 11/15/04. $ 18,300,000 -------------- SHARES SECURITY LENDING COLLATERAL - 4.1% 15,456,654 Securities Lending Investment Fund, 1.02% $ 15,456,654 -------------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $33,756,654) $ 33,756,654 -------------- TOTAL INVESTMENT IN SECURITIES - 106.4% (Cost $337,382,740) $ 405,677,685 -------------- OTHER ASSETS AND LIABILITIES - (6.4)% $ (24,320,514) -------------- TOTAL NET ASSETS - 100.0% $ 381,357,171 ==============
* Non-income producing security. The accompanying notes are an integral part of these financial statements. 6 PIONEER MID CAP VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST FINANCIAL HIGHLIGHTS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED CLASS I 12/31/03 12/31/02 12/31/01 12/31/00 12/31/99 Net asset value, beginning of period $ 14.94 $ 17.35 $ 17.79 $ 16.26 $ 14.49 ---------- ---------- ---------- ---------- ---------- Increase (decrease) from investment operations: Net investment income $ 0.14 $ 0.07 $ 0.07 $ 0.13 $ 0.13 Net realized and unrealized gain (loss) on investments 5.45 (1.97) 1.06 2.62 1.77 ---------- ---------- ---------- ---------- ---------- Net increase (decrease) from investment operations $ 5.59 $ (1.90) $ 1.13 $ 2.75 $ 1.90 Distributions to shareowners: Net investment income (0.06) (0.05) (0.10) (0.13) (0.13) Net realized gain -- (0.46) (1.47) (1.09) -- ---------- ---------- ---------- ---------- ---------- Net increase (decrease) in net asset value $ 5.53 $ (2.41) $ (0.44) $ 1.53 $ 1.77 ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 20.47 $ 14.94 $ 17.35 $ 17.79 $ 16.26 ========== ========== ========== ========== ========== Total return* 37.48% (11.21)% 6.49% 18.00% 13.13% Ratio of net expenses to average net assets+ 0.76% 0.80% 0.79% 0.77% 0.76% Ratio of net investment income (loss) to average net assets+ 0.86% 0.46% 0.45% 0.63% 0.77% Portfolio turnover rate 52% 68% 95% 85% 91% Net assets, end of period (in thousands) $ 170,237 $ 120,687 $ 128,340 $ 111,466 $ 120,526 Ratio with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.76% 0.80% 0.79% 0.77% 0.76% Net investment income (loss) 0.86% 0.46% 0.45% 0.63% 0.77% Ratio with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 0.76% 0.80% 0.79% 0.77% 0.76% Net investment income (loss) 0.86% 0.46% 0.45% 0.63% 0.77%
* 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. + Ratios with no reduction for fees paid indirectly. The accompanying notes are an integral part of these financial statements. 7 PIONEER MID CAP VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST STATEMENT OF ASSETS AND LIABILITIES 12/31/03
PIONEER MID CAP VALUE VCT PORTFOLIO ASSETS: Investment in securities, at value (including securities loaned of $15,029,876) (Cost $337,382,740) $ 405,677,685 Cash - Cash held as collateral for furtures contracts - Futures collateral - Foreign currencies, at value - Receivables - Investment securities sold 1,244,282 Fund shares sold 456,577 Variation margin - Dividends, interest and foreign taxes withheld 343,641 Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, open - net - Due from Pioneer Investment Management, Inc. - Other 3,480 ---------------- Total assets $ 407,725,665 ---------------- LIABILITIES: Payables - Investment securities purchased $ 10,014,290 Fund shares repurchased 505,758 Dividends - Upon return of securities loaned 15,456,654 Variation Margin - Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, net - Reserve for repartriation taxes - Due to bank 66,575 Due to affiliates 278,822 Accrued expenses 46,395 Other - ---------------- Total liabilities $ 26,368,494 ---------------- NET ASSETS: Paid-in capital $ 307,670,961 Accumulated net investment income (loss) 1,779,281 Accumulated undistributed net realized gain (loss) 3,611,984 Net unrealized gain (loss) on: Investments 68,294,945 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - ---------------- Total net assets $ 381,357,171 ---------------- NET ASSET VALUE PER SHARE: CLASS I: (Unlimited number of shares authorized) Net assets $ 170,237,439 Shares outstanding 8,315,885 ---------------- Net asset value per share $ 20.47 CLASS II: (Unlimited number of shares authorized) Net assets $ 211,119,732 Shares outstanding 10,389,233 ---------------- Net asset value per share $ 20.32
The accompanying notes are an integral part of these financial statements. 8 PIONEER MID CAP VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST STATEMENT OF OPERATIONS
PIONEER MID CAP VALUE VCT PORTFOLIO YEAR ENDED 12/31/03 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $5,357) $ 3,767,913 Interest 122,801 Income on securities loaned, net 8,170 Other - ---------------- Total investment income $ 3,898,884 ---------------- EXPENSES: Management fees $ 1,575,711 Transfer agent fees 2,748 Distribution fees (Class II) 272,819 Administrative fees 45,569 Custodian fees 70,486 Professional fees 30,354 Printing 79,656 Fees and expenses of nonaffiliated trustees 5,465 Miscellaneous 12,592 ---------------- Total expenses $ 2,095,400 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. - ---------------- Net expenses $ 2,095,400 ---------------- Net investment income (loss) $ 1,803,484 ---------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ 6,028,568 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (23,808) ---------------- $ 6,004,760 ---------------- Change in net unrealized gain or loss from: Investments $ 75,230,670 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - $ 75,230,670 ---------------- Net gain (loss) on investments, futures contracts and foreign currency transactions $ 81,235,430 ================ Net increase (decrease) in net assets resulting from operations $ 83,038,914 ================
The accompanying notes are an integral part of these financial statements. 9 PIONEER MID CAP VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST STATEMENT OF CHANGES IN NET ASSETS
PIONEER MID CAP VALUE VCT PORTFOLIO YEAR YEAR ENDED ENDED 12/31/03 12/31/02 FROM OPERATIONS: Net investment income (loss) $ 1,803,484 $ 692,951 Net realized gain (loss) on investments 6,004,760 (604,669) Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions 75,230,670 (24,313,838) -------------- -------------- Net increase (decrease) in net assets resulting from operations $ 83,038,914 $ (24,225,556) -------------- -------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (438,494) $ (418,823) Class II (236,135) (123,345) Net realized gain Class I - (3,695,361) Class II - (1,420,452) Tax return of capital Class I - - Class II - - -------------- -------------- Total distributions to shareowners $ (674,629) $ (5,657,981) -------------- -------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 161,143,658 $ 113,623,860 Reinvestment of distributions 674,611 5,657,981 Cost of shares repurchased (44,550,616) (46,207,577) -------------- -------------- Net increase (decrease) in net assets resulting from fund share transactions $ 117,267,653 $ 73,074,264 -------------- -------------- Net increase (decrease) in net assets $ 199,631,938 $ 43,190,727 -------------- -------------- NET ASSETS: Beginning of year 181,725,233 138,534,506 -------------- -------------- End of year $ 381,357,171 $ 181,725,233 ============== ============== Accumulated undistributed/(distributions in excess of) net investment income (loss) $ 1,779,281 $ 674,234 ============== ==============
The accompanying notes are an integral part of these financial statements. 10 PIONEER MID CAP VALUE VCT PORTFOLIO NOTES TO FINANCIAL STATEMENTS 12/31/03 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Pioneer Mid Cap Value VCT Portfolio (the Portfolio) is a portfolio of Pioneer Variable Contracts Trust (the Trust) which is a Delaware business trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of sixteen separate portfolios, fourteen of which issue both Class I and Class II shares (collectively, the Portfolios, individually the Portfolio) as follows: PORTFOLIOS: Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio) Pioneer Europe VCT Portfolio (Europe Portfolio) Pioneer International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio) Pioneer Small Company VCT Portfolio (Small Company Portfolio) Pioneer Mid Cap Value VCT Portfolio (Mid-Cap Value Portfolio) Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio) Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio) Pioneer Fund VCT Portfolio (Fund Portfolio) Pioneer Equity Income VCT Portfolio (Equity-Income Portfolio) Pioneer Balanced VCT Portfolio (Balanced Portfolio) Pioneer High Yield VCT Portfolio (High Yield Portfolio) Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio) Pioneer America Income VCT Portfolio (America Income Portfolio) Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares only) Pioneer Value VCT Portfolio (Value Portfolio) (Class IIshares only) Portfolio shares may only be purchased by insurance companies for the purpose of Mid Cap Value variable annuity or variable life insurance contracts, and may also be purchased by qualified pension and retirement plans. The investment objective of Mid Cap Value Portfolio is to seek capital appreciation. The financial highlights for the Portfolio's Class II shares are presented in a separate book. The Trust's financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America 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 income, expenses, gains and losses 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 as of trade date. Net asset values for the Portfolio 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, based on the last sale price on the principal exchange where they traded, are determined as of such times. 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 becomes aware of the ex-dividend data in the exercise of reasonable diligence. Interest income, including interest on income bearing cash accounts, is recorded on the accrual basis, net of unrecoverable foreign taxes withheld at the applicable country rates. All discounts/premiums are accreted/amortized for financial reporting purposes. Gains and losses from sales on investments are calculated on the identified cost method for both financial reporting and federal income tax purposes, and, if applicable, are reported net of foreign taxes on capital gains at the applicable country rates. B. FUTURES CONTRACTS The Portfolio may enter into futures transactions to hedge against changes in interest rates, securities prices, and currency rates or to seek to increase total return. Upon entering into a futures contract, the Portfolio is required to deposit with a broker an amount of cash or securities equal to the minimum "initial margin" requirements of the associated futures exchange. Subsequent payments for futures contracts ("variation margin") are paid or received by the Portfolio, depending on the daily fluctuation in the value of the contracts, and are recorded by the Portfolio as unrealized gains or losses. When the contract is closed, 11 the Portfolio realizes a gain or loss equal to the difference between the opening and closing value of the contract. The use of futures contracts involves, to varying degrees, elements of market risk which may exceed the amounts recognized by the Portfolio. Changes in the value of the contracts may not directly correlate to the changes in the value of the underlying securities. These risks may decrease the effectiveness of the Portfolio's hedging and trading strategies and potentially result in a loss. As of December 31, 2003, Mid Cap Value Portfolio had no open contracts. C. FOREIGN CURRENCY TRANSLATION The books and records of the Portfolio 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, 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. D. FORWARD FOREIGN CURRENCY CONTRACTS The Portfolio enters 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 Portfolio's financial statements. The Portfolio records 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. E. 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 shareowners. Therefore, no federal income tax provision is required. The amount and characterization of distributions to shareowners 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. At December 31, 2003, the Portfolio made reclassifications as described below. These reclassifications have no impact on the net asset value of the Portfolio and are designed to present the portfolios' capital accounts on a tax basis.
ACCUMULATED NET ACCUMULATED INVESTMENT REALIZED GAIN/ PORTFOLIO INCOME/(LOSS) LOSS PAID-IN CAPITAL - ---------------------------------------------------------------------------------------------------------------------------- Mid Cap Value Portfolio $ (23,808) $ 23,808 $ -
12 The following chart shows the components of distributable earnings (accumulated losses) as of December 31, 2003 and the distributions paid during the year ended December 31, 2003 on a tax basis as of December 31, 2003.
PIONEER PIONEER MID CAP VALUE MID CAP VALUE VCT PORTFOLIO VCT PORTFOLIO 2003 2002 - ------------------------------------------------------------------- DISTRIBUTIONS PAID FROM: Ordinary Income $ 674,629 $ 944,511 Long- Term capital gain - 4,713,470 -------------- -------------- $ 674,629 $ 5,657,981 Return of Capital - - -------------- -------------- Total distributions $ 674,629 $ 5,657,981 -------------- -------------- DISTRIBUTABLE EARNINGS (ACCUMULATED LOSSES): Undistributed ordinary income $ 3,095,345 Undistributed long-term gain/ (Capital loss carryforward) 4,286,038 Unrealized appreciation/ (depreciation) 66,304,827 -------------- Total $ 73,686,210 ==============
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily attributable to the tax deferral of losses on wash sales, returns of capital on REITs, and the recognition of unrealized gains or losses on certain futures contracts. F. PORTFOLIO SHARES The Portfolio records sales and repurchases of its portfolio shares as of trade date. Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the principal underwriter for the Trust and a wholly owned indirect subsidiary of UniCredito Italiano S.p.A. (UniCredito Italiano), $246,661 in commissions on the sale of Trust shares for the year ended December 31, 2003. Distribution fees are calculated based on the average daily net asset values attributable to Class I and Class II shares of the Portfolio, respectively. Shareowners of each class share all expenses and fees paid to the transfer agent, Pioneer Investment Management Shareholder Services, Inc. (PIMSS), for its services, which are allocated based on the number of accounts in each class and the ratable allocation of related out-of-pocket expenses (see Note 3). Income, common expenses and realized and unrealized gains and losses are calculated at the Portfolio level and allocated daily to each class of shares based on the respective percentage of adjusted net assets at the beginning of the day. Distributions paid by the Portfolio with respect to each class of shares are calculated in the same manner, at the same time, and in the same amount, except that Class I and Class II shares can bear different transfer agent and distribution fees. Dividends and distributions to shareowners are recorded on the ex-dividend date. Income, expenses (excluding 12b-1 fees) and gains and losses are calculated at the Portfolio level and are allocated daily based on the respective percentage of adjusted net assets at the beginning of the day. G. SECURITIES LENDING The Portfolio lends securities in its portfolio to certain broker-dealers or other institutional investors, with the Portfolio's custodian acting as the lending agent. When entering into a loan, the Portfolio receives collateral which is maintained by the custodian and earns income in the form of negotiated lenders' fees. The Portfolio also continues to receive interest or dividends on the securities loaned, and gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for account of the Trust. The loans are secured by collateral of at least 102%, at all times, of the fair value of the securities loaned. The fair value of the collateral will be adjusted daily to reflect any price fluctuation in the value of the loaned securities. The Trust has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Trust invests cash collateral in the Securities Lending Investment Fund which is managed by Brown Brothers Harriman & Co., the Trust's custodian. H. REPURCHASE AGREEMENTS With respect to repurchase agreements entered into by the Portfolio, 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 Portfolio's custodian, or subcustodian. The Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is responsible for determining that the value of the collateral remains at least equal to the repurchase price. 2. MANAGEMENT AGREEMENT PIM manages the Portfolio, and is a wholly owned indirect subsidiary of UniCredito Italiano. Management fees are calculated daily at the following annual rate of 0.65% of the Portfolio's average daily net assets. In addition, under the management and administration agreements, certain other services and costs, including accounting, regulatory reporting and insurance premiums, are paid by the Portfolio. At December 31, 2003, $231,420 was payable to PIM related to management fees, administrative fees and certain other services. 13 3. TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. (PIMSS), a wholly owned indirect subsidiary of UniCredito Italiano provides substantially all transfer agent and shareowner services to the Trust at negotiated rates. Included in due to affiliates is $325 in transfer agent fees payable to PIMSS at December 31, 2003. 4. DISTRIBUTION PLANS The Portfolio has adopted a plan of distribution for Class II shares in accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily net assets attributable to Class II shares. Included in due to affiliates is $47,077 payable to PFD at December 31, 2003. 5. AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION At December 31, 2003, the Portfolio's aggregate unrealized appreciation and depreciation based on cost for federal income tax purposes was as follows:
NET GROSS GROSS APPRECIATION/ TAX COST APPRECIATION DEPRECIATION (DEPRECIATION) - --------------------------------------------------------------------------------------------------------------------- Mid Cap Value Portfolio $ 339,372,858 $ 67,476,524 $ (1,171,697) $ 66,304,827
6. PORTFOLIO TRANSACTIONS The cost of purchases and the proceeds from sales of investments other than U.S. Government obligations and temporary cash investments for the year ended December 31, 2003, were $239,789,590 and $121,251,941, respectively. 7. CAPITAL SHARES At December 31, 2003, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
'03 SHARES '03 AMOUNT '02 SHARES '02 AMOUNT - ------------------------------------------------------------------------------------------------------------------------- MID CAP VALUE PORTFOLIO CLASS I: Shares sold 2,677,744 $ 46,157,551 2,337,210 $ 37,800,042 Reinvestment of distributions 26,084 438,476 247,842 4,114,184 Shares repurchased (2,465,836) (40,592,863) (1,905,763) (29,145,110) ----------------------------------------------------------------------------------- Net increase 237,992 $ 6,003,164 679,289 $ 12,769,116 =================================================================================== CLASS II: Shares sold 6,515,291 $ 114,986,107 4,505,621 $ 75,823,818 Reinvestment of distributions 14,131 236,135 93,450 1,543,797 Shares repurchased (249,002) (3,957,753) (1,080,224) (17,062,467) ----------------------------------------------------------------------------------- Net increase 6,280,420 $ 111,264,489 3,518,847 $ 60,305,148 ===================================================================================
14 PIONEER MID CAP VALUE VCT PORTFOLIO REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF TRUSTEES OF PIONEER VARIABLE CONTRACTS TRUST AND THE CLASS I SHAREOWNERS OF PIONEER MID CAP VALUE VCT PORTFOLIO: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer Mid Cap Value VCT Portfolio, one of the portfolios constituting Pioneer Variable Contracts Trust (the "Trust") as of December 31, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets and financial highlights for each of the two years in the period then ended. 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. The financial highlights for each of the two years in the period ended December 31, 2001 were audited by other auditors who have ceased operations and whose report, dated February 8, 2002, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 Pioneer Mid Cap Value VCT Portfolio of Pioneer Variable Contracts Trust at December 31, 2003, the results of its operations for the year then ended, the changes in its net assets and the financial highlights for each of the two years in the period then ended in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts February 6, 2004 15 PIONEER MID CAP VALUE VCT PORTFOLIO TRUSTEES, OFFICERS AND SERVICE PROVIDERS INVESTMENT ADVISER Pioneer Investment Management, Inc. CUSTODIAN Brown Brothers Harriman & Co. INDEPENDENT AUDITORS Ernst & Young LLP PRINCIPAL UNDERWRITER Pioneer Funds Distributor, Inc. LEGAL COUNSEL Hale and Dorr LLP SHAREOWNER SERVICES AND TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. TRUSTEES AND OFFICERS The Fund's Board of Trustees provides broad supervision over the affairs of the Fund. The officers of the Fund are responsible for the Fund's operations. The Fund's Trustees and officers are listed below, together with their principal occupations during the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of 1940 are referred to as Interested Trustees. Trustees who are not interested persons of the Fund are referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 51 U.S. registered investment portfolios for which Pioneer Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the Portfolio is 60 State Street, Boston, Massachusetts 02109. The Fund's statement of additional information provides more detailed information regarding the Fund's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Fund are available without charge, upon request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. INTERESTED TRUSTEES
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING PAST OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE FUND LENGTH OF SERVICE FIVE YEARS BY THIS TRUSTEE John F. Cogan, Jr. (77)* Chairman of the Board, Trustee since 1994. Deputy Chairman and a Director of Director of Harbor Global Trustee and President Serves until a Pioneer Global Asset Management Company, Ltd. successor trustee is S.p.A.("PGAM"); Non-Executive elected or earlier Chairman and a Director of retirement or Pioneer Investment Management USA removal. Inc.("PIM-USA"); Chairman and a Director of Pioneer; Director of Pioneer Alternative Investment Management Limited (Dublin); President and a Director of Pioneer Alternative Investment Management (Bermuda) Limited and affiliated funds; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel (since 2000, partner prior to 2000), Hale and Dorr LLP (counsel to PIM-USA and the Pioneer Funds) Osbert M. Hood (51)** Trustee and Executive Trustee since President and Chief Executive None Vice President June, 2003. Serves Officer, PIM-USA since May, 2003 until a (Director since January, 2001); successor trustee is President and Director of Pioneer elected or earlier since May 2003; Chairman and retirement or Director of Pioneer Investment removal. Management Shareholder Services, Inc. ("PIMSS") since May 2003; Executive Vice President of all of the Pioneer Funds since June 2003; Executive Vice President and Chief Operating Officer of PIM-USA, November 2000-May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999-November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997-November 1999
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. **Mr. Hood is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. 16 INDEPENDENT TRUSTEES
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING PAST OTHER DIRECTORSHIPS HELD NAME, AGE AND ADDRESS WITH THE FUND LENGTH OF SERVICE FIVE YEARS BY THIS TRUSTEE Mary K. Bush (55) Trustee Trustee since President, Bush International Director of Brady 3509 Woodbine Street, September, 2000. (international financial Corporation (industrial Chevy Chase, MD 20815 Serves until a advisory firm) identification and successor trustee is specialty coated material elected or earlier products manufacturer), retirement or removal. Millenium Chemicals, Inc. (commodity chemicals), Mortgage Guaranty Insurance Corporation, and R.J. Reynolds Tobacco Holdings, Inc. (tobacco) Richard H. Egdahl, M.D. (77) Trustee Trustee since 1995. Alexander Graham Bell None Boston University Healthcare Serves until a Professor of Health Care Entrepreneurship Program, successor trustee is Entrepreneurship, Boston 53 Bay State Road, elected or earlier University; Professor of Boston, MA 02215 retirement or removal. Management, Boston University School of Management; Professor of Public Health, Boston University School of Public Health; Professor of Surgery, Boston University School of Medicine; and University Professor, Boston University Margaret B.W. Graham (56) Trustee Trustee since Founding Director, The None 1001 Sherbrooke Street West, September, 2000. Winthrop Group, Inc. Montreal, Quebec, Canada Serves until a (consulting firm); Professor successor trustee is of Management, Faculty of elected or earlier Management, McGill University retirement or removal. Marguerite A. Piret (55) Trustee Trustee since 1995. President and Chief Executive None One Boston Place, 28th Floor, Serves until a Officer, Newbury, Piret & Boston, MA 02108 successor trustee is Company, Inc. (investment elected or earlier banking firm) retirement or removal. Stephen K. West (75) Trustee Trustee since 1995. Senior Counsel, Sullivan & Director, The Swiss 125 Broad Street, Serves until a Cromwell (law firm) Helvetia Fund, Inc. New York, NY 10004 successor trustee is (closed-end investment elected or earlier company) and AMVESCAP retirement or removal. PLC (investment managers) John Winthrop (67) Trustee Trustee since President, John Winthrop & Co., None One North Adgers Wharf, September, 2000. Inc. (private investment firm) Charleston, SC 29401 Serves until a successor trustee is elected or earlier retirement or removal.
17 FUND OFFICERS
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING PAST OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE FUND LENGTH OF SERVICE FIVE YEARS BY THIS OFFICER Dorothy E. Bourassa (56) Secretary Serves at the Secretary of PIM-USA; Senior Vice None discretion of board President-Legal of Pioneer; and Secretary/Clerk of most of PIM-USA's subsidiaries since October 2000; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003); and Senior Counsel, Assistant Vice President and Director of Compliance of PIM-USA from April 1998 through October 2000 Christopher J. Kelley (39) Assistant Serves at the Assistant Vice President and None Secretary discretion of board Senior Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001; Vice President and Associate General Counsel from July 1996 to July 2000); Assistant Secretary of all of the Pioneer Funds since September 2003 David C. Phelan (46) Assistant Serves at the Partner, Hale and Dorr LLP; None Secretary discretion of board Assistant Secretary of all of the Pioneer Funds since September 2003 Vincent Nave (58) Treasurer Serves at the Vice President-Fund Accounting, None discretion of board Administration and Custody Services of Pioneer (Manager from September 1996 to February 1999); and Treasurer of all of the Pioneer Funds (Assistant Treasurer from June 1999 to November 2000) Luis I. Presutti (38) Assistant Serves at the Assistant Vice President-Fund None Treasurer discretion of board Accounting, Administration and Custody Services of Pioneer (Fund Accounting Manager from 1994 to 1999); and Assistant Treasurer of all of the Pioneer Funds since November 2000
18
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING PAST OTHER DIRECTORSHIPS HELD NAME AND AGE WITH THE FUND LENGTH OF SERVICE FIVE YEARS BY THIS OFFICER Gary Sullivan (45) Assistant Serves at the Fund Accounting Manager-Fund None Treasurer discretion of board Accounting, Administration and Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 Katharine Kim Sullivan (30) Assistant Serves at the Fund Administration Manager-Fund None Treasurer discretion of board. Accounting, Administration and Custody Services since June 2003; Assistant Vice President-Mutual Fund Operations of State Street Corporation from June 2002 to June 2003 (formerly Deutsche Bank Asset Management); Pioneer Fund Accounting, Administration and Custody Services (Fund Accounting Manager from August 1999 to May 2002, Fund Accounting Services Supervisor from 1997 to July 1999); Assistant Treasurer of all of the Pioneer Funds since September 2003
19 THIS PAGE FOR YOUR NOTES. 20 THIS PAGE FOR YOUR NOTES. 21 [PIONEER INVESTMENTS(R) LOGO] 14679-00-0204 [PIONEER INVESTMENTS(R) LOGO] PIONEER VARIABLE CONTRACTS TRUST PIONEER EUROPE VCT PORTFOLIO -- CLASS II SHARES ANNUAL REPORT DECEMBER 31, 2003 PIONEER VARIABLE CONTRACTS TRUST TABLE OF CONTENTS Pioneer Europe VCT Portfolio Portfolio and Performance Update 2 Portfolio Management Discussion 3 Schedule of Investments 4 Financial Statements 6 Notes to Financial Statements 10 Report of Independent Auditors 14 Trustees, Officers and Service Providers 15
PIONEER EUROPE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO AND PERFORMANCE UPDATE 12/31/03 [CHART] SECTOR DISTRIBUTION (As a percentage of equity holdings) Financials 29.4% Health Care 13.0% Energy 10.8% Consumer Discretionary 9.7% Telecommunication Services 8.8% Industrials 8.4% Consumer Staples 6.6% Materials 6.3% Information Technology 4.7% Utilities 2.3%
[CHART] GEOGRAPHICAL DISTRIBUTION (As a percentage of equity holdings) United Kingdom 33.1% France 18.1% Germany 13.0% Switzerland 11.5% Netherlands 9.8% Spain 3.6% Italy 3.2% Ireland 2.4% Sweden 2.0% Finland 1.8% Portugal 1.0% Belgium 0.5%
FIVE LARGEST HOLDINGS (As a percentage of equity holdings) 1. HSBC Holding Plc 4.31% 2. Vodafone Group Plc 4.08 3. BNP Paribas SA 3.35 4. Royal Dutch Petroleum Co. 2.99 5. Nestle SA (Registered Shares) 2.82
Holdings will vary for other periods. This list excludes temporary cash and derivative investments. PRICES AND DISTRIBUTIONS--CLASS II SHARES
12/31/03 12/31/02 Net Asset Value per Share $ 8.89 $ 6.71 DISTRIBUTIONS PER SHARE SHORT-TERM LONG-TERM (1/1/03 - 12/31/03) DIVIDENDS CAPITAL GAINS CAPITAL GAINS $ 0.0243 $ - $ -
PERFORMANCE OF A $10,000 INVESTMENT--CLASS II SHARES The following chart shows the change in value of an investment made in PIONEER EUROPE VCT PORTFOLIO at net asset value, compared to that of the Morgan Stanley Capital International (MSCI) Europe Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [CHART]
PIONEER EUROPE VCT PORTFOLIO* MSCI EUROPE INDEX 10/31/98 $ 10,000 $ 10,000 $ 10,596 $ 10,992 12/31/99 $ 13,571 $ 12,741 $ 11,030 $ 11,671 12/31/2001 $ 8,445 $ 9,349 $ 6,835 $ 7,629 12/31/2003 $ 9,085 $ 10,571
The MSCI Europe Index is an unmanaged, capitalization-weighted index of the 15 European country indices included in the MSCI EAFE (Europe, Australasia, Far East) Index. 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 Index. AVERAGE ANNUAL TOTAL RETURNS+ (As of December 31, 2003)
NET ASSET VALUE* Life-of-Class -1.84% (10/30/98) 5 Years -3.03% 1 Year 32.92%
All total returns shown assume reinvestment of distributions at net asset value. + The performance of Class II shares for the period prior to the commencement of operations of Class II shares on January 2, 2001 is based on the performance of Class I shares, reduced to reflect the higher distribution fees of Class II shares. * Portfolio performance does not reflect any variable contract fees, expenses or sales charges. If they had been included, performance would have been lower. See the pages that comprise the inside cover of this report for performance net of any contract fees, expenses or sales charges. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns and principal values fluctuate so that your investment, when redeemed, may be worth more or less than its original cost. The performance table and graph do not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. 2 PIONEER EUROPE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO MANAGEMENT DISCUSSION 12/31/03 European stocks made strong gains during the 12 months ended December 31, 2003. Improving corporate fundamentals and rising investor optimism helped push stock prices higher. As the year progressed, however, investors turned increasingly to higher-risk stocks, which outperformed during the Portfolio's fiscal year. In the following interview, Stan Pearson, a member of the Portfolio's management team, discusses the equity market's recovery, its impact on your Portfolio and his outlook for the months ahead. Q: WHAT CONTRIBUTED TO THE RALLY IN EUROPEAN MARKETS? A: Rising investor confidence, in a nutshell. The rather swift conclusion of the war in Iraq last spring encouraged many investors to reallocate investments into stocks. As the Portfolio's fiscal year progressed and geopolitical uncertainties eased, investors began to reassess their risk tolerance, focusing increasingly on higher-risk investments that had dramatically underperformed in the multi-year correction. Q: HOW DID THE PORTFOLIO PERFORM IN THIS MORE FAVORABLE ENVIRONMENT? A: Very well. For the 12 months ended December 31, 2003, the Portfolio's Class II shares returned 32.92% at net asset value. While the gains were considerable, the Portfolio underperformed the Morgan Stanley Capital International (MSCI) Europe Index, which posted a return of 38.54% for the same period. Several of the Portfolio's more stable, high-quality holdings, which had served it so well during more uncertain times, lagged relatively riskier, lower-quality investments during the second half of the fiscal year. Investors perceived lower-quality stocks as offering better value since they appeared to have more room to appreciate. Q: CORPORATE EARNINGS ARE IMPROVING. ARE YOU ENCOURAGED? A: Certainly. Several years of cost cutting, debt reduction and restructuring have created more efficient, streamlined companies, which are better positioned to profit from an improving economic outlook. The quality of corporate balance sheets has vastly improved. During the course of 2003, we've seen the global economy move out of a recession. The U.S. economy has led the way, but toward the end of the Portfolio's fiscal year, we began to see some tentative signs of an upturn in the Euro-zone. Business confidence in Germany, Europe's largest economy, showed a notable increase. Given businesses' improving assessment of their operating environment, we expect to see the re-emergence of growth in Germany and the rest of continental Europe. Q: HAS THE PORTFOLIO'S STRATEGY CHANGED IN RESPONSE TO THE IMPROVING ECONOMIC ENVIRONMENT? A: Despite the positive developments, we don't believe the answer lies in the Portfolio's taking on a riskier profile. Rather, we think it's more prudent to remain focused on our bottom-up investment approach to stock selection, which is based on the individual merits of single companies. Many times, we find high-quality companies with stock prices that we think are undervalued and don't reflect the underlying companies' intrinsic value. As their value is recognized, prices should increase to reflect their future growth potential. Q: COULD YOU MENTION SOME COMPANIES THAT SUPPORT YOUR STRATEGY? A: Given the demographics of an aging population throughout much of the world, demand for drugs is on the rise. Furthermore, stock price valuations in the health-care sector are attractive, especially given the fact that the sector is somewhat out of favor currently. In addition, we believe the markets have generally priced in the risks from generic competition on patented drugs and from pressure by governments to lower drug prices. Lastly, new, exciting drugs are on the horizon, which should contribute to future profits. On December 31, the Portfolio held large positions in AstraZeneca (United Kingdom) and Schering (Germany). In the capital-goods sector, many companies have implemented considerable cost-reduction strategies, which should contribute to improving profit margins. We think these more efficient, streamlined companies will be more likely to prosper as economic growth strengthens. In keeping with this thinking, we increased the Portfolio's exposure to German-based Siemens and Schneider during the fiscal year. Investments in the diversified-financials industry also proved rewarding, particularly Deutsche Boerse (Germany) and ING Groep (Netherlands). In the technology sector, we believe companies are fully valued following the strong gains of the past year and have trimmed positions accordingly. Q: WHAT IS YOUR OUTLOOK? A: The upturn in the business cycle is creating a favorable investment environment for the earnings potential of European companies. Furthermore, corporate restructuring has contributed to a more solid overall position from which a sustained recovery in corporate profits can occur. The euro could appreciate further against the U.S. dollar in 2004, and while this could be challenging for some European exporters, it could also offer opportunities for dollar-denominated investments. We believe that equity valuations across Europe are not excessive and remain supported by high dividend-yield levels. As the global economy continues to improve, we believe European equities offer further appreciation potential. We feel confident that our bottom-up investment approach is the most reliable way to take advantage of such growth opportunities going forward. ANY INFORMATION IN THIS SHAREHOLDER REPORT REGARDING MARKET OR ECONOMIC TRENDS OR THE FACTORS INFLUENCING THE PORTFOLIO'S HISTORICAL OR FUTURE PERFORMANCE ARE STATEMENTS OF THE OPINION OF PORTFOLIO MANAGEMENT AS OF THE DATE OF THIS REPORT. THESE STATEMENTS SHOULD NOT BE RELIED UPON FOR ANY OTHER PURPOSES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND THERE IS NO GUARANTEE THAT MARKET FORECASTS DISCUSSED WILL BE REALIZED. [SIDENOTE] 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. 3 SCHEDULE OF INVESTMENTS 12/31/03
SHARES VALUE PREFERRED STOCK - 1.0% AUTOMOBILES & COMPONENTS - 1.0% AUTOMOBILE MANUFACTURERS - 1.0% 242 Porsche AG $ 143,315 ------------ TOTAL AUTOMOBILES & COMPONENTS $ 143,315 ------------ TOTAL PREFERRED STOCK (Cost $77,145) $ 143,315 ------------ COMMON STOCKS - 97.5% ENERGY - 10.7% INTEGRATED OIL & GAS - 5.3% 42,588 BP Amoco Plc $ 347,629 11,523 Eni S.p.A. 216,963 26,313 Shell Transport & Trading Co. 194,958 ------------ $ 759,550 ------------ OIL & GAS REFINING MARKETING & TRANSPORTATION - 5.4% 8,032 Royal Dutch Petroleum Co. $ 422,560 1,886 Total SA 349,887 ------------ $ 772,447 ------------ TOTAL ENERGY $ 1,531,997 ------------ MATERIALS - 6.2% COMMODITY CHEMICALS - 1.4% 3,684 BASF India, Ltd. $ 206,703 ------------ CONSTRUCTION MATERIALS - 2.4% 6,897 CRH Plc $ 141,320 2,211 LaFarge BR 196,463 ------------ $ 337,783 ------------ DIVERSIFIED METALS & MINING - 1.5% 4,591 Rio Tinto Plc $ 126,113 2,413 Sandvik AB 83,082 ------------ $ 209,195 ------------ SPECIALTY CHEMICALS - 0.9% 738 L'Air Liquide SA $ 130,039 ------------ TOTAL MATERIALS $ 883,720 ------------ CAPITAL GOODS - 6.5% AEROSPACE & DEFENSE - 1.2% 3,021 European Aeronautic Defence $ 71,672 7,874 Smith Industries 94,355 ------------ $ 166,027 ------------ CONSTUCTION & ENGINEERING - 2.9% 2,756 Actividades de Construccion Servicios SA $ 134,239 5,775 Compagnie de Saint Gobain 282,087 ------------ $ 416,326 ------------ ELECTRICAL COMPONENTS & EQUIPMENT - 0.8% 1,727 Schneider Electric SA $ 112,810 ------------ INDUSTRIAL MACHINERY - 1.6% 2,936 AB SKF $ 113,318 18,617 Scottish Power Plc 123,549 ------------ $ 236,867 ------------ TOTAL CAPITAL GOODS $ 932,030 ------------ COMMERCIAL SERVICES & SUPPLIES - 1.8% DIVERSIFIED COMMERCIAL SERVICES - 1.8% 54,018 Hays Plc $ 115,638 6,128 TNT Post Group NV 143,225 ------------ TOTAL COMMERCIAL SERVICES & SUPPLIES $ 258,863 ------------ AUTOMOBILES & COMPONENTS - 1.1% AUTOMOBILE MANUFACTURERS - 1.1% 3,325 Bayerische Motoren Werke AG $ 153,793 ------------ TOTAL AUTOMOBILES & COMPONENTS $ 153,793 ------------ HOTELS, RESTAURANTS & LEISURE - 1.9% RESTAURANTS - 1.9% 22,829 Compass Group Plc $ 154,490 8,165 Gus Plc 112,620 ------------ TOTAL HOTELS, RESTAURANTS & LEISURE $ 267,110 ------------ MEDIA - 3.8% ADVERTISING - 0.6% 2,847 Publicis SA $ 92,089 ------------ PUBLISHING - 3.2% 10,803 Elsevier NV $ 133,927 5,797 Vivendi Universal* 140,596 2,379 VNU NV 75,005 6,810 Wolters Kluwer NV 106,281 ------------ $ 455,809 ------------ TOTAL MEDIA $ 547,898 ------------ RETAILING - 1.7% DEPARTMENT STORES - 1.1% 3,633 Metro AG $ 159,809 ------------ HOME IMPROVEMENT RETAIL - 0.6% 6,507 Wolsely $ 91,666 ------------ TOTAL RETAILING $ 251,475 ------------ FOOD & DRUG RETAILING - 4.1% FOOD RETAIL - 4.1% 1,596 Nestle SA (Registered Shares) $ 398,130 41,657 Tesco Plc 191,278 ------------ TOTAL FOOD & DRUG RETAILING $ 589,408 ------------ FOOD, BEVERAGE & TOBACCO - 2.3% DISTILLERS & VINTNERS - 0.7% 8,046 Diageo Plc $ 105,670 ------------ TOBACCO - 1.6% 16,853 British American Tobacco Plc $ 231,403 ------------ TOTAL FOOD, BEVERAGE & TOBACCO $ 337,073 ------------
The accompanying notes are an integral part of these financial statements. 4
SHARES VALUE HEALTH CARE EQUIPMENT & SERVICES - 1.1% HEALTH CARE EQUIPMENT - 1.1% 1,685 Celesio AG $ 81,543 8,293 Getinge AB (B Shares) 79,444 ------------ TOTAL HEALTH CARE EQUIPMENT & SERVICES $ 160,987 ------------ PHARMACEUTICALS & BIOTECHNOLOGY - 11.7% PHARMACEUTICALS - 11.7% 7,438 AstraZeneca Plc $ 355,461 16,100 GlaxoSmithKline Plc 368,344 6,102 Novartis 276,602 3,022 Roche Holdings AG 304,347 1,715 Sanofi-Synthelabo SA 128,862 4,759 Schering AG 240,486 ------------ TOTAL PHARMACEUTICALS & BIOTECHNOLOGY $ 1,674,102 ------------ BANKS - 17.0% DIVERSIFIED BANKS - 17.0% 5,258 Allied Irish Banks Plc $ 84,244 14,356 Banco Bilbao Vizcaya Argentaria, SA 197,850 27,684 Barclays Plc 245,967 7,528 BNP Paribas SA 472,979 5,856 Credit Agricole SA 139,521 4,091 CS Group 149,445 907 Depfa Bank Plc 113,813 4,407 Dexia 75,601 38,861 HSBC Holding Plc 608,428 11,748 Royal Bank of Scotland Group Plc 345,138 ------------ TOTAL BANKS $ 2,432,986 ------------ DIVERSIFIED FINANCIALS - 7.6% DIVERSIFIED FINANCIAL SERVICES - 7.6% 2,718 Deutsche Bank AG (Registered Shares) $ 224,752 4,048 Deutsche Boerse AG 220,860 6,184 ING Groep NV 143,911 2,354 Societe Generale 207,392 4,253 UBS AG 290,812 ------------ TOTAL DIVERSIFIED FINANCIALS $ 1,087,727 ------------ INSURANCE - 4.4% LIFE & HEALTH INSURANCE - 1.4% 9,389 Aegon NV $ 138,613 2,559 Assicurazioni Generali S.p.A. 67,636 ------------ $ 206,249 ------------ MULTI-LINE INSURANCE - 3.0% 10,125 AXA SA $ 216,254 1,464 Zurich Financial Services 210,375 ------------ $ 426,629 ------------ TOTAL INSURANCE $ 632,878 ------------ TECHNOLOGY HARDWARE & EQUIPMENT - 4.6% SEMICONDUCTORS - 1.0% 5,090 Philips Electronics NV $ 148,305 ------------ COMMUNICATIONS EQUIPMENT - 1.8% 15,101 Nokia Oyj $ 259,624 ------------ COMPUTER HARDWARE - 0.6% 36,813 Dixons Group Plc $ 91,082 ------------ ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.2% 2,083 Siemens AG $ 166,476 ------------ TOTAL TECHNOLOGY HARDWARE & EQUIPMENT $ 665,487 ------------ TELECOMMUNICATIONS SERVICES - 8.7% ALTERNATE CARRIERS - 0.6% 2,945 France Telecom SA* $ 83,991 ------------ INTEGRATED TELECOMMUNICATION SERVICES - 4.1% 7,957 British Sky Broadcasting Plc* $ 100,174 14,609 Porugal Telecom, SGPS, SA 146,727 17,498 Telecom Italia Mobile S.p.A. 95,051 21,832 Telecom Italia S.p.A.* 64,573 11,987 Telefonica SA 175,611 ------------ $ 582,136 ------------ WIRELESS TELECOMMUNICATION SERVICES - 4.0% 233,090 Vodafone Group Plc $ 575,670 ------------ TOTAL TELECOMMUNICATIONS SERVICES $ 1,241,797 ------------ UTILITIES - 2.3% ELECTRIC UTILITIES - 2.3% 3,569 E.On AG $ 232,413 13,309 National Grid Transco Plc 95,526 ------------ $ 327,939 ------------ TOTAL UTILITIES $ 327,939 ------------ TOTAL COMMON STOCKS (Cost $11,038,199) $ 13,977,270 ------------ TOTAL INVESTMENT IN SECURITIES - 98.5% (Cost $11,115,344)(a) $ 14,120,585 ------------ OTHER ASSETS AND LIABILITIES - 1.5% $ 214,388 ------------ TOTAL NET ASSETS - 100.0% $ 14,334,973 ============
* Non-income producing security (a) Distributions of investments by country of issue, as a percentage of total equity holdings (excluding temporary cash investments) is as follows: United Kingdom 33.1% France 18.1 Germany 13.0 Switzerland 11.5 Netherlands 9.8 Spain 3.6 Italy 3.2 Ireland 2.4 Sweden 2.0 Finland 1.8 Portugal 1.0 Belgium 0.5 ----- 100.0%
The accompanying notes are an integral part of these financial statements. 5 PIONEER EUROPE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST FINANCIAL HIGHLIGHTS
YEAR ENDED YEAR ENDED 1/2/01 TO CLASS II 12/31/03 12/31/02 12/31/01(a) Net asset value, beginning of period $ 6.71 $ 8.29 $ 11.07 --------------- --------------- --------------- Increase (decrease) from investment operations: Net investment income $ 0.03 $ 0.01 $ 0.08 Net realized and unrealized gain (loss) on investments and foreign currency transactions 2.17 (1.59) (2.71) --------------- --------------- --------------- Net increase (decrease) from investment operations $ 2.20 $ (1.58) $ (2.63) Distributions to shareholders: Net investment income (0.02) -- (0.15) Net realized gain -- -- -- --------------- --------------- --------------- Net increase (decrease) in net asset value $ 2.18 $ (1.58) $ (2.78) --------------- --------------- --------------- Net asset value, end of period $ 8.89 $ 6.71 $ 8.29 =============== =============== =============== Total return* 32.92 (19.06)% (23.44)% Ratio of net expenses to average net assets+ 1.79% 1.86% 3.22%** Ratio of net investment income to average net assets+ 0.56% 0.25% (2.56)%** Portfolio turnover rate 52% 95% 73% Net assets, end of period (in thousands) $ 5,005 $ 1,829 $ 398 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 2.75% 2.66% 4.57%** Net investment income (loss) (0.40)% (0.54)% (3.90)%**
(a) Class II shares were first publicly offered on January 2, 2001. * 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 with no reduction for fees paid indirectly. The accompanying notes are an integral part of these financial statements. 6 STATEMENT OF ASSETS AND LIABILITIES 12/31/03
PIONEER EUROPE VCT PORTFOLIO ASSETS: Investment in securities, at value (Cost $11,115,344) $ 14,120,585 Cash 198,274 Cash held as collateral for furtures contracts - Futures collateral - Foreign currencies, at value - Receivables - Investment securities sold - Fund shares sold 34,312 Variation margin - Dividends, interest and foreign taxes withheld 47,069 Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, open - net - Due from Pioneer Investment Management, Inc. - Other 2,088 --------------- Total assets $ 14,402,328 --------------- LIABILITIES: Payables - Investment securities purchased $ - Fund shares repurchased 9,434 Dividends - Upon return of securities loaned - Variation Margin - Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, net - Reserve for repatriation taxes - Due to bank - Due to affiliates 12,388 Accrued expenses 45,533 Other - --------------- Total liabilities $ 67,355 --------------- NET ASSETS: Paid-in capital $ 20,232,833 Accumulated net investment income (loss) 109,343 Accumulated undistributed net realized gain (loss) (9,019,787) Net unrealized gain (loss) on: Investments 3,005,241 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 7,343 --------------- Total net assets $ 14,334,973 --------------- NET ASSET VALUE PER SHARE: CLASS I: (Unlimited number of shares authorized) Net assets $ 9,330,266 Shares outstanding 1,031,288 =============== Net asset value per share $ 9.05 CLASS II: (Unlimited number of shares authorized) Net assets $ 5,004,707 Shares outstanding 562,880 =============== Net asset value per share $ 8.89
The accompanying notes are an integral part of these financial statements. 7 STATEMENT OF OPERATIONS
PIONEER EUROPE VCT PORTFOLIO YEAR ENDED 12/31/03 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $42,002) $ 285,551 Interest 990 Income on securities loaned, net - Other - --------------- Total investment income $ 286,541 --------------- EXPENSES: Management fees $ 111,627 Transfer agent fees 2,718 Distribution fees (Class II) 7,304 Administrative fees 37,500 Custodian fees 71,989 Professional fees 22,850 Printing 26,252 Fees and expenses of nonaffiliated trustees 533 Miscellaneous 7,251 --------------- Total expenses $ 288,024 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (112,157) --------------- Net expenses $ 175,867 --------------- Net investment income (loss) $ 110,674 --------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ (118,140) Futures contracts 4,777 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 4,970 --------------- $ (108,393) --------------- Change in net unrealized gain or (loss) from: Investments $ 3,416,968 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 2,270 --------------- $ 3,419,238 --------------- Net gain (loss) on investments, futures contracts and foreign currency transactions $ 3,310,845 =============== Net increase (decrease) in net assets resulting from operations $ 3,421,519 ===============
The accompanying notes are an integral part of these financial statements. 8 STATEMENTS OF CHANGES IN NET ASSETS
PIONEER EUROPE VCT PORTFOLIO YEAR YEAR ENDED ENDED 12/31/03 12/31/02 FROM OPERATIONS: Net investment income (loss) $ 110,674 $ 77,491 Net realized gain (loss) on investments (108,393) (3,024,509) Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions 3,419,238 488,028 -------------- -------------- Net increase (decrease) in net assets resulting from operations $ 3,421,519 $ (2,458,990) -------------- -------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (36,322) $ - Class II (9,367) - Net realized gain Class I - - Class II - - Tax return of capital Class I - - Class II - - -------------- -------------- Total distributions to shareowners $ (45,689) $ - -------------- -------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 6,502,123 $ 23,204,325 Reinvestment of distributions 45,689 - Cost of shares repurchased (6,113,517) (23,035,621) -------------- -------------- Net increase (decrease) in net assets resulting from fund share transactions $ 434,295 $ 168,704 -------------- -------------- Net increase (decrease) in net assets $ 3,810,125 $ (2,290,286) -------------- -------------- NET ASSETS: Beginning of period 10,524,848 12,815,134 -------------- -------------- End of period $ 14,334,973 $ 10,524,848 ============== ============== Accumulated undistributed net investment income $ 109,343 $ 39,388 ============== ==============
The accompanying notes are an integral part of these financial statements. 9 PIONEER EUROPE VCT PORTFOLIO NOTES TO FINANCIAL STATEMENTS 12/31/03 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Pioneer Europe VCT Portfolio (the Portfolio) is a Portfolio of the Pioneer Variable Contracts Trust (the Trust) which is a Delaware business trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of sixteen separate portfolios, fourteen of which issue both Class I and Class II shares (collectively, the Portfolios, individually the Portfolio) as follows: PORTFOLIOS: Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio) Pioneer Europe VCT Portfolio (Europe Portfolio) Pioneer International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio) Pioneer Small Company VCT Portfolio (Small Company Portfolio) Pioneer Mid Cap Value VCT Portfolio (Mid-Cap Value Portfolio) Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio) Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio) Pioneer Fund VCT Portfolio (Fund Portfolio) Pioneer Equity Income VCT Portfolio (Equity-Income Portfolio) Pioneer Balanced VCT Portfolio (Balanced Portfolio) Pioneer High Yield VCT Portfolio (High Yield Portfolio) Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio) Pioneer America Income VCT Portfolio (America Income Portfolio) Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares only) Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only) Portfolio shares may only be purchased by insurance companies for the purpose of funding variable annuity or variable life insurance contracts, and may also be purchased by qualified pension and retirement plans. The financial highlights for the Portfolio's Class I shares are presented in a separate book. The investment objective of Europe Portfolio is to seek long-term capital growth. The Trust's financial statements have been prepared in conformity with accounting principles generally accepted in the United States 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 income, expenses, gains and losses during the reporting years. 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 as of trade date. Net asset values for the portfolio 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, based on the last sale price on the principal exchange where they traded, are determined as of such times. 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 becomes aware of the ex-dividend data in the exercise of reasonable diligence. Interest income, including interest on income bearing cash accounts, is recorded on the accrual basis, net of unrecoverable foreign taxes withheld at the applicable country rates. All discounts/premiums are accreted/amortized for financial reporting purposes. 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, and, if applicable, are reported net of foreign taxes on capital gains at the applicable country rates. B. FOREIGN CURRENCY TRANSLATION The books and records of the Portfolio 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, 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. 10 C. FUTURES CONTRACTS The Portfolio may enter into futures transactions to hedge against changes in interest rates, securities prices, and currency rates or to seek to increase total return. Upon entering into a futures contract, the Portfolio is required to deposit with a broker an amount of cash or securities equal to the minimum "initial margin" requirements of the associated futures exchange. Subsequent payments for futures contracts ("variation margin") are paid or received by the Portfolio, depending on the daily fluctuation in the value of the contracts, and are recorded by the Portfolio as unrealized gains or losses. When the contract is closed, the Portfolio realize a gain or loss equal to the difference between the opening and closing value of the contract. The use of futures contracts involves, to varying degrees, elements of market risk which may exceed the amounts recognized by the Portfolio. Changes in the value of the contracts may not directly correlate to the changes in the value of the underlying securities. These risks may decrease the effectiveness of the Portfolio's hedging and trading strategies and potentially result in a loss. As of December 31, 2003, Europe Portfolio had no open contracts. 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 shareowners. Therefore, no federal income tax provision is required. The amount and characterization of distributions to shareowners 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. At December 31, 2003, the Portfolio made reclassifications as described below. These reclassifications have no impact on the net asset value of the Portfolio and are designed to present the portfolios' capital accounts on a tax basis.
ACCUMULATED ACCUMULATED NET INVESTMENT REALIZED PORTFOLIO INCOME/(LOSS) GAIN/(LOSS) PAID-IN CAPITAL - --------------------------------------------------------------------------- Europe Portfolio $ 4,970 $ (4,970) $ -
Capital loss carryforwards are available to offset future realized capital gains. At December 31, 2003, Europe VCT Portfolio had a capital loss carryforward of $7,882,463, of which the following amounts will expire between 2008 and 2011 if not utilized: $837,566 in 2008, $4,365,566 in 2009, $1,896,288 in 2010 and $783,043 in 2011. The Portfolio elected to defer $49,695 in capital losses recognized between November 1, 2003 and December 31, 2003 to its fiscal year ending December 31, 2004. The following chart shows the components of distributable earnings (accumulated losses) as of December 31, 2003 and the distributions paid during the year ended December 31, 2003 on a tax basis as of December 31, 2003.
PIONEER PIONEER EUROPE EUROPE VCT PORTFOLIO VCT PORTFOLIO 2003 2002 - ------------------------------------------------------------------- DISTRIBUTIONS PAID FROM: Ordinary Income $ 45,689 $ - Long-Term capital gain - - ------------- ------------- $ 45,689 $ - Return of Capital - - ------------- ------------- Total distributions $ 45,689 $ - ------------- ------------- DISTRIBUTABLE EARNINGS (ACCUMULATED LOSSES): Undistributed long-term gain/ (capital loss carryforward) $ 104,830 Capital loss carryforward (7,882,463) Unrealized appreciation/depreciation 1,929,468 ------------- Total $ (5,848,165) =============
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily attributable to the tax deferral of losses on wash sales, returns of capital on REITs, and the recognition of unrealized gains or losses on certain futures contracts. E. PORTFOLIO SHARES The Portfolio records sales and repurchases of its portfolio shares as of trade date. Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the principal underwriter for the Trust and a wholly owned indirect subsidiary of UniCredito Italiano S.p.A. (UniCredito Italiano), $246,661 in commissions on the sale of Trust shares for the year ended December 31, 2003. Distribution fees are calculated based on the average daily net asset values attributable to Class I and Class II shares of the Portfolio, respectively. Shareowners of each class share all expenses and fees paid to the transfer agent, Pioneer Investment Management Shareholder Services, Inc. (PIMSS), for its services, which are allocated based on the number of accounts in each class and the ratable allocation of related out-of-pocket expenses (see Note 3). Income, common expenses and realized and unrealized gains and losses are calculated at the Portfolio level and allocated daily to each class of shares based on the 11 respective percentage of adjusted net assets at the beginning of the day. Dividends and distributions to shareowners are recorded on the ex-dividend date. Distributions paid by the Portfolio with respect to each class of shares are calculated in the same manner, at the same time, and in the same amount, except that Class I and Class II shares can bear different transfer agent and distribution fees. Income, expenses (excluding 12b-1 fees) and gains and losses are calculated at the Portfolio level and are allocated daily based on the respective percentage of adjusted net assets at the beginning of the day. F. SECURITIES LENDING The Portfolio lends securities in its portfolio to certain broker-dealers or other institutional investors, with the Portfolio's custodian acting as the lending agent. When entering into a loan, the Portfolio receives collateral which is maintained by the custodian and earns income in the form of negotiated lenders' fees. The Portfolio also continues to receive interest or dividends on the securities loaned, and gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for account of the Trust. The loans are secured by collateral of at least 102%, at all times, of the fair value of the securities loaned. The fair value of the collateral will be adjusted daily to reflect any price fluctuation in the value of the loaned securities. The Trust has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Trust invests cash collateral in the Securities Lending Investment Fund which is managed by Brown Brothers Harriman & Co., the Trust's custodian. As of December 31, 2003, the Portfolio had no securities on loan. G. REPURCHASE AGREEMENTS With respect to repurchase agreements entered into by the Portfolio, 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 Portfolio's custodian, or subcustodian. The Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is responsible for determining that the value of the collateral remains at least equal to the repurchase price. 2. MANAGEMENT AGREEMENT PIM manages the Portfolio, and is a wholly owned indirect subsidiary of UniCredito Italiano. Management fees are calculated daily at the following annual rate of 0.65% of the Portfolio's average daily net assets. In addition, under the management and administration agreement, certain other services and costs, including accounting, regulatory reporting and insurance premiums, are paid by the Portfolio. At December 31, 2003, $11,091 was payable to PIM related to management fees, administrative fees and certain other services. 3. TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. (PIMSS), a wholly owned indirect subsidiary of UniCredito Italiano provides substantially all transfer agent and shareowner services to the Trust at negotiated rates. Included in due to affiliates is $222 in transfer agent fees payable to PIMSS at December 31, 2003. 4. DISTRIBUTION PLANS The Portfolio has adopted a plan of distribution for Class II shares in accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily net assets attributable to Class II shares. Included in due to affiliates is $1,075 payable to PFD at December 31, 2003. 5. AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION At December 31, 2003, the Portfolio's aggregate unrealized appreciation and depreciation based on cost for federal income tax purposes was as follows:
NET GROSS GROSS APPRECIATION/ TAX COST APPRECIATION DEPRECIATION (DEPRECIATION) - ---------------------------------------------------------------------------------------------------- Europe Portfolio $ 12,202,973 $ 2,422,205 $ (504,593) $ 1,917,612
12 6. PORTFOLIO TRANSACTIONS The cost of purchases and the proceeds from sales of investments other than U.S. Government obligations and temporary cash investments for the year ended December 31, 2003, were $6,239,184 and $5,744,364, respectively. 7. CAPITAL SHARES At December 31, 2003, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
'03 SHARES '03 AMOUNT '02 SHARES '02 AMOUNT - ------------------------------------------------------------------------------------------------- EUROPE PORTFOLIO CLASS I: Shares sold 59,876 $ 462,031 933,303 $ 7,424,556 Reinvestment of distributions 4,817 36,322 - - Shares repurchased (308,777) (2,225,749) (1,132,763) (8,859,398) ------------------------------------------------------------ Net increase (decrease) (244,084) $ (1,727,396) (199,462) $ (1,434,842) ============================================================ CLASS II: Shares sold 836,602 $ 6,040,092 2,117,532 $ 15,779,769 Reinvestment of distributions 1,262 9,367 - - Shares repurchased (547,441) (3,887,768) (1,893,113) (14,176,223) ------------------------------------------------------------ Net increase (decrease) 290,423 $ 2,161,691 224,419 $ 1,603,546 ============================================================
13 PIONEER EUROPE VCT PORTFOLIO REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF TRUSTEES OF PIONEER VARIABLE CONTRACTS TRUST AND THE CLASS II SHAREOWNERS OF PIONEER EUROPE VCT PORTFOLIO: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer Europe VCT Portfolio, one of the portfolios constituting Pioneer Variable Contracts Trust (the "Trust") as of December 31, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets and financial highlights for each of the two years in the period then ended. 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. The financial highlights for the period ended December 31, 2001 were audited by other auditors who have ceased operations and whose report, dated February 8, 2002, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 Pioneer Europe VCT Portfolio of Pioneer Variable Contracts Trust at December 31, 2003, the results of its operations for the year then ended, the changes in its net assets and the financial highlights for each of the two years in the period then ended in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts February 6, 2004 14 PIONEER VARIABLE CONTRACTS TRUST TRUSTEES, OFFICERS AND SERVICE PROVIDERS INVESTMENT ADVISER Pioneer Investment Management, Inc. CUSTODIAN Brown Brothers Harriman & Co. INDEPENDENT AUDITORS Ernst & Young LLP PRINCIPAL UNDERWRITER Pioneer Funds Distributor, Inc. LEGAL COUNSEL Hale and Dorr LLP SHAREOWNER SERVICES AND TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. TRUSTEES AND OFFICERS The Fund's Board of Trustees provides broad supervision over the affairs of the Fund. The officers of the Fund are responsible for the Fund's operations. The Fund's Trustees and officers are listed below, together with their principal occupations during the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of 1940 are referred to as Interested Trustees. Trustees who are not interested persons of the Fund are referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 51 U.S. registered investment portfolios for which Pioneer Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the Portfolio is 60 State Street, Boston, Massachusetts 02109. The Fund's statement of additional information provides more detailed information regarding the Fund's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Fund are available without charge, upon request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. INTERESTED TRUSTEES
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING PAST OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE FIVE YEARS HELD BY THIS TRUSTEE John F. Cogan, Jr. (77)* Chairman of the Trustee since 1994. Deputy Chairman and a Director of Director of Harbor Board, Trustee and Serves until a Pioneer Global Asset Management Global Company, Ltd. President successor trustee is S.p.A. ("PGAM"); Non-Executive elected or earlier Chairman and a Director of retirement or Pioneer Investment Management USA removal. Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Director of Pioneer Alternative Investment Management Limited (Dublin); President and a Director of Pioneer Alternative Investment Management (Bermuda) Limited and affiliated funds; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel (since 2000,partner prior to 2000),Hale and Dorr LLP (counsel to PIM-USA and the Pioneer Funds) Osbert M. Hood (51)** Trustee and Trustee since June, President and Chief Executive None Executive Vice 2003. Serves until a Officer, PIM-USA since May,2003 President successor trustee is (Director since January, 2001); elected or earlier President and Director of Pioneer retirement or since May 2003; Chairman and removal. Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Executive Vice President of all of the Pioneer Funds since June 2003; Executive Vice President and Chief Operating Officer of PIM-USA, November 2000-May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999-November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997-November 1999
*Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. **Mr. Hood is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. 15 INDEPENDENT TRUSTEES
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING PAST OTHER DIRECTORSHIPS NAME, AGE AND ADDRESS WITH THE FUND LENGTH OF SERVICE FIVE YEARS HELD BY THIS TRUSTEE Mary K. Bush (55) Trustee Trustee since President, Bush International Director of Brady 3509 Woodbine Street, September, 2000. (international financial advisory Corporation (industrial Chevy Chase, MD 20815 Serves until a firm) identification and successor trustee is specialty coated elected or earlier material products retirement or manufacturer), Millenium removal. Chemicals, Inc. (commodity chemicals), Mortgage Guaranty Insurance Corporation, and R.J. Reynolds Tobacco Holdings, Inc. (tobacco) Richard H. Egdahl, M.D. (77) Trustee Trustee since 1995. Alexander Graham Bell Professor None Boston University Healthcare Serves until a of Health Care Entrepreneurship, Entrepreneurship Program, successor trustee is Boston University; Professor of 53 Bay State Road, elected or earlier Management, Boston University Boston, MA 02215 retirement or School of Management; Professor removal. of Public Health, Boston University School of Public Health; Professor of Surgery, Boston University School of Medicine; and University Professor, Boston University Margaret B.W. Graham (56) Trustee Trustee since Founding Director, The Winthrop None 1001 Sherbrooke September, 2000. Group, Inc. (consulting firm); Street West, Serves until a Professor of Management, Faculty Montreal, Quebec, Canada successor trustee is of Management, McGill University elected or earlier retirement or removal. Marguerite A. Piret (55) Trustee Trustee since 1995. President and Chief Executive None One Boston Place, Serves until a Officer, Newbury, Piret & 28th Floor, successor trustee is Company, Inc. (investment banking Boston, MA 02108 elected or earlier firm) retirement or removal. Stephen K. West (75) Trustee Trustee since 1995. Senior Counsel, Sullivan & Director, The Swiss 125 Broad Street, Serves until a Cromwell (law firm) Helvetia Fund, Inc. New York, NY 10004 successor trustee is (closed-end investment elected or earlier company) and AMVESCAP retirement or PLC (investment removal. managers) John Winthrop (67) Trustee Trustee since President, John Winthrop & Co., None One North Adgers Wharf, September, 2000. Inc. (private investment firm) Charleston, SC 29401 Serves until a successor trustee is elected or earlier retirement or removal.
16 FUND OFFICERS
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING PAST OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE FIVE YEARS HELD BY THIS OFFICER Dorothy E. Bourassa (56) Secretary Serves at the Secretary of PIM-USA; Senior Vice None discretion of board President-Legal of Pioneer; and Secretary/Clerk of most of PIM-USA's subsidiaries since October 2000; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003); and Senior Counsel, Assistant Vice President and Director of Compliance of PIM-USA from April 1998 through October 2000 Christopher J. Kelley (39) Assistant Serves at the Assistant Vice President and None Secretary discretion of board Senior Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001; Vice President and Associate General Counsel from July 1996 to July 2000); Assistant Secretary of all of the Pioneer Funds since September 2003 David C. Phelan (46) Assistant Serves at the Partner, Hale and Dorr LLP; None Secretary discretion of board Assistant Secretary of all of the Pioneer Funds since September 2003 Vincent Nave (58) Treasurer Serves at the Vice President-Fund Accounting, None discretion of board Administration and Custody Services of Pioneer (Manager from September 1996 to February 1999); and Treasurer of all of the Pioneer Funds (Assistant Treasurer from June 1999 to November 2000) Luis I. Presutti (38) Assistant Serves at the Assistant Vice President-Fund None Treasurer discretion of board Accounting, Administration and Custody Services of Pioneer (Fund Accounting Manager from 1994 to 1999); and Assistant Treasurer of all of the Pioneer Funds since November 2000
17
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING PAST OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE FIVE YEARS HELD BY THIS OFFICER Gary Sullivan (45) Assistant Serves at the Fund Accounting Manager-Fund None Treasurer discretion of board Accounting, Administration and Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 Katharine Kim Sullivan (30) Assistant Serves at the Fund Administration Manager-Fund None Treasurer discretion of board. Accounting, Administration and Custody Services since June 2003; Assistant Vice President-Mutual Fund Operations of State Street Corporation from June 2002 to June 2003 (formerly Deutsche Bank Asset Management); Pioneer Fund Accounting, Administration and Custody Services (Fund Accounting Manager from August 1999 to May 2002, Fund Accounting Services Supervisor from 1997 to July 1999); Assistant Treasurer of all of the Pioneer Funds since September 2003
18 THIS PAGE FOR YOUR NOTES. 19 THIS PAGE FOR YOUR NOTES. 20 THIS PAGE FOR YOUR NOTES. 21 [PIONEER INVESTMENTS(R) LOGO] 14684-00-0204 [PIONEER INVESTMENTS(R) LOGO] PIONEER VARIABLE CONTRACTS TRUST PIONEER FUND VCT PORTFOLIO -- CLASS I SHARES ANNUAL REPORT DECEMBER 31, 2003 PIONEER VARIABLE CONTRACTS TRUST TABLE OF CONTENTS Pioneer Fund VCT Portfolio Portfolio and Performance Update 2 Portfolio Management Discussion 3 Schedule of Investments 4 Financial Statements 7 Notes to Financial Statements 11 Report of Independent Auditors 15 Trustees, Officers and Service Providers 16
PIONEER FUND VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO AND PERFORMANCE UPDATE 12/31/03 [CHART] PORTFOLIO DIVERSIFICATION (As a percentage of total investment portfolio) U.S. Common Stocks 85.5% Temporary Cash Investments 8.6% Depositary Receipts for International Stocks 4.0% International Common Stocks 1.9%
[CHART] SECTOR DISTRIBUTION (As a percentage of equity holdings) Information Technology 18.4% Financials 16.2% Industrials 14.0% Consumer Discretionary 11.1% Consumer Staples 10.7% Health Care 10.3% Energy 7.7% Materials 6.3% Telecommunication Services 3.5% Utilities 1.8%
FIVE LARGEST HOLDINGS (As a percentage of equity holdings) 1. ChevronTexaco Corp. 3.07% 2. IBM Corp. 2.36 3. Exxon Mobil Corp. 1.94 4. SBC Communications, Inc. 1.83 5. Rio Tinto Plc 1.79
Holdings will vary for other periods. This list excludes temporary cash and derivative investments. PRICES AND DISTRIBUTIONS
12/31/03 12/31/02 Net Asset Value per Share $ 18.70 $ 15.28 DISTRIBUTIONS PER SHARE SHORT-TERM LONG-TERM (1/1/03 - 12/31/03) DIVIDENDS CAPITAL GAINS CAPITAL GAINS $ 0.1864 $ - $ -
PERFORMANCE OF A $10,000 INVESTMENT The following chart shows the change in value of an investment made in PIONEER FUND VCT PORTFOLIO at net asset value, compared to that of the Standard & Poor's (S&P) 500 Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [CHART]
PIONEER FUND VCT PORTFOLIO* S&P 500 INDEX 10/31/97 $ 10,000 $ 10,000 12/31/97 $ 10,543 $ 10,643 $ 13,296 $ 13,686 12/31/99 $ 15,411 $ 16,565 $ 15,600 $ 15,060 12/31/2001 $ 13,908 $ 13,275 $ 11,261 $ 10,342 12/31/2003 $ 13,936 $ 13,300
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. Index returns assume reinvestment of dividends and, unlike Portfolio returns, do not reflect any fees, expenses or sales charges. Portfolio returns are based on net asset value and do not reflect any annuity-related costs. You cannot invest directly in the Index. AVERAGE ANNUAL TOTAL RETURNS (As of December 31, 2003) NET ASSET VALUE* Life-of-Class (10/31/97) 5.53% 5 Years 0.94% 1 Year 23.76%
All total returns shown assume reinvestment of distributions at net asset value. * Portfolio performance does not reflect any variable contract fees, expenses or sales charges. If they had been included, performance would have been lower. See the pages that comprise the inside cover of this report for performance net of any contract fees, expenses or sales charges. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns and principal values fluctuate so that your investment, when redeemed, may be worth more or less than its original cost. The performance table and graph do not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares 2 PORTFOLIO MANAGEMENT DISCUSSION 12/31/03 In the following discussion, John Carey, portfolio manager of Pioneer Fund VCT Portfolio, comments on the performance of the Portfolio, as well as the economy over the past twelve months. Q: PLEASE DISCUSS THE STOCK MARKET IN 2003 AND THE INVESTMENT RESULTS OF PIONEER FUND VCT PORTFOLIO. A: Strong corporate-earnings comparisons led investors to push share prices higher during 2003. Confidence in the economic recovery built gradually during the year, as the positive effects of historically low interest rates, Federal income-tax cuts, and the weak U.S. dollar converged to revive industrial America. Growth in capital spending, especially in information technology, accompanied continued strong consumer activity to support big gains in the gross domestic product numbers in the second half of the year. While some of the worries that investors have had over the past couple of years - namely, corporate scandals, the terrorist threat, and government budget deficits - threatened to bubble over from time to time, they evidently did not seem to discourage too many people from buying shares once again. So, after approximately three years of "bearish" market conditions, the U.S. stock market generated large gains in 2003. We are pleased to report positive results for Pioneer Fund VCT Portfolio. For the year as a whole, the Portfolio showed a total return at net asset value of 23.76%, versus a total return on the Standard & Poor's 500 Index of 28.67%. Taking the year as a whole, our strongest performance contribution came from our investment exposure to materials, particularly metals and mining. Phelps Dodge (copper), Alcoa (aluminum), and Rio Tinto (diversified mining) all did extremely well for us, and we also realized a large percentage gain on our position in Newmont Mining (gold) when we sold it in the fourth quarter. We likewise did quite well with our investments in financials, where our successful stock selection more than made up for our underweight position in that sharply appreciating sector. One of our standout gainers was T. Rowe Price, which shot up more than 70%. Finally, in industrials, an above-average performing sector where we were overweight, we had exceptional performance from PACCAR (heavy trucks) and Caterpillar (construction equipment). With respect to sector investments that detracted from relative performance, consumer discretionary was the major culprit, followed at a distance by consumer staples, health care, and utilities. Both of the consumer sectors saw the biggest returns from turnaround stories; we favored, as we usually do, the stronger and steadier consumer businesses. For instance, retailers that had struggled during the recession came back to life and excited investors as the economy recovered. We had maintained positions in companies that had held up relatively well in the recession and then did not show such dramatic improvement. Q: CAN YOU DISCUSS YOUR TECHNOLOGY INVESTMENTS AND HOW THEY FARED DURING THE YEAR? A: Our investments in technology rose in value by more than 40%. We owned many of the top-performing tech names, though our smaller positions relative to their market weights in two of the very biggest large cap winners, Cisco Systems and Intel, slightly impaired our relative returns. As long-term investments, we have also favored some of the information-technology services companies, such as Automatic Data Processing, DST, and Fiserv, all of which lagged the overall tech sector in a year when investors were again intrigued with internet stocks and, it seemed, almost any stock that had fallen to very, very low price levels. Strongest contributions to performance came from our overweight positions in the fabulously performing Applied Materials (up more than 70%), Altera (up more than 80%), and Texas Instruments (up more than 90%). As we look ahead over the next couple of years, we believe there will be continued opportunities for profits from technology investments. However, we would be dumbstruck if the technology sector notched another year of such extraordinary performance relative to the rest of the market. Our emphasis will continue to be on more conservatively priced names in the sector. Accordingly, during the second half of the year, we added shares of Hewlett-Packard, a specialist in computer printing and also large scale provider of many other types of computer gear, and sold our positions in Electronic Arts and Veeco Instruments after the stocks had recorded large increases in price. Q: YOU'VE TOUCHED ALREADY ON SOME OF YOUR RECENT CHANGES IN THE PORTFOLIO. DID YOU MAKE OTHER CHANGES AS WELL? A: Yes, aside from the changes we made in our technology and materials holdings, we added four stocks to the Portfolio in the second half, and we deleted six. Biomet is a leading manufacturer of orthopedic implants, principally artificial knees and hips, and impresses us with its outstanding management and strong future earnings potential. Charter One Financial, an Ohio-based bank, has a conservative lending record, tight cost controls, attractive returns, and dividend yield above 3%. Philadelphia Suburban is one of the most important remaining publicly traded water utilities in the U.S., with an unbroken record of annual dividend payments going back to 1939. Shareowners will also note a small holding in Medco Health Solutions, a pharmacy benefit manager "spun out" to us by its former parent, Merck. We booked substantial gains on three of our financial stocks, Huntington Bancshares, Morgan Stanley, and Marsh & McLennan. Finally, we disposed of another stock we had received in a distribution, Del Monte Foods, and we sold Dow Chemical. Q: WHAT IS YOUR OUTLOOK FOR 2004? A: While we maintain a cautious approach with respect to balance sheets, we see increasing evidence that the strong economic recovery is assisting companies that are financially weaker and, if not altogether curing, at least alleviating some of their financial problems. We shall therefore be looking especially hard during the coming months for companies falling into that category. Without dipping very far down on the quality scale, we do want our shareowners to benefit from some of the above-average appreciation potential existing in such special situations and contrarian stories. Otherwise, we think that investors will do well to focus more on dividends this year, particularly in view of the Federal tax law change and the reduced, maximum 15% rate on qualified dividends. It may well be a bumpier year, with interest rates likely to rise and the heated election-year debate. There might also be rotation out of some stocks and sectors that have risen to high price-to-earnings multiples and perhaps into some stocks and sectors that underperformed in 2003. On the whole we remain positive in our outlook because of the good prognosis for corporate earnings. Thank you for your continued support. ANY INFORMATION IN THIS SHAREHOLDER REPORT REGARDING MARKET OR ECONOMIC TRENDS OR THE FACTORS INFLUENCING THE PORTFOLIO'S HISTORICAL OR FUTURE PERFORMANCE ARE STATEMENTS OF THE OPINION OF PORTFOLIO MANAGEMENT AS OF THE DATE OF THIS REPORT. THESE STATEMENTS SHOULD NOT BE RELIED UPON FOR ANY OTHER PURPOSES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND THERE IS NO GUARANTEE THAT MARKET FORECASTS DISCUSSED WILL BE RELIZED. [SIDENOTE] The Portfolio's investment adviser, Pioneer Investment Management, Inc., reduced its management fee and certain other expenses; otherwise, returns would have been lower. 3 SCHEDULE OF INVESTMENTS 12/31/03
SHARES VALUE COMMON STOCKS - 93.7% ENERGY - 7.2% INTEGRATED OIL & GAS - 6.4% 80,552 ChevronTexaco Corp. $ 6,958,887 22,272 ConocoPhillips 1,460,375 107,438 Exxon Mobil Corp. 4,404,958 31,593 Royal Dutch Petroleum Co. 1,655,157 23,956 Shell Transport & Trading Co. (A.D.R.) 1,078,739 --------------- $ 15,558,116 --------------- OIL & GAS DRILLING - 0.8% 37,870 Smith International, Inc.* $ 1,572,362 12,240 Transocean Offshore, Inc.* 293,882 --------------- $ 1,866,244 --------------- TOTAL ENERGY $ 17,424,360 --------------- MATERIALS - 5.9% ALUMINUM - 1.0% 60,153 Alcoa, Inc. $ 2,285,814 --------------- COMMODITY CHEMICALS - 1.1% 20,818 Air Products & Chemicals, Inc. $ 1,099,815 34,836 E.I. du Pont de Nemours and Co. 1,598,624 --------------- $ 2,698,439 --------------- DIVERSIFIED CHEMICALS - 0.4% 16,633 PPG Industries, Inc. $ 1,064,845 --------------- DIVERSIFIED METALS & MINING - 2.7% 31,698 Phelps Dodge Corp.* $ 2,411,901 147,818 Rio Tinto Plc* 4,060,488 --------------- $ 6,472,389 --------------- PAPER PRODUCTS - 0.7% 57,800 Meadwestvaco Corp. $ 1,719,550 --------------- TOTAL MATERIALS $ 14,241,037 --------------- CAPITAL GOODS - 7.9% AEROSPACE & DEFENSE - 2.3% 21,446 Boeing Co. $ 903,734 35,045 General Dynamics Corp. 3,167,718 31,175 Lockheed Martin Corp. 1,602,395 --------------- $ 5,673,847 --------------- ELECTRICAL COMPONENT & EQUIPMENT - 0.6% 16,633 Emerson Electric Co. $ 1,076,987 12,449 General Electric Co. 385,670 --------------- $ 1,462,657 --------------- INDUSTRIAL CONGLOMERATES - 2.7% 18,621 Illinois Tool Works, Inc. $ 1,562,488 20,504 Johnson Controls, Inc. 2,380,924 28,246 United Technologies Corp. 2,676,873 --------------- $ 6,620,285 --------------- INDUSTRIAL MACHINERY - 2.3% 30,338 Caterpillar, Inc. $ 2,518,661 45,297 Deere & Co. 2,946,570 --------------- $ 5,465,231 --------------- TOTAL CAPITAL GOODS $ 19,222,020 --------------- COMMERCIAL SERVICES & SUPPLIES - 1.6% EMPLOYMENT SERVICES - 0.7% 75,217 Robert Half International, Inc.* $ 1,755,565 --------------- OFFICE SERVICES & SUPPLIES - 0.9% 42,473 Canon, Inc. (A.D.R.) $ 2,023,414 --------------- TOTAL COMMERCIAL SERVICES & SUPPLIES $ 3,778,979 --------------- TRANSPORTATION - 3.6% AIRLINES - 0.8% 124,176 Southwest Airlines Co. $ 2,004,201 --------------- RAILROADS - 2.3% 36,301 Burlington Northern, Inc. $ 1,174,337 131,812 Norfolk Southern Corp. 3,117,354 13,468 Philadelphia Suburban Corp. 297,643 14,332 Union Pacific Corp. 995,787 --------------- $ 5,585,121 --------------- TRUCKING - 0.5% 15,274 United Parcel Service $ 1,138,677 --------------- TOTAL TRANSPORTATION $ 8,727,999 --------------- AUTOMOBILES & COMPONENTS - 1.0% AUTOMOBILE MANUFACTURERS - 1.0% 27,984 PACCAR, Inc. $ 2,381,998 --------------- TOTAL AUTOMOBILES & COMPONENTS $ 2,381,998 --------------- CONSUMER DURABLES & APPAREL - 0.1% PHOTOGRAPHIC PRODUCTS - 0.1% 8,369 Eastman Kodak Co. $ 214,832 --------------- TOTAL CONSUMER DURABLES & APPAREL $ 214,832 --------------- MEDIA - 5.8% ADVERTISING - 1.2% 32,012 Omnicom Group $ 2,795,608 --------------- PUBLISHING - 4.6% 15,901 Dow Jones & Co., Inc. $ 792,665 33,042 Elsevier NV 409,629 36,405 Gannett Co. 3,245,870 106,300 John Wiley & Sons, Inc. 2,766,989 57,119 McGraw-Hill Co., Inc. 3,993,760 --------------- $ 11,208,913 --------------- TOTAL MEDIA $ 14,004,521 --------------- RETAILING - 3.5% DEPARTMENT STORES - 0.6% 48,045 May Department Stores Co. $ 1,396,668 ---------------
The accompanying notes are an integral part of these financial statements. 4
SHARES VALUE GENERAL MERCHANDISE STORES - 1.9% 26,258 Family Dollar Stores, Inc. $ 942,137 98,546 Target Corp. 3,784,166 --------------- $ 4,726,303 --------------- HOME IMPROVEMENT RETAIL - 0.8% 35,673 Lowe's Companies, Inc. $ 1,975,927 --------------- SPECIALTY STORES - 0.2% 14,646 Barnes & Noble, Inc.* $ 481,121 --------------- TOTAL RETAILING $ 8,580,019 --------------- FOOD & DRUG RETAILING - 3.3% DRUG RETAIL - 1.5% 101,579 Walgreen Co. $ 3,695,444 --------------- FOOD DISTRIBUTORS - 1.0% 61,512 Sysco Corp. $ 2,290,092 --------------- HYPERMARKETS & SUPERCENTERS - 0.8% 35,987 Wal-Mart Stores, Inc. $ 1,909,110 --------------- TOTAL FOOD & DRUG RETAILING $ 7,894,646 --------------- FOOD, BEVERAGE & TOBACCO - 4.5% PACKAGED FOODS & MEATS - 3.6% 63,291 Campbell Soup Co. $ 1,696,199 33,058 General Mills, Inc. 1,497,527 53,562 H.J.Heinz Co., Inc. 1,951,264 20,295 Hershey Foods Corp. 1,562,512 91,118 Sara Lee Corp. 1,978,172 --------------- $ 8,685,674 --------------- SOFT DRINKS - 0.9% 47,808 PepsiCo, Inc. $ 2,228,809 --------------- TOTAL FOOD, BEVERAGE & TOBACCO $ 10,914,483 --------------- HOUSEHOLD & PERSONAL PRODUCTS - 2.3% HOUSEHOLD PRODUCTS - 2.3% 48,227 Colgate-Palmolive Co. $ 2,413,761 31,907 Procter & Gamble Co. 3,186,871 --------------- TOTAL HOUSEHOLD & PERSONAL PRODUCTS $ 5,600,632 --------------- HEALTH CARE EQUIPMENT & SERVICES - 4.3% HEALTH CARE DISTRIBUTORS - 2.3% 43,205 Abbott Laboratories $ 2,013,353 68,103 Johnson & Johnson 3,518,201 --------------- $ 5,531,554 --------------- HEALTH CARE EQUIPMENT - 1.3% 52,830 Becton, Dickinson & Co. $ 2,173,426 31,593 Biomet, Inc. 1,150,301 --------------- $ 3,323,727 --------------- HEALTH CARE SERVICES - 0.1% 6,054 Medco Health Solutions, Inc.* $ 205,775 --------------- MANAGED HEALTH CARE - 0.6% 12,763 United Healthcare Group, Inc. $ 742,551 6,800 Wellpoint Health Networks, Inc.* 659,532 --------------- $ 1,402,083 --------------- TOTAL HEALTH CARE EQUIPMENT & SERVICES $ 10,463,139 --------------- PHARMACEUTICALS & BIOTECHNOLOGY - 5.3% PHARMACEUTICALS - 5.3% 32,221 Eli Lilly & Co. $ 2,266,103 49,900 Merck & Co., Inc. 2,305,380 41,218 Novartis AG (A.D.R.) 1,891,494 56,073 Pfizer, Inc. 1,981,059 13,704 Roche Holdings AG (A.D.R.) 1,378,910 171,356 Schering-Plough Corp. 2,979,881 --------------- $ 12,802,827 --------------- TOTAL PHARMACEUTICALS & BIOTECHNOLOGY $ 12,802,827 --------------- BANKS - 6.1% DIVERSIFIED BANKS - 1.7% 21,002 Bank of America Corp. $ 1,689,191 10,000 Charter One Financial, Inc. 345,500 33,267 Wells Fargo & Co. 1,959,094 --------------- $ 3,993,785 --------------- REGIONAL BANKS - 3.6% 25,526 First Tennessee National Corp. $ 1,125,697 102,730 National City Corp. 3,486,656 44,031 SunTrust Banks, Inc. 3,148,217 17,470 Zions Bancorporation 1,071,435 --------------- $ 8,832,005 --------------- THRIFTS & MORTGAGE FINANCE - 0.8% 46,778 Washington Mutual, Inc. $ 1,876,733 --------------- TOTAL BANKS $ 14,702,523 --------------- DIVERSIFIED FINANCIALS - 5.9% ASSET MANAGEMENT & CUSTODY BANKS - 4.1% 78,146 The Bank of New York Co., Inc. $ 2,588,196 33,372 Federated Investors, Inc. 979,802 56,177 State Street Corp. 2,925,698 73,648 T.Rowe Price Associates, Inc. 3,491,652 --------------- $ 9,985,348 --------------- CONSUMER FINANCE - 0.7% 34,418 American Express Co. $ 1,659,980 --------------- INVESTMENT BANKING & BROKERAGE - 1.1% 44,670 Merrill Lynch & Co., Inc. $ 2,619,896 --------------- TOTAL DIVERSIFIED FINANCIALS $ 14,265,224 ---------------
The accompanying notes are an integral part of these financial statements. 5
SHARES VALUE INSURANCE - 3.3% MULTI-LINE INSURANCE - 0.9% 33,581 American International Group, Inc. $ 2,225,749 --------------- PROPERTY & CASUALTY INSURANCE - 2.4% 41,531 Chubb Corp. $ 2,828,261 24,898 Safeco Corp. 969,279 47,313 St. Paul Companies, Inc. 1,875,960 --------------- $ 5,673,500 --------------- TOTAL INSURANCE $ 7,899,249 --------------- SOFTWARE & SERVICES - 6.0% APPLICATION SOFTWARE - 3.4% 32,325 Adobe Systems, Inc. $ 1,270,373 36,405 BMC Software, Inc.* 678,953 107,751 Microsoft Corp. 2,967,463 23,434 Symantec Corp.* 811,988 74,694 Synopsys, Inc.* 2,521,669 --------------- $ 8,250,446 --------------- DATA PROCESSING & OUTSOURCED SERVICES - 2.6% 35,464 Automatic Data Processing, Inc. $ 1,404,729 39,439 Computer Sciences Corp.* 1,744,387 19,667 DST Systems, Inc.* 821,294 38,498 Electronic Data Systems Corp. 944,741 22,963 Fiserv, Inc.* 907,268 16,006 SunGard Data Systems, Inc.* 443,526 --------------- $ 6,265,945 --------------- TOTAL SOFTWARE & SERVICES $ 14,516,391 --------------- TECHNOLOGY HARDWARE & EQUIPMENT - 6.7% COMMUNICATIONS EQUIPMENT - 2.6% 39,648 Cisco Systems, Inc.* $ 963,050 170,200 Motorola, Inc. 2,394,714 115,702 Nokia Corp (A.D.R.) 1,966,934 19,249 Qualcomm, Inc. 1,038,099 --------------- $ 6,362,797 --------------- COMPUTER HARDWARE - 4.1% 54,922 Dell, Inc.* $ 1,865,151 20,609 Diebold, Inc. 1,110,207 17,889 Hewlett-Packard Co. 410,910 57,746 IBM Corp. 5,351,899 227,585 Sun Microsystems, Inc.* 1,021,857 --------------- $ 9,760,024 --------------- TOTAL TECHNOLOGY HARDWARE & EQUIPMENT $ 16,122,821 --------------- SEMICONDUCTORS - 4.6% SEMICONDUCTOR EQUIPMENT - 1.6% 108,798 Applied Materials, Inc.* $ 2,442,515 34,732 Novellus Systems, Inc.* 1,460,481 --------------- $ 3,902,996 --------------- SEMICONDUCTORS - 3.0% 18,307 Altera Corp.* $ 415,569 114,028 Intel Corp. 3,671,702 110,900 Texas Instruments, Inc. 3,258,242 --------------- $ 7,345,513 --------------- TOTAL SEMICONDUCTORS $ 11,248,509 --------------- TELECOMMUNICATION SERVICES - 3.3% INTEGRATED TELECOMMUNICATION SERVICES - 3.3% 16,947 Alltel Corp. $ 789,391 105,241 BellSouth Corp. 2,978,320 159,326 SBC Communications, Inc. 4,153,629 --------------- TOTAL TELECOMMUNICATION SERVICES $ 7,921,340 --------------- UTILITIES - 1.7% ELECTRIC UTILITIES - 1.1% 24,270 American Electric Power Co., Inc. $ 740,478 26,363 Consolidated Edison, Inc. 1,133,873 24,584 Southern Co. 743,666 --------------- $ 2,618,017 --------------- GAS UTILITIES - 0.6% 20,295 KeySpan Energy Corp. $ 746,856 27,932 Vectren Corp. 688,524 --------------- $ 1,435,380 --------------- TOTAL UTILITIES $ 4,053,397 --------------- TOTAL COMMON STOCKS (Cost $205,141,694) $ 226,980,946 --------------- PRINCIPAL AMOUNT TEMPORARY CASH INVESTMENTS - 8.8% REPURCHASE AGREEMENT - 6.4% $ 15,500,000 UBS Warburg, Inc., 0.73%, Dated 12/31/03, repurchase price of $15,500,000 plus accrued interest on 1/2/04 collateralized by $14,639,000 U.S. Treasury Bill, 6.75%, 5/15/05 $ 15,500,000 --------------- SHARES SECURITY LENDING COLLATERAL - 2.4% 5,965,628 Securities Lending Investment Fund, 1.02% $ 5,965,628 --------------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $21,465,628) $ 21,465,628 --------------- TOTAL INVESTMENT IN SECURITIES - 102.5% (Cost $226,607,322) $ 248,446,574 --------------- OTHER ASSETS AND LIABILITIES - (2.5)% $ (6,119,521) --------------- TOTAL NET ASSETS - 100.0% $ 242,327,053 ===============
* Non-income producing security. (A.D.R.) American Depositary Receipt The accompanying notes are an integral part of these financial statements. 6 PIONEER FUND VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST FINANCIAL HIGHLIGHTS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED CLASS I 12/31/03 12/31/02 12/31/01 12/31/00 12/31/99 Net asset value, beginning of period $ 15.28 $ 19.08 $ 22.67 $ 22.70 $ 19.76 ---------- ---------- ---------- ---------- ---------- Increase (decrease) from investment operations: Net investment income (loss) $ 0.20 $ 0.19 $ 0.17 $ 0.18 $ 0.16 Net realized and unrealized gain (loss) on investments 3.41 (3.81) (2.57) 0.10 2.97 ---------- ---------- ---------- ---------- ---------- Net increase (decrease) from investment operations $ 3.61 $ (3.62) $ (2.40) $ 0.28 $ 3.13 Distributions to shareowners: Net investment income (0.19) (0.18) (0.17) (0.18) (0.17) Net realized gain -- -- (1.02) (0.13) (0.02) ---------- ---------- ---------- ---------- ---------- Net increase (decrease) in net asset value $ 3.42 $ (3.80) $ (3.59) $ (0.03) $ 2.94 ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 18.70 $ 15.28 $ 19.08 $ 22.67 $ 22.70 ========== ========== ========== ========== ========== Total return* 23.76% 19.03% (10.85)% 1.22% 15.91% Ratio of net expenses to average net assets+ 0.76% 0.80% 0.74% 0.69% 0.70% Ratio of net investment income (loss) to average net assets+ 1.16% 1.09% 0.83% 0.78% 0.82% Portfolio turnover rate 11% 11% 7.0% 37% 8% Net assets, end of period (in thousands) $ 154,839 $ 141,892 $ 199,160 $ 222,107 $ 204,927 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.76% 0.80% 0.74% 0.69% 0.70% Net investment income (loss) 1.16% 1.09% 0.83% 0.78% 0.82% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 0.76% 0.80% 0.74% 0.69% 0.70% Net investment income (loss) 1.16% 1.09% 0.83% 0.78% 0.82%
* 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. + Ratios with no reduction for fees paid indirectly. The accompanying notes are an integral part of these financial statements. 7 PIONEER FUND VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST STATEMENTS OF ASSETS AND LIABILITIES 12/31/03
PIONEER FUND VCT PORTFOLIO ASSETS: Investment in securities, at value (including securities loaned of $5,797,208) (Cost $226,607,322) $ 248,446,574 Temporary cash investments (at amortized cost) - Cash 151,806 Cash held as collateral for futures contracts - Foreign currencies, at value - Receivables - - Investment securities sold - Fund shares sold 157,089 Collateral for securities loaned, at fair value - Variation margin - Dividends, interest and foreign taxes withheld 285,889 Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, open - net - Due from Pioneer Investment Management, Inc. - Other 3,765 ----------------- Total assets $ 249,045,123 ----------------- LIABILITIES: Payables - - Investment securities purchased $ 452,923 Fund shares repurchased 79,830 Dividends - Upon return for securities loaned 5,965,628 Variation margin - Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, - Due to bank - Due to affiliates 178,318 Accrued expenses 41,371 Other - ----------------- Total liabilities $ 6,718,070 ----------------- NET ASSETS: Paid-in capital $ 254,614,639 Accumulated net investment income (loss) - Accumulated undistributed net realized gain (loss) (34,126,838) Net unrealized gain (loss) on: Investments 21,839,252 Futures contracts - Foreign currency transactions - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - ----------------- Total net assets $ 242,327,053 ----------------- NET ASSET VALUE PER SHARE: CLASS I: (Unlimited number of shares authorized) Net assets $ 154,839,149 Shares outstanding 8,281,639 ================= Net asset value per share $ 18.70 CLASS II: (Unlimited number of shares authorized) Net assets $ 87,487,904 Shares outstanding 4,689,411 ================= Net asset value per share $ 18.66
The accompanying notes are an integral part of these financial statements. 8 STATEMENTS OF OPERATIONS
PIONEER FUND VCT PORTFOLIO YEAR ENDED 12/31/03 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $26,971) $ 3,589,887 Interest 97,024 Income on securities loaned, net 2,951 Other - ----------------- Total investment income $ 3,689,862 ----------------- EXPENSES: Management fees $ 1,257,325 Transfer agent fees 3,007 Distribution fees (Class II) 132,897 Administrative fees 69,528 Custodian fees 41,989 Professional fees 29,811 Printing 51,466 Fees and expenses of nonaffiliated trustees 5,053 Miscellaneous 11,913 ----------------- Total expenses $ 1,602,989 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. - ----------------- Net expenses $ 1,602,989 ----------------- Net investment income (loss) $ 2,086,873 ----------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ (8,524,893) Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (409) ----------------- $ (8,525,302) ----------------- Change in net unrealized gain or loss from: Investments $ 49,662,141 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - ----------------- $ 49,662,141 ----------------- Net gain (loss) on investments, futures contracts and foreign currency transactions $ 41,136,839 ================= Net increase (decrease) in net assets resulting from operations $ 43,223,712 =================
The accompanying notes are an integral part of these financial statements. 9 STATEMENTS OF CHANGES IN NET ASSETS
PIONEER FUND VCT PORTFOLIO YEAR YEAR ENDED ENDED 12/31/03 12/31/02 FROM OPERATIONS: Net investment income (loss) $ 2,086,873 $ 2,080,084 Net realized gain (loss) on investments (8,525,302) (18,575,951) Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions 49,662,141 (27,945,273) --------------- --------------- Net increase (decrease) in net assets resulting from operations $ 43,223,712 $ (44,441,140) --------------- --------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (1,580,150) $ (1,805,575) Class II (520,900) (263,066) Net realized gain Class I - - Class II - - Tax return of capital Class I - - Class II - - --------------- --------------- Total distributions to shareowners $ (2,101,050) $ (2,068,641) --------------- --------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 58,651,489 $ 54,299,089 Reinvestment of distributions 2,101,050 2,068,642 Cost of shares repurchased (37,658,369) (43,581,678) --------------- --------------- Net increase (decrease) in net assets resulting from fund share transactions $ 23,094,170 $ 12,786,053 --------------- --------------- Net increase (decrease) in net assets $ 64,216,832 $ (33,723,728) --------------- --------------- NET ASSETS: Beginning of year 178,110,221 211,833,949 --------------- --------------- End of year $ 242,327,053 $ 178,110,221 =============== =============== Accumulated undistributed/(distributions in excess of) net investment income (loss) $ - $ 10,888 =============== ===============
The accompanying notes are an integral part of these financial statements. 10 PIONEER FUND VCT PORTFOLIO NOTES TO FINANCIAL STATEMENTS 12/31/03 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Pioneer Fund VCT Portfolio (the Portfolio) is a Portfolio of the Pioneer Variable Contracts Trust (the Trust) which is a Delaware business trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of sixteen separate portfolios, fourteen of which issue both Class I and Class II shares (collectively, the Portfolios, individually the Portfolio) as follows: PORTFOLIOS: Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio) Pioneer Europe VCT Portfolio (Europe Portfolio) Pioneer International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio) Pioneer Small Company VCT Portfolio (Small Company Portfolio) Pioneer Mid Cap Value VCT Portfolio (Mid-Cap Value Portfolio) Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio) Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio) Pioneer Fund VCT Portfolio (Fund Portfolio) Pioneer Equity Income VCT Portfolio (Equity-Income Portfolio) Pioneer Balanced VCT Portfolio (Balanced Portfolio) Pioneer High Yield VCT Portfolio (High Yield Portfolio) Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio) Pioneer America Income VCT Portfolio (America Income Portfolio) Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares only) Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only) Portfolio shares may only be purchased by insurance companies for the purpose of funding variable annuity or variable life insurance contracts, and may also be purchased by qualified pension and retirement plans. The financial highlights for the Portfolio's Class II shares are presented in a separate book. The investment objective of Fund Portfolio is to seek capital appreciation. The Trust's financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America 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 income, expenses, gains and losses 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 as of trade date. Net asset values for the Portfolio 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. 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 becomes aware of the ex-dividend data in the exercise of reasonable diligence. Interest income, including interest on income bearing cash accounts, is recorded on the accrual basis. 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, and, if applicable, are reported net of foreign taxes on capital gains at the applicable country rates. B. FUTURES CONTRACTS The Portfolio may enter into futures transactions to hedge against changes in interest rates, securities prices, and currency rates or to seek to increase total return. Upon entering into a futures contract, the Portfolio is required to deposit with a broker an amount of cash or securities equal to the minimum "initial margin" requirements of the associated futures exchange. Subsequent payments for futures contracts ("variation margin") are paid or received by the Portfolio, depending on the daily fluctuation in the value of the contracts, and are recorded by the Portfolio as unrealized gains or losses. When the contract is closed, the Portfolio realizes a gain or loss equal to the difference between the opening and closing value of the contract. The use of futures contracts involves, to varying degrees, elements of market risk which may exceed the amounts recognized by the Portfolio. Changes in the value of the contracts may not directly correlate to the changes in the value of the underlying securities. These risks may decrease the effectiveness 11 of the Portfolio's hedging and trading strategies and potentially result in a loss. As of December 31, 2003, Fund Portfolio had no open contracts. C. FOREIGN CURRENCY TRANSLATION The books and records of the Portfolio 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, 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. D. FORWARD FOREIGN CURRENCY CONTRACTS The Portfolio enters 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 Portfolio's financial statements. The Portfolio records 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. E. 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 shareowners. Therefore, no federal income tax provision is required. The amount and characterization of distributions to shareowners 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. At December 31, 2003, the Portfolio made reclassifications as described below. These reclassifications have no impact on the net asset value of the Portfolio and are designed to present the portfolios' capital accounts on a tax basis.
ACCUMULATED ACCUMULATED NET INVESTMENT REALIZED PORTFOLIO INCOME/(LOSS) GAIN/LOSS PAID-IN CAPITAL - --------------------------------------------------------------- Fund Portfolio $ 3,289 $ 409 $ (3,698)
Capital loss carryforwards are available to offset future realized capital gains. At December 31, 2003, Fund VCT Portfolio had a capital loss carryforward of $33,944,745 of which the following amounts will expire between 2009 and 2011 if not utilized: $6,699,261 in 2009, $14,227,957 in 2010 and $13,017,527 in 2011. The following chart shows the components of distributable earnings (accumulated losses) as of December 31, 2003 and the distributions paid during the year ended December 31, 2003 on a tax basis as of December 31, 2003.
PIONEER PIONEER FUND FUND VCT PORTFOLIO VCT PORTFOLIO 2003 2002 - ---------------------------------------------------------------- DISTRIBUTIONS PAID FROM: Ordinary Income $ 2,101,050 $ 2,068,641 Long-Term Capital Gain - - ------------- ------------- $ 2,101,050 $ 2,068,641 Return of Capital - - ------------- ------------- Total Distributions $ 2,101,050 $ 2,068,641 ------------- ------------- DISTRIBUTABLE EARNINGS (ACCUMULATED LOSSES): Undistributed ordinary income $ - Undistributed long-term gain/ (Capital loss carryforward) (33,944,745) Unrealized appreciation/ depreciation 21,657,159 ------------- Total $ (12,287,586) =============
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily attributable to the tax deferral of losses on wash sales, returns of capital on REITs, and the recognition of unrealized gains or losses on certain futures contracts. F. PORTFOLIO SHARES The Portfolio records sales and repurchases of its portfolio shares as of trade date. Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the principal underwriter for the Trust and a wholly owned indirect subsidiary of UniCredito Italiano S.p.A. 12 (UniCredito Italiano), $246,661 in commissions on the sale of Trust shares for the year ended December 31, 2003. Distribution fees are calculated based on the average daily net asset values attributable to Class I and Class II shares of the Portfolio, respectively. Shareowners of each class share all expenses and fees paid to the transfer agent, Pioneer Investment Management Shareholder Services, Inc. (PIMSS), for its services, which are allocated based on the number of accounts in each class and the ratable allocation of related out-of-pocket expenses (see Note 3). Income, common expenses and realized and unrealized gains and losses are calculated at the Portfolio level and allocated daily to each class of shares based on the respective percentage of adjusted net assets at the beginning of the day. Distributions paid by the Portfolio with respect to each class of shares are calculated in the same manner, at the same time, and in the same amount, except that Class I and Class II shares can bear different transfer agent and distribution fees. Dividends and distributions to shareowners are recorded on the ex-dividend date. Income, expenses (excluding 12b-1 fees) and gains and losses are calculated at the Portfolio level and are allocated daily based on the respective percentage of adjusted net assets at the beginning of the day. G. SECURITIES LENDING The Portfolio lends securities in its portfolio to certain broker-dealers or other institutional investors, with the Portfolio's custodian acting as the lending agent. When entering into a loan, the Portfolio receives collateral which is maintained by the custodian and earns income in the form of negotiated lenders' fees. The Portfolio also continues to receive interest or dividends on the securities loaned, and gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for account of the Trust. The loans are secured by collateral of at least 102%, at all times, of the fair value of the securities loaned. The fair value of the collateral will be adjusted daily to reflect any price fluctuation in the value of the loaned securities. The Trust has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Trust invests cash collateral in the Securities Lending Investment Fund which is managed by Brown Brothers Harriman & Co., the Trust's custodian. H. REPURCHASE AGREEMENTS With respect to repurchase agreements entered into by the Portfolio, 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 Portfolio's custodian, or subcustodian. The Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is responsible for determining that the value of the collateral remains at least equal to the repurchase price. 2. MANAGEMENT AGREEMENT PIM manages the Portfolio, and is a wholly owned indirect subsidiary of UniCredito Italiano. Management fees are calculated daily at the following annual rate of 0.65% of the Portfolio's average daily net assets. In addition, under the management and administration agreements, certain other services and costs, including accounting, regulatory reporting and insurance premiums, are paid by the Portfolio. At December 31, 2003, $158,290 was payable to PIM related to management fees, administrative fees and certain other services. 3. TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. (PIMSS), a wholly owned indirect subsidiary of UniCredito Italiano provides substantially all transfer agent and shareowner services to the Trust at negotiated rates. Included in due to affiliates is $534 in transfer agent fees payable to PIMSS at December 31, 2003. 4. DISTRIBUTION PLANS The Portfolio has adopted a plan of distribution for Class II shares in accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily net assets attributable to Class II shares. Included in due to affiliates is $19,494 payable to PFD at December 31, 2003. 5. AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION At December 31, 2003, the Portfolio's aggregate unrealized appreciation and depreciation based on cost for federal income tax purposes was as follows:
NET GROSS GROSS APPRECIATION/ TAX COST APPRECIATION DEPRECIATION (DEPRECIATION) - ----------------------------------------------------------------------------------- Fund Portfolio $ 226,789,415 $ 36,208,962 $ (14,551,803) $ 21,657,159
13 6. PORTFOLIO TRANSACTIONS The cost of purchases and the proceeds from sales of investments other than U.S. Government obligations and temporary cash investments for the year ended December 31, 2003, were $36,818,387 and $20,713,340, respectively. 7. CAPITAL SHARES At December 31, 2003, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
FUND PORTFOLIO '03 SHARES '03 AMOUNT '02 SHARES '02 AMOUNT - ---------------------------------------------------------------------------------------------- CLASS II: Shares sold 519,126 $ 8,479,870 724,147 $ 12,875,126 Reinvestment of distributions 94,945 1,580,150 108,860 1,805,576 Shares repurchased (1,616,113) (25,564,887) (1,989,049) (32,131,119) ------------------------------------------------------------- Net increase (1,002,042) $ (15,504,867) (1,156,042) $ (17,450,417) ============================================================= CLASS II: Shares sold 3,031,681 $ 50,171,619 2,408,611 $ 41,423,963 Reinvestment of distributions 30,685 520,900 16,342 263,066 Shares repurchased (747,392) (12,093,482) (715,895) (11,450,559) ------------------------------------------------------------- Net increase 2,314,974 $ 38,599,037 1,709,058 $ 30,236,470 =============================================================
14 PIONEER FUND VCT PORTFOLIO REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF TRUSTEES OF PIONEER VARIABLE CONTRACTS TRUST AND THE CLASS I SHAREOWNERS OF PIONEER FUND VCT PORTFOLIO: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer Fund VCT Portfolio, one of the portfolios constituting Pioneer Variable Contracts Trust (the "Trust") as of December 31, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets and financial highlights for each of the two years in the period then ended. 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. The financial highlights for each of the three years in the period ended December 31, 2001 were audited by other auditors who have ceased operations and whose report, dated February 8, 2002, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 Pioneer Fund VCT Portfolio of Pioneer Variable Contracts Trust at December 31, 2003, the results of its operations for the year then ended, the changes in its net assets and the financial highlights for each of the two years in the period then ended in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts February 6, 2004 15 PIONEER VARIABLE CONTRACTS TRUST TRUSTEES, OFFICERS AND SERVICE PROVIDERS INVESTMENT ADVISER Pioneer Investment Management, Inc. CUSTODIAN Brown Brothers Harriman & Co. INDEPENDENT AUDITORS Ernst & Young LLP PRINCIPAL UNDERWRITER Pioneer Funds Distributor, Inc. LEGAL COUNSEL Hale and Dorr LLP SHAREOWNER SERVICES AND TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. TRUSTEES AND OFFICERS The Fund's Board of Trustees provides broad supervision over the affairs of the Fund. The officers of the Fund are responsible for the Fund's operations. The Fund's Trustees and officers are listed below, together with their principal occupations during the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of 1940 are referred to as Interested Trustees. Trustees who are not interested persons of the Fund are referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 51 U.S. registered investment portfolios for which Pioneer Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the Portfolio is 60 State Street, Boston, Massachusetts 02109. The Fund's statement of additional information provides more detailed information regarding the Fund's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Fund are available without charge, upon request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. INTERESTED TRUSTEES
POSITION HELD TERM OF OFFICE AND OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS HELD BY THIS TRUSTEE John F. Cogan, Jr. (77)* Chairman of Trustee Deputy Chairman and a Director of Pioneer Director of Harbor the Board, since 1994. Global Asset Management S.p.A. ("PGAM"); Global Company, Ltd. Trustee and Serves until a Non-Executive Chairman and a Director of President successor trustee Pioneer Investment Management USA is elected or Inc. ("PIM-USA"); Chairman and a Director earlier retirement of Pioneer; Director of Pioneer Alternative or removal. Investment Management Limited (Dublin); President and a Director of Pioneer Alternative Investment Management (Bermuda) Limited and affiliated funds; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel (since 2000, partner prior to 2000), Hale and Dorr LLP (counsel to PIM-USA and the Pioneer Funds) *Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. Osbert M. Hood (51)** Trustee and Trustee since President and Chief Executive Officer, None Executive June, 2003. Serves PIM-USA since May, 2003 (Director since Vice until a successor January, 2001); President and Director of President trustee is elected Pioneer since May 2003; Chairman and or earlier Director of Pioneer Investment Management retirement or Shareholder Services, Inc. ("PIMSS") since removal. May 2003; Executive Vice President of all of the Pioneer Funds since June 2003; Executive Vice President and Chief Operating Officer of PIM-USA, November 2000-May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999-November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997-November 1999 **Mr. Hood is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
16 INDEPENDENT TRUSTEES
POSITION HELD TERM OF OFFICE AND OTHER DIRECTORSHIPS NAME, AND AGE ADDRESS WITH THE FUND LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS HELD BY THIS TRUSTEE Mary K. Bush (55) Trustee Trustee since President, Bush International Director of Brady 3509 Woodbine Street, September, 2000. (international financial advisory firm) Corporation Chevy Chase, MD 20815 Serves until a (industrial successor trustee identification and is elected or specialty coated earlier retirement material products or removal. manufacturer), Millenium Chemicals, Inc. (commodity chemicals), Mortgage Guaranty Insurance Corporation, and R.J. Reynolds Tobacco Holdings, Inc. (tobacco) Richard H. Egdahl, M.D. (77) Trustee Trustee since Alexander Graham Bell Professor of Health None Boston University Healthcare 1995. Serves until Care Entrepreneurship, Boston University; Entrepreneurship Program, a successor Professor of Management, Boston University 53 Bay State Road, trustee is elected School of Management; Professor of Public Boston, MA 02215 or earlier Health, Boston University School of Public retirement Health; Professor of Surgery, Boston or removal. University School of Medicine; and University Professor, Boston University Margaret B.W. Graham (56) Trustee Trustee since Founding Director, The Winthrop Group, Inc. None 1001 Sherbrooke Street West, September, 2000. (consulting firm); Professor of Management, Montreal, Quebec, Canada Serves until a Faculty of Management, McGill University successor trustee is elected or earlier retirement or removal. Marguerite A. Piret (55) Trustee Trustee since President and Chief Executive Officer, None One Boston Place, 28th Floor, 1995. Serves until Newbury, Piret & Company, Inc. (investment Boston, MA 02108 a successor banking firm) trustee is elected or earlier retirement or removal. Stephen K. West (75) Trustee Trustee since Senior Counsel, Sullivan & Cromwell Director, The Swiss 125 Broad Street, 1995. Serves until (law firm) Helvetia Fund, Inc. New York, NY 10004 a successor (closed-end trustee is elected investment company) or earlier and AMVESCAP PLC retirement or (investment removal. managers) John Winthrop (67) Trustee Trustee since President, John Winthrop & Co., Inc. None One North Adgers Wharf, September, 2000. (private investment firm) Charleston, SC 29401 Serves until a successor trustee is elected or earlier retirement or removal.
17 FUND OFFICERS
POSITION HELD TERM OF OFFICE AND OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS HELD BY THIS TRUSTEE Dorothy E. Bourassa (56) Secretary Serves at the Secretary of PIM-USA; Senior Vice None discretion of President-Legal of Pioneer; and board Secretary/Clerk of most of PIM-USA's subsidiaries since October 2000; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003); and Senior Counsel, Assistant Vice President and Director of Compliance of PIM-USA from April 1998 through October 2000 Christopher J. Kelley (39) Assistant Serves at the Assistant Vice President and Senior Counsel None Secretary discretion of of Pioneer since July 2002; Vice President board and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001; Vice President and Associate General Counsel from July 1996 to July 2000); Assistant Secretary of all of the Pioneer Funds since September 2003 David C. Phelan (46) Assistant Serves at the Partner, Hale and Dorr LLP; Assistant None Secretary discretion of Secretary of all of the Pioneer Funds since board September 2003 Vincent Nave (58) Treasurer Serves at the Vice President-Fund Accounting, None discretion of Administration and Custody Services of board Pioneer (Manager from September 1996 to February 1999); and Treasurer of all of the Pioneer Funds (Assistant Treasurer from June 1999 to November 2000) Luis I. Presutti (38) Assistant Serves at the Assistant Vice President-Fund Accounting, None Treasurer discretion of Administration and Custody Services of board Pioneer (Fund Accounting Manager from 1994 to 1999); and Assistant Treasurer of all of the Pioneer Funds since November 2000
18 FUND OFFICERS
POSITION HELD TERM OF OFFICE AND OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS HELD BY THIS TRUSTEE Gary Sullivan (45) Assistant Serves at the Fund Accounting Manager-Fund Accounting, None Treasurer discretion of Administration and Custody Services of board Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 Katharine Kim Sullivan (30) Assistant Serves at the Fund Administration Manager-Fund Accounting, None Treasurer discretion of Administration and Custody Services since board June 2003; Assistant Vice President-Mutual Fund Operations of State Street Corporation from June 2002 to June 2003 (formerly Deutsche Bank Asset Management); Pioneer Fund Accounting, Administration and Custody Services (Fund Accounting Manager from August 1999 to May 2002, Fund Accounting Services Supervisor from 1997 to July 1999); Assistant Treasurer of all of the Pioneer Funds since September 2003
19 [PIONEER INVESTMENTS(R) LOGO] 14676-00-0204 [PIONEER INVESTMENTS(R) LOGO] PIONEER VARIABLE CONTRACTS TRUST PIONEER SMALL CAP VALUE VCT PORTFOLIO -- CLASS I SHARES ANNUAL REPORT DECEMBER 31, 2003 PIONEER VARIABLE CONTRACTS TRUST TABLE OF CONTENTS Pioneer Small Cap Value VCT Portfolio Portfolio and Performance Update 2 Portfolio Management Discussion 3 Schedule of Investments 4 Financial Statements 8 Notes to Financial Statements 12 Report of Independent Auditors 16 Trustees, Officers and Service Providers 17
PIONEER SMALL CAP VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO AND PERFORMANCE UPDATE 12/31/03 [CHART] PORTFOLIO DIVERSIFICATION (As a percentage of total investment portfolio) U.S. Common Stocks 88.9% Temporary Cash Investment 5.4% Depositary Receipts for International Stocks 4.1% Exchange Traded Funds 1.6%
[CHART] SECTOR DISTRIBUTION (As a percentage of equity holdings) Industrials 21.5% Financials 20.8% Consumer Discretionary 13.4% Information Technology 8.6% Energy 8.4% Health Care 7.7% Utilities 7.5% Materials 6.8% Consumer Staples 2.6% Exchange Traded Funds 1.6% Telecommunication Services 1.1%
FIVE LARGEST HOLDINGS (As a percentage of equity holdings) 1. Southwestern Energy Co. 2.47% 2. Swift Energy Co. 2.27 3. Massey Energy Co. 2.15 4. Insight Enterprises, Inc. 2.11 5. Joy Global, Inc. 1.88
Holdings will vary for other periods. This list excludes temporary cash and derivative investments. PRICES AND DISTRIBUTIONS
12/31/03 12/31/02 Net Asset Value per Share $ 12.50 $ 9.23
DISTRIBUTIONS PER SHARE SHORT-TERM LONG-TERM (1/1/03 - 12/31/03) DIVIDENDS CAPITAL GAINS CAPITAL GAINS $ - $ - $ -
PERFORMANCE OF A $10,000 INVESTMENT The following chart shows the change in value of an investment made in PIONEER SMALL CAP VALUE VCT PORTFOLIO at net asset value, compared to that of the Russell 2000 Value Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges.
PIONEER SMALL CAP VALUE VCT PORTFOLIO* RUSSELL 2000 VALUE INDEX+ 11/30/2001 $ 10,000 $ 10,000 12/31/2001 $ 10,574 $ 10,612 12/31/2002 $ 8,979 $ 9,400 12/31/2003 $ 12,160 $ 13,726
+ Index comparison begins 11/30/01. The Russell 2000 Value Index is a measure of the performance of the value-oriented stocks in the Russell 2000 Index. 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 Index. AVERAGE ANNUAL TOTAL RETURNS (As of December 31, 2003) NET ASSET VALUE* Life-of-Class (11/8/01) 10.94% 1 Year 35.43%
All total returns shown assume reinvestment of distributions at net asset value. * Portfolio performance does not reflect any variable contract fees, expenses or sales charges. If they had been included, performance would have been lower. See the pages that comprise the inside cover of this report for performance net of any contract fees, expenses or sales charges. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns and principal values fluctuate so that your investment, when redeemed, may be worth more or less than its original cost. The performance table and graph do not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. 2 In the following discussion, David Adams and Jack McPherson review the year ended December 31, 2003, and Pioneer Small Cap Value VCT Portfolio's performance over this period. Q. HOW DID PIONEER SMALL CAP VALUE VCT PORTFOLIO PERFORM OVER THIS PERIOD? A. For the twelve months ended December 31, 2003, Pioneer Small Cap Value VCT Portfolio returned 35.43% at net asset value. Those results, while very positive, trailed the 46.03% return on the Russell 2000 Value Index, the Portfolio's benchmark, for the same period. Q. WHAT WERE CONDITIONS LIKE OVER THE PAST YEAR AND HOW DID YOU RESPOND? A. After a long bear market, the stock market turned higher last March when it became clear that the war would not choke off the economic recovery. Stocks generally rose through year end, buoyed by positive economic data. Very small, very speculative issues led the rally, while companies like those we invest in, with solid finances and quantifiable prospects, trailed behind. That split, which is characteristic of the early stages of an economic recovery, accounts for most of the Portfolio's underperformance compared to its benchmark. In particular, underexposure to low-quality issues in technology and biotechnology held back results. Q. WHICH SECTORS OR STOCKS HELPED BOOST PERFORMANCE? A. Our financial services choices outperformed the financial segment of the Portfolio's benchmark. Earlier in the year we favored regional banks with exposure to the very strong mortgage origination market but lately have been shifting into commercial banks that benefit from an uptick in demand for business lending. Specifically we took some profits in Irwin Financial, a diversified regional bank with exposure to mortgage activity. Real estate investment trusts (REITs) also aided results. Ventas benefited when its primary tenant, a nursing home operator, saw its business improve. Trizec Properties rose after shedding nonproductive holdings and installing new management. At Medallion Financial, the taxi-medallion-financing business is recovering from the post-9/11 downturn. The company is in the process of establishing a banking business, which will help to lower the cost of funds to finance customer loans. GrafTech International rose as renewed demand pushed up prices on electrodes for electric arc furnaces. Joy Global, a manufacturer of heavy equipment used in mining operations, performed nicely as the outlook for its end markets continues to improve with the global economy. In consumer staples, sales of household and personal products continued to be strong at direct-seller NuSkin, which is active in 30 countries, including China and Japan. Energy holdings also performed well. With insufficient supply and growing demand, the price of North American natural gas is climbing. One beneficiary is Southwestern Energy, which is expanding production. We added to our position in Swift Energy during the year when investors were focusing on disappointing results in its New Zealand properties and ignoring attractive prospects here in the U.S. Our broader view paid off when the shares rose later in the year. Q. WHAT OTHER CHOICES OR STRATEGIES AFFECTED PERFORMANCE? A. The weak economy and management issues pushed down shares of Central Parking; the parking business is inherently profitable and a recovering economy should boost results. We think PRG-Schultz, which provides specialized accounting services to large corporations in a wide variety of industries, performed poorly during the year as the integration of a large acquisition continued to disappoint. Borland Software reported mediocre results during the year, which caused the stock to be down for the year, but we believe that the company's products are crucial to the software development industry and thus will resume growing in 2004. In health care, Kendall International, which conducts new drug research for pharmaceutical firms, fell as product pipelines shrank. Pacificare Health Systems, was a significantly positive holding for the Portfolio as the market began to realize the favorable position the company holds in the Medicare managed-care marketplace, a tool the government believes is imperative to reigning in skyrocketing Medicare costs. The halting rebound in travel and ineffective company management led us to take a loss in our small position in Oneida, which supplies flatware to airlines and hotels. Q. WHAT IS YOUR OUTLOOK FOR NEXT YEAR AS IT AFFECTS SMALL COMPANY STOCKS? A. Although the opposite approach was rewarded in 2003, we are convinced that owning companies with strong finances, reasonable valuations and positive earnings is the right way to position the Portfolio for possible economic growth. That view seemed to be taking hold at yearend, as better quality stocks began to draw more attention. ANY INFORMATION IN THIS SHAREHOLDER REPORT REGARDING MARKET OR ECONOMIC TRENDS OR THE FACTORS INFLUENCING THE PORTFOLIO'S HISTORICAL OR FUTURE PERFORMANCE ARE STATEMENTS OF THE OPINION OF PORTFOLIO MANAGEMENT AS OF THE DATE OF THIS REPORT. THESE STATEMENTS SHOULD NOT BE RELIED UPON FOR ANY OTHER PURPOSES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND THERE IS NO GUARANTEE THAT MARKET FORECASTS DISCUSSED WILL BE REALIZED. [SIDENOTE] Small-capitalization stocks, while offering the potential for higher returns, may be subject to greater short-term price fluctuations than securities of larger companies. The Portfolio's investment adviser, Pioneer Investment Management, Inc., reduced its management fee and certain other expenses; otherwise, returns would have been lower. 3 PIONEER SMALL CAP VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST SCHEDULE OF INVESTMENTS 12/31/03
SHARES VALUE COMMON STOCKS - 83.8% ENERGY - 7.2% OIL & GAS DRILLING - 1.7% 3,400 Atwood Oceanics, Inc.* $ 108,596 13,086 Key Energy Services, Inc.* 134,917 --------------- $ 243,513 --------------- OIL & GAS EQUIPMENT & SERVICES - 1.5% 7,500 Gulfmark Offshore, Inc.* $ 105,000 6,315 Maverick Tube Corp.* 121,564 --------------- $ 226,564 --------------- OIL & GAS EXPLORATION & PRODUCTION - 4.0% 2,900 Penn Virginia Corp. $ 161,385 16,970 Swift Energy Co.* 285,945 691 Tom Brown, Inc.* 22,285 5,219 Unit Corp.* 122,907 --------------- $ 592,522 --------------- TOTAL ENERGY $ 1,062,599 --------------- MATERIALS - 5.8% CONSTRUCTION MATERIALS - 0.1% 350 Ameron International Corp. $ 12,142 --------------- DIVERSIFIED METALS & MINING - 1.8% 13,014 Massey Energy Co. $ 270,691 --------------- METAL & GLASS CONTAINERS - 0.3% 1,562 Jarden Corp.* $ 42,705 --------------- PAPER PACKAGING - 0.1% 650 Kadant, Inc.* $ 14,073 --------------- PAPER PRODUCTS - 1.5% 8,043 Domtar, Inc. $ 100,457 4,300 Flowserve Corp.* 89,784 2,500 Longview Fibre Co. 30,875 --------------- $ 221,116 --------------- SPECIALTY CHEMICALS - 0.5% 2,475 Great Lakes Chemical Corp. $ 67,295 --------------- STEEL - 1.5% 2,250 Carpenter Technology $ 66,533 11,743 Graftech International, Ltd.* 158,531 --------------- $ 225,064 --------------- TOTAL MATERIALS $ 853,086 --------------- CAPITAL GOODS - 7.9% BUILDING PRODUCTS - 0.1% 1,175 Lennox International, Inc. $ 19,623 --------------- CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS - 1.3% 11,475 Wabtec Corp. $ 195,534 --------------- CONSTUCTION & ENGINEERING - 1.0% 3,045 Granite Consturction, Inc. $ 71,527 4,525 Insituform Technologies, Inc.* 74,663 --------------- $ 146,190 --------------- ELECTRICAL COMPONENTS & EQUIPMENT - 0.5% 6,204 Power-One, Inc.* $ 67,189 --------------- INDUSTRIAL CONGLOMERATES - 1.3% 9,685 Cornell Companies, Inc.* $ 132,200 5,046 NN, Inc. 63,529 --------------- $ 195,729 --------------- INDUSTRIAL MACHINERY - 2.9% 9,037 Joy Global, Inc. $ 236,318 1,800 Kaydon Corp. 46,512 1,619 Nacco Industries, Inc. 144,868 --------------- $ 427,698 --------------- TRADING COMPANIES & DISTRIBUTORS - 0.8% 4,928 Applied Industrial Technologies, Inc. $ 117,582 --------------- TOTAL CAPITAL GOODS $ 1,169,545 --------------- COMMERCIAL SERVICES & SUPPLIES - 6.2% COMMERCIAL PRINTING - 1.0% 4,118 John H. Harland Co. $ 112,421 1,200 Valassis Communications, Inc.* 35,220 --------------- $ 147,641 --------------- DIVERSIFIED COMMERCIAL SERVICES - 4.5% 700 Arbitron, Inc.* $ 29,204 9,850 Central Parking Corp. 147,061 2,456 FTI Consulting, Inc.* 57,397 8,760 Profit Recovery Group International* 42,924 3,328 Roto Rooter, Inc. 153,421 13,730 Rent-Way, Inc.* 112,449 4,750 Watson Wyatt & Co. Holdings* 114,713 --------------- $ 657,169 --------------- EMPLOYMENT SERVICES - 0.6% 4,520 Korn/Ferry International* $ 60,297 1,785 Right Management Consultants, Inc.* 33,308 --------------- $ 93,605 --------------- OFFICE SERVICES & SUPPLIES - 0.1% 450 Imagistics International, Inc.* $ 16,875 --------------- TOTAL COMMERCIAL SERVICES & SUPPLIES $ 915,290 --------------- TRANSPORTATION - 4.2% MARINE - 1.6% 10,802 Stelmar Shipping, Ltd. $ 236,132 --------------- RAILROADS - 1.5% 6,912 Genesee & Wyoming, Inc.* $ 217,659 ---------------
The accompanying notes are an integral part of these financial statements. 4
SHARES VALUE TRUCKING - 1.1% 1,400 Central Freight Lines, Inc.* $ 24,850 2,243 Dollar Thrifty Automotive* 58,183 3,150 Forward Air Corp.* 86,625 --------------- $ 169,658 --------------- TOTAL TRANSPORTATION $ 623,449 --------------- AUTOMOBILES & COMPONENTS - 0.7% AUTO PARTS & EQUIPMENT - 0.7% 6,245 Federal Signal Corp. $ 109,412 --------------- TOTAL AUTOMOBILES & COMPONENTS $ 109,412 --------------- CONSUMER DURABLES & APPAREL - 1.7% APPAREL, ACCESSORIES & LUXURY GOODS - 0.8% 9,168 Charming Shoppes, Inc.* $ 49,507 1,875 Kellwood Co. 76,875 --------------- $ 126,382 --------------- FOOTWEAR - 0.9% 7,491 Maxwell Shoe Co., Inc.* $ 127,122 --------------- TOTAL CONSUMER DURABLES & APPAREL $ 253,504 --------------- HOTELS, RESTAURANTS & LEISURE - 0.6% LEISURE FACILITIES - 0.1% 2,630 Bally Total Fitness Holding Corp.* $ 18,410 --------------- RESTAURANTS - 0.5% 3,769 O'Charley's, Inc.* $ 67,654 --------------- TOTAL HOTELS, RESTAURANTS & LEISURE $ 86,064 --------------- MEDIA - 2.2% ADVERTISING - 1.7% 3,816 Equity Marketing, Inc.* $ 53,806 5,144 R.H. Donnelley Corp.*+ 204,937 --------------- $ 258,743 --------------- PUBLISHING - 0.5% 4,715 Advanced Marketing Services, Inc. $ 53,751 700 Information Holdings, Inc.* 15,470 --------------- $ 69,221 --------------- TOTAL MEDIA $ 327,964 --------------- RETAILING - 6.1% APPAREL RETAIL - 0.6% 3,045 Stage Stores, Inc.* $ 84,956 --------------- CATALOG RETAIL - 1.8% 14,125 Insight Enterprises, Inc.* $ 265,550 --------------- GENERAL MERCHANDISE STORES - 0.5% 2,615 Blyth Industries, Inc. $ 84,255 --------------- SPECIALTY STORES - 3.2% 3,550 Claire's Stores, Inc. $ 66,882 5,202 Guitar Center, Inc.* 169,481 7,082 Hancock Fabrics, Inc. 102,547 4,048 School Specialty, Inc.* 137,672 --------------- $ 476,582 --------------- TOTAL RETAILING $ 911,343 --------------- FOOD & DRUG RETAILING - 1.0% FOOD RETAIL - 1.0% 4,208 Fresh Del Monte Produce, Inc. $ 100,277 3,325 Wild Oats Markets, Inc.* 42,992 --------------- TOTAL FOOD & DRUG RETAILING $ 143,269 --------------- HOUSEHOLD & PERSONAL PRODUCTS - 1.2% HOUSEHOLD PRODUCTS - 1.2% 10,804 Nu Skin Enterprises, Inc. $ 184,640 --------------- TOTAL HOUSEHOLD & PERSONAL PRODUCTS $ 184,640 --------------- HEALTH CARE EQUIPMENT & SERVICES - 6.1% HEALTH CARE DISTRIBUTORS - 2.1% 2,685 Amerigroup Corp.* $ 114,515 5,750 Chattem, Inc.* 102,925 5,650 Cross Country Healthcares, Inc.* 84,298 --------------- $ 301,738 --------------- HEALTH CARE EQUIPMENT - 0.1% 225 Analogic Corp. $ 9,225 275 Arrow International, Inc. 6,870 --------------- $ 16,095 --------------- HEALTH CARE FACILITIES - 0.6% 875 Sunrise Senior Living, Inc.* $ 33,898 1,758 Triad Hospitals, Inc.* 58,489 --------------- $ 92,387 --------------- HEALTH CARE SERVICES - 1.9% 4,202 Pediatrix Medical Group, Inc.*+ $ 231,488 2,875 Providence Service Corp.* 46,518 --------------- $ 278,006 --------------- MANAGED HEALTH CARE - 1.4% 3,115 PacifiCare Health Systems* $ 210,574 --------------- TOTAL HEALTH CARE EQUIPMENT & SERVICES $ 898,800 --------------- PHARMACEUTICALS & BIOTECHNOLOGY - 0.5% BIOTECHNOLOGY - 0.5% 11,505 Kendle International, Inc.* $ 72,942 --------------- TOTAL PHARMACEUTICALS & BIOTECHNOLOGY $ 72,942 ---------------
The accompanying notes are an integral part of these financial statements. 5
SHARES VALUE BANKS - 4.8% DIVERSIFIED BANKS - 2.4% 2,606 Banner Corp. $ 65,541 5,305 BankAtlantic Bancorp, Inc. 100,795 800 Local Financial Corp.* 16,672 5,550 Provident Financial Services, Inc. 104,895 4,650 Texas Capital Bancshares, Inc.* 67,248 --------------- $ 355,151 --------------- REGIONAL BANKS - 1.6% 12,000 Cardinal Financial Corp.* $ 99,360 1,105 Irwin Financial Corp. 34,697 400 Sun Bancorp, Inc.* 10,560 3,200 Sterling Bancshares, Inc. 42,656 930 Whitney Holding Corp. 38,121 --------------- $ 225,394 --------------- THRIFTS & MORTGAGE FINANCE - 0.8% 300 Franklin Bank Corp.* $ 5,700 4,225 First Niagara Financial Group, Inc.* 62,995 2,450 Staten Island Bancorp, Inc. 55,125 --------------- $ 123,820 --------------- TOTAL BANKS $ 704,365 --------------- DIVERSIFIED FINANCIALS - 3.3% CONSUMER FINANCE - 1.3% 1,850 American Capital Strategies $ 55,001 15,456 Medallion Financial Corp. 146,677 --------------- $ 201,678 --------------- CONSUMER FINANCE - 1.5% 4,725 Advanta Corp. $ 61,378 3,878 Advanta Corp. (Class B) 49,328 10,000 Rewards Network, Inc.* 106,600 --------------- $ 217,306 --------------- SPECIALIZED FINANCE - 0.5% 2,568 Financial Federal Corp.* $ 78,452 --------------- TOTAL DIVERSIFIED FINANCIALS $ 497,436 --------------- INSURANCE - 4.1% LIFE & HEALTH INSURANCE - 0.5% 2,756 FBL Financial Group, Inc. $ 71,105 --------------- PROPERTY & CASUALTY INSURANCE - 3.1% 1,700 American Safety Insurance Group, Ltd.* $ 22,287 3,101 IPC Holdings, Ltd. 120,753 728 Philadelphia Consolidated Holding Corp.* 35,548 8,400 Quanta Capital Holdings (144A)* 96,600 2,550 RLI Corp. 95,523 1,350 Selective Insurance Group, Inc. 43,686 999 Stewart Information Services Corp. 40,509 --------------- $ 454,906 --------------- REINSURANCE - 0.5% 3,450 Odyssey Re Holdings, Corp. $ 77,798 --------------- TOTAL INSURANCE $ 603,809 --------------- REAL ESTATE - 5.6% REAL ESTATE MANAGEMENT & DEVELOPMENT - 0.5% 2,400 Corrections Corp. of America* $ 69,192 --------------- REAL ESTATE INVESTMENT TRUSTS - 5.1% 4,010 Bedford Property Investors, Inc. $ 114,806 1,453 Entertainment Properties Trust 50,434 2,324 Pennsylvania Real Estate Investment Trust, Inc. 84,361 3,975 Reckson Associates Realty Corp. 96,593 11,065 Trizec Properties, Inc. 170,401 3,896 Universal Health Realty, Inc. 117,270 5,512 Ventas, Inc. 121,264 --------------- $ 755,129 --------------- TOTAL REAL ESTATE $ 824,321 --------------- SOFTWARE & SERVICES - 3.7% APPLICATION SOFTWARE - 1.2% 9,754 SPSS, Inc.* $ 174,402 --------------- DATA PROCESSING & OUTSOURCED SERVICES - 0.7% 4,253 Lightbridge, Inc.* $ 38,702 6,717 Pegusus Systems, Inc.* 70,327 --------------- $ 109,029 --------------- HOME ENTERTAINMENT SOFTWARE - 0.1% 1,025 Plato Learning, Inc.* $ 10,814 --------------- INTERNET SOFTWARE & SERVICES - 0.6% 4,500 Internet Security Systems, Inc* $ 84,735 --------------- SYSTEMS SOFTWARE - 1.1% 11,925 Borland Software Corp.* $ 116,030 4,250 Netiq Corp.* 56,313 --------------- $ 172,343 --------------- TOTAL SOFTWARE & SERVICES $ 551,323 --------------- TECHNOLOGY HARDWARE & EQUIPMENT - 2.1% NETWORKING EQUIPMENT - 0.2% 3,290 Computer Network Tech Corp.* $ 31,387 --------------- COMMUNICATIONS EQUIPMENT - 0.9% 15,525 Remec, Inc.* $ 130,565 --------------- COMPUTER STORAGE & PERIPHERALS - 0.5% 2,600 Electronics For Imaging, Inc.* $ 67,652 --------------- TECHNOLOGY DISTRIBUTORS - 0.5% 1,875 Tech Data Corp.* $ 74,419 --------------- TOTAL TECHNOLOGY HARDWARE & EQUIPMENT $ 304,023 ---------------
The accompanying notes are an integral part of these financial statements. 6
SHARES VALUE SEMICONDUCTORS - 1.5% SEMICONDUCTOR EQUIPMENT - 1.1% 2,243 Advanced Energy Industries, Inc.* $ 58,430 1,687 Brooks Automation, Inc.* 40,775 3,145 Photronics, Inc.* 62,648 --------------- $ 161,853 --------------- SEMICONDUCTORS - 0.4% 4,470 HI/FN Inc.* $ 53,193 384 Power Integrations, Inc.* 12,849 --------------- $ 66,042 --------------- TOTAL SEMICONDUCTORS $ 227,895 --------------- TELECOMMUNICATION SERVICES - 0.9% INTEGRATED TELECOMMUNICATION SERVICES - 0.1% 900 CT Communications, Inc. $ 12,150 --------------- WIRELESS TELECOMMUNICATION SERVICES - 0.8% 13,128 Boston Communications Group, Inc.* $ 121,959 --------------- TOTAL TELECOMMUNICATION SERVICES $ 134,109 --------------- UTILITIES - 6.4% ELECTRIC UTILITIES - 0.6% 6,650 Allegheny Energy, Inc.* $ 84,854 --------------- GAS UTILITIES - 5.0% 3,325 AGL Resources, Inc. $ 96,758 450 New Jersey Resources Corp. 17,330 10,097 NUI Corp. 162,764 3,780 People's Energy Corp. 158,911 13,024 Southwestern Energy Co.* 311,274 --------------- $ 747,037 --------------- MULTI-UTILITIES & UNREGULATED POWER - 0.4% 1,350 Energen Corp. $ 55,391 --------------- UTILITIES - 0.4% 1,675 UGI Corp. $ 56,783 --------------- TOTAL UTILITIES $ 944,065 --------------- TOTAL COMMON STOCKS (Cost $9,876,316) $ 12,403,253 --------------- EXCHANGE TRADED FUNDS - 1.3% 675 Nasdaq 100 Index Traded Fund* $ 24,587 1,075 Russell 2000 Exchange Traded Fund 172,860 --------------- TOTAL EXCHANGE TRADED FUNDS (Cost $144,747) $ 197,447 --------------- TEMPORARY CASH INVESTMENT - 4.8% SECURITY LENDING COLLATERAL - 4.8% 717,616 Securities Lending Investment Fund, 1.02% $ 717,616 --------------- TOTAL TEMPORARY CASH INVESTMENT (Cost $717,616) $ 717,616 --------------- TOTAL INVESTMENT IN SECURITIES - 89.9% (Cost $10,738,679) $ 13,318,316 --------------- OTHER ASSETS AND LIABILITIES - 10.1% $ 1,489,983 --------------- TOTAL NET ASSETS - 100.0% $ 14,808,299 ===============
* Non-income producing security + At December 31, 2003, the following securities have been pledged to cover margin requirements for open futures contracts:
SHARES SECURITY MARKET VALUE 2,385 Pediatrix Medical Group, Inc. $ 131,390 400 R.H. Donnelly Corp. $ 15,936
The accompanying notes are an integral part of these financial statements. 7 PIONEER SMALL CAP VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST FINANCIAL HIGHLIGHTS
YEAR ENDED YEAR ENDED 11/8/01 TO CLASS I 12/31/03 12/31/02 12/31/01(a) Net asset value, beginning of period $ 9.23 $ 10.87 $ 10.00 ---------- ---------- ----------- Increase (decrease) from investment operations: Net investment income (loss) $ -- $ (0.00) $ 0.01 Net realized and unrealized gain (loss) on investments and foreign currency transactions 3.27 (1.64) 0.86 ---------- ---------- ----------- Net increase (decrease) from investment operations $ 3.27 $ (1.64) $ 0.87 Distributions to Shareowners Net investment income -- (0.00)(c) (0.00) Net realized gain -- (0.00)(c) -- ---------- ---------- ----------- Net increase (decrease) in net asset value $ 3.27 $ (1.64) $ 0.87 ---------- ---------- ----------- Net asset value, end of period $ 12.50 $ 9.23 $ 10.87 ========== ========== =========== Total return* 35.43% (15.08)% 8.70% Ratio of net expenses to average net assets+ 1.25% 1.25% 1.21%** Ratio of net investment income (loss) to average net assets+ 0.03% (0.05)% 0.86%** Portfolio turnover rate 74% 50% 0%** Net assets, end of period (in thousands) $ 12,049 $ 6,603 $ 504 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 2.40% 2.76% 77.48%** Net investment income (loss) (1.12)% (1.56)% (75.41)%** Ratios with waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.25% 1.25% 1.21%* Net investment income (loss) 0.03% (0.05)% 0.86%*
(a) Shares of Pioneer Small Cap Value VCT Portfolio were first publicly offered on November 8, 2001. (c) Amount rounds to less than one cent per share. * 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 with no reduction for fees paid indirectly. The accompanying notes are an integral part of these financial statements. 8 PIONEER SMALL CAP VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST STATEMENT OF ASSETS AND LIABILITIES 12/31/03
PIONEER SMALL CAP VALUE VCT PORTFOLIO ASSETS: Investment in securities, at value (including securities loaned of $683,740) (Cost $10,738,679) $ 13,318,316 Cash 2,419,350 Cash held as collateral for furtures contracts - Futures collateral - Foreign currencies, at value - Receivables - Investment securities sold - Fund shares sold 2,468 Variation margin - Dividends, interest and foreign taxes withheld 15,533 Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, open - net - Due from Pioneer Investment Management, Inc. 8,595 Other 2,111 --------------- Total assets $ 15,766,373 --------------- LIABILITIES: Payables - Investment securities purchased $ 145,829 Fund shares repurchased 30,346 Dividends - Upon return of securities loaned 717,616 Variation Margin 6,800 Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, net - Reserve for repatriation taxes - Due to bank - Due to affiliates 6,814 Accrued expenses 50,669 Other - --------------- Total liabilities $ 958,074 --------------- NET ASSETS: Paid-in capital $ 13,239,354 Accumulated net investment income (loss) 3,664 Accumulated undistributed net realized gain (loss) (1,036,790) Net unrealized gain (loss) on: Investments 2,579,637 Futures contracts 22,434 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - --------------- Total net assets $ 14,808,299 --------------- NET ASSET VALUE PER SHARE: CLASS I: (Unlimited number of shares authorized) Net assets $ 12,048,726 Shares outstanding 963,935 --------------- Net asset value per share $ 12.50 CLASS II: (Unlimited number of shares authorized) Net assets $ 2,759,573 Shares outstanding 221,239 --------------- Net asset value per share $ 12.47
The accompanying notes are an integral part of these financial statements. 9 STATEMENT OF OPERATIONS
PIONEER SMALL CAP VALUE VCT PORTFOLIO YEAR ENDED 12/31/03 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $60) $ 112,876 Interest 5,591 Income on securities loaned, net 1,567 Other - --------------- Total investment income $ 120,034 --------------- EXPENSES: Management fees $ 69,462 Transfer agent fees 1,460 Distribution fees (Class II) 1,413 Administrative fees 37,536 Custodian fees 35,540 Professional fees 24,679 Printing 46,429 Fees and expenses of nonaffiliated trustees 545 Miscellaneous 7,128 --------------- Total expenses $ 224,192 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (106,283) --------------- Net expenses $ 117,909 --------------- Net investment income (loss) $ 2,125 --------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ (393,602) Futures contracts 59,434 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - --------------- $ (334,168) --------------- Change in net unrealized gain or (loss) from: Investments $ 3,326,626 Futures contracts 27,316 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - --------------- $ 3,353,942 --------------- Net gain (loss) on investments, futures contracts and foreign currency transactions $ 3,019,774 =============== Net increase (decrease) in net assets resulting from operations $ 3,021,899 ===============
The accompanying notes are an integral part of these financial statements. 10 STATEMENT OF CHANGES IN NET ASSETS
PIONEER SMALL CAP VALUE VCT PORTFOLIO YEAR YEAR ENDED ENDED 12/31/03 12/31/02 FROM OPERATIONS: Net investment income (loss) $ 2,125 $ (2,200) Net realized gain (loss) on investments (334,168) (704,976) Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions 3,353,942 (768,908) ------------ ------------ Net increase (decrease) in net assets resulting from operations $ 3,021,899 $ (1,476,084) ------------ ------------ DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ - $ (188) Class II - - Net realized gain Class I - (62) Class II - - Tax return of capital Class I - - Class II - - ------------ ------------ Total distributions to shareowners $ - $ (250) ------------ ------------ FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 15,752,093 $ 11,382,894 Reinvestment of distributions - 247 Cost of shares repurchased (10,568,904) (3,807,810) ------------ ------------ Net increase (decrease) in net assets resulting from fund share transactions $ 5,183,189 $ 7,575,331 ------------ ------------ Net increase (decrease) in net assets $ 8,205,088 $ 6,098,997 ------------ ------------ NET ASSETS: Beginning of year 6,603,211 504,214 ------------ ------------ End of year $ 14,808,299 $ 6,603,211 ------------ ------------ Accumulated undistributed/(distributions in excess of) net investment income (loss) $ 3,664 $ 1 ------------ ------------
The accompanying notes are an integral part of these financial statements. 11 PIONEER SMALL CAP VALUE VCT PORTFOLIO NOTES TO FINANCIAL STATEMENTS 12/31/03 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Pioneer Small Cap Value VCT Portfolio (the Portfolio), a Portfolio of Pioneer Variable Contracts Trust (the Trust) which is a Delaware business trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of sixteen separate portfolios, fourteen of which issue both Class I and Class II shares (collectively, the Portfolios, individually the Portfolio) as follows: PORTFOLIOS: Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio) Pioneer Europe VCT Portfolio (Europe Portfolio) Pioneer International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio) Pioneer Small Company VCT Portfolio (Small Company Portfolio) Pioneer Mid Cap Value VCT Portfolio (Mid-Cap Value Portfolio) Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio) Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio) Pioneer Fund VCT Portfolio (Fund Portfolio) Pioneer Equity Income VCT Portfolio (Equity-Income Portfolio) Pioneer Balanced VCT Portfolio (Balanced Portfolio) Pioneer High Yield VCT Portfolio (High Yield Portfolio) Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio) Pioneer America Income VCT Portfolio (America Income Portfolio) Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares only) Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only) Portfolio shares may only be purchased by insurance companies for the purpose of funding variable annuity or variable life insurance contracts, and may also be purchased by qualified pension and retirement plans. The financial highlights for the Portfolio's Class II shares are presented in a separate book. The investment objective of Small Cap Value Portfolio is to seek capital appreciation. Trust's financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America 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 income, expenses, gains and losses during the reporting years. 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 as of trade date. Net asset values for the portfolio 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, based on the last sale price on the principal exchange where they traded, are determined as of such times. 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 becomes aware of the ex-dividend data in the exercise of reasonable diligence. Interest income, including interest on income bearing cash accounts, is recorded on the accrual basis, net of unrecoverable foreign taxes withheld at the applicable country rates. All discounts/premiums are accreted/amortized for financial reporting purposes. 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, and, if applicable, are reported net of foreign taxes on capital gains at the applicable country rates. Small-capitalization stocks, while offering the potential for higher returns, may be subject to greater short-term price fluctuations than securities of larger companies. B. FUTURES CONTRACTS The Portfolio may enter into futures transactions to hedge against changes in interest rates, securities prices, and currency rates or to seek to increase total return. Upon entering into a futures contract, the Portfolio is required to deposit with a broker an amount of cash or securities equal to the minimum "initial margin" requirements of the associated futures 12 exchange. Subsequent payments for futures contracts ("variation margin") are paid or received by the Portfolio, depending on the daily fluctuation in the value of the contracts, and are recorded by the Portfolio as unrealized gains or losses. When the contract is closed, the Portfolio realizes a gain or loss equal to the difference between the opening and closing value of the contract. The use of futures contracts involves, to varying degrees, elements of market risk which may exceed the amounts recognized by the Portfolio. Changes in the value of the contracts may not directly correlate to the changes in the value of the underlying securities. These risks may decrease the effectiveness of the Portfolio's hedging and trading strategies and potentially result in a loss. As of December 31, 2003, open contracts were as follows:
NUMBER OF CONTRACTS SETTLEMENT UNREALIZED PORTFOLIO TYPE LONG/(SHORT) MONTH MARKET VALUE GAIN/(LOSS) - ---------------------------------------------------------------------------------------- Small Cap Value Russell 2000 2 Mar-04 $ 557,200 $ 22,434
C. FOREIGN CURRENCY TRANSLATION The books and records of the Portfolio 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, 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. D. FORWARD FOREIGN CURRENCY CONTRACTS The Portfolio enters 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 Portfolio's financial statements. The Portfolio records 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. E. 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 shareowners. Therefore, no federal income tax provision is required. In addition to the requirements of the Internal Revenue Code, the Portfolio may also be required to pay local taxes on the recognition of capital gains and/or the repatriation of foreign currencies in certain countries. During the year ended December 31, 2003, the no such taxes were paid. The amount and characterization of distributions to shareowners 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. Capital loss carryforwards are available to offset future realized capital gains. At December 31, 2003, Small Cap Value VCT Portfolio had a capital loss carryforward of $513,628, of which the following amounts will expire between 2010 and 2011 if not utilized: $508,141 in 2010, and $5,487 in 2011. At December 31, 2003, the Portfolio made reclassifications as described below. These reclassifications have no impact on the net asset value of the Portfolio and are designed to present the portfolios' capital accounts on a tax basis.
ACCUMULATED NET ACCUMULATED INVESTMENT REALIZED GAIN/ PAID-IN PORTFOLIO INCOME/(LOSS) LOSS CAPITAL - ----------------------------------------------------------- Small Cap Value Portfolio 1,538 2,059 (3,597)
13 The following chart shows the components of distributable earnings (accumulated losses) as of December 31, 2003 and the distributions paid during the year ended December 31, 2003 on a tax basis as of December 31, 2003.
PIONEER PIONEER SMALL CAP SMALL CAP VALUE VALUE VCT PORTFOLIO VCT PORTFOLIO 2003 2002 - ------------------------------------------------------------- DISTRIBUTIONS PAID FROM: Ordinary Income $ - $ 188 Long-Term capital gain - 62 ----------------------------- $ - 250 Return of Capital - - ----------------------------- Total distributions $ - $ 250 ----------------------------- DISTRIBUTABLE EARNINGS (ACCUMULATED LOSSES): Undistributed ordinary income $ 3,397 Undistributed long-term gain/ (Capital loss carryforward) (513,628) Unrealized appreciation (depreciation) 2,079,176 ------------- Total $ 1,568,945
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily attributable to the tax deferral of losses on wash sales, returns of capital on REITs, and the recognition of unrealized gains or losses on certain futures contracts. F. PORTFOLIO SHARES The Portfolio records sales and repurchases of its portfolio shares as of trade date. Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the principal underwriter for the Trust and a wholly owned indirect subsidiary of UniCredito Italiano S.p.A. (UniCredito Italiano), $246,661 in commissions on the sale of Trust shares for the year ended December 31, 2003. Distribution fees are calculated based on the average daily net asset values attributable to Class I and Class II shares of the Portfolio, respectively. Shareowners of each class share all expenses and fees paid to the transfer agent, Pioneer Investment Management Shareholder Services, Inc. (PIMSS), for its services, which are allocated based on the number of accounts in each class and the ratable allocation or related out-of-pocket expenses (see Note 3). Income, common expenses and realized and unrealized gains and losses are calculated at the Portfolio level and allocated daily to each class of shares based on the respective percentage of adjusted net assets at the beginning of the day. Distributions paid by the Portfolio with respect to each class of shares are calculated in the same manner, at the same time, and in the same amount, except that Class I and Class II shares can bear different transfer agent and distribution fees. Dividends and distributions to shareowners are recorded on the ex-dividend date. Income, expenses (excluding 12b-1 fees) and gains and losses are calculated at the Portfolio level and are allocated daily based on the respective percentage of adjusted net assets at the beginning of the day. G. SECURITIES LENDING The Portfolio lends securities in its portfolio to certain broker-dealers or other institutional investors, with the Portfolio's custodian acting as the lending agent. When entering into a loan, the Portfolio receives collateral which is maintained by the custodian and earns income in the form of negotiated lenders' fees. The Portfolio also continues to receive interest or dividends on the securities loaned, and gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for account of the Trust. The loans are secured by collateral of at least 102%, at all times, of the fair value of the securities loaned. The fair value of the collateral will be adjusted daily to reflect any price fluctuation in the value of the loaned securities. The Trust has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Trust invests cash collateral in the Securities Lending Investment Fund which is managed by Brown Brothers Harriman & Co., the Trust's custodian. H. REPURCHASE AGREEMENTS With respect to repurchase agreements entered into by the Portfolio, 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 Portfolio's custodian, or subcustodian. The Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is responsible for determining that the value of the collateral remains at least equal to the repurchase price. 2. MANAGEMENT AGREEMENT PIM manages the Portfolio, and is a wholly owned indirect subsidiary of UniCredito Italiano. Management fees are calculated daily at the following annual rate of 0.75% of the Portfolio's average daily net assets. In addition, under the management and administration agreement, certain other services and costs, including accounting, regulatory reporting and insurance premiums, are paid by the Portfolio. At December 31, 2003, $3,125 was payable to PIM related to management fees, administrative fees and certain other services. 14 3. TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. (PIMSS), a wholly owned indirect subsidiary of UniCredito Italiano provides substantially all transfer agent and shareowner services to the Trust at negotiated rates. Included in due to affiliates is $3,125 in transfer agent fees payable to PIMSS at December 31, 2003. 4. DISTRIBUTION PLANS The Portfolio has adopted a plan of distribution for Class II shares in accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily net assets attributable to Class II shares. Included in due to affiliates is $564 payable to PFD at December 31, 2003.
GROSS GROSS NET APPRECIATION/ TAX COST APPRECIATION DEPRECIATION (DEPRECIATION) - ------------------------------------------------------------------------------------------- Small Cap Value Portfolio $ 11,239,140 $ 2,333,627 $ (254,451) $ 2,079,176
5. AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION At December 31, 2003, the Portfolio's aggregate unrealized appreciation and depreciation based on cost for federal income tax purposes was as follows:
'03 SHARES '03 AMOUNT '02 SHARES '02 AMOUNT - ---------------------------------------------------------------------------------------- SMALL CAP VALUE PORTFOLIO CLASS I: Shares sold 1,276,588 $ 13,058,675 1,077,831 $ 11,382,891 Reinvestment of distributions - - 23 - Shares repurchased (1,028,432) (10,409,382) (408,459) (3,807,810) -------------------------------------------------------- Net increase (decrease) 248,156 $ 2,649,293 669,395 $ 7,575,081 ======================================================== CLASS II: Shares sold 235,328 $ 2,693,418 - $ - Reinvestment of distributions - - - - Shares repurchased (14,089) (159,522) - - -------------------------------------------------------- Net increase (decrease) 221,239 $ 2,533,896 - $ - ========================================================
6. PORTFOLIO TRANSACTIONS The cost of purchases and the proceeds from sales of investments other than U.S. Government obligations and temporary cash investments for the year ended December 31, 2003, were $9,709,719 and $5,940,901, respectively. 7. CAPITAL SHARES At December 31, 2003, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: 15 PIONEER SMALL CAP VALUE VCT PORTFOLIO REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF TRUSTEES OF PIONEER VARIABLE CONTRACTS TRUST AND THE CLASS I SHAREOWNERS OF PIONEER SMALL CAP VALUE VCT PORTFOLIO: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer Small Cap Value VCT Portfolio, one of the portfolios constituting Pioneer Variable Contracts Trust (the "Trust") as of December 31, 2003, and the related statement of operations, the statements of changes in net assets and financial highlights for the period from May 1, 2003 (commencement of operations) to December 31, 2003. 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. The financial highlights for the period ended December 31, 2001 were audited by other auditors who have ceased operations and whose report, dated February 8, 2002 expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 Pioneer Small Cap Value VCT Portfolio of Pioneer Variable Contracts Trust at December 31, 2003, the results of its operations, the changes in its net assets and the financial highlights for the period from May 1, 2003 (commencement of operations) to December 31, 2003, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts February 6, 2004 16 TRUSTEES, OFFICERS AND SERVICE PROVIDERS INVESTMENT ADVISER Pioneer Investment Management, Inc. CUSTODIAN Brown Brothers Harriman & Co. INDEPENDENT AUDITORS Ernst & Young LLP PRINCIPAL UNDERWRITER Pioneer Funds Distributor, Inc. LEGAL COUNSEL Hale and Dorr LLP SHAREOWNER SERVICES AND TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. TRUSTEES AND OFFICERS The Fund's Board of Trustees provides broad supervision over the affairs of the Fund. The officers of the Fund are responsible for the Fund's operations. The Fund's Trustees and officers are listed below, together with their principal occupations during the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of 1940 are referred to as Interested Trustees. Trustees who are not interested persons of the Fund are referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 51 U.S. registered investment portfolios for which Pioneer Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the Portfolio is 60 State Street, Boston, Massachusetts 02109. The Fund's statement of additional information provides more detailed information regarding the Fund's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Fund are available without charge, upon request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. INTERESTED TRUSTEES
OTHER DIRECTORSHIPS POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING HELD BY THIS NAME AND AGE WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS TRUSTEE John F. Cogan, Jr. (77)* Chairman of the Trustee since Deputy Chairman and a Director of Director of Harbor Board, Trustee 1994. Serves until a Pioneer Global Asset Management Global Company, and President successor trustee is S.p.A.("PGAM"); Non-Executive Chairman Ltd. elected or earlier and a Director of Pioneer Investment retirement or removal. Management USA Inc. ("PIM-USA "); Chairman and a Director of Pioneer; Director of Pioneer Alternative Investment Management Limited (Dublin); President and a Director of Pioneer Alternative Investment Management (Bermuda) Limited and affiliated funds; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel (since 2000, partner prior to 2000), Hale and Dorr LLP (counsel to PIM-USA and the Pioneer Funds) * Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. Osbert M. Hood (51)** Trustee and Trustee since June, President and Chief Executive Officer, None Executive Vice 2003. Serves until a PIM-USA since May, 2003 (Director since President successor trustee is January, 2001); President and Director elected or earlier of Pioneer since May 2003; Chairman and retirement or removal. Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Executive Vice President of all of the Pioneer Funds since June 2003; Executive Vice President and Chief Operating Officer of PIM-USA, November 2000-May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999-November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997-November 1999 ** Mr. Hood is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
17 INDEPENDENT TRUSTEES
OTHER DIRECTORSHIPS POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING HELD BY THIS NAME AND AGE WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS TRUSTEE Mary K. Bush (55) Trustee Trustee since President, Bush International Director of Brady 3509 Woodbine Street, September, 2000. (international financial advisory firm) Corporation Chevy Chase, MD 20815 Serves until a (industrial successor trustee is identification and elected or earlier specialty coated retirement or removal. material products manufacturer), Millenium Chemicals, Inc. (commodity chemicals), Mortgage Guaranty Insurance Corporation, and R.J. Reynolds Tobacco Holdings, Inc. (tobacco) Richard H. Egdahl, M.D. (77) Trustee Trustee since Alexander Graham Bell Professor of None Boston University Healthcare 1995. Serves until a Health Care Entrepreneurship, Boston Entrepreneurship Program, successor trustee is University; Professor of Management, 53 Bay State Road, elected or earlier Boston University School of Management; Boston, MA 02215 retirement or removal. Professor of Public Health, Boston University School of Public Health; Professor of Surgery, Boston University School of Medicine; and University Professor, Boston University Margaret B.W. Graham (56) Trustee Trustee since Founding Director, The Winthrop Group, None 1001 Sherbrooke September, 2000. Inc. (consulting firm); Professor of Street West, Serves until a Management, Faculty of Management, Montreal, Quebec, Canada successor trustee is McGill University elected or earlier retirement or removal. Marguerite A. Piret (55) Trustee Trustee since President and Chief Executive Officer, None One Boston Place, 1995. Serves until a Newbury, Piret & Company, Inc. 28th Floor, successor trustee is (investment banking firm) Boston, MA 02108 elected or earlier retirement or removal. Stephen K. West (75) Trustee Trustee since Senior Counsel, Sullivan & Cromwell (law Director, The Swiss 125 Broad Street, 1995. Serves until a firm) Helvetia Fund, Inc. New York, NY 10004 successor trustee is (closed-end elected or earlier investment company) retirement or removal. and AMVESCAP PLC (investment managers) John Winthrop (67) Trustee Trustee since President, John Winthrop & Co., Inc. None One North Adgers Wharf, September, 2000. (private investment firm) Charleston, SC 29401 Serves until a successor trustee is elected or earlier retirement or removal.
18 FUND OFFICERS
OTHER DIRECTORSHIPS POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING HELD BY THIS NAME AND AGE WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS OFFICER Dorothy E. Bourassa (56) Secretary Serves at the Secretary of PIM-USA; Senior Vice None discretion of board President-Legal of Pioneer; and Secretary/Clerk of most of PIM-USA's subsidiaries since October 2000; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003); and Senior Counsel, Assistant Vice President and Director of Compliance of PIM-USA from April 1998 through October 2000 Christopher J. Kelley (39) Assistant Serves at the Assistant Vice President and Senior None Secretary discretion of board Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001; Vice President and Associate General Counsel from July 1996 to July 2000); Assistant Secretary of all of the Pioneer Funds since September 2003 David C. Phelan (46) Assistant Serves at the Partner, Hale and Dorr LLP; Assistant None Secretary discretion of board Secretary of all of the Pioneer Funds since September 2003 Vincent Nave (58) Treasurer Serves at the Vice President-Fund Accounting, None discretion of board Administration and Custody Services of Pioneer (Manager from September 1996 to February 1999); and Treasurer of all of the Pioneer Funds (Assistant Treasurer from June 1999 to November 2000) Luis I. Presutti (38) Assistant Serves at the Assistant Vice President-Fund None Treasurer discretion of board Accounting, Administration and Custody Services of Pioneer (Fund Accounting Manager from 1994 to 1999); and Assistant Treasurer of all of the Pioneer Funds since November 2000
19
OTHER DIRECTORSHIPS POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING HELD BY THIS NAME AND AGE WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS OFFICER Gary Sullivan (45) Assistant Serves at the Fund Accounting Manager-Fund Accounting, None Treasurer discretion of board Administration and Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 Katharine Kim Sullivan (30) Assistant Serves at the Fund Administration Manager-Fund None Treasurer discretion of board Accounting, Administration and Custody Services since June 2003; Assistant Vice President-Mutual Fund Operations of State Street Corporation from June 2002 to June 2003 (formerly Deutsche Bank Asset Management); Pioneer Fund Accounting, Administration and Custody Services (Fund Accounting Manager from August 1999 to May 2002, Fund Accounting Services Supervisor from 1997 to July 1999); Assistant Treasurer of all of the Pioneer Funds since September 2003
20 THIS PAGE FOR YOUR NOTES. 21 THIS PAGE FOR YOUR NOTES. 22 [PIONEER INVESTMENTS(R) LOGO] 14677-00-0204 [PIONEER INVESTMENTS(R) LOGO] PIONEER VARIABLE CONTRACTS TRUST PIONEER EQUITY INCOME VCT PORTFOLIO -- CLASS I SHARES ANNUAL REPORT DECEMBER 31, 2003 PIONEER VARIABLE CONTRACTS TRUST TABLE OF CONTENTS Pioneer Equity Income VCT Portfolio Portfolio and Performance Update 2 Portfolio Management Discussion 3 Schedule of Investments 4 Financial Statements 7 Notes to Financial Statements 11 Report of Independent Auditors 15 Trustees, Officers and Service Providers 16
PIONEER EQUITY INCOME VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO AND PERFORMANCE UPDATE 12/31/03 [CHART] PORTFOLIO DIVERSIFICATION (As a percentage of total investment portfolio) U.S. Common Stocks 93.5% Temporary Cash Investments 3.9% Convertible Preferred Stocks 2.5% Convertible Corporate Bonds 0.1%
[CHART] SECTOR DISTRIBUTION (As a percentage of equity holdings) Financials 21.8% Utilities 13.2% Consumer Discretionary 12.3% Industrials 10.8% Energy 10.7% Health Care 8.4% Telecommunication Services 7.3% Consumer Staples 7.0% Materials 4.6% Information Technology 3.9%
FIVE LARGEST HOLDINGS (As a percentage of equity holdings) 1. Paccar, Inc. 4.49% 2. ChevronTexaco Corp. 4.05 3. ConocoPhillips 3.50 4. Exxon Mobil Corp. 3.15 5. Constellation Energy Group 2.68
Holdings will vary for other periods. This list excludes temporary cash and derivative investments. PRICES AND DISTRIBUTIONS
12/31/03 12/31/02 Net Asset Value per Share $ 18.09 $ 15.11
DISTRIBUTIONS PER SHARE SHORT-TERM LONG-TERM (1/1/03 - 12/31/03) DIVIDENDS CAPITAL GAINS CAPITAL GAINS $ 0.3861 $ - $ -
PERFORMANCE OF A $10,000 INVESTMENT The following chart shows the change in value of an investment made in PIONEER EQUITY INCOME VCT PORTFOLIO at net asset value, compared to that of the Russell 1000 Value Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [CHART]
PIONEER EQUITY INCOME VCT PORTFOLIO* RUSSELL 1000 VALUE INDEX+ 3/31/95 $ 10,000 $ 10,000 $ 12,025 $ 12,632 $ 13,852 $ 15,366 12/31/97 $ 18,732 $ 20,773 $ 22,816 $ 24,021 12/31/99 $ 23,092 $ 25,787 $ 26,522 $ 27,597 12/31/2001 $ 24,673 $ 26,054 $ 20,770 $ 22,010 12/31/2003 $ 25,466 $ 28,618
+ Index comparison begins 2/28/95. The Russell 1000 Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growt values. Index returns assume reinvestment of dividends and, unlike Portfolio returns, do not reflect any fees, expenses or sales charges. Portfolio returns are based on net asset value and do not reflect any annuity-related costs. You cannot invest directly in any Index. AVERAGE ANNUAL TOTAL RETURNS (As of December 31, 2003) NET ASSET VALUE* Life-of-Class 11.50% (3/1/95) 5 Years 2.22% 1 Year 22.61%
All total returns shown assume reinvestment of distributions at net asset value. * Portfolio performance does not reflect any variable contract fees, expenses or sales charges. If they had been included, performance would have been lower. See the pages that comprise the inside cover of this report for performance net of any contract fees, expenses or sales charges. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns and principal values fluctuate so that your investment, when redeemed, may be worth more or less than its original cost. The performance table and graph do not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. 2 PIONEER EQUITY INCOME VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO MANAGEMENT DISCUSSION 12/31/03 In the following discussion, John Carey, portfolio manager of Pioneer Equity Income VCT Portfolio, reviews the Portfolio's performance and the investment environment over the twelve months ended December 31, 2003. Q: JOHN, PLEASE GIVE US A BROAD ECONOMIC OVERVIEW AND DISCUSS THE PORTFOLIO'S PERFORMANCE. A: A powerful yearend rally drove stock prices to new highs, especially during the fourth quarter. The outlook for strong improvement in corporate earnings was the main source of investor confidence. Also helping to make the case for stocks were the Federal tax-law changes enacted in May, reducing the tax rates on long-term capital gains and qualified income dividends. At the same time, the weakening dollar and new corporate scandals clouded the horizon and, together with lofty valuations in some sectors and renewed terrorist concerns, led investors to look forward into 2004 with some caution. For the year ended December 31, 2003, Pioneer Equity Income VCT Portfolio performed well on an absolute basis returning 22.61% at net asset value. These results lagged the very strong Russell 1000 Value Index, which returned 30.03% for the same period. Q: WHAT BOOSTED THE PERFORMANCE OF THE PORTFOLIO OVER THE YEAR? A: The brightest spot for the Portfolio was our security selection and overweighting in industrials. In particular, adding over 1.5% of performance during the year was our overweight in PACCAR, a truck manufacturer. The stock returned 90% during the year, due to a strengthening economy and an increase in orders. Deere also performed well, contributing to performance. The stock returned 44% over the year due to an improving global economy and a pick up in global orders for its agricultural equipment products. Q: WHICH HOLDINGS OR SECTORS HURT THE PORTFOLIO? A: Detractors from portfolio performance included our underweights and security selection in the financials and information technology sectors. Charter One Financial, a commercial bank that we added in late February, performed well on an absolute basis by returning over 24% during the year but underperformed the sector's 35% return on a relative basis. Thus, our overweight position in the stock detracted from relative performance. We also did not own Citigroup, which was a large position in the Index that outperformed. Finally, in information technology, our stocks made money for us, but not as much as tech stocks in general. Again, we were underweight in that lower yielding, but strongly performing sector. Q: DID YOU MAKE ANY CHANGES TO THE PORTFOLIO OVER THE YEAR? A: During the year, we made twelve new entries, throughout various market sectors. We added several names with a bit more of a growth dynamic. In the information technology sector we added Automatic Data Processing and Hewlett Packard. ADP is one of the best-known and most respected names in payroll and other transaction processing, with an impressive record of longer term growth, reasonable multiple, and yield of about 1 1/2%. And Hewlett-Packard is prominent in computer printers (and ink cartridges) and also produces many other types of computing gear. It appears to be a beneficiary of the recovery in the technology industry, also sells at a reasonable multiple, and pays a dividend of about 1 1/4%, which is not a lot by the standards of companies in other sectors but does stand out in the tech sector. In the health-care sector we added Biomet and Pfizer. Biomet is a leading maker of orthopedic implants, principally artificial hips and knees. Pfizer is a major, worldwide pharmaceutical company with good prospects for earnings growth, currently moderate price-to-earnings multiple, and a dividend yield close to 2%. In the telecommunications services sector we added AT&T Corp and Verizon Communications. Other additions throughout the year were: Bank of America, Charter One Financial, and Simon Property Group (financials); Deere (industrials); Coca-Cola (consumer staples); and Vulcan Materials (materials). We deleted fourteen positions. We were essentially (and, fortunately, profitably) redeemed out of our Union Pacific preferreds, and we took profits on our Veeco convertibles. We also deleted: 3M, Consol Energy, Eastman Kodak, Dow Chemical, Del Monte Foods, Schering-Plough, Fifth Third Bancorp, Alliance Capital, DPL, Nicor, American Water Works, and Duke Energy. Q: WHAT IS YOUR OUTLOOK? A: We believe that dividend-paying stocks represent excellent relative value in the current market, which we think may be overextended price-wise in the cases of some stocks and industries. We also think that the tax law changes will provide important underlying demand for the stocks we own over the next several years. We are additionally encouraged by some of the early merger-and-acquisition activity in 2004, as it has been focused so far on two sectors where we are significantly invested, namely financials and telecommunications services. Many forecasts predict higher interest rates by the end of the year. It would in fact be normal to see an interest-rate rise in a strong economy. Meanwhile, earnings are improving at many companies, our portfolio companies included, and investors are returning to the market, boosting demand and thus supporting prices. It's important to remember that interest rates are only one piece of the puzzle and that the reasons for market movements, up and down, are often quite complex. As always, we'll watch all the macroeconomic developments out of the corner of our eye while paying the most attention to what we think really counts in the long run, the underlying earnings trends at individual companies. Thank you for your continued interest. ANY INFORMATION IN THIS SHAREHOLDER REPORT REGARDING MARKET OR ECONOMIC TRENDS OR THE FACTORS INFLUENCING THE PORTFOLIO'S HISTORICAL OR FUTURE PERFORMANCE ARE STATEMENTS OF THE OPINION OF PORTFOLIO MANAGEMENT AS OF THE DATE OF THIS REPORT. THESE STATEMENTS SHOULD NOT BE RELIED UPON FOR ANY OTHER PURPOSES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND THERE IS NO GUARANTEE THAT MARKET FORECASTS DISCUSSED WILL BE REALIZED. [SIDENOTE] The Portfolio's investment adviser, Pioneer Investment Management, Inc., reduced its management fee and certain other expenses; otherwise, returns would have been lower. 3 PIONEER EQUITY INCOME VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST SCHEDULE OF INVESTMENTS 12/31/03
SHARES VALUE CONVERTIBLE PREFERRED STOCKS - 2.5% AUTOMOBILES & COMPONENTS - 1.5% AUTOMOBILE MANUFACTURERS - 1.5% 2,600 General Motors, 5.25%, 3/6/32 $ 69,550 ------------- 55,600 Ford Capital Trust, 6.5%, 1/15/32 3,105,260 ------------- $ 3,174,810 ------------- TOTAL AUTOMOBILES & COMPONENTS $ 3,174,810 ------------- SOFTWARE & SERVICES - 1.0% DATA PROCESSING & OUTSOURCED SERVICES - 1.0% 94,700 Electronic Data, 7.625%, 8/17/04 $ 2,166,263 ------------- TOTAL SOFTWARE & SERVICES $ 2,166,263 ------------- TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $7,238,375) $ 5,341,073 ------------- PRINCIPAL AMOUNT CONVERTIBLE CORPORATE BOND - 0.1% RETAILING - 0.1% APPAREL RETAIL - 0.1% $ 200,000 Gap Inc., 5.75%, 3/15/09 $ 306,749 ------------- TOTAL RETAILING $ 306,749 ------------- TOTAL CONVERTIBLE CORPORATE BOND (Cost $200,000) $ 306,749 ------------- SHARES COMMON STOCKS - 94.4% ENERGY - 10.4% INTEGRATED OIL & GAS - 10.4% 98,300 ChevronTexaco Corp. $ 8,492,137 111,865 ConocoPhillips 7,334,988 161,066 Exxon Mobil Corp. 6,603,706 ------------- $ 22,430,831 ------------- TOTAL ENERGY $ 22,430,831 ------------- MATERIALS - 4.5% COMMODITY CHEMICALS - 1.8% 50,300 Air Products & Chemicals, Inc. $ 2,657,349 27,341 E.I. du Pont de Nemours and Co. 1,254,678 ------------- $ 3,912,027 ------------- CONSTRUCTION MATERIALS - 0.8% 35,000 Vulcan Materials Co. $ 1,664,950 ------------- DIVERSIFIED CHEMICALS - 0.8% 25,300 PPG Industries, Inc. $ 1,619,706 ------------- PAPER PRODUCTS - 0.5% 35,800 Meadwestvaco Corp. $ 1,065,050 ------------- STEEL - 0.6% 19,600 Nucor Corp. $ 1,097,600 20,050 Roanoke Electric Steel Corp. 267,267 ------------- $ 1,364,867 ------------- TOTAL MATERIALS $ 9,626,600 ------------- CAPITAL GOODS - 8.9% AEROSPACE & DEFENSE - 2.8% 51,600 Boeing Co. $ 2,174,424 43,200 General Dynamics Corp. 3,904,848 ------------- $ 6,079,272 ------------- ELECTRICAL COMPONENTS & EQUIPMENT - 1.3% 43,900 Emerson Electric Co. $ 2,842,525 ------------- INDUSTRIAL CONGLOMERATES - 2.9% 10,300 Illinois Tool Works, Inc. $ 864,273 27,900 Johnson Controls, Inc. 3,239,748 22,200 United Technologies Corp. 2,103,894 ------------- $ 6,207,915 ------------- INDUSTRIAL MACHINERY - 1.9% 25,000 Deere & Co. $ 1,626,250 22,000 Gorman-Rupp Co. 580,800 92,200 The Timken Co. 1,849,532 ------------- $ 4,056,582 ------------- TOTAL CAPITAL GOODS $ 19,186,294 ------------- TRANSPORTATION - 1.6% RAILROADS - 1.6% 26,500 Burlington Northern, Inc. $ 857,275 42,500 Norfolk Southern Corp. 1,005,125 71,000 Philadelphia Suburban Corp. 1,569,100 ------------- $ 3,431,500 ------------- TOTAL TRANSPORTATION $ 3,431,500 ------------- AUTOMOBILES & COMPONENTS - 4.4% AUTOMOBILE MANUFACTURERS - 4.4% 110,450 PACCAR, Inc. $ 9,401,504 ------------- TOTAL AUTOMOBILES & COMPONENTS $ 9,401,504 ------------- MEDIA - 3.9% MOVIES & ENTERTAINMENT - 1.9% 132,400 Cedar Fair, L.P. $ 4,071,300 ------------- PUBLISHING - 2.0% 40,500 McGraw-Hill Co., Inc. $ 2,831,760 29,900 Tribune Co. 1,542,840 ------------- $ 4,374,600 ------------- TOTAL MEDIA $ 8,445,900 -------------
The accompanying notes are an integral part of these financial statements. 4
SHARES VALUE RETAILING - 2.1% DEPARTMENT STORES - 1.3% 92,825 May Department Stores Co. $ 2,698,423 ------------- GENERAL MERCHANDISE STORES - 0.8% 40,300 Sears, Roebuck and Co. $ 1,833,247 ------------- TOTAL RETAILING $ 4,531,670 ------------- FOOD, BEVERAGE & TOBACCO - 5.9% PACKAGED FOODS & MEATS - 4.3% 147,500 Campbell Soup Co. $ 3,953,000 22,200 General Mills, Inc. 1,005,660 64,100 H.J. Heinz Co., Inc. 2,335,163 96,900 Sara Lee Corp. 2,103,699 ------------- $ 9,397,522 ------------- SOFT DRINKS - 1.6% 12,900 The Coca-Cola Co. $ 654,675 58,600 PepsiCo, Inc. 2,731,932 ------------- $ 3,386,607 ------------- TOTAL FOOD, BEVERAGE & TOBACCO $ 12,784,129 ------------- HOUSEHOLD & PERSONAL PRODUCTS - 0.9% HOUSEHOLD PRODUCTS - 0.9% 39,200 Colgate-Palmolive Co. $ 1,961,960 ------------- TOTAL HOUSEHOLD & PERSONAL PRODUCTS $ 1,961,960 ------------- HEALTH CARE EQUIPMENT & SERVICES - 4.4% HEALTH CARE DISTRIBUTORS - 3.1% 88,900 Abbott Laboratories $ 4,142,740 50,600 Johnson & Johnson 2,613,996 ------------- $ 6,756,736 ------------- HEALTH CARE EQUIPMENT - 1.3% 38,200 Becton, Dickinson & Co. $ 1,571,548 30,000 Biomet, Inc. 1,092,300 ------------- $ 2,663,848 ------------- TOTAL HEALTH CARE EQUIPMENT & SERVICES $ 9,420,584 ------------- PHARMACEUTICALS & BIOTECHNOLOGY - 3.8% PHARMACEUTICALS - 3.8% 57,900 Eli Lilly & Co. $ 4,072,107 74,300 Merck & Co., Inc. 3,432,660 20,000 Pfizer, Inc. 706,600 ------------- $ 8,211,367 ------------- TOTAL PHARMACEUTICALS & BIOTECHNOLOGY $ 8,211,367 ------------- BANKS - 11.8% DIVERSIFIED BANKS - 5.4% 40,000 Bank of America Corp. $ 3,217,200 154,900 Charter One Financial, Inc. 5,351,795 53,700 Wells Fargo & Co. 3,162,393 ------------- $ 11,731,388 ------------- REGIONAL BANKS - 5.9% 62,200 First Tennessee National Corp. $ 2,743,020 87,300 National City Corp. 2,962,962 75,200 SouthTrust Corp. 2,461,296 63,000 SunTrust Banks, Inc. 4,504,500 ------------- $ 12,671,778 ------------- THRIFTS & MORTGAGE FINANCE - 0.5% 24,800 Washington Mutual, Inc. $ 994,976 ------------- TOTAL BANKS $ 25,398,142 ------------- DIVERSIFIED FINANCIALS - 4.1% ASSET MANAGEMENT & CUSTODY BANKS - 2.5% 26,800 Eaton Vance Corp. $ 981,952 93,700 T. Rowe Price Associates, Inc. 4,442,317 ------------- $ 5,424,269 ------------- INVESTMENT BANKING & BROKERAGE - 1.6% 43,100 A.G. Edwards, Inc. $ 1,561,513 32,500 Merrill Lynch & Co., Inc. 1,906,125 ------------- $ 3,467,638 ------------- TOTAL DIVERSIFIED FINANCIALS $ 8,891,907 ------------- INSURANCE - 3.4% PROPERTY & CASUALTY INSURANCE - 3.4% 51,600 Chubb Corp. $ 3,513,960 26,800 Safeco Corp. 1,043,324 68,900 St. Paul Companies, Inc. 2,731,885 ------------- $ 7,289,169 ------------- TOTAL INSURANCE $ 7,289,169 ------------- REAL ESTATE - 1.9% REAL ESTATE INVESTMENT TRUSTS - 1.9% 62,000 Equity Office Properties Trust $ 1,776,300 51,600 Simon DeBartolo Group, Inc. 2,391,144 ------------- $ 4,167,444 ------------- TOTAL REAL ESTATE $ 4,167,444 ------------- SOFTWARE & SERVICES - 0.9% APPLICATION SOFTWARE - 0.4% 31,000 Microsoft Corp. $ 853,740 ------------- DATA PROCESSING & OUTSOURCED SERVICES - 0.5% 25,000 Automatic Data Processing, Inc. $ 990,250 ------------- TOTAL SOFTWARE & SERVICES $ 1,843,990 ------------- TECHNOLOGY HARDWARE & EQUIPMENT - 1.8% COMPUTER HARDWARE - 1.8% 44,300 Diebold, Inc. $ 2,386,441 40,000 Hewlett-Packard Co. 918,800 6,200 IBM Corp. 574,616 ------------- $ 3,879,857 ------------- TOTAL TECHNOLOGY HARDWARE & EQUIPMENT $ 3,879,857 -------------
The accompanying notes are an integral part of these financial statements. 5
SHARES VALUE TELECOMMUNICATION SERVICES - 7.0% INTEGRATED TELECOMMUNICATION SERVICES - 7.0% 36,100 Alltel Corp. $ 1,681,538 120,000 AT&T Corp. 2,436,000 98,500 BellSouth Corp. 2,787,550 169,800 SBC Communications, Inc. 4,426,686 110,000 Verizon Communications, Inc. 3,858,800 ------------- $ 15,190,574 ------------- TOTAL TELECOMMUNICATION SERVICES $ 15,190,574 ------------- UTILITIES - 12.8% ELECTRIC UTILITIES - 8.6% 55,800 American Electric Power Co., Inc. $ 1,702,458 56,300 Consolidated Edison, Inc. 2,421,463 143,500 Constellation Energy Group 5,619,460 33,000 FPL Group, Inc. 2,158,860 90,900 Great Plains Energy, Inc. 2,892,438 64,000 NSTAR 3,104,000 23,700 Southern Co. 716,925 ------------- $ 18,615,604 ------------- GAS UTILITIES - 4.2% 105,900 KeySpan Energy Corp. $ 3,897,120 105,900 Questar Corp. 3,722,385 61,100 Vectren Corp. 1,506,115 ------------- $ 9,125,620 ------------- TOTAL UTILITIES $ 27,741,224 ------------- TOTAL COMMON STOCKS (Cost $166,733,470) $ 203,834,646 ------------- PRINCIPAL AMOUNT VALUE TEMPORARY CASH INVESTMENTS - 4.0% REPURCHASE AGREEMENT - 3.4% $ 7,300,000 UBS Warburg, Inc., 0.73%, Dated 12/31/03, repurchase price of $7,300,000 plus accrued interest on 1/2/04 collateralized by $7,220,000 U.S. Treasury Bill, 7.25%, 5/15/04. $ 7,300,000 ------------- SHARES SECURITY LENDING COLLATERAL - 0.6% 1,280,000 Securities Lending Investment Fund, 1.02% $ 1,280,000 ------------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $8,580,000) $ 8,580,000 ------------- TOTAL INVESTMENT IN SECURITIES - 101.0% (Cost $182,751,845) $ 218,062,468 ------------- OTHER ASSETS AND LIABILITIES - (1.0)% $ (2,073,585) ------------- TOTAL NET ASSETS - 100.0% $ 215,988,883 =============
The accompanying notes are an integral part of these financial statements. 6 PIONEER EQUITY INCOME VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST FINANCIAL HIGHLIGHTS 12/31/03
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED CLASS I 12/31/03 12/31/02 12/31/01 12/31/00 12/31/99 Net asset value, beginning of period $ 15.11 $ 18.40 $ 21.28 $ 20.72 $ 21.44 ---------- ---------- ---------- ---------- ---------- Increase (decrease) from investment operations: Net investment income (loss) $ 0.41 $ 0.42 $ 0.40 $ 0.51 $ 0.42 Net realized and unrealized gain (loss) on investments 2.96 (3.30) (1.86) 2.28 (0.15) ---------- ---------- ---------- ---------- ---------- Net increase (decrease) from investment operations $ 3.37 $ (2.88) $ (1.46) $ 2.79 $ 0.27 Distributions to shareowners: Net investment income (0.39) (0.41) (0.36) (0.49) (0.41) Net realized gain -- -- (1.06) (1.74) (0.58) ---------- ---------- ---------- ---------- ---------- Net increase (decrease) in net asset value $ 2.98 $ (3.29) $ (2.88) $ 0.56 $ (0.72) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 18.09 $ 15.11 $ 18.40 $ 21.28 $ 20.72 ========== ========== ========== ========== ========== Total return* 22.61% (15.82)% (6.97)% 14.85% 1.21% Ratio of net expenses to average net assets+ 0.78% 0.80% 0.75% 0.71% 0.70% Ratio of net investment income (loss) to average net assets+ 2.55% 2.48% 2.07% 2.40% 1.97% Portfolio turnover rate 12% 12% 13% 13% 23% Net assets, end of period (in thousands) $ 155,634 $ 133,258 $ 164,019 $ 181,920 $ 226,379 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 0.78% 0.80% 0.75% 0.71% 0.70% Net investment income (loss) 2.55% 2.48% 2.07% 2.40% 1.97% Ratios with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 0.78% 0.80% 0.75% 0.71% 0.70% Net investment income (loss) 2.55% 2.48% 2.07% 2.40% 1.97%
* 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.) + Ratios with no reduction for fees paid indirectly. The accompanying notes are an integral part of these financial statements. 7 STATEMENT OF ASSETS AND LIABILITIES 12/31/03
PIONEER EQUITY- INCOME VCT PORTFOLIO ASSETS: Investment in securities, at value (including securities loaned of $1,236,000) (Cost $182,751,845) $ 218,062,468 Temporary cash investments (at amortized cost) - Cash 125,195 Cash held as collateral for futures contracts - Foreign currencies, at value - Receivables - Investment securities sold - Fund shares sold 292,469 Collateral for securities loaned, at fair value - Variation margin - Dividends, interest and foreign taxes withheld 501,353 Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, open - net - Due from Pioneer Investment Management, Inc. - Other 3,505 --------------- Total assets $ 218,984,990 --------------- LIABILITIES: Payables - Investment securities purchased $ 1,054,116 Fund shares repurchased 458,235 Dividends - Upon return for securities loaned 1,280,000 Variation margin - Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, - Due to bank - Due to affiliates 146,375 Accrued expenses 57,381 Other - --------------- Total liabilities $ 2,996,107 --------------- NET ASSETS: Paid-in capital $ 194,876,933 Accumulated net investment income (loss) 1,156,984 Accumulated undistributed net realized gain (loss) (15,355,657) Net unrealized gain (loss) on: Investments 35,310,623 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - --------------- Total net assets $ 215,988,883 --------------- NET ASSET VALUE PER SHARE: CLASS I: (Unlimited number of shares authorized) Net assets $ 155,633,790 Shares outstanding 8,603,610 =============== Net asset value per share $ 18.09 CLASS II: (Unlimited number of shares authorized) Net assets $ 60,355,093 Shares outstanding 3,318,443 =============== Net asset value per share $ 18.19
The accompanying notes are an integral part of these financial statements. 8 STATEMENTS OF OPERATIONS
PIONEER EQUITY-INCOME VCT PORTFOLIO YEAR ENDED 12/31/03 INVESTMENT INCOME: Dividends $ 5,776,909 Interest 115,649 Income on securities loaned, net 2,903 Other - --------------- Total investment income $ 5,895,461 --------------- EXPENSES: Management fees $ 1,152,064 Transfer agent fees 2,535 Distribution fees (Class II) 100,029 Administrative fees 54,215 Custodian fees 38,541 Professional fees 26,672 Printing 91,566 Fees and expenses of nonaffiliated trustees 4,682 Miscellaneous 11,516 --------------- Total expenses $ 1,481,820 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. - --------------- Net expenses $ 1,481,820 --------------- Net investment income (loss) $ 4,413,641 --------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ (634,370) Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - --------------- $ (634,370) --------------- Change in net unrealized gain or loss from: Investments $ 34,115,732 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - --------------- $ 34,115,732 --------------- Net gain (loss) on investments, futures contracts and foreign currency transactions $ 33,481,362 =============== Net increase (decrease) in net assets resulting from operations $ 37,895,003 ===============
The accompanying notes are an integral part of these financial statements. 9 STATEMENTS OF CHANGES IN NET ASSETS
PIONEER EQUITY INCOME VCT PORTFOLIO YEAR YEAR ENDED ENDED 12/31/03 12/31/02 FROM OPERATIONS: Net investment income (loss) $ 4,413,641 $ 4,268,983 Net realized gain (loss) on investments (634,370) (8,261,714) Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions 34,115,732 (27,486,806) --------------- --------------- Net increase (decrease) in net assets resulting from operations $ 37,895,003 $ (31,479,537) --------------- --------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (3,313,897) $ (3,650,009) Class II (860,942) (551,010) Net realized gain Class I - - Class II - - Tax return of capital Class I - - Class II - - --------------- --------------- Total distributions to shareowners $ (4,174,839) $ (4,201,019) --------------- --------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 52,433,019 $ 49,351,660 Reinvestment of distributions 4,174,840 4,201,019 Cost of shares repurchased (34,680,633) (39,497,483) --------------- --------------- Net increase (decrease) in net assets resulting from fund share transactions $ 21,927,226 $ 14,055,196 --------------- --------------- Net increase (decrease) in net assets $ 55,647,390 $ (21,625,360) --------------- --------------- NET ASSETS: Beginning of year 160,341,493 181,966,853 --------------- --------------- End of year $ 215,988,883 $ 160,341,493 =============== =============== Accumulated undistributed net investment income $ 1,156,984 $ 1,149,345 =============== ===============
The accompanying notes are an integral part of these financial statements. 10 PIONEER EQUITY INCOME VCT PORTFOLIO NOTES TO FINANCIAL STATEMENTS 12/31/03 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Pioneer Equity Income VCT Portfolio (The Portfolio) is a portfolio of the Pioneer Variable Contracts Trust (the Trust) which is a Delaware business trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of sixteen separate portfolios fourteen of which issue both Class I and Class II shares. (collectively, the Portfolios, individually the Portfolio) as follows: PORTFOLIOS: Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio) Pioneer Europe VCT Portfolio (Europe Portfolio) Pioneer International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio) Pioneer Small Company VCT Portfolio (Small Company Portfolio) Pioneer Mid Cap Value VCT Portfolio (Mid-Cap Value Portfolio) Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio) Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio) Pioneer Fund VCT Portfolio (Fund Portfolio) Pioneer Equity Income VCT Portfolio (Equity-Income Portfolio) Pioneer Balanced VCT Portfolio (Balanced Portfolio) Pioneer High Yield VCT Portfolio (High Yield Portfolio) Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio) Pioneer America Income VCT Portfolio (America Income Portfolio) Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares only) Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only) Portfolio shares may only be purchased by insurance companies for the purpose of Equity Income variable annuity or variable life insurance contracts, and may also be purchased by qualified pension and retirement plans. The investment objective of Equity Income Portfolio is to seek capital appreciation. The financial highlights for the Portfolio's Class II shares are presented in a separate book. The Trust's financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America 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 income, expenses, gains and losses 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 as of trade date. Net asset values for the Portfolio is 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, based on the last sale price on the principal exchange where they traded, 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. Valuations may be supplemented by dealers and other sources, as required. 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. Temporary cash investments are valued at amortized cost. 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 becomes aware of the ex-dividend data in the exercise of reasonable diligence. Interest income, including interest on income bearing cash accounts, is recorded on the accrual basis, net of unrecoverable foreign taxes withheld at the applicable country rates. All discounts/premiums are accreted/amortized for financial reporting purposes. Gains and losses from sales on investments are calculated on the identified cost method for both financial reporting and federal income tax purposes, and, if applicable, are reported net of foreign taxes on capital gains at the applicable country rates. B. FUTURES CONTRACTS The Portfolio may enter into futures transactions to hedge against changes in interest rates, securities prices, and currency rates or to seek to increase total 11 return. Upon entering into a futures contract, the Portfolio is required to deposit with a broker an amount of cash or securities equal to the minimum "initial margin" requirements of the associated futures exchange. Subsequent payments for futures contracts ("variation margin") are paid or received by the Portfolios, depending on the daily fluctuation in the value of the contracts, and are recorded by the Portfolio as unrealized gains or losses. When the contract is closed, the Portfolio realizes a gain or loss equal to the difference between the opening and closing value of the contract. The use of futures contracts involves, to varying degrees, elements of market risk which may exceed the amounts recognized by the Portfolio. Changes in the value of the contracts may not directly correlate to the changes in the value of the underlying securities. These risks may decrease the effectiveness of the Portfolio's hedging and trading strategies and potentially result in a loss. As of December 31, 2003, Equity Income Portfolio had no open contracts. C. FOREIGN CURRENCY TRANSLATION The books and records of the Portfolio 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, 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. D. FORWARD FOREIGN CURRENCY CONTRACTS The Portfolio enters 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 Portfolio's financial statements. The Portfolio records 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. E. 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 shareowners. Therefore, no federal income tax provision is required. The amount and characterization of distributions to shareowners 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. At December 31, 2003, the Portfolio made reclassifications as described below. These reclassifications have no impact on the net asset value of the Portfolio and are designed to present the portfolios' capital accounts on a tax basis.
ACCUMULATED NET ACCUMULATED INVESTMENT REALIZED GAIN/ PORTFOLIO INCOME/(LOSS) LOSS PAID-IN CAPITAL - ------------------------------------------------------------------------------- Equity Income Portfolio $ (231,083) $ 41,857 $ 189,226
Capital loss carryforwards are available to offset future realized capital gains. At December 31, 2003, Equity Income VCT Portfolio had a capital loss carryforward of $15,355,657, of which the following amounts will expire between 2009 and 2011 if not utilized: $6,328,025 in 2009, $6,407,206 in 2010 and $2,620,426 in 2011. 12 The following chart shows the components of distributable earnings (accumulated losses) as of December 31, 2003 and the distributions paid during the year ended December 31, 2003 on a tax basis as of December 31, 2003. The tax character of current year distributions will be determined at the end of the current fiscal year. These amounts do not include the capital loss carryforward detailed above.
PIONEER PIONEER EQUITY EQUITY INCOME INCOME VCT PORTFOLIO VCT PORTFOLIO 2003 2002 - -------------------------------------------------------------------------------- DISTRIBUTIONS PAID FROM: Ordinary Income $ 4,174,839 $ 4,201,019 Long-Term capital gain - - ------------------------------ $ 4,174,839 $ 4,201,019 Return of Capital - - ------------------------------ Total distributions $ 4,174,839 $ 4,201,019 ------------------------------ DISTRIBUTABLE EARNINGS (ACCUMULATED LOSSES): Undistributed ordinary income $ 82,058 Undistributed long-term gain/ (Capital loss carryforward) (15,355,657) Unrealized appreciation (depreciation) 36,385,549 ------------- Total $ 21,111,950 =============
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily attributable to the tax deferral of losses on wash sales, returns of capital on REITs, and the recognition of unrealized gains or losses on certain futures contracts. F. PORTFOLIO SHARES The Portfolio records sales and repurchases of its portfolio shares as of trade date. Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the principal underwriter for the Trust and a wholly owned indirect subsidiary of UniCredito Italiano S.p.A. (UniCredito Italiano), $246,661 in commissions on the sale of Trust shares for the year ended December 31, 2003. Distribution fees are calculated based on the average daily net asset values attributable to Class I and Class II shares of the Portfolio, respectively. Shareowners of each class share all expenses and fees paid to the transfer agent, Pioneer Investment Management Shareholder Services, Inc. (PIMSS), for its services, which are allocated based on the number of accounts in each class and the ratable allocation of related out-of-pocket expenses (see Note 3). Income, common expenses and realized and unrealized gains and losses are calculated at the Portfolio level and allocated daily to each class of shares based on the respective percentage of adjusted net assets at the beginning of the day. Distributions paid by the Portfolio with respect to each class of shares are calculated in the same manner, at the same time, and in the same amount, except that Class I and Class II shares can bear different transfer agent and distribution fees. Dividends and distributions to shareowners are recorded on the ex-dividend date. Income, expenses (excluding 12b-1 fees) and gains and losses are calculated at the Portfolio level and are allocated daily based on the respective percentage of adjusted net assets at the beginning of the day. G. SECURITIES LENDING The Portfolio lends securities in its portfolio to certain broker-dealers or other institutional investors, with the Portfolio's custodian acting as the lending agent. When entering into a loan, the Portfolio receives collateral which is maintained by the custodian and earns income in the form of negotiated lenders' fees. The Portfolio also continues to receive interest or dividends on the securities loaned, and gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for account of the Trust. The loans are secured by collateral of at least 102%, at all times, of the fair value of the securities loaned. The fair value of the collateral will be adjusted daily to reflect any price fluctuation in the value of the loaned securities. The Trust has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Trust invests cash collateral in the Securities Lending Investment Fund which is managed by Brown Brothers Harriman & Co., the Trust's custodian. H. REPURCHASE AGREEMENTS With respect to repurchase agreements entered into by the Portfolio, 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 Portfolio's custodian, or subcustodian. The Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is responsible for determining that the value of the collateral remains at least equal to the repurchase price. 2. MANAGEMENT AGREEMENT PIM manages the Portfolio, and is a wholly owned indirect subsidiary of UniCredito Italiano. Management fees are 13 calculated daily at the following annual rate of 0.65% of the Portfolio's average daily net assets. In addition, under the management and administration agreements, certain other services and costs, including accounting, regulatory reporting and insurance premiums, are paid by the Portfolio. At December 31, 2003, $132,553 was payable to PIM related to management fees, administrative fees and certain other services. 3. TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. (PIMSS), a wholly owned indirect subsidiary of UniCredito Italiano provides substantially all transfer agent and shareowner services to the Trust at negotiated rates. Included in due to affiliates is $270 in transfer agent fees payable to PIMSS at December 31, 2003. 4. DISTRIBUTION PLANS The Portfolio has adopted a plan of distribution for Class II shares in accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily net assets attributable to Class II shares. Included in due to affiliates is $13,552 payable to PFD at December 31, 2003. 5. AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION At December 31, 2003, the Portfolio's aggregate unrealized appreciation and depreciation based on cost for federal income tax purposes was as follows:
NET GROSS GROSS APPRECIATION/ TAX COST APPRECIATION DEPRECIATION (DEPRECIATION) - ----------------------------------------------------------------------------------------------------------- Equity Income Portfolio $ 181,676,919 $ 41,987,707 $ (5,602,158) $ 36,385,549
6. PORTFOLIO TRANSACTIONS The cost of purchases and the proceeds from sales of investments other than U.S. Government obligations and temporary cash investments for the year ended December 31, 2003, were $42,957,826 and $19,981,321, respectively. 7. CAPITAL SHARES At December 31, 2003, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
'03 SHARES '03 AMOUNT '02 SHARES '02 AMOUNT - ------------------------------------------------------------------------------------------------------ EQUITY INCOME PORTFOLIO CLASS I: Shares sold 1,544,529 $ 24,668,979 1,395,275 $ 23,429,706 Reinvestment of distributions 204,954 3,313,898 223,712 3,650,009 Shares repurchased (1,964,325) (30,892,038) (1,716,186) (27,000,779) ------------------------------------------------------------------ Net increase (decrease) (214,842) $ (2,909,161) (97,199) $ 78,936 ================================================================== CLASS II: Shares sold 1,723,515 $ 27,764,040 1,549,025 $ 25,921,954 Reinvestment of distributions 52,432 860,942 34,034 551,010 Shares repurchased (242,114) (3,788,595) (769,373) (12,496,704) ------------------------------------------------------------------ Net increase 1,533,833 $ 24,836,387 813,686 $ 13,976,260 ==================================================================
14 PIONEER EQUITY INCOME VCT PORTFOLIO REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF TRUSTEES OF PIONEER VARIABLE CONTRACTS TRUST AND THE CLASS I SHAREOWNERS OF PIONEER EQUITY INCOME VCT PORTFOLIO: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer Equity Income VCT Portfolio, one of the portfolios constituting Pioneer Variable Contracts Trust (the "Trust") as of December 31, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets and financial highlights for each of the two years in the period then ended. 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. The financial highlights for each of the three years in the period ended December 31, 2001 were audited by other auditors who have ceased operations and whose report, dated February 8, 2002, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 Pioneer Equity Income VCT Portfolio of Pioneer Variable Contracts Trust at December 31, 2003, the results of its operations for the year then ended, the changes in its net assets and the financial highlights for each of the two years in the period then ended in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts February 6, 2004 15 PIONEER VARIABLE CONTRACTS TRUST TRUSTEES, OFFICERS AND SERVICE PROVIDERS INVESTMENT ADVISER Pioneer Investment Management, Inc. CUSTODIAN Brown Brothers Harriman & Co. INDEPENDENT AUDITORS Ernst & Young LLP PRINCIPAL UNDERWRITER Pioneer Funds Distributor, Inc. LEGAL COUNSEL Hale and Dorr LLP SHAREOWNER SERVICES AND TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. TRUSTEES AND OFFICERS The Fund's Board of Trustees provides broad supervision over the affairs of the Fund. The officers of the Fund are responsible for the Fund's operations. The Fund's Trustees and officers are listed below, together with their principal occupations during the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of 1940 are referred to as Interested Trustees. Trustees who are not interested persons of the Fund are referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 51 U.S. registered investment portfolios for which Pioneer Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the Portfolio is 60 State Street, Boston, Massachusetts 02109. The Fund's statement of additional information provides more detailed information regarding the Fund's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Fund are available without charge, upon request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. INTERESTED TRUSTEES
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING PAST OTHER DIRECTORSHIPS HELD BY NAME AND AGE WITH THE FUND LENGTH OF SERVICE FIVE YEARS THIS TRUSTEE John F. Cogan, Jr. (77)* Chairman of Trustee since 1994. Deputy Chairman and a Director of Director of Harbor Global the Board, Serves until a Pioneer Global Asset Management Company, Ltd. Trustee and successor trustee is S.p.A. ("PGAM"); Non-Executive President elected or earlier Chairman and a Director of Pioneer retirement or Investment Management USA removal. Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Director of Pioneer Alternative Investment Management Limited (Dublin); President and a Director of Pioneer Alternative Investment Management (Bermuda) Limited and affiliated funds; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel (since 2000, partner prior to 2000), Hale and Dorr LLP (counsel to PIM-USA and the Pioneer Funds) *Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. Osbert M. Hood (51)** Trustee and Trustee since June, President and Chief Executive None Executive 2003. Serves until a Officer, PIM-USA since May, 2003 Vice President successor trustee is (Director since January, 2001); elected or earlier President and Director of Pioneer retirement or since May 2003; Chairman and removal. Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Executive Vice President of all of the Pioneer Funds since June 2003; Executive Vice President and Chief Operating Officer of PIM-USA, November 2000-May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999-November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997-November 1999 **Mr. Hood is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
16 INDEPENDENT TRUSTEES
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING PAST OTHER DIRECTORSHIPS HELD BY NAME, AGE AND ADDRESS WITH THE FUND LENGTH OF SERVICE FIVE YEARS THIS TRUSTEE Mary K. Bush (55) Trustee Trustee since President, Bush International Director of Brady 3509 Woodbine Street, September, 2000. (international financial advisory Corporation (industrial Chevy Chase, MD 20815 Serves until a firm) identification and successor trustee specialty coated material is elected or products manufacturer), earlier retirement Millenium Chemicals, Inc. or removal. (commodity chemicals), Mortgage Guaranty Insurance Corporation, and R.J. Reynolds Tobacco Holdings, Inc. (tobacco) Richard H. Egdahl, M.D. (77) Trustee Trustee since 1995. Alexander Graham Bell Professor of None Boston University Healthcare Serves until a Health Care Entrepreneurship, Entrepreneurship Program, successor trustee Boston University; Professor of 53 Bay State Road, is elected or Management, Boston University Boston, MA 02215 earlier retirement School of Management; Professor of or removal. Public Health, Boston University School of Public Health; Professor of Surgery, Boston University School of Medicine; and University Professor, Boston University Margaret B.W. Graham (56) Trustee Trustee since Founding Director, The Winthrop None 1001 Sherbrooke September, 2000. Group, Inc. (consulting firm); Street West, Serves until a Professor of Management, Faculty Montreal, Quebec, Canada successor trustee of Management, McGill University is elected or earlier retirement or removal. Marguerite A. Piret (55) Trustee Trustee since 1995. President and Chief Executive None One Boston Place, Serves until a Officer, Newbury, Piret & Company, 28th Floor, successor trustee Inc. (investment banking firm) Boston, MA 02108 is elected or earlier retirement or removal. Stephen K. West (75) Trustee Trustee since 1995. Senior Counsel, Sullivan & Cromwell Director, The Swiss 125 Broad Street, Serves until a (law firm) Helvetia Fund, Inc. New York, NY 10004 successor trustee (closed-end investment is elected or company) and AMVESCAP earlier retirement PLC (investment or removal. managers) John Winthrop (67) Trustee Trustee since President, John Winthrop & Co., None One North Adgers Wharf, September, 2000. Inc. (private investment firm) Charleston, SC 29401 Serves until a successor trustee is elected or earlier retirement or removal.
17 FUND OFFICERS
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING PAST OTHER DIRECTORSHIPS HELD BY NAME AND AGE WITH THE FUND LENGTH OF SERVICE FIVE YEARS THIS OFFICER Dorothy E. Bourassa (56) Secretary Serves at the Secretary of PIM-USA; Senior Vice None discretion of board President-Legal of Pioneer; and Secretary/Clerk of most of PIM-USA's subsidiaries since October 2000; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003); and Senior Counsel, Assistant Vice President and Director of Compliance of PIM-USA from April 1998 through October 2000 Christopher J. Kelley (39) Assistant Serves at the Assistant Vice President and None Secretary discretion of board Senior Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001; Vice President and Associate General Counsel from July 1996 to July 2000); Assistant Secretary of all of the Pioneer Funds since September 2003 David C. Phelan (46) Assistant Serves at the Partner, Hale and Dorr LLP; None Secretary discretion of board Assistant Secretary of all of the Pioneer Funds since September 2003 Vincent Nave (58) Treasurer Serves at the Vice President-Fund Accounting, None discretion of board Administration and Custody Services of Pioneer (Manager from September 1996 to February 1999); and Treasurer of all of the Pioneer Funds (Assistant Treasurer from June 1999 to November 2000) Luis I. Presutti (38) Assistant Serves at the Assistant Vice President-Fund None Treasurer discretion of board Accounting, Administration and Custody Services of Pioneer (Fund Accounting Manager from 1994 to 1999); and Assistant Treasurer of all of the Pioneer Funds since November 2000
18
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING PAST OTHER DIRECTORSHIPS HELD BY NAME AND AGE WITH THE FUND LENGTH OF SERVICE FIVE YEARS THIS OFFICER Gary Sullivan (45) Assistant Serves at the Fund Accounting Manager-Fund None Treasurer discretion of board Accounting, Administration and Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 Katharine Kim Sullivan (30) Assistant Serves at the Fund Administration Manager-Fund None Treasurer discretion of board. Accounting, Administration and Custody Services since June 2003; Assistant Vice President-Mutual Fund Operations of State Street Corporation from June 2002 to June 2003 (formerly Deutsche Bank Asset Management); Pioneer Fund Accounting, Administration and Custody Services (Fund Accounting Manager from August 1999 to May 2002, Fund Accounting Services Supervisor from 1997 to July 1999); Assistant Treasurer of all of the Pioneer Funds since September 2003
19 THIS PAGE FOR YOUR NOTES. 20 [PIONEER INVESTMENTS(R) LOGO] 14678-00-0204 [PIONEER INVESTMENTS(R) LOGO] PIONEER VARIABLE CONTRACTS TRUST PIONEER SMALL COMPANY VCT PORTFOLIO -- CLASS I SHARES ANNUAL REPORT DECEMBER 31, 2003 PIONEER VARIABLE CONTRACTS TRUST TABLE OF CONTENTS Pioneer Small Company VCT Portfolio Portfolio and Performance Update 2 Portfolio Management Discussion 3 Schedule of Investments 4 Financial Statements 8 Notes to Financial Statements 12 Report of Independent Auditors 16 Trustees, Officers and Service Providers 17
PIONEER SMALL COMPANY VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO AND PERFORMANCE UPDATE 12/31/03 [CHART] PORTFOLIO DIVERSIFICATION (As a percentage of total investment portfolio) U.S. Common Stocks 84.9% Temporary Cash Investment 11.7% Depositary Receipts for International Stocks 2.8% International Common Stocks 0.6%
[CHART] SECTOR DISTRIBUTION (As a percentage of equity holdings) Financials 22.9% Industrials 14.1% Consumer Discretionary 13.9% Information Technology 13.9% Health Care 12.5% Energy 8.0% Materials 5.5% Consumer Staples 4.0% Utilities 2.7% Telecommunication Services 2.5%
FIVE LARGEST HOLDINGS (As a percentage of equity holdings) 1. Idine Rewards Network, Inc. 3.06% 2. FTI Consulting, Inc. 2.45 3. Forest Oil Corp. 2.13 4. UniSource Energy Corp. 1.81 5. Whitney Holding Corp. 1.60
Holdings will vary for other periods. This list excludes temporary cash and derivative investments. PRICES AND DISTRIBUTIONS
12/31/03 12/31/02 Net Asset Value per Share $ 11.44 $ 9.13 DISTRIBUTIONS PER SHARE SHORT-TERM LONG-TERM (1/1/03 - 12/31/03) DIVIDENDS CAPITAL GAINS CAPITAL GAINS $ - $ - $ -
PERFORMANCE OF A $10,000 INVESTMENT The following chart shows the change in value of an investment made in PIONEER SMALL COMPANY VCT PORTFOLIO at net asset value, compared to that of the Russell 2000 Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [CHART]
PIONEER SMALL COMPANY VCT PORTFOLIO* RUSSELL 2000 INDEX+ 1/31/2001 $ 10,000 $ 10,000 12/31/2001 $ 10,498 $ 9,741 12/31/2002 $ 8,739 $ 7,747 12/31/2003 $ 10,951 $ 11,406
+ Index comparison begins 1/31/01. The Russell 2000 Index is an unmanaged measure of the 2,000 smallest stocks, based on capitalization, in the Russell 3000 Index. 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 Index. AVERAGE ANNUAL TOTAL RETURNS (As of December 31, 2003) NET ASSET VALUE* Life-of-Class 4.68% (1/19/01) 1 Year 25.30%
All total returns shown assume reinvestment of distributions at net asset value. * Portfolio performance does not reflect any variable contract fees, expenses or sales charges. If they had been included, performance would have been lower. See the pages that comprise the inside cover of this report for performance net of any contract fees, expenses or sales charges. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns and principal values fluctuate so that your investment, when redeemed, may be worth more or less than its original cost. The performance table and graph do not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. 2 PIONEER SMALL COMPANY VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO MANAGEMENT DISCUSSION 12/31/03 In the following discussion, David Adams and Jack McPherson review the year ended December 31, 2003, and Pioneer Small Company VCT Portfolio's performance over this period. Q. HOW DID PIONEER SMALL COMPANY VCT PORTFOLIO PERFORM OVER THIS PERIOD? A. For the twelve months ended December 31, 2003, the Portfolio returned 25.30% at net asset value. This result trailed the Portfolio's benchmark, the Russell 2000 Index, which returned 47.25% over the same period. Q. PLEASE DESCRIBE HOW SMALL-COMPANY STOCKS FARED LAST YEAR AND HOW THE PORTFOLIO WAS AFFECTED. A. Fears that the Iraq war would stifle the economic recovery evaporated early in 2003 with the end of initial combat operations. As uncertainty gave way to confidence in the economic expansion, stocks in all capitalization ranges began to move higher. And, as is typical early in a recovery, the most speculative issues outpaced stocks of better quality. That performance disparity between high and low quality stocks accounts for most of the Portfolio's underperformance relative to its benchmark. Nevertheless, we stuck with our quality focus. The tide appeared to turn in our direction at yearend when investors began to back away from speculative issues and higher-quality stocks performed better. Q. WHAT WERE THE PORTFOLIO'S STRENGTHS AND WEAKNESSES LAST YEAR? A. In health care, underrepresentation among the more speculative biotech industry and high-valuation medical devices companies held back results. Within the health care services area, AMN Healthcare Services gained less than the sector, as demand for temporary nursing staff was weak. Orthodontic Centers of America suffered as consumers postponed costly procedures during the economic weakness and as the acquisition of a competitor turned contentious; we had been cutting back on this holding before most of this unfolded and have since eliminated our position entirely. First Health Group, a managed care services company, declined during the year due to disappointing results while many of its peers experienced strong price appreciation. Sunrise Assisted Living contributed nicely to performance as the company continues to successfully execute a strategic shift in its business. Parexel International also added to performance as the company experienced improving results. Among financial services firms, we downplayed interest rate-sensitive banks in favor of companies with the potential to increase earnings in an economic expansion. Real estate investment trusts (REITs) added to Portfolio returns. Healthcare Realty Trust, which owns and manages medical office buildings, showed a solid gain. In consumer-related sectors, Canadian movie and television producer Alliance Atlantis, distributor of THE LORD OF THE RINGS films and producers of the CSI television shows, benefited from box office success and improved finances. Rewards Network, which provides business services to restaurants while marketing meal discounts to consumers, retreated in the fourth quarter on profit taking but was a positive contributor for the year. Sales of health and diet products continued to be strong at NuSkin, which is already active in China and expanding in Japan. Two other consumer stocks disappointed: AFC Enterprises, franchisor of Church's Fried Chicken, Seattle's Best and Popeye's, fell victim to management missteps; and Genesco failed to keep up with fashion trends in its teen-oriented Journeys shoe outlets. Q. WHAT OTHER STOCKS OR SECTORS HAD AN IMPACT ON PERFORMANCE? A. Being underweight technology stocks hurt relative performance, as many lower-quality tech stocks rallied sharply. Our overweight position in energy was a negative for much of the year, but patience was rewarded by a fourth-quarter rally in this sector. Earlier, we took a loss in PetroQuest Energy when exploration efforts came up short; shares later fell further. FTI Consulting, whose bankruptcy-consulting services tend to suffer in an improving economic environment, rebounded somewhat in the fourth quarter as diversification efforts are beginning to pay off. Princeton Review, which provides classroom and other services to students, parents and educational institutions, rose slightly. And improved earnings at defense-services contractor AAR Corp. pushed shares sharply higher. Q. WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD? A. With investors beginning to focus on better-quality stocks, we believe low-quality, unprofitable issues will lose favor. And if, as we expect, the economy expands further in 2004, the companies we have selected based on their attractive valuations and positive earnings prospects should, we believe, continue to do well. ANY INFORMATION IN THIS SHAREHOLDER REPORT REGARDING MARKET OR ECONOMIC TRENDS OR THE FACTORS INFLUENCING THE PORTFOLIO'S HISTORICAL OR FUTURE PERFORMANCE ARE STATEMENTS OF THE OPINION OF PORTFOLIO MANAGEMENT AS OF THE DATE OF THIS REPORT. THESE STATEMENTS SHOULD NOT BE RELIED UPON FOR ANY OTHER PURPOSES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND THERE IS NO GUARANTEE THAT MARKET FORECASTS DISCUSSED WILL BE REALIZED. [SIDENOTE] Small-capitalization stocks, while offering the potential for higher returns, may be subject to greater short-term price fluctuations than securities of larger companies. The Portfolio's investment adviser, Pioneer Investment Management, Inc., reduced its management fee and certain other expenses; otherwise, returns would have been lower. 3 PIONEER SMALL COMPANY VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST SCHEDULE OF INVESTMENTS 12/31/03
SHARES VALUE COMMON STOCKS - 87.3% ENERGY - 7.0% OIL & GAS DRILLING - 2.6% 2,275 Atwood Oceanics, Inc.* $ 72,664 3,400 Grant Prideco, Inc.* 44,268 7,150 Key Energy Services, Inc.* 73,717 2,813 Patterson Energy, Inc.* 92,604 -------------- $ 283,253 -------------- OIL & GAS EQUIPMENT & SERVICES - 0.9% 1,350 Gulfmark Offshore, Inc.* $ 18,900 4,075 Maverick Tube Corp.* 78,444 -------------- $ 97,344 -------------- OIL & GAS EXPLORATION & PRODUCTION - 2.8% 7,150 Forest Oil Corp.* $ 204,276 2,028 Spinnaker Exploration Co.* 65,444 1,200 Tom Brown, Inc.* 38,700 -------------- $ 308,420 -------------- OIL & GAS REFINING MARKETING & TRANSPORTATION - 0.7% 4,700 Plains Resources, Inc.* $ 75,435 -------------- TOTAL ENERGY $ 764,452 -------------- MATERIALS - 4.8% COMMODITY CHEMICALS - 0.9% 4,550 Airgas, Inc. $ 97,734 -------------- MATERIALS - 0.6% 850 Mega Blocks, Inc.* $ 15,125 2,950 Mega Blocks, Inc. (144A)* 52,493 -------------- $ 67,618 -------------- METAL & GLASS CONTAINERS - 0.3% 675 Kennametal, Inc. $ 26,831 -------------- PAPER PRODUCTS - 0.7% 5,850 Wausau-Mosinee Paper Corp. $ 79,092 -------------- PRECIOUS METALS & MINERALS - 1.3% 11,400 Agnico Eagle Mines, Ltd. $ 137,598 -------------- SPECIALTY CHEMICALS - 0.6% 6,925 Wellman, Inc. $ 70,704 -------------- STEEL - 0.4% 3,525 Graftech International, Ltd.* $ 47,588 -------------- TOTAL MATERIALS $ 527,165 -------------- CAPITAL GOODS - 3.7% AEROSPACE & DEFENSE - 1.3% 8,125 AAR Corp.* $ 121,469 1,300 Intrado, Inc.* 28,535 -------------- $ 150,004 -------------- CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS - 1.2% 7,550 Wabtec Corp. $ 128,652 -------------- CONSTRUCTION & ENGINEERING - 0.2% 1,200 Insituform Technologies, Inc.* $ 19,800 -------------- ELECTRICAL COMPONENT & EQUIPMENT - 1.0% 9,925 Power-One, Inc.* $ 107,488 -------------- TOTAL CAPITAL GOODS $ 405,944 -------------- COMMERCIAL SERVICES & SUPPLIES - 7.4% DATA PROCESSING SERVICES - 0.6% 2,100 Gartner Group, Inc.* $ 23,751 1,625 TALX Corp. 37,424 -------------- $ 61,175 -------------- COMMERCIAL PRINTING - 1.1% 4,300 John H. Harland Co. $ 117,390 -------------- DIVERSIFIED COMMERCIAL SERVICES - 4.6% 3,951 The Brinks Co. $ 89,332 10,050 FTI Consulting, Inc.* 234,869 2,275 Kroll, Inc.* 59,150 2,950 Regis Corp. 116,584 -------------- $ 499,935 -------------- EMPLOYMENT SERVICES - 1.0% 11,700 The Princeton Review, Inc.* $ 114,075 -------------- ENVIRONMENTAL SERVICES - 0.1% 3,400 Newpark Resources, Inc.* $ 16,286 -------------- TOTAL COMMERCIAL SERVICES & SUPPLIES $ 808,861 -------------- TRANSPORTATION - 1.2% TRUCKING - 1.2% 2,325 Dollar Thrifty Automotive GP* $ 60,311 1,800 Forward Air Corp.* 49,500 1,000 Overnite Corp.* 22,750 -------------- TOTAL TRANSPORTATION $ 132,561 -------------- CONSUMER DURABLES & APPAREL - 3.8% APPAREL, ACCESSORIES & LUXURY GOODS - 0.7% 14,200 Charming Shoppes, Inc.* $ 76,680 -------------- HOUSEWARES & SPECIALTIES - 1.5% 6,700 Tupperware Corp. $ 116,178 1,700 Yankee Candle, Co.* 46,461 -------------- $ 162,639 -------------- LEISURE PRODUCTS - 0.4% 3,075 The Nautilus Group, Inc. $ 43,204 -------------- PHOTOGRAPHIC PRODUCTS - 0.3% 3,525 Creo Products* $ 36,308 -------------- TEXTILES - 0.9% 15,386 Unifi, Inc.* $ 99,240 -------------- TOTAL CONSUMER DURABLES & APPAREL $ 418,071 --------------
The accompanying notes are an integral part of these financial statements. 4
SHARES VALUE HOTELS, RESTAURANTS & LEISURE - 2.3% LEISURE FACILITIES - 0.2% 3,775 Bally Total Fitness Holding Corp.* $ 26,425 -------------- RESTAURANTS - 2.1% 1,206 Applebee's International, Inc. $ 47,360 1,600 CEC Entertainment, Inc.* 75,824 5,900 O'Charley's, Inc.* 105,905 -------------- $ 229,089 -------------- TOTAL HOTELS, RESTAURANTS & LEISURE $ 255,514 -------------- MEDIA - 2.1% MOVIES & ENTERTAINTAINMENT - 1.2% 8,850 Alliance Atlantis Communications, Inc.* $ 135,582 -------------- PUBLISHING - 0.9% 4,825 Journal Register Co.* $ 99,878 -------------- TOTAL MEDIA $ 235,460 -------------- RETAILING - 3.9% APPAREL RETAIL - 0.8% 4,250 Genesco Inc.* $ 64,303 575 Gildan Activewer, Inc.* 17,756 -------------- $ 82,059 -------------- CATALOG RETAIL - 0.3% 1,600 Insight Enterprises, Inc.* $ 30,080 -------------- COMPUTER & ELECTRONICS RETAIL - 0.6% 6,575 Inter-TAN, Inc.* $ 66,539 -------------- GENERAL MERCHANDISE STORES - 0.9% 3,300 Tuesday Morning Corp.* $ 99,825 -------------- SPECIALTY STORES - 1.3% 800 Guitar Center, Inc.* $ 26,064 3,450 School Specialty, Inc.* 117,335 -------------- $ 143,399 -------------- TOTAL RETAILING $ 421,902 -------------- FOOD & DRUG RETAILING - 1.2% FOOD DISTRIBUTORS - 0.7% 1,739 The J.M. Smucker Co. $ 78,759 -------------- FOOD RETAIL - 0.5% 1,350 Fresh Del Monte Produce, Inc.* $ 32,171 1,700 Wild Oats Markets, Inc.* 21,981 -------------- $ 54,152 -------------- TOTAL FOOD & DRUG RETAILING $ 132,911 -------------- FOOD, BEVERAGE & TOBACCO - 1.1% AGRICULTURAL PRODUCTS - 1.1% 3,420 Corn Products International, Inc. $ 117,819 -------------- TOTAL FOOD, BEVERAGE & TOBACCO $ 117,819 -------------- HOUSEHOLD & PERSONAL PRODUCTS - 1.3% HOUSEHOLD PRODUCTS - 1.3% 8,350 Nu Skin Enterprises, Inc. $ 142,702 -------------- TOTAL HOUSEHOLD & PERSONAL PRODUCTS $ 142,702 -------------- HEALTH CARE EQUIPMENT & SERVICES - 10.5% HEALTH CARE DISTRIBUTORS - 1.8% 5,087 AMN Healthcare Services* $ 87,293 1,500 Chattem, Inc.* 26,850 5,725 Cross Country Healthcares, Inc.* 85,417 -------------- $ 199,560 -------------- HEALTH CARE EQUIPMENT - 1.2% 5,500 Haemonetics Corp.* $ 131,395 -------------- HEALTH CARE FACILITIES - 2.4% 2,500 Lifepoint Hospitals, Inc.* $ 73,625 3,327 Sunrise Senior Living, Inc.* 128,888 1,050 Universal Health Services, Inc. (Class B) 56,406 -------------- $ 258,919 -------------- HEALTH CARE SERVICES - 3.5% 19,625 Hooper Holmes, Inc. $ 121,283 1,300 Pediatrix Medical Group, Inc.* 71,617 5,925 Providence Service Corp.* 95,867 5,796 Parexel International Corp.* 94,243 -------------- $ 383,010 -------------- HEALTH CARE SUPPLIES - 0.9% 2,700 Charles River Laboratories International, Inc.* $ 92,691 -------------- MANAGED HEALTH CARE - 0.7% 4,175 First Health Group Corp.* $ 81,246 -------------- TOTAL HEALTH CARE EQUIPMENT & SERVICES $ 1,146,821 -------------- PHARMACEUTICALS & BIOTECHNOLOGY - 0.4% BIOTECHNOLOGY - 0.4% 3,750 Cubist Pharmaceuticals, Inc.* $ 45,600 -------------- TOTAL PHARMACEUTICALS & BIOTECHNOLOGY $ 45,600 -------------- BANKS - 6.0% DIVERSIFIED BANKS - 0.6% 3,625 Provident Financial Services, Inc. $ 68,513 -------------- REGIONAL BANKS - 1.7% 2,300 Sterling Bancshares, Inc. $ 30,659 3,727 Whitney Holding Corp. 152,770 -------------- $ 183,429 -------------- THRIFTS & MORTGAGE FINANCE - 3.7% 5,100 Commercial Federal Corp. $ 136,221 5,696 Staten Island Bancorp, Inc. 128,160 3,000 Webster Financial Corp. 137,580 -------------- $ 401,961 -------------- TOTAL BANKS $ 653,903 --------------
The accompanying notes are an integral part of these financial statements. 5
SHARES VALUE DIVERSIFIED FINANCIALS - 6.2% CONSUMER FINANCE - 0.4% 1,387 American Capital Strategies $ 41,236 -------------- CONSUMER FINANCE - 4.0% 11,303 Advanta Corp. (Class B) $ 143,774 27,497 Idine Rewards Network, Inc.* 293,118 -------------- $ 436,892 -------------- MULTI-SECTOR HOLDING - 1.1% 2,600 Leucadia National Corp. $ 119,860 -------------- DIVERSIFIED FINANCIAL SERVICES - 0.7% 2,075 Gabelli Asset Management, Inc. $ 82,585 -------------- TOTAL DIVERSIFIED FINANCIALS $ 680,573 -------------- INSURANCE - 2.8% MULTI-LINE INSURANCE - 0.4% 1,700 Max Re Capital, Ltd. $ 38,148 -------------- PROPERTY & CASUALTY INSURANCE - 2.4% 1,300 American Safety Insurance Group, Ltd.* $ 17,043 1,270 First American Corp. 37,808 6,800 Quanta Capital Holdings (144A)* 78,200 4,170 Selective Insurance Group, Inc. 134,941 -------------- $ 267,992 -------------- TOTAL INSURANCE $ 306,140 -------------- REAL ESTATE - 5.0% REAL ESTATE INVESTMENT TRUSTS - 5.0% 2,050 Colonial Properties Trust $ 81,180 1,425 Camden Property Trust 63,128 3,317 Healthcare Realty Trust, Inc. 118,583 7,407 Innkeepers USA Trust 61,997 3,590 Prentiss Properties Trust 118,434 2,850 Shurgard Storage Centers, Inc. 107,303 -------------- TOTAL REAL ESTATE $ 550,625 -------------- SOFTWARE & SERVICES - 5.5% APPLICATION SOFTWARE - 3.8% 4,600 American Management Systems, Inc.* $ 69,322 2,008 Fair Isaac & Co., Inc. 98,713 2,450 Manhattan Associates, Inc.* 67,718 5,500 Mercury Computer Systems, Inc.* 136,950 1,900 Verint Systems, Inc.* 42,864 -------------- $ 415,567 -------------- HOME ENTERTAINMENT SOFTWARE - 0.9% 9,475 Plato Learning, Inc.* $ 99,961 -------------- INTERNET SOFTWARE & SERVICES - 0.3% 3,900 Lionbridge Technologies, Inc.* $ 37,479 -------------- SYSTEMS SOFTWARE - 0.5% 5,100 Borland Software Corp.* $ 49,623 -------------- TOTAL SOFTWARE & SERVICES $ 602,630 -------------- TECHNOLOGY HARDWARE & EQUIPMENT - 3.0% COMMUNICATIONS EQUIPMENT - 0.8% 2,375 Avocent Corp.* $ 86,735 -------------- ELECTRONIC MANUFACT SERVICES - 1.3% 8,150 Plexus Corp.* $ 139,936 -------------- TECHNOLOGY DISTRIBUTORS - 0.9% 2,600 Tech Data Corp.* $ 103,194 -------------- TOTAL TECHNOLOGY HARDWARE & EQUIPMENT $ 329,865 -------------- SEMICONDUCTORS - 3.6% SEMICONDUCTOR EQUIPMENT - 2.5% 1,676 ATMI, Inc.* $ 38,783 748 Cymer, Inc.* 34,550 2,051 DuPont Photomasks, Inc.* 49,511 3,746 Photronics, Inc.* 74,620 1,926 Varian Semiconductor Equipment Associates, Inc.* 84,147 -------------- $ 281,611 -------------- SEMICONDUCTORS - 1.1% 3,525 Power Integrations, Inc.* $ 117,947 -------------- TOTAL SEMICONDUCTORS $ 399,558 -------------- TELECOMMUNICATION SERVICES - 2.2% INTEGRATED TELECOMMUNICATION SERVICES - 1.5% 6,975 Aeroflex Inc.* $ 81,538 6,359 CT Communications Inc. 85,847 -------------- $ 167,385 -------------- WIRELESS TELECOMMUNICATION SERVICES - 0.7% 7,750 Boston Communications Group, Inc.* $ 71,998 -------------- TOTAL TELECOMMUNICATION SERVICES $ 239,383 -------------- UTILITIES - 2.3% ELECTRIC UTILITIES - 1.6% 7,039 UniSource Energy Corp. $ 173,582 -------------- GAS UTILITIES - 0.7% 1,925 People's Energy Corp. $ 80,914 -------------- TOTAL UTILITIES $ 254,496 -------------- TOTAL COMMON STOCKS (Cost $8,298,594) $ 9,572,956 --------------
The accompanying notes are an integral part of these financial statements. 6
SHARES VALUE TEMPORARY CASH INVESTMENT - 11.6% SECURITY LENDING COLLATERAL - 11.6% 1,272,844 Securities Lending Investment Fund, 1.02% $ 1,272,844 -------------- TOTAL COMMERCIAL PAPER $ 1,272,844 -------------- TOTAL TEMPORARY CASH INVESTMENT (Cost $1,272,844) $ 1,272,844 -------------- TOTAL INVESTMENT IN SECURITIES - 98.9% (Cost $9,571,438) $ 10,845,800 -------------- OTHER ASSETS AND LIABILITIES - 1.1% $ 124,729 -------------- TOTAL NET ASSETS - 100.0% $ 10,970,529 ==============
* Non-income producing security. 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, 2003, the value of these securities amounted to $130,693 or 1.2% of net assets. The accompanying notes are an integral part of these financial statements. 7 PIONEER SMALL COMPANY VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST FINANCIAL HIGHLIGHTS
YEAR ENDED YEAR ENDED 1/19/01 TO 12/31/03 12/31/02 12/31/01(a) CLASS I Net asset value, beginning of period $ 9.13 $ 10.97 $ 10.00 ------------ ------------ ------------ Increase (decrease) from investment operations: Net investment income (loss) $ 0.00(b) $ 0.00(b) $ 0.02 Net realized and unrealized gain (loss) on investments and foreign currency transactions 2.31 (1.84) 0.95 ------------ ------------ ------------ Net increase (decrease) from investment operations $ 2.31 $ (1.84) $ 0.97 Distributions to shareowners: Net investment income -- (0.00)(b) -- ------------ ------------ ------------ Net increase (decrease) in net asset value $ 2.31 $ (1.84) $ 0.97 ------------ ------------ ------------ Net asset value, end of period $ 11.44 $ 9.13 $ 10.97 ============ ============ ============ Total return* 25.30% (16.75)% 9.70% Ratio of net expenses to average net assets+ 1.25% 1.25% 1.24%** Ratio of net investment income (loss) to average net assets+ 0.02% 0.07% 0.30%** Portfolio turnover rate 38% 53% 72% Net assets, end of period (in thousands) $ 3,875 $ 3,441 $ 2,375 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 2.42% 2.68% 7.49%** Net investment income (loss) (1.15)% (1.36)% (5.95)%** Ratio with waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 1.25% 2.68% 1.24%** Net investment income (loss) 0.02% 1.36% 0.30%**
(a) Shares of Pioneer Small Company VCT Portfolio were first publicly offered on January 19, 2001. (b) Amount rounds to less than one cent per share. * 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 with no reduction for fees paid indirectly. The accompanying notes are an integral part of these financial statements. 8 PIONEER SMALL COMPANY VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST STATEMENT OF ASSETS AND LIABILITIES 12/31/03
PIONEER SMALL COMPANY VCT PORTFOLIO ASSETS: Investment in securities, at value (including securities loaned of $1,222,278) (Cost $9,571,438) $ 10,845,800 Cash 1,412,806 Cash held as collateral for furtures contracts - Futures collateral 17,500 Foreign currencies, at value - Receivables - Investment securities sold - Fund shares sold 6,569 Variation margin - Dividends, interest and foreign taxes withheld 8,349 Forward foreign currency settlement contracts, net Forward foreign currency portfolio hedge contracts, open - net Due from Pioneer Investment Management, Inc. 3,952 Other 2,029 --------------- Total assets $ 12,297,005 --------------- LIABILITIES: Payables - Investment securities purchased $ - Fund shares repurchased 828 Dividends - Upon return of securities loaned 1,272,844 Variation Margin 3,400 Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, net - Reserve for repartriation taxes - Due to bank - Due to affiliates 6,002 Accrued expenses 43,402 Other - --------------- Total liabilities $ 1,326,476 --------------- NET ASSETS: Paid-in capital $ 10,399,433 Accumulated net investment income (loss) 1,986 Accumulated undistributed net realized gain (loss) (716,740) Net unrealized gain (loss) on: Investments 1,274,362 Futures contracts 11,218 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - --------------- Total net assets $ 10,970,529 --------------- NET ASSET VALUE PER SHARE: CLASS I: (Unlimited number of shares authorized) Net assets $ 3,875,232 Shares outstanding 338,811 =============== Net asset value per share $ 11.44 CLASS II: (Unlimited number of shares authorized) Net assets $ 7,095,297 Shares outstanding 625,380 =============== Net asset value per share $ 11.35
The accompanying notes are an integral part of these financial statements. 9 STATEMENTS OF OPERATIONS
PIONEER SMALL COMPANY VCT PORTFOLIO YEAR ENDED 12/31/03 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $33) $ 91,471 Interest 4,100 Income on securities loaned, net 4,724 Other - --------------- Total investment income $ 100,295 --------------- EXPENSES: Management fees $ 58,653 Transfer agent fees 3,118 Distribution fees (Class II) 10,949 Administrative fees 37,413 Custodian fees 23,416 Professional fees 23,398 Printing 35,762 Fees and expenses of nonaffiliated trustees 545 Miscellaneous 7,122 --------------- Total expenses $ 200,376 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. (90,919) --------------- Net expenses $ 109,457 --------------- Net investment income (loss) $ (9,162) --------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ (345,200) Futures contracts 49,017 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (86) --------------- $ (296,269) --------------- Change in net unrealized gain or loss from: Investments $ 2,150,870 Futures contracts 20,982 Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (3) --------------- $ 2,171,849 --------------- Net gain (loss) on investments, futures contracts and foreign currency transactions $ 1,875,580 =============== Net increase (decrease) in net assets resulting from operations $ 1,866,418 ===============
The accompanying notes are an integral part of these financial statements. 10 STATEMENTS OF CHANGES IN NET ASSETS
PIONEER SMALL COMPANY VCT PORTFOLIO YEAR YEAR ENDED ENDED 12/31/03 12/31/02 FROM OPERATIONS: Net investment income (loss) $ (9,162) $ (2,253) Net realized gain (loss) on investments (296,269) (290,679) Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions 2,171,849 (1,085,816) ------------ ------------ Net increase (decrease) in net assets resulting from operations $ 1,866,418 $ (1,378,748) ------------ ------------ DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ - $ (1,223) Class II - (819) Net realized gain Class I - - Class II - - Tax return of capital Class I - - Class II - - ------------ ------------ Total distributions to shareowners $ - $ (2,042) ------------ ------------ FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 6,156,243 $ 6,456,212 Reinvestment of distributions - 2,009 Cost of shares repurchased (3,911,566) (1,530,967) ------------ ------------ Net increase (decrease) in net assets resulting from fund share transactions $ 2,244,677 $ 4,927,254 ------------ ------------ Net increase (decrease) in net assets $ 4,111,095 $ 3,546,464 ------------ ------------ NET ASSETS: Beginning of year 6,859,434 3,312,970 ------------ ------------ End of year $ 10,970,529 $ 6,859,434 ============ ============ Accumulated undistributed/(distributions in excess of) net investment income (loss) $ 1,986 $ 615 ============ ============
The accompanying notes are an integral part of these financial statements. 11 PIONEER SMALL COMPANY VCT PORTFOLIO NOTES TO FINANCIAL STATEMENTS 12/31/03 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Pioneer Small Company VCT Portfolio (the Portfolio) is a portfolio of Pioneer Variable Contracts Trust (the Trust) which is a Delaware business trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of sixteen separate portfolios fourteen of which issue both Class I and Class II shares (collectively, the Portfolios, individually the Portfolio) as follows: PORTFOLIOS: Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio) Pioneer Europe VCT Portfolio (Europe Portfolio) Pioneer International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio) Pioneer Small Company VCT Portfolio (Small Company Portfolio) Pioneer Mid Cap Value VCT Portfolio (Mid-Cap Value Portfolio) Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio) Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio) Pioneer Fund VCT Portfolio (Fund Portfolio) Pioneer Equity Income VCT Portfolio (Equity-Income Portfolio) Pioneer Balanced VCT Portfolio (Balanced Portfolio) Pioneer High Yield VCT Portfolio (High Yield Portfolio) Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio) Pioneer America Income VCT Portfolio (America Income Portfolio) Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares only) Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only) Portfolio shares may only be purchased by insurance companies for the purpose of funding variable annuity or variable life insurance contracts, and may also be purchased by qualified pension and retirement plans. The investment objective of Small Company Portfolio is to seek capital appreciation. The financial highlights for the Portfolio's Class II shares are presented in a separate book. Trust's financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America 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 income, expenses, gains and losses during the reporting years. 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 as of trade date. Net asset values for the portfolio 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, based on the last sale price on the principal exchange where they traded, are determined as of such times. 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 becomes aware of the ex-dividend data in the exercise of reasonable diligence. Interest income, including interest on income bearing cash accounts, is recorded on the accrual basis, net of unrecoverable foreign taxes withheld at the applicable country rates. All discounts/premiums are accreted/amortized for financial reporting purposes. 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, and, if applicable, are reported net of foreign taxes on capital gains at the applicable country rates. Small-capitalization stocks, while offering the potential for higher returns, may be subject to greater short-term price fluctuations than securities of larger companies. B. FUTURES CONTRACTS The Portfolio may enter into futures transactions to hedge against changes in interest rates, securities prices, and currency rates or to seek to increase total return. Upon entering into a futures contract, the Portfolio is required to deposit with a broker an amount of cash or securities equal to the minimum "initial margin" requirements of the associated futures 12 exchange. Subsequent payments for futures contracts ("variation margin") are paid or received by the Portfolio, depending on the daily fluctuation in the value of the contracts, and are recorded by the Portfolio as unrealized gains or losses. When the contract is closed, the Portfolio realizes a gain or loss equal to the difference between the opening and closing value of the contract. The use of futures contracts involves, to varying degrees, elements of market risk which may exceed the amounts recognized by the Portfolio. Changes in the value of the contracts may not directly correlate to the changes in the value of the underlying securities. These risks may decrease the effectiveness of the Portfolio's hedging and trading strategies and potentially result in a loss. As of December 31, 2003, open contracts were as follows:
NUMBER OF CONTRACTS SETTLEMENT UNREALIZED PORTFOLIO TYPE LONG/(SHORT) MONTH MARKET VALUE GAIN/(LOSS) - ------------------------------------------------------------------------------------------ Small Company Russell 2000 1 Mar-04 $ 278,600 $ 11,218
C. FOREIGN CURRENCY TRANSLATION The books and records of the Portfolio 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, 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. D. FORWARD FOREIGN CURRENCY CONTRACTS The Portfolio enters 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 Portfolio's financial statements. The Portfolio records 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. E. 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 shareowners. Therefore, no federal income tax provision is required. In addition to the requirements of the Internal Revenue Code, the Portfolio may also be required to pay local taxes on the recognition of capital gains and/or the repatriation of foreign currencies in certain countries. During the year ended December 31, 2003, the no such taxes were paid. The amount and characterization of distributions to shareowners 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. Capital loss carryforwards are available to offset future realized capital gains. At December 31, 2003, Small Company VCT Portfolio had a capital loss carryforward of $613,173, of which the following amounts will expire between 2009 and 2011 if not utilized: $92,858 in 2009, $235,402 in 2010 and $284,913 in 2011. At December 31, 2003, the Portfolio made reclassifications as described below. These reclassifications have no impact on the net asset value of the Portfolio and are designed to present the portfolios' capital accounts on a tax basis.
ACCUMULATED NET ACCUMULATED INVESTMENT REALIZED GAIN/ PORTFOLIO INCOME/(LOSS) LOSS PAID-IN CAPITAL - ------------------------------------------------------------------------------- Small Company Portfolio $ 10,533 $ 5,469 $ (16,002)
13 The following chart shows the components of distributable earnings (accumulated losses) as of December 31, 2003 and the distributions paid during the year ended December 31, 2003 on a tax basis as of December 31, 2003.
PIONEER PIONEER SMALL COMPANY SMALL COMPANY VCT PORTFOLIO VCT PORTFOLIO 2003 2002 - ------------------------------------------------------------------------ DISTRIBUTIONS PAID FROM: Ordinary Income $ - $ 2,042 Long-Term capital gain - - ------------------------------ $ - $ 2,042 Return of Capital - - ------------------------------ Total distributions $ - $ 2,042 ------------------------------ DISTRIBUTABLE EARNINGS (ACCUMULATED LOSSES): Undistributed ordinary income $ - Undistributed long-term gain/ (Capital loss carryforward) (613,173) Unrealized appreciation/(depreciation) 1,184,269 ------------- Total $ 571,096 =============
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily attributable to the tax deferral of losses on wash sales, returns of capital on REITs, and the recognition of unrealized gains or losses on certain futures contracts. F. PORTFOLIO SHARES The Portfolio records sales and repurchases of its portfolio shares as of trade date. Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the principal underwriter for the Trust and a wholly owned indirect subsidiary of UniCredito Italiano S.p.A. (UniCredito Italiano), $246,661 in commissions on the sale of Trust shares for the year ended December 31, 2003. Distribution fees are calculated based on the average daily net asset values attributable to Class I and Class II shares of the Portfolio, respectively. Shareowners of each class share all expenses and fees paid to the transfer agent, Pioneer Investment Management Shareholder Services, Inc. (PIMSS), for its services, which are allocated based on the number of accounts in each class and the ratable allocation of related out-of-pocket expenses (see Note 3). Income, common expenses and realized and unrealized gains and losses are calculated at the Portfolio level and allocated daily to each class of shares based on the respective percentage of adjusted net assets at the beginning of the day. Distributions paid by the Portfolio with respect to each class of shares are calculated in the same manner, at the same time, and in the same amount, except that Class I and Class II shares can bear different transfer agent and distribution fees. Dividends and distributions to shareowners are recorded on the ex-dividend date. Income, expenses (excluding 12b-1 fees) and gains and losses are calculated at the Portfolio level and are allocated daily based on the respective percentage of adjusted net assets at the beginning of the day. G. SECURITIES LENDING The Portfolio lends securities in its portfolio to certain broker-dealers or other institutional investors, with the Portfolio's custodian acting as the lending agent. When entering into a loan, the Portfolio receives collateral which is maintained by the custodian and earns income in the form of negotiated lenders' fees. The Portfolio also continues to receive interest or dividends on the securities loaned, and gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for account of the Trust. The loans are secured by collateral of at least 102%, at all times, of the fair value of the securities loaned. The fair value of the collateral will be adjusted daily to reflect any price fluctuation in the value of the loaned securities. The Trust has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Trust invests cash collateral in the Securities Lending Investment Fund which is managed by Brown Brothers Harriman & Co., the Trust's custodian. H. REPURCHASE AGREEMENTS With respect to repurchase agreements entered into by the Portfolio, 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 Portfolio's custodian, or subcustodian. The Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is responsible for determining that the value of the collateral remains at least equal to the repurchase price. 2. MANAGEMENT AGREEMENT PIM manages the Portfolio, and is a wholly owned indirect subsidiary of UniCredito Italiano. Management fees are calculated daily at the following annual rate of 0.75% of the Portfolio's average daily net assets. In addition, under the management and administration agreement, certain other services and costs, including accounting, regulatory reporting and insurance premiums, are paid by the Portfolio. At December 31, 2003, $3,125 was payable to PIM related to management fees, administrative fees and certain other services. 14 3. TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. (PIMSS), a wholly owned indirect subsidiary of UniCredito Italiano provides substantially all transfer agent and shareowner services to the Trust at, negotiated rates. Included in due to affiliates is $1,258 in transfer agent fees payable to PIMSS at December 31, 2003. 4. DISTRIBUTION PLANS The Portfolio has adopted a plan of distribution for Class II shares in accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily net assets attributable to Class II shares. Included in due to affiliates is $1,619, payable to PFD at December 31, 2003. 5. AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION At December 31, 2003, the Portfolio's aggregate unrealized appreciation and depreciation based on cost for federal income tax purposes was as follows:
NET GROSS GROSS APPRECIATION/ TAX COST APPRECIATION DEPRECIATION (DEPRECIATION) - --------------------------------------------------------------------------------------------- Small Company Portfolio $ 9,661,531 $ 1,465,340 $ (281,071) $ 1,184,269
6. PORTFOLIO TRANSACTIONS The cost of purchases and the proceeds from sales of investments other than U.S. Government obligations and temporary cash investments for the year ended December 31, 2003, were $4,176,886 and $2,669,753, respectively. 7. CAPITAL SHARES At December 31, 2003, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
'03 SHARES '03 AMOUNT '02 SHARES '02 AMOUNT - --------------------------------------------------------------------------------------------- SMALL COMPANY PORTFOLIO CLASS I: Shares sold 286,397 $ 2,774,242 273,309 $ 2,966,433 Reinvestment of distributions - - 108 1,190 Shares repurchased (324,514) (3,132,628) (112,938) (1,132,691) ------------------------------------------------------------- Net increase (38,117) $ (358,386) 160,479 $ 1,834,932 ============================================================= CLASS II: Shares sold 328,726 $ 3,382,001 333,230 $ 3,489,779 Reinvestment of distributions - - 75 819 Shares repurchased (80,215) (778,938) (42,070) (398,276) ------------------------------------------------------------- Net increase 248,511 $ 2,603,063 291,235 $ 3,092,322 =============================================================
15 PIONEER SMALL COMPANY VCT PORTFOLIO REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF TRUSTEES OF PIONEER VARIABLE CONTRACTS TRUST AND THE CLASS I SHAREOWNERS OF PIONEER SMALL COMPANY VCT PORTFOLIO: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer Small Company VCT Portfolio, one of the portfolios constituting Pioneer Variable Contracts Trust (the "Trust") as of December 31, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets and financial highlights for each of the two years in the period then ended. 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. The financial highlights for the period ended December 31, 2001 were audited by other auditors who have ceased operations and whose report, dated February 8, 2002, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 Pioneer Small Company VCT Portfolio of Pioneer Variable Contracts Trust at December 31, 2003, the results of its operations for the year then ended, the changes in its net assets and the financial highlights for each of the two years in the period then ended in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts February 6, 2004 16 PIONEER VARIABLE CONTRACTS TRUST TRUSTEES, OFFICERS AND SERVICE PROVIDERS INVESTMENT ADVISER Pioneer Investment Management, Inc. CUSTODIAN Brown Brothers Harriman & Co. INDEPENDENT AUDITORS Ernst & Young LLP PRINCIPAL UNDERWRITER Pioneer Funds Distributor, Inc. LEGAL COUNSEL Hale and Dorr LLP SHAREOWNER SERVICES AND TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. TRUSTEES AND OFFICERS The Fund's Board of Trustees provides broad supervision over the affairs of the Fund. The officers of the Fund are responsible for the Fund's operations. The Fund's Trustees and officers are listed below, together with their principal occupations during the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of 1940 are referred to as Interested Trustees. Trustees who are not interested persons of the Fund are referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 51 U.S. registered investment portfolios for which Pioneer Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the Portfolio is 60 State Street, Boston, Massachusetts 02109. The Fund's statement of additional information provides more detailed information regarding the Fund's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Fund are available without charge, upon request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. INTERESTED TRUSTEES
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS TRUSTEE John F. Cogan, Jr. (77)* Chairman of Trustee since 1994. Deputy Chairman and a Director of Director of Harbor Global the Board, Serves until a Pioneer Global Asset Management Company, Ltd. Trustee and successor trustee S.p.A. ("PGAM"); Non-Executive President is elected or Chairman and a Director of Pioneer earlier retirement Investment Management USA Inc. or removal. ("PIM-USA"); Chairman and a Director of Pioneer; Director of Pioneer Alternative Investment Management Limited (Dublin); President and a Director of Pioneer Alternative Investment Management (Bermuda) Limited and affiliated funds; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel (since 2000, partner prior to 2000), Hale and Dorr LLP (counsel to PIM-USA and the Pioneer Funds) *Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. Osbert M. Hood (51)** Trustee and Trustee since June, President and Chief Executive None Executive 2003. Serves until Officer, PIM-USA since May, 2003 Vice a successor trustee (Director since January, 2001); President is elected or President and Director of Pioneer earlier retirement since May 2003; Chairman and or removal. Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Executive Vice President of all of the Pioneer Funds since June 2003; Executive Vice President and Chief Operating Officer of PIM-USA, November 2000-May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999-November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997-November 1999 **Mr. Hood is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
17 INDEPENDENT TRUSTEES
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE ADDRESS WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS TRUSTEE Mary K. Bush (55) Trustee Trustee since President, Bush International Director of Brady 3509 Woodbine Street, September, 2000. (international financial advisory Corporation (industrial Chevy Chase, MD 20815 Serves until a firm) identification and successor trustee specialty coated material is elected or products manufacturer), earlier retirement Millenium Chemicals, Inc. or removal. (commodity chemicals), Mortgage Guaranty Insurance Corporation, and R.J. Reynolds Tobacco Holdings, Inc. (tobacco) Richard H. Egdahl, M.D. (77) Trustee Trustee since Alexander Graham Bell Professor of None Boston University Healthcare 1995. Serves Health Care Entrepreneurship, Entrepreneurship Program, until a successor Boston University; Professor of 53 Bay State Road, trustee is elected Management, Boston University Boston, MA 02215 or earlier School of Management; Professor of retirement or Public Health, Boston University removal. School of Public Health; Professor of Surgery, Boston University School of Medicine; and University Professor, Boston University Margaret B.W. Graham (56) Trustee Trustee since Founding Director, The Winthrop None 1001 Sherbrooke September, 2000. Group, Inc. (consulting firm); Street West, Serves until a Professor of Management, Faculty Montreal, Quebec, Canada successor trustee of Management, McGill University is elected or earlier retirement or removal. Marguerite A. Piret (55) Trustee Trustee since 1995. President and Chief Executive None One Boston Place, Serves until a Officer, Newbury, Piret & Company, 28th Floor, successor trustee Inc. (investment banking firm) Boston, MA 02108 is elected or earlier retirement or removal. Stephen K. West (75) Trustee Trustee since 1995. Senior Counsel, Sullivan & Director, The Swiss 125 Broad Street, Serves until a Cromwell (law firm) Helvetia Fund, Inc. New York, NY 10004 successor trustee (closed-end investment is elected or company) and AMVESCAP PLC earlier retirement (investment managers) or removal. John Winthrop (67) Trustee Trustee since President, John Winthrop & Co., None One North Adgers Wharf, September, 2000. Inc. (private investment firm) Charleston, SC 29401 Serves until a successor trustee is elected or earlier retirement or removal.
18 FUND OFFICERS
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Dorothy E. Bourassa (56) Secretary Serves at the Secretary of PIM-USA; Senior Vice None discretion of board President-Legal of Pioneer; and Secretary/Clerk of most of PIM-USA's subsidiaries since October 2000; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003); and Senior Counsel, Assistant Vice President and Director of Compliance of PIM-USA from April 1998 through October 2000 Christopher J. Kelley (39) Assistant Serves at the Assistant Vice President and None Secretary discretion of board Senior Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001; Vice President and Associate General Counsel from July 1996 to July 2000); Assistant Secretary of all of the Pioneer Funds since September 2003 David C. Phelan (46) Assistant Serves at the Partner, Hale and Dorr LLP; None Secretary discretion of board Assistant Secretary of all of the Pioneer Funds since September 2003 Vincent Nave (58) Treasurer Serves at the Vice President-Fund Accounting, None discretion of board Administration and Custody Services of Pioneer (Manager from September 1996 to February 1999); and Treasurer of all of the Pioneer Funds (Assistant Treasurer from June 1999 to November 2000) Luis I. Presutti (38) Assistant Serves at the Assistant Vice President-Fund None Treasurer discretion of board Accounting, Administration and Custody Services of Pioneer (Fund Accounting Manager from 1994 to 1999); and Assistant Treasurer of all of the Pioneer Funds since November 2000
19
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS OFFICER Gary Sullivan (45) Assistant Serves at the Fund Accounting Manager-Fund None Treasurer discretion of board Accounting, Administration and Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 Katharine Kim Sullivan (30) Assistant Serves at the Fund Administration Manager-Fund None Treasurer discretion of board. Accounting, Administration and Custody Services since June 2003; Assistant Vice President-Mutual Fund Operations of State Street Corporation from June 2002 to June 2003 (formerly Deutsche Bank Asset Management); Pioneer Fund Accounting, Administration and Custody Services (Fund Accounting Manager from August 1999 to May 2002, Fund Accounting Services Supervisor from 1997 to July 1999); Assistant Treasurer of all of the Pioneer Funds since September 2003
20 [PIONEER INVESTMENTS(R) LOGO] 14680-00-0204 [PIONEER INVESTMENTS(R) LOGO] PIONEER VARIABLE CONTRACTS TRUST PIONEER INTERNATIONAL VALUE VCT PORTFOLIO--CLASS II SHARES ANNUAL REPORT DECEMBER 31, 2003 PIONEER VARIABLE CONTRACTS TRUST TABLE OF CONTENTS Pioneer International Value VCT Portfolio Portfolio and Performance Update 2 Portfolio Management Discussion 3 Schedule of Investments 4 Financial Statements 8 Notes to Financial Statements 12 Report of Independent Auditors 16 Trustees, Officers and Service Providers 17
PIONEER INTERNATIONAL VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO AND PERFORMANCE UPDATE 12/31/03 [CHART] SECTOR DISTRIBUTION (As a percentage of equity holdings) Financials 26.2% Health Care 11.5% Consumer Discretionary 11.5% Industrials 9.5% Telecommunication Services 9.3% Energy 8.7% Consumer Staples 7.5% Information Technology 7.3% Materials 6.0% Utilities 2.5%
[CHART] GEOGRAPHICAL DISTRIBUTION (As a percentage of equity holdings) United Kingdom 27.7% Japan 17.0% France 12.6% Switzerland 9.9% Germany 8.7% Netherlands 4.8% Italy 2.9% Spain 2.9% Australia 2.4% South Korea 2.2% Finland 1.5% Sweden 1.3% Ireland 1.2% Hong Kong 1.1% Other (individually less than 1%) 3.8%
FIVE LARGEST HOLDINGS (As a percentage of equity holdings) 1. Vodafone Group Plc 3.70% 2. HSBC Holding Plc 3.18 3. Total SA 2.67 4. BNP Paribas SA 2.33 5. AstraZeneca Plc 2.20
Holdings will vary for other periods. This list excludes temporary cash and derivative investments. PRICES AND DISTRIBUTIONS
12/31/03 5/1/03 Net Asset Value per Share $ 10.04 $ 7.76 DISTRIBUTIONS PER SHARE SHORT-TERM LONG-TERM (5/1/03 - 12/31/03) DIVIDENDS CAPITAL GAINS CAPITAL GAINS $ 0.0602 $ - $ -
PERFORMANCE OF A $10,000 INVESTMENT The following chart shows the change in value of an investment made in PIONEER INTERNATIONAL VALUE VCT PORTFOLIO at net asset value, compared to that of the Morgan Stanley Capital International (MSCI) All Country World Free (ACWF) ex. U.S. Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [CHART]
PIONEER INTERNATIONAL VALUE VCT PORTFOLIO* MSCI EAFE INDEX+ MSCI AC WLD FR USA+ 3/31/1995 $ 10,000 $ 10,000 $ 10,000 $ 10,945 $ 10,918 $ 10,960 $ 11,819 $ 11,579 $ 11,691 12/31/1997 $ 12,227 $ 11,784 $ 11,929 $ 11,012 $ 14,137 $ 13,655 12/31/1999 $ 15,859 $ 17,950 $ 17,877 $ 12,260 $ 15,408 $ 15,177 12/31/2001 $ 9,325 $ 12,104 $ 12,218 $ 8,064 $ 10,174 $ 10,425 12/31/2003 $ 10,675 $ 14,102 $ 14,745
+ Index comparison begins on 2/28/95. The MSCI ACWF ex. U.S. Index is composed of 46 markets - 21 developed countries and 25 emerging countries. 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 Index. AVERAGE ANNUAL TOTAL RETURNS+ (As of December 31, 2003) NET ASSET VALUE* Life-of-Class (3/1/95) 0.73% 5 Years -0.62% 1 Year 32.38%
All total returns shown assume reinvestment of distributions at net asset value. + The performance of Class II shares for the period prior to the commencement of operations of Class II shares on May 1, 2003 is based on the performance of Class I shares, reduced to reflect the higher distribution fees of Class II shares. * Portfolio performance does not reflect any variable contract fees, expenses or sales charges. If they had been included, performance would have been lower. See the pages that comprise the inside cover of this report for performance net of any contract fees, expenses or sales charges. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns and principal values fluctuate so that your investment, when redeemed, may be worth more or less than its original cost. The performance table and graph do not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. 2 PIONEER INTERNATIONAL VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO MANAGEMENT DISCUSSION 12/31/03 The awakenings of a global recovery and improving investor sentiment sent international markets sharply higher during the Portfolio's fiscal year ended December 31, 2003. Stocks of companies that languished during 2002, and the first half of 2003, saw the greatest gain during the 12 months. In this report, Stefano Pregnolato, a member of the Portfolio's management team, reviews the recovery in international markets and his outlook for 2004. Q: DID INTERNATIONAL INVESTING PROVE TO BE A SUCCESSFUL STRATEGY DURING THE YEAR ENDED DECEMBER 31, 2003? A: Very much so, particularly in the second half of the year when improving corporate earnings and economic growth overcame investors' earlier misgivings about the Middle East. The Portfolio achieved strong double-digit performance for its fiscal year. However, given its focus on high-quality companies, it did underperform in a rally that prized the downtrodden or lower-quality stocks that investors perceived as being relatively undervalued. For the period December 31, 2003, Class II shares rose 32.38% at net asset value. In comparison, the Morgan Stanley Capital International (MSCI) All Country World Free Index excluding the United States posted a return of 41.41% for the same period. Q: COULD YOU EXPAND ON SOME OF THESE DIFFERENCES? A: We attribute the Portfolio's underperformance relative to its benchmark to three main factors. First, we limited the Portfolio's exposure to the highly cyclical materials sector by choosing not to invest in the chemical industry. Unfortunately, chemical stocks turned out to be one of the best performing sectors for the 12 months ended December 31, 2003. Instead, the Portfolio's cyclical exposure remained composed of industrial stocks, which we'd overweighted relative to the benchmark. That proved to be a good decision, but not sufficient to overcome the dampening effect that the absence of chemical stocks had on the Portfolio. Secondly, the Portfolio had a greater-than-benchmark exposure to the health care sector, through the pharmaceutical and biotechnology industries, which despite turning in positive double-digit performance during the second half of the fiscal year represented one of the poorer performing sectors for the entire year. We believe discussions about drug pricing and the uncertainty about the future pipeline of blockbuster drugs contributed to the underperformance of the sector in general. Finally, the Portfolio's exposure to the technology sector lagged the general market, because of the underperformance of its largest holding, Nokia (Finland). The company fell behind many of its peers in the technology sector, because it had appreciated considerably in preceding months and did not experience the same degree of price appreciation as other technology stocks that investors perceived as being undervalued. Q: DID THE EURO REMAIN STRONG THROUGHOUT THE FISCAL YEAR? A: Yes. The euro appreciated considerably in value against the dollar for the year ended December 31. Interest rates in the United States are lower than rates in Europe and other key trading partners. That imbalance increases demand for foreign currencies relative to the U.S. dollar. We believe it's unlikely the euro-dollar interest-rate differential will disappear in the near term, because of the Federal Reserve Board's pro-growth sentiment. While the situation is problematic for European exporters, since their products become more expensive for U.S. consumers, the dollar-based returns become more attractive for our shareholders when the Portfolio's returns are converted back into the weaker U.S. dollar. Q: DID FINANCIAL AND INSURANCE STOCKS CONTRIBUTE TO PERFORMANCE? A: Both of those industries contributed positively. The upswing in stock markets has been favorable for diversified banks and financial services companies. After turning in disappointing performance during the first half of the reporting period, insurance stocks did recover during the rally. The Portfolio's exposure to this sector remains below that of the benchmark's weighting. That positioning proved to be a good thing, since the sector turned in poor performance in earlier periods. In addition, successful stock picking helped the Portfolio to sidestep some of the poorer performing companies in the sector. Q: HAVE YOU POSITIONED THE PORTFOLIO FOR A POTENTIAL RECOVERY IN 2004? A: While the Portfolio is not as defensively positioned as it was six or 12 months ago, we still remain cautious in our outlook. We believe Europe and the Far East (excluding Japan) offer the best opportunity at this time and have positioned assets accordingly. Our outlook for Japan is improving, but we are still limiting investment there until more substantial reforms take place. The weak dollar remains a big concern for Europe's recovery in particular, especially since domestic demand is still sluggish. Given the market's recent rally, many stock prices have moved ahead of the underlying companies' next cycle of earnings announcements. With such inflated valuations, we expect to be patient, waiting for price corrections to add strategically to the Portfolio's holdings. ANY INFORMATION IN THIS SHAREHOLDER REPORT REGARDING MARKET OR ECONOMIC TRENDS OR THE FACTORS INFLUENCING THE PORTFOLIO'S HISTORICAL OR FUTURE PERFORMANCE ARE STATEMENTS OF THE OPINION OF PORTFOLIO MANAGEMENT AS OF THE DATE OF THIS REPORT. THESE STATEMENTS SHOULD NOT BE RELIED UPON FOR ANY OTHER PURPOSES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND THERE IS NO GUARANTEE THAT MARKET FORECASTS DISCUSSED WILL BE REALIZED. [SIDE NOTE] 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. 3 PIONEER INTERNATIONAL VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST SCHEDULE OF INVESTMENTS 12/31/03
SHARES VALUE PREFERRED STOCKS - 0.8% MEDIA - 0.5% PUBLISHING - 0.5% 14,926 News Corp., Ltd. $ 112,370 -------------- TOTAL MEDIA $ 112,370 -------------- AUTOMOBILES & COMPONENTS - 0.3% AUTOMOBILE MANUFACTURERS - 0.3% 3,960 Hyundai Motor Co., Ltd. (Preferred Shares)* $ 76,109 -------------- TOTAL AUTOMOBILES & COMPONENTS $ 76,109 -------------- TOTAL PREFERRED STOCKS (Cost $140,308) $ 188,479 -------------- COMMON STOCKS - 96.6% ENERGY - 8.4% INTEGRATED OIL & GAS - 4.9% 52,310 BP Amoco Plc $ 426,986 13,100 Eni S.p.A. 246,656 65,530 Shell Transport & Trading Co. 485,525 -------------- $ 1,159,167 -------------- OIL & GAS EXPLORATION & PRODUCTION - 0.9% 162,000 China Petroleum & Chemical $ 72,510 27,000 Tokyo Gas Co., Ltd. 96,249 4,600 Woodside Petroleum, Ltd.* 51,254 -------------- $ 220,013 -------------- OIL & GAS REFINING, MARKETING & TRANSPORTATION - 2.6% 3,300 Total SA $ 612,209 -------------- TOTAL ENERGY $ 1,991,389 -------------- MATERIALS - 5.9% COMMODITY CHEMICALS - 1.5% 4,400 BASF India, Ltd. $ 246,877 3,600 Reliance Industries, Ltd. (144A)* 112,849 -------------- $ 359,726 -------------- CONSTRUCTION MATERIALS - 1.3% 8,200 CRH Plc $ 167,709 1,600 Lafarge BR 142,172 -------------- $ 309,881 -------------- DIVERSIFIED CHEMICALS - 0.3% 7,000 The Daimaru $ 38,867 800 Murata Manufacturing 43,225 -------------- $ 82,092 -------------- DIVERSIFIED METALS & MINING - 1.2% 4,090 Rio Tinto Plc $ 112,350 4,700 Sandvik AB 161,826 -------------- $ 274,176 -------------- PAPER PACKAGING - 0.2% 6,300 Amcor, Ltd. $ 39,177 -------------- SPECIALTY CHEMICALS - 0.5% 2,830 Shin-Etsu Chemical Co., Ltd.* $ 115,672 -------------- STEEL - 0.9% 500 Pohang Iron & Steel Co.* $ 68,401 14,602 Broken Hill Proprietary Co., Ltd. 134,006 -------------- $ 202,407 -------------- TOTAL MATERIALS $ 1,383,131 -------------- CAPITAL GOODS - 5.8% AEROSPACE & DEFENSE - 0.8% 7,600 European Aeronautic Defence $ 180,307 -------------- BUILDING PRODUCTS - 0.2% 4,500 Daewoo Heavy Industries & Machinery Ltd.* $ 57,784 -------------- CONSTUCTION & ENGINEERING - 1.7% 2,883 Actividades de Construccion y Servicios SA* $ 140,425 4,700 Compagnie de Saint Gobain 229,578 29,000 Singapore Technologies Engineering* 34,835 -------------- $ 404,838 -------------- ELECTRICAL COMPONENTS & EQUIPMENT - 2.2% 1,900 Fanuc, Ltd. $ 113,830 7,000 Matsushita Electric Industrial Co., Ltd. 96,809 2,500 Pioneer Corp. 69,056 2,600 Schneider Electric SA 169,836 500 SMC Corp. 62,243 -------------- $ 511,774 -------------- INDUSTRIAL MACHINERY - 0.9% 3,400 AB SKF $ 131,227 13,000 Mitsubishi Heavy Industries, Ltd. 36,152 41,000 Singapore Telecommunications, Ltd. 47,318 -------------- $ 214,697 -------------- TOTAL CAPITAL GOODS $ 1,369,400 -------------- COMMERCIAL SERVICES & SUPPLIES - 2.7% COMMERCIAL PRINTING - 0.4% 6,900 Dai Nippon Printing Co., Ltd. $ 96,906 -------------- DIVERSIFIED COMMERCIAL SERVICES - 1.2% 62,270 Hays Plc $ 133,303 6,300 TNT Post Group NV 147,245 -------------- $ 280,548 -------------- OFFICE SERVICES & SUPPLIES - 1.1% 3,000 Canon, Inc. $ 139,698 6,000 Ricoh Co. 118,421 -------------- $ 258,119 -------------- TOTAL COMMERCIAL SERVICES & SUPPLIES $ 635,573 --------------
The accompanying notes are an integral part of these financial statements. 4
SHARES VALUE TRANSPORTATION - 0.7% RAILROADS - 0.5% 24 East Japan Railway Co. $ 113,102 -------------- TRUCKING - 0.2% 5,000 Yamato Transport Co., Ltd. $ 58,884 -------------- TOTAL TRANSPORTATION $ 171,986 -------------- AUTOMOBILES & COMPONENTS - 3.3% AUTOMOBILE MANUFACTURERS - 2.9% 4,000 Bayerische Motoren Werke AG $ 185,014 3,400 Honda Motor Co., Ltd. 151,027 5,900 Nissan Motor Co., Ltd. 67,391 7,800 Toyota Motor Co. 263,494 -------------- $ 666,926 -------------- AUTOMOTIVE PARTS & EQUIPMENT - 0.4% 7,000 Bridgestone Corp. $ 94,130 -------------- TOTAL AUTOMOBILES & COMPONENTS $ 761,056 -------------- CONSUMER DURABLES & APPAREL - 1.6% APPAREL, ACCESSORIES & LUXURY GOODS - 0.6% 2,100 Fast Retailing Co., Ltd.* $ 127,576 -------------- HOUSEWARES & SPECIALTIES - 0.3% 2,200 Sony Corp.* $ 76,166 -------------- LEISURE PRODUCTS - 0.1% 300 Nintendo Corp., Ltd. $ 27,996 -------------- PHOTOGRAPHIC PRODUCTS - 0.6% 3,000 Fuji Photo Film Co., Ltd. $ 96,865 10,000 Sanyo Electric Co., Ltd. 52,258 -------------- $ 149,123 -------------- TOTAL CONSUMER DURABLES & APPAREL $ 380,861 -------------- HOTELS, RESTAURANTS & LEISURE - 1.7% RESTAURANTS - 1.7% 30,740 Compass Group Plc $ 208,025 14,500 Gus Plc 199,999 -------------- TOTAL HOTELS, RESTAURANTS & LEISURE $ 408,024 -------------- MEDIA - 2.5% ADVERTISING - 0.5% 4,000 Publicis SA $ 129,384 -------------- PUBLISHING - 2.0% 31,100 Reed Elsevier Plc $ 258,571 4,200 Vivendi Universal* 101,864 6,900 Wolters Kluwer NV 107,686 -------------- $ 468,121 -------------- TOTAL MEDIA $ 597,505 -------------- RETAILING - 1.3% DEPARTMENT STORES - 0.5% 2,800 Metro AG $ 123,167 -------------- HOME IMPROVEMENT RETAIL - 0.8% 12,200 Wolseley $ 171,865 -------------- TOTAL RETAILING $ 295,032 -------------- FOOD & DRUG RETAILING - 5.3% FOOD DISTRIBUTORS - 0.4% 9,000 Ajinomoto Co., Inc. $ 103,555 -------------- FOOD RETAIL - 4.9% 18,166 Koninklijke Ahold NV* $ 138,097 1,800 Nestle SA (Registered Shares) 449,019 82,900 Tesco Plc 380,656 2,722 Unilever NV 177,634 -------------- $ 1,145,406 -------------- TOTAL FOOD & DRUG RETAILING $ 1,248,961 -------------- FOOD, BEVERAGE & TOBACCO - 1.9% DISTILLERS & VINTNERS - 1.3% 13,800 Diageo Plc $ 181,239 10,000 Foster's Group, Ltd. 33,878 10,000 Kirin Brewery Co., Ltd. 85,293 -------------- $ 300,410 -------------- TOBACCO - 0.6% 10,520 British American Tobacco Plc $ 144,446 -------------- TOTAL FOOD, BEVERAGE & TOBACCO $ 444,856 -------------- HOUSEHOLD & PERSONAL PRODUCTS - 0.1% PERSONAL PRODUCTS - 0.1% 4,000 Lion Corp.* $ 21,351 -------------- TOTAL HOUSEHOLD & PERSONAL PRODUCTS $ 21,351 -------------- HEALTH CARE EQUIPMENT & SERVICES - 0.4% HEALTH CARE EQUIPMENT - 0.4% 1,500 Celesio AG* $ 72,590 1,600 Cochlear Ltd. 25,850 -------------- TOTAL HEALTH CARE EQUIPMENT & SERVICES $ 98,440 -------------- PHARMACEUTICALS & BIOTECHNOLOGY - 10.8% PHARMACEUTICALS - 10.8% 10,582 Astrazeneca Plc $ 505,712 1,000 Eisai Co., Ltd.* 26,969 1,000 Fujisawa Pharmaceuticals 21,323 16,690 GlaxoSmithKline Plc 381,842 10,600 Novartis 480,496 4,728 Roche Holdings AG 476,159 2,500 Sanofi-Synthelabo SA 187,846 4,570 Schering AG 230,935 4,000 Takeda Chemical Industries 158,641 2,300 Yamanouchi Pharmaceutical Co., Ltd. 71,473 -------------- TOTAL PHARMACEUTICALS & BIOTECHNOLOGY $ 2,541,396 --------------
The accompanying notes are an integral part of these financial statements. 5
SHARES VALUE BANKS - 13.5% DIVERSIFIED BANKS - 13.5% 7,400 Allied Irish Bank Plc $ 118,563 4,600 Australia & New Zealand Banking Group, Ltd. 61,228 20,100 Banco Bilbao Vizcaya Argentaria, SA 277,012 26,125 Barclays Plc 232,115 8,500 BNP Paribas SA 534,050 4,145 Credit Agricole SA* 98,756 5,230 CS Group 191,053 3,000 Hana Bank* 55,392 3,500 Hang Seng Bank 45,983 46,700 HSBC Holding Plc 731,159 18 Mitsubishi Tokyo Financial Group, Inc. 140,426 16,220 Royal Bank of Scotland Group Plc 476,518 2,200 State Bank of India (G.D.R.) 73,425 6,500 United Overseas Bank 50,521 6,900 Westpac Banking Corp. 83,063 -------------- TOTAL BANKS $ 3,169,264 -------------- DIVERSIFIED FINANCIALS - 7.3% DIVERSIFIED FINANCIALS - 0.5% 24 Sumitomo Mitsui Financial Group, Inc. $ 127,884 -------------- DIVERSIFIED FINANCIAL SERVICES - 6.8% 7,596 Collins Stewart Tullett Plc $ 60,276 3,180 Deutsche Bank AG 262,954 4,000 Deutsche Boerse AG 218,241 9,500 ING Groep NV 221,080 8,000 Nomura Securites Co., Ltd.* 136,245 2,919 Societe Generale 257,170 6,400 UBS AG 437,620 -------------- $ 1,593,586 -------------- TOTAL DIVERSIFIED FINANCIALS $ 1,721,470 -------------- INSURANCE - 4.3% LIFE & HEALTH INSURANCE - 1.3% 8,000 Assicurazioni Generali $ 211,445 2,800 China Life Insurance Co. (A.D.R.)* 92,316 -------------- $ 303,761 -------------- MULTI-LINE INSURANCE - 2.3% 15,000 AXA $ 320,377 1,600 Zurich Financial Services* 229,918 -------------- $ 550,295 -------------- PROPERTY & CASUALTY INSURANCE - 0.7% 13 Millea Holdings, Inc.* $ 169,839 -------------- TOTAL INSURANCE $ 1,023,895 -------------- REAL ESTATE - 0.5% REAL ESTATE MANAGEMENT & DEVELOPMENT - 0.5% 4,000 Mitsui Fudosan Co. $ 36,133 9,000 Sun Hungkai Property 74,481 -------------- TOTAL REAL ESTATE $ 110,614 -------------- SOFTWARE & SERVICES - 0.5% HOME ENTERTAINMENT SOFTWARE - 0.1% 1,000 Konami Corp. $ 29,115 -------------- SOFTWARE & SERVICES - 0.4% 6,500 T-Online International AG* $ 83,854 -------------- TOTAL SOFTWARE & SERVICES $ 112,969 -------------- TECHNOLOGY HARDWARE & EQUIPMENT - 5.4% SEMICONDUCTORS - 0.9% 10,800 Hon Hai Precision Industry $ 42,468 4,400 Philips Electronics NV 128,201 28,121 Taiwan Semiconductor Manufacturing Co.* 52,597 -------------- $ 223,266 -------------- COMMUNICATIONS EQUIPMENT - 1.5% 20,231 Nokia Oyj $ 347,821 -------------- ELECTRONIC EQUIPMENT & INSTRUMENTS - 2.7% 13,510 Electrocomponents Plc $ 78,279 1,300 Hoya Corp. 119,373 1,000 Kyocera Corp. 66,629 1,100 LG Electronics, Inc.* 54,100 3,590 Siemens 286,917 9,000 Toshiba Corp. 34,099 -------------- $ 639,397 -------------- TECHNOLOGY HARDWARE & EQUIPMENT - 0.3% 300 Keyence Corp.* $ 63,242 -------------- TOTAL TECHNOLOGY HARDWARE & EQUIPMENT $ 1,273,726 -------------- SEMICONDUCTORS - 1.2% SEMICONDUCTOR EQUIPMENT - 0.1% 300 Tokyo Electron, Ltd. $ 22,788 -------------- SEMICONDUCTORS - 1.1% 600 Rohm Co., Ltd. $ 70,325 250 Samsung Electronics 94,629 12,600 Siliconware Precision Industries Co. (A.D.R.)* 64,890 8,500 United Microelectronic (A.D.R.)* 42,075 -------------- $ 271,919 -------------- TOTAL SEMICONDUCTORS $ 294,707 -------------- TELECOMMUNICATION SERVICES - 9.0% ALTERNATE CARRIERS - 0.4% 3,500 France Telecom $ 99,820 -------------- INTEGRATED TELECOMMUNICATION SERVICES - 4.5% 14,900 British Sky Broadcasting Plc* $ 187,582 2,400 KT Corp. 45,768 29 Nippon Telegraph & Telephone Corp. 139,912 18,850 Porugal Telecom SGPS, SA 189,323 77,500 PT Telekomunikasi Indonesia 62,110 21,740 Telecom Italia Mobile S.p.A. 118,094 28,486 Telecom Italia S.p.A.* 84,253 16,230 Telefonica SA $ 237,771 -------------- $ 1,064,813 --------------
The accompanying notes are an integral part of these financial statements. 6
SHARES VALUE WIRELESS TELECOMMUNICATION SERVICES - 4.1% 9,700 Hutchinson Whampoa, Ltd. $ 71,528 2,600 SK Telecom Co., Ltd. 48,490 343,911 Vodafone Group Plc 849,369 -------------- $ 969,387 -------------- TOTAL TELECOMMUNICATION SERVICES $ 2,134,020 -------------- UTILITIES - 2.5% ELECTRIC UTILITIES - 2.5% 4,400 Chubu Electric Power Co., Inc. $ 91,769 12,500 CLP Holdings, Ltd. 59,572 4,433 E.On AG 288,676 20,100 National Grid Transco Plc 144,269 -------------- TOTAL UTILITIES $ 584,286 -------------- TOTAL COMMON STOCKS (Cost $17,992,729) $ 22,773,912 -------------- TEMPORARY CASH INVESTMENT - 2.1% SECURITY LENDING COLLATERAL - 2.1% 499,940 Securities Lending Investment Fund, 1.02% $ 499,940 -------------- TOTAL TEMPORARY CASH INVESTMENT (Cost $499,940) $ 499,940 -------------- TOTAL INVESTMENT IN SECURITIES - 99.5% (Cost $18,632,977)(a) $ 23,462,331 -------------- OTHER ASSETS AND LIABILITIES - 0.5% $ 125,179 -------------- TOTAL NET ASSETS - 100.0% $ 23,587,510 ==============
(G.D.R) Global Depositary Receipt (A.D.R) American Depositary Receipt * Non-Income producing security 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, 2003, the value of these securities amounted to $112,849 or 0.5% of net assets. (a) Distributions of investments by country of issue, as percentage of total equity holdings, (excluding temporary cash investments) is as follows: United Kingdom 27.7% Japan 17.0 France 12.6 Switzerland 9.9 Germany 8.7 Netherlands 4.8 Italy 2.9 Spain 2.9 Australia 2.4 South Korea 2.2 Finland 1.5 Sweden 1.3 Ireland 1.2 Hong Kong 1.1 Other (individually less than 1%) 3.8 ------ 100.0% ======
The accompanying notes are an integral part of these financial statements. 7 PIONEER INTERNATIONAL VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST FINANCIAL HIGHLIGHTS 12/31/03
5/1/03 TO CLASS II (a) 12/31/03 Net asset value, beginning of period $ 7.76 -------- Increase (decrease) from investment operations: Net investment income $ 0.05 Net realized and unrealized gain (loss) on investments and foreign currency transactions 2.29 -------- Net increase (decrease) from investment operations $ 2.34 Distributions to shareholders: Net investment income (0.06) -------- Net increase (decrease) in net asset value $ 2.28 -------- Net asset value, end of period $ 10.04 -------- Total return* 30.31%** Ratio of net expenses to average net assets+ 2.02%** Ratio of net investment income to average net assets+ (0.81)%** Portfolio turnover rate 99% Net assets, end of period (in thousands) $ 1,081 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 2.02%** Net investment income (loss) (0.81)%**
(a) Class 2 shares were first publicly offered on May 1, 2003. * 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 with no reduction for fees paid indirectly. The accompanying notes are an integral part of these financial statements. 8 PIONEER INTERNATIONAL VALUE VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST STATEMENT OF ASSETS AND LIABILITIES 12/31/03
PIONEER INTERNATIONAL VALUE VCT PORTFOLIO ASSETS: Investment in securities, at value (including securities loaned of $459,269) (Cost $18,632,977) $ 23,462,331 Cash 542,653 Cash held as collateral for furtures contracts - Futures collateral - Foreign currencies, at value (Cost $75,164) 80,951 Receivables - Investment securities sold - Fund shares sold 591 Variation margin - Dividends, interest and foreign taxes withheld 48,158 Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, open - net - Due from Pioneer Investment Management, Inc. - Other 2,196 ------------- Total assets $ 24,136,880 ------------- LIABILITIES: Payables - Investment securities purchased $ - Fund shares repurchased 13 Dividends - Upon return of securities loaned 499,940 Variation Margin - Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, net - Reserve for repatriation taxes - Due to bank - Due to affiliates 24,941 Accrued expenses 24,476 Other - ------------- Total liabilities $ 549,370 ------------- NET ASSETS: Paid-in capital $ 35,607,192 Accumulated net investment income (loss) 122,367 Accumulated undistributed net realized gain (loss) (16,981,590) Net unrealized gain (loss) on: Investments 4,829,354 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 10,187 ------------- Total net assets $ 23,587,510 ------------- NET ASSET VALUE PER SHARE: CLASS I: (Unlimited number of shares authorized) Net assets $ 22,506,447 Shares outstanding 2,236,790 ============= Net asset value per share $ 10.06 CLASS II: (Unlimited number of shares authorized) Net assets $ 1,081,063 Shares outstanding 107,631 ============= Net asset value per share $ 10.04
The accompanying notes are an integral part of these financial statements. 9 STATEMENT OF OPERATIONS
PIONEER INTERNATIONAL VALUE VCT PORTFOLIO YEAR ENDED 12/31/03 INVESTMENT INCOME: Dividends (net of foreign taxes withheld of $68,665) $ 471,417 Interest 4,598 Income on securities loaned, net 6,553 Other - ------------- Total investment income $ 482,568 ------------- EXPENSES: Management fees $ 204,417 Transfer agent fees 1,428 Distribution fees (Class II) 450 Administrative fees 37,500 Custodian fees 56,397 Professional fees 27,594 Printing 10,069 Fees and expenses of nonaffiliated trustees 318 Miscellaneous 7,771 ------------- Total expenses $ 345,944 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. - ------------- Net expenses $ 345,944 ------------- Net investment income (loss) $ 136,624 ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ (844,135) Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies (13,656) ------------- $ (857,791) ------------- Change in net unrealized gain or (loss) from: Investments $ 6,234,718 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 1,770 ------------- $ 6,236,488 ------------- Net gain (loss) on investments, futures contracts and foreign currency transactions $ 5,378,697 ============= Net increase (decrease) in net assets resulting from operations $ 5,515,321 =============
The accompanying notes are an integral part of these financial statements. 10 STATEMENTS OF CHANGES IN NET ASSETS
PIONEER INTERNATIONAL VALUE VCT PORTFOLIO YEAR YEAR ENDED ENDED 12/31/03 12/31/02 FROM OPERATIONS: Net investment income (loss) $ 136,624 $ 169,644 Net realized gain (loss) on investments (857,791) (6,311,159) Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions 6,236,488 2,383,686 --------------- --------------- Net increase (decrease) in net assets resulting from operations $ 5,515,321 $ (3,757,829) --------------- --------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (146,246) $ (43,705) Class II (4) - Net realized gain Class I - - Class II - - Tax return of capital Class I - - Class II - - --------------- --------------- Total distributions to shareowners $ (146,250) $ (43,705) --------------- --------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 2,253,340 $ 6,017,712 Reinvestment of distributions 146,246 43,705 Cost of shares repurchased (5,452,468) (13,071,764) --------------- --------------- Net increase (decrease) in net assets resulting from fund share transactions $ (3,052,882) $ (7,010,347) --------------- --------------- Net increase (decrease) in net assets $ (2,316,189) $ (10,811,881) --------------- --------------- NET ASSETS: Beginning of year 21,271,321 32,083,202 --------------- --------------- End of year $ 23,587,510 $ 21,271,321 =============== =============== Accumulated undistributed/(distributions in excess of) net investment income (loss) $ 122,367 $ 145,649 =============== ===============
The accompanying notes are an integral part of these financial statements. 11 PIONEER INTERNATIONAL VALUE VCT PORTFOLIO NOTES TO FINANCIAL STATEMENTS 12/31/03 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Pioneer International Value Portfolio (the Portfolio) is a Portfolio of the Pioneer Variable Contracts Trust (the Trust) which is a Delaware business trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of sixteen separate portfolios, fourteen of which issue both Class I and Class II shares (collectively, the Portfolios, individually the Portfolio) as follows: PORTFOLIOS: Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio) Pioneer Europe VCT Portfolio (Europe Portfolio) Pioneer International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio) Pioneer Small Company VCT Portfolio (Small Company Portfolio) Pioneer Mid Cap Value VCT Portfolio (Mid-Cap Value Portfolio) Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio) Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio) Pioneer Fund VCT Portfolio (Fund Portfolio) Pioneer Equity Income VCT Portfolio (Equity-Income Portfolio) Pioneer Balanced VCT Portfolio (Balanced Portfolio) Pioneer High Yield VCT Portfolio (High Yield Portfolio) Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio) Pioneer America Income VCT Portfolio (America Income Portfolio) Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares only) Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only) The Portfolio commenced operations on May 1, 2003. Portfolio shares may only be purchased by insurance companies for the purpose of funding variable annuity or variable life insurance contracts, and may also be purchased by qualified pension and retirement plans. The financial highlights for the Portfolio's Class I shares are presented in a separate book. The investment objective of International Value Portfolio is to seek long term capital growth. Trust's financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America 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 income, expenses, gains and losses during the reporting years. 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 as of 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, based on the last sale price on the principal exchange where they traded, are determined as of such times. 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 becomes aware of the ex-dividend data in the exercise of reasonable diligence. Interest income, including interest on income bearing cash accounts, is recorded on the accrual basis, net of unrecoverable foreign taxes withheld at the applicable country rates. All discounts/premiums are accreted/amortized for financial reporting purposes. Temporary cash investments are valued at amortized cost. International Value Portfolio's 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 associated with these developing markets include political, social or economic factors and may affect the price of the Portfolio's investments and income generated by these investments, as well as the Portfolio's ability to repatriate such amounts. In addition, delays are common in registering transfers of securities in certain foreign countries, such as India, and the Portfolio may be unable to sell portfolio securities until the registration process is completed. Gains and losses from sales on investments are calculated on the identified cost method for both financial reporting and federal income tax purposes, and, if applicable, are reported net of foreign taxes on capital gains at the applicable country rates. B. FOREIGN CURRENCY TRANSLATION The books and records of the Portfolio are maintained in U.S. dollars. Amounts denominated in foreign 12 currencies are translated into U.S. dollars using current exchange rates. Net realized gains and losses on foreign currency transactions represent, 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 The Portfolio enters 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 Portfolio's financial statements. The Portfolio records 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 8). 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 shareowners. Therefore, no federal income tax provision is required. In addition to the requirements of the Internal Revenue Code, the Portfolio may also be required to pay local taxes on the recognition of capital gains and/or the repatriation of foreign currencies in certain countries. During the year ended December 31, 2003, the no such taxes were paid. In determining the daily net asset value, the Portfolio estimates the reserve for such taxes, if any, associated with investments in certain countries. The estimated reserve for taxes on capital gains is based on the net unrealized appreciation on certain portfolio securities, the holding period of such securities and the related tax rates, tax loss carryforward (if applicable) and other such factors. The estimated reserve taxes on for repatriation of foreign currencies is based on principal balances and/or unrealized appreciation of applicable securities, the holding period of such investments and the related tax rates and other such factors. As of December 31, 2003, the Portfolio had no reserves related to taxes on capital gains and on the repatriation of foreign currencies. The amount and characterization of distributions to shareowners 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. At December 31, 2003, the Portfolio made reclassifications as described below. These reclassifications have no impact on the net asset value of the Portfolio and are designed to present the portfolios' capital accounts on a tax basis.
ACCUMULATED ACCUMULATED NET INVESTMENT REALIZED PORTFOLIO INCOME/(LOSS) GAIN/(LOSS) PAID-IN CAPITAL - -------------------------------------------------------------------------------- International Value Portfolio $ (13,656) $ 13,656 $ -
Capital loss carryforwards are available to offset future realized capital gains. At December 31, 2003, International Value VCT Portfolio had a capital loss carryforward of $16,962,967, of which will the following amounts will expire between 2007 and 2011 if not utilized: $2,465,434 in 2007, $7,057,019 in 2009, $5,309,516 in 2010 and $2,130,998 in 2011. The following chart shows the components of distributable earnings (accumulated losses) as of December 31, 2003 and the distributions paid during the year ended December 31, 2003 on a tax basis as of December 31, 2003.
PIONEER PIONEER INTERNATIONAL INTERNATIONAL VALUE VALUE VCT PORTFOLIO VCT PORTFOLIO 2003 2002 - --------------------------------------------------------------------------- DISTRIBUTIONS PAID FROM: Ordinary Income $ 146,250 $ 43,705 Long-Term capital gain - - -------------- -------------- $ 146,250 $ 43,705 Return of Capital - - -------------- -------------- Total distributions $ 146,250 $ 43,705 -------------- -------------- DISTRIBUTABLE EARNINGS (ACCUMULATED LOSSES): Undistributed long-term gain/ (Capital loss carryforward) $ 122,367 Capital loss carryforward (16,962,967) Unrealized appreciation/(depreciation) 4,820,918 -------------- Total $ (12,019,682) ==============
13 The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily attributable to the tax deferral of losses on wash sales, returns of capital on REITs, and the recognition of unrealized gains or losses on certain futures contracts. F. PORTFOLIO SHARES The Portfolio records sales and repurchases of its portfolio shares as of trade date. Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the principal underwriter for the Trust and a wholly owned indirect subsidiary of UniCredito Italiano S.p.A. (UniCredito Italiano), $246,661 in commissions on the sale of Trust shares for the year ended December 31, 2003. Distribution fees are calculated based on the average daily net asset values attributable to Class I and Class II shares of the Portfolio, respectively. Shareowners of each class share all expenses and fees paid to the transfer agent, Pioneer Investment Management Shareholder Services, Inc. (PIMSS), for its services, which are allocated based on the number of accounts in each class and the ratable allocation of related out-of-pocket expenses (see Note 3). Income, common expenses and realized and unrealized gains and losses are calculated at the Portfolio level and allocated daily to each class of shares based on the respective percentage of adjusted net assets at the beginning of the day. Dividends and distributions to shareowners are recorded on the ex-dividend date. Distributions paid by the Portfolio with respect to each class of shares are calculated in the same manner, at the same time, and in the same amount, except that Class I and Class II shares can bear different transfer agent and distribution fees. Income, expenses (excluding 12b-1 fees) and gains and losses are calculated at the Portfolio level and are allocated daily based on the respective percentage of adjusted net assets at the beginning of the day. G. SECURITIES LENDING The Portfolio lends securities in its portfolio to certain broker-dealers or other institutional investors, with the Portfolio's custodian acting as the lending agent. When entering into a loan, the Portfolio receives collateral, which is maintained by the custodian and earns income in the form of negotiated lenders' fees. The Portfolio also continues to receive interest or dividends on the securities loaned, and gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for account of the Trust. The loans are secured by collateral of at least 102%, at all times, of the fair value of the securities loaned. The fair value of the collateral will be adjusted daily to reflect any price fluctuation in the value of the loaned securities. The Trust has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Trust invests cash collateral in the Securities Lending Investment Fund which is managed by Brown Brothers Harriman & Co., the Trust's custodian. H. REPURCHASE AGREEMENTS With respect to repurchase agreements entered into by the Portfolio, 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 Portfolio's custodian, or subcustodian. The Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is responsible for determining that the value of the collateral remains at least equal to the repurchase price. 2. MANAGEMENT AGREEMENT PIM manages the Portfolio, and is a wholly owned indirect subsidiary of UniCredito Italiano. Management fees are calculated daily at the following annual rate of 1.00% of the Portfolio's average daily net assets. In addition, under the management and administration agreement, certain other services and costs, including accounting, regulatory reporting and insurance premiums, are paid by the Portfolio. At December 31, 2003, $24,705 was payable to PIM related to management fees, administrative fees and certain other services. 3. TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. (PIMSS), a wholly owned indirect subsidiary of UniCredito Italiano provides substantially all transfer agent and shareowner services to the Trust at negotiated rates. Included in due to affiliates is $50 in transfer agent fees payable to PIMSS at December 31, 2003. 4. DISTRIBUTION PLANS The Portfolio has adopted a plan of distribution for Class II shares in accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the plan, the Portfolio pays 14 PFD a distribution fee of 0.25% of the average daily net assets attributable to Class II shares. Included in due to affiliates is $186 payable to PFD at December 31, 2003. 5. AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION At December 31, 2003, the Portfolios' aggregate unrealized appreciation and depreciation based on cost for federal income tax purposes was as follows:
NET GROSS GROSS APPRECIATION/ TAX COST APPRECIATION DEPRECIATION (DEPRECIATION) - -------------------------------------------------------------------------------------------------------- International Value Portfolio $ 18,651,600 $ 4,970,566 $ (159,835) $ 4,810,731
6. PORTFOLIO TRANSACTIONS The cost of purchases and the proceeds from sales of investments other than U.S. Government obligations and temporary cash investments for the year ended December 31, 2003, were $19,691,368 and $23,621,883, respectively. 7. CAPITAL SHARES At December 31, 2003, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
'03 SHARES '03 AMOUNT '02 SHARES '02 AMOUNT - --------------------------------------------------------------------------------------------------------------- INTERNATIONAL VALUE PORTFOLIO: CLASS I: Shares sold 148,266 $ 1,260,116 682,924 $ 6,017,712 Reinvestment of distributions 17,452 146,246 4,961 43,705 Shares repurchased (658,580) (5,442,461) (1,522,353) (13,071,764) -------------------------------------------------------------------------- Net increase (decrease) (492,862) $ (4,036,099) (834,468) $ (7,010,347) ========================================================================== CLASS II: Shares sold 108,723 $ 993,224 - $ - Reinvestment of distributions - - - - Shares repurchased (1,092) (10,007) - - -------------------------------------------------------------------------- Net increase (decrease) 107,631 $ 983,217 - $ - ==========================================================================
8. FORWARD FOREIGN CURRENCY CONTRACTS At December 31, 2003, certain Portfolio had entered into various contracts that obligate the Portfolio to deliver currencies at specified future dates. At the maturity of a contract, 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, 2003, the Portfolio had no open portfolio or settlement hedges. 15 PIONEER INTERNATIONAL VALUE VCT PORTFOLIO REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF TRUSTEES OF PIONEER VARIABLE CONTRACTS TRUST AND THE CLASS II SHAREOWNERS OF PIONEER INTERNATIONAL VALUE VCT PORTFOLIO: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer International Value VCT Portfolio, one of the portfolios constituting Pioneer Variable Contracts Trust (the "Trust"), as of December 31, 2003, and the related statement of operations for the year then ended, and the statements of changes in net assets and financial highlights for each of the two years in the period then ended. 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. The financial highlights for each of the three years in the period ended December 31, 2001 were audited by other auditors who have ceased operations and whose report, dated February 8, 2002, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 Pioneer International Value VCT Portfolio of Pioneer Variable Contracts Trust at December 31, 2003, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts February 6, 2004 16 PIONEER VARIABLE CONTRACTS TRUST TRUSTEES, OFFICERS AND SERVICE PROVIDERS INVESTMENT ADVISER Pioneer Investment Management, Inc. CUSTODIAN Brown Brothers Harriman & Co. INDEPENDENT AUDITORS Ernst & Young LLP PRINCIPAL UNDERWRITER Pioneer Funds Distributor, Inc. LEGAL COUNSEL Hale and Dorr LLP SHAREOWNER SERVICES AND TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. TRUSTEES AND OFFICERS The Fund's Board of Trustees provides broad supervision over the affairs of the Fund. The officers of the Fund are responsible for the Fund's operations. The Fund's Trustees and officers are listed below, together with their principal occupations during the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of 1940 are referred to as Interested Trustees. Trustees who are not interested persons of the Fund are referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 51 U.S. registered investment portfolios for which Pioneer Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the Portfolio is 60 State Street, Boston, Massachusetts 02109. The Fund's statement of additional information provides more detailed information regarding the Fund's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Fund are available without charge, upon request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. INTERESTED TRUSTEES
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE John F. Cogan, Jr. (77)* Chairman of Trustee since 1994. Deputy Chairman and a Director of Director of Harbor Global the Board, Serves until a Pioneer Global Asset Management Company, Ltd. Trustee and successor trustee S.p.A. ("PGAM"); Non-Executive President is elected or Chairman and a Director of Pioneer earlier retirement Investment Management USA or removal. Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Director of Pioneer Alternative Investment Management Limited (Dublin); President and a Director of Pioneer Alternative Investment Management (Bermuda) Limited and affiliated funds; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel (since 2000,partner prior to 2000),Hale and Dorr LLP (counsel to PIM-USA and the Pioneer Funds) Osbert M. Hood (51)** Trustee and Trustee since June, President and Chief Executive None Executive 2003.Serves until a Officer, PIM-USA since May, 2003 Vice successor trustee (Director since January, 2001); President is elected or President and Director of Pioneer earlier retirement since May 2003; Chairman and or removal. Director of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Executive Vice President of all of the Pioneer Funds since June 2003; Executive Vice President and Chief Operating Officer of PIM-USA, November 2000-May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999-November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997-November 1999
17 INDEPENDENT TRUSTEES
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AGE AND ADDRESS WITH THE FUND LENGTH OF SERVICE DURING PAST FIVE YEARS HELD BY THIS TRUSTEE Mary K. Bush (55) Trustee Trustee since President, Bush International Director of Brady 3509 Woodbine Street, September, 2000. (international financial advisory Corporation (industrial Chevy Chase, MD 20815 Serves until a firm) identification and successor trustee specialty coated material is elected or products manufacturer), earlier retirement Millenium Chemicals, or removal. Inc. (commodity chemicals), Mortgage Guaranty Insurance Corporation, and R.J. Reynolds Tobacco Holdings, Inc. (tobacco) Richard H. Egdahl, M.D. (77) Trustee Trustee since Alexander Graham Bell Professor of None Boston University Healthcare 1995.Serves until a Health Care Entrepreneurship Program, successor trustee Entrepreneurship, Boston 53 Bay State Road, is elected or University; Professor of Boston, MA 02215 earlier retirement Management, Boston University or removal. School of Management; Professor of Public Health, Boston University School of Public Health; Professor of Surgery, Boston University School of Medicine; and University Professor, Boston University Margaret B.W. Graham (56) Trustee Trustee since Founding Director, The Winthrop None 1001 Sherbrooke September, 2000. Group, Inc. (consulting firm); Street West, Serves until a Professor of Management, Faculty Montreal, Quebec, Canada successor trustee of Management, McGill University is elected or earlier retirement or removal. Marguerite A. Piret (55) Trustee Trustee since 1995. President and Chief Executive None One Boston Place, Serves until a Officer, Newbury, Piret & 28th Floor, successor trustee is Company, Inc. (investment banking Boston, MA 02108 elected or earlier firm) retirement or removal. Stephen K. West (75) Trustee Trustee since 1995. Senior Counsel, Sullivan & Director, The Swiss 125 Broad Street, Serves until a Cromwell (law firm) Helvetia Fund, Inc. (closed New York, NY 10004 successor trustee - end investment company) is elected or and AMVESCAP PLC earlier retirement (investment managers) or removal. John Winthrop (67) Trustee Trustee since President, John Winthrop & Co., None One North Adgers Wharf, September, 2000. Inc. (private investment firm) Charleston, SC 29401 Serves until a successor trustee is elected or earlier retirement or removal.
18 FUND OFFICERS
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE DURING PAST FIVE YEARS HELD BY THIS OFFICER Dorothy E. Bourassa (56) Secretary Serves at the Secretary of PIM-USA; Senior Vice None discretion of President-Legal of Pioneer; and Board. Secretary/Clerk of most of PIM-USA's subsidiaries since October 2000; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003); and Senior Counsel, Assistant Vice President and Director of Compliance of PIM-USA from April 1998 through October 2000 Christopher J. Kelley (39) Assistant Serves at the Assistant Vice President and None Secretary discretion of Senior Counsel of Pioneer since Board. July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001; Vice President and Associate General Counsel from July 1996 to July 2000); Assistant Secretary of all of the Pioneer Funds since September 2003 David C. Phelan (46) Assistant Serves at the Partner, Hale and Dorr LLP; None Secretary discretion of Assistant Secretary of all of the Board. Pioneer Funds since September 2003 Vincent Nave (58) Treasurer Serves at the Vice President-Fund None discretion of Accounting, Administration and Board. Custody Services of Pioneer (Manager from September 1996 to February 1999); and Treasurer of all of the Pioneer Funds (Assistant Treasurer from June 1999 to November 2000) Luis I. Presutti (38) Assistant Serves at the Assistant Vice President-Fund None Treasurer discretion of Accounting, Administration and Board. Custody Services of Pioneer (Fund Accounting Manager from 1994 to 1999); and Assistant Treasurer of all of the Pioneer Funds since November 2000
19 FUND OFFICERS
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE DURING PAST FIVE YEARS HELD BY THIS OFFICER Gary Sullivan (45) Assistant Serves at the Fund Accounting Manager-Fund None Treasurer discretion of Accounting, Administration and Board. Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 Katharine Kim Sullivan (30) Assistant Serves at the Fund Administration Manager-Fund None Treasurer discretion of Accounting, Administration and Board. Custody Services since June 2003; Assistant Vice President-Mutual Fund Operations of State Street Corporation from June 2002 to June 2003 (formerly Deutsche Bank Asset Management); Pioneer Fund Accounting, Administration and Custody Services (Fund Accounting Manager from August 1999 to May 2002,Fund Accounting Services Supervisor from 1997 to July 1999); Assistant Treasurer of all of the Pioneer Funds since September 2003
20 THIS PAGE FOR YOUR NOTES. 21 [PIONEER INVESTMENTS(R) LOGO] 14682-00-0204 [PIONEER INVESTMENTS(R) LOGO] PIONEER VARIABLE CONTRACTS TRUST PIONEER AMERICA INCOME VCT PORTFOLIO -- CLASS II SHARES ANNUAL REPORT DECEMBER 31, 2003 PIONEER VARIABLE CONTRACTS TRUST TABLE OF CONTENTS Pioneer America Income VCT Portfolio Portfolio and Performance Update 2 Portfolio Management Discussion 3 Schedule of Investments 4 Financial Statements 6 Notes to Financial Statements 10 Report of Independent Auditors 13 Trustees, Officers and Service Providers 14
PIONEER AMERICA INCOME VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO AND PERFORMANCE UPDATE 12/31/03 [CHART] PORTFOLIO DIVERSIFICATION (As a percentage of total investment portfolio) U.S. Government & Agency Obligations 98.8% Collateralized Mortgage Obligations 1.2%
[CHART] MATURITY DISTRIBUTION (As a percentage of total investment portfolio) 0-1 years 1.5% 1-3 years 62.7% 3-4 years 9.2% 4-6 years 13.9% 6-8 years 1.6% 8+ years 11.1%
FIVE LARGEST HOLDINGS (As a percentage of debt holdings)
1. U.S. Treasury Notes, 6.5%, 2/15/10 12.25% 2. Government National Mortgage Association, 6.0% 7/15/23 - 9/15/33 9.95 3. Government National Mortgage Association, 6.5% 4/15/11 - 2/15/32 9.71 4. Federal Home Loan Mortgage Corp., 6.0% 5/25/12 - 3/1/33 8.54 5. Federal National Mortgage Association, 6.0% 12/1/11 - 6/1/33 7.56
Holdings will vary for other periods. This list excludes temporary cash and derivative investments. PRICES AND DISTRIBUTIONS
12/31/03 5/1/03 Net Asset Value per Share $ 10.37 $ 10.57
DISTRIBUTIONS PER SHARE SHORT-TERM LONG-TERM (5/1/03 - 12/31/03) DIVIDENDS CAPITAL GAINS CAPITAL GAINS $ 0.2614 $ - $ -
PERFORMANCE OF A $10,000 INVESTMENT The following chart shows the change in value of an investment made in PIONEER AMERICA INCOME VCT PORTFOLIO at net asset value, compared to that of the Lehman Brothers Fixed-Rate Mortgage-Backed Securities Index and of Lehman Brothers Government Bond Index. Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [CHART]
PIONEER AMERICA LEHMAN GOVERNMENT LEHMAN FIXED RATE INCOME VCT PORTFOLIO* BOND INDEX+ MORTGAGE INDEX+ 3/31/95 $ 10,000 $ 10,000 $ 10,000 12/31/95 $ 10,555 $ 11,302 $ 11,098 $ 10,665 $ 11,615 $ 11,693 12/31/97 $ 11,536 $ 12,727 $ 12,802 $ 12,445 $ 13,981 $ 13,694 12/31/99 $ 12,092 $ 13,667 $ 13,947 $ 13,480 $ 15,477 $ 15,505 12/31/2001 $ 14,317 $ 16,598 $ 16,779 $ 15,755 $ 18,506 $ 18,246 12/31/2003 $ 16,340 $ 18,945 $ 18,802
+ Index comparisons begin 2/28/95. The Lehman Brothers Fixed-Rate Mortgage-Backed Securities Index is an unmanaged index including 15- and 30-year fixed rate securities backed by pools of the Government National Mortgage Association, Federal Home Loan Mortgage Corporation and Federal National Mortgage Association. 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 of 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, expenses or sales charges. You cannot invest directly in any Index. AVERAGE ANNUAL TOTAL RETURNS+ (As of December 31, 2003) NET ASSET VALUE* Life-of-Class (3/1/95) 5.70% 5 Years 5.60% 1 Year 3.72%
All total returns shown assume reinvestment of distributions at net asset value. + The performance of Class II shares for the period prior to the commencement of operations of Class II shares on May 1, 2003 is based on the performance of Class I shares, reduced to reflect the higher distribution fees of Class II shares. * Portfolio performance does not reflect any variable contract fees, expenses or sales charges. If they had been included, performance would have been lower. See the pages that comprise the inside cover of this report for performance net of any contract fees, expenses or sales charges. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns and principal values fluctuate so that your investment, when redeemed, may be worth more or less than its original cost. The performance table and graph do not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. 2 PIONEER AMERICA INCOME VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO MANAGEMENT DISCUSSION 12/31/03 Investors in government-issued fixed-income securities faced a challenging investment environment during 2003, as interest rates remained at their lowest levels in more than 40 years. In this environment Pioneer America Income VCT Portfolio was successful in delivering a relatively high level of income to shareholders. Richard Schlanger, a member of the Pioneer fixed-income team, discusses the factors that had an impact on the fixed-income market and your Portfolio during 2003. Q: HOW DID THE PORTFOLIO PERFORM OVER THE 12 MONTHS ENDED DECEMBER 31, 2003? A: For the period, Class II shares of Pioneer America Income VCT Portfolio produced a total return of 2.60% at net asset value. In comparison, the Lehman Brothers Government Bond Index returned 2.36%. The Portfolio's underweighting (versus its benchmark) in Treasury securities and its relatively short duration were primarily responsible for its underperformance relative to this index. (Expressed in years, duration measures a bond's price sensitivity to changes in interest rates. A shorter duration is usually advantageous when interest rates rise; a longer duration benefits a portfolio when interest rates decline.) The Lehman Brothers Fixed-Rate Mortgage Index returned 3.05%. This Index has significant exposure to securities issued by the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae). The Portfolio's relatively small commitment to mortgages issued by Freddie Mac and Fannie Mae contributed to its underperformance relative to the index. Q: WHAT WAS THE INVESTMENT ENVIRONMENT LIKE DURING THE PERIOD? A: Early in the period, economic growth was weak, there was uncertainty about the outcome of the war in Iraq, and investors were concerned about deflation. A deflationary environment could be negative because as prices decline, corporate profits generally fall, causing unemployment to rise and a weak economy overall. In June 2003, the Federal Reserve trimmed the federal funds rate to 1.0% to stimulate economic growth, and the yield on the 10-year Treasury note declined to its lowest level in 45 years. (The federal funds rate is the rate of interest that commercial banks charge each other for overnight loans.) The investment environment was also negatively affected by media headlines raising concerns about the accounting practices of Freddie Mac and the risk exposure of Fannie Mae. Around mid-year, the economic backdrop improved. Major military campaigns in Iraq ended, and the economy appeared to be responding to lower interest rates, tax cuts and robust consumer spending. There was also an upturn in corporate capital expenditures for the first time in three years. The more positive economic environment caused yields on 5-, 10- and 30-year Treasury securities to rise quickly and significantly and prices to decline. As year-end approached, the economy continued to recover, and many investors believed interest rates would rise further. However, the Fed maintained its accommodative monetary policy of keeping interest rates low. As a result, Treasury yields declined. Q: HOW DID YOU MANAGE THE PORTFOLIO IN THIS ENVIRONMENT? A: A little more than 64% of the Portfolio was invested in mortgage-backed securities, most of which were issued by the Government National Mortgage Association (GNMA). GNMAs are backed by the full faith and credit of the U.S. Government. (A full faith and credit backing applies to underlying Portfolio securities, not Portfolio shares.) Because demand for GNMAs was robust and supply was low, GNMAs yielded less than their conventional counterparts - mortgages issued by Freddie Mac and Fannie Mae, which were also part of the Portfolio. In selecting mortgage securities, we primarily sought those with coupons (stated rate of interest) in the 5%-to-6% range. Because a significant portion of the Portfolio was invested in mortgages, which had higher yields than Treasury securities, we were able to provide shareowners with an attractive level of income while maintaining the highest credit quality of AAA. (Quality ratings apply to underlying Portfolio securities, not Portfolio shares.) While investing in mortgage securities in a low interest-rate environment carries prepayment risk, we believe the boom in mortgage refinancing is over. The Mortgage Bankers Association expects new mortgage issuance to be down as much as 50% in 2004. Even if interest rates decline to their lows of 2003, we believe that most homeowners will not have significant motivation to refinance their current mortgages. Slightly more than 35% of net assets were invested in a combination of Treasury and Agency securities, such as those issued by the National Home Loan Bank, the Farm Credit Bank and the Tennessee Valley Authority (TVA). Issuers of these AAA-rated securities are government-sponsored enterprises that have the implied backing of the U.S. Government. Q: WHAT IS YOUR OUTLOOK FOR THE NEXT SIX MONTHS? A: We believe the economy should continue to improve and expect the Fed to leave interest rates unchanged at least for the first six-months of 2004. We think yields on Treasury securities will fluctuate in a fairly narrow range during the first half of 2004 and feel mortgage securities should outperform Treasuries. The Portfolio is positioned to take advantage of this kind of environment. We believe the Portfolio continues to be appropriate for investors seeking an AAA-quality investment and relatively high income in a low-interest rate environment. ANY INFORMATION IN THIS SHAREHOLDER REPORT REGARDING MARKET OR ECONOMIC TRENDS OR THE FACTORS INFLUENCING THE PORTFOLIO'S HISTORICAL OR FUTURE PERFORMANCE ARE STATEMENTS OF THE OPINION OF PORTFOLIO MANAGEMENT AS OF THE DATE OF THIS REPORT. THESE STATEMENTS SHOULD NOT BE RELIED UPON FOR ANY OTHER PURPOSES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND THERE IS NO GUARANTEE THAT MARKET FORECASTS DISCUSSED WILL BE REALIZED. [SIDENOTE] The Portfolio's investment adviser, Pioneer Investment Management, Inc., reduced its management fee and certain other expenses; otherwise, returns would have been lower. 3 PIONEER AMERICA INCOME VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST SCHEDULE OF INVESTMENTS 12/31/03
PRINCIPAL AMOUNT VALUE U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 97.3% $ 550,000 Federal Farm Credit Bank, 6.5%, 9/29/06 $ 607,422 100,000 Federal Farm Credit Bank, 5.88%, 9/8/08 110,277 200,000 Federal Farm Credit Bank, Medium Term Note, 6.38% 11/27/06 220,732 400,000 Federal Home Loan Mortgage Corp., 4.53%, 10/30/06 420,997 850,000 Federal Home Loan Mortgage Corp., 5.875%, 11/15/07 933,251 300,000 Federal Home Loan Mortgage Corp., 5.89%, 6/30/08 331,294 3,843,377 Federal Home Loan Mortgage Corp., 6.0%, 5/25/12 to 3/1/33 3,970,825 1,279,364 Federal Home Loan Mortgage Corp., 6.5%, 4/1/11 to 7/1/32 1,340,292 140,000 Federal Home Loan Mortgage Corp., 6.7%, 1/5/07 156,265 285,136 Federal Home Loan Mortgage Corp., 7.0%, 4/1/30 to 4/1/32 302,391 107,661 Federal Home Loan Mortgage Corp., 7.5%, 8/1/31 115,617 250,000 Federal National Mortgage Association, 3.25%, 3/17/08 249,932 2,345,718 Federal National Mortgage Association, 5.5%, 3/1/18 to 11/1/33 2,401,333 3,326,142 Federal National Mortgage Association, 6.0%, 12/1/11 to 6/1/33 3,446,602 2,381,601 Federal National Mortgage Association, 6.5%, 7/1/21 to 9/1/32 2,491,704 638,986 Federal National Mortgage Association, 7.0%, 9/1/18 to 1/1/32 677,173 50,046 Federal National Mortgage Association, 7.5%, 2/1/31 53,482 302,181 Federal National Mortgage Association, 9.0%, 4/1/33 335,445 423,018 Government National Mortgage Association, 5.0%, 7/15/17 436,373 1,330,200 Government National Mortgage Association, 5.5%, 3/15/33 to 7/15/33 1,353,727 4,439,979 Government National Mortgage Association, 6.0%, 7/15/23 to 9/15/33 4,626,366 4,276,884 Government National Mortgage Association, 6.5%, 4/15/17 to 8/15/32 4,515,329 1,316,634 Government National Mortgage Association, 7.0%, 1/15/26 to 2/15/32 1,404,430 233,969 Government National Mortgage Association, 7.5%, 10/15/22 to 1/15/32 251,318 201,064 Government National Mortgage Association I, 6.0%, 2/15/29 209,143 716,898 Government National Mortgage Association I, 6.5%, 5/15/29 to 5/15/32 756,168 213,690 Government National Mortgage Association I, 7.0%, 12/15/30 227,859 52,575 Government National Mortgage Association I, 7.5%, 1/15/31 56,413 360,003 Government National Mortgage Association II, 6.0%, 11/20/33 372,559 280,257 Government National Mortgage Association II, 6.5%, 12/20/28 to 9/20/31 295,270 355,155 Government National Mortgage Association II, 7.0%, 5/20/26 to 1/20/31 377,905 18,418 Government National Mortgage Association II, 7.5%, 8/20/27 19,648 5,802 Government National Mortgage Association II, 8.0%, 8/20/25 6,294 950,000 Tennesse Valley Authority, 6.375%, 6/15/05 1,012,395 12,000 Tennesse Valley Authority, 6.75%, 6/1/28 312,240 1,300,000 U.S. Treasury Bonds, 7.25%, 5/15/16 1,621,699 1,175,000 U.S. Treasury Bonds, 6.375%, 8/15/27 1,364,652 4,900,000 U.S. Treasury Notes, 6.5%, 2/15/10 5,693,952 600,000 U.S. Treasury Notes, 3.5%, 1/15/11 717,463 1,850,000 U.S. Treasury Notes, 6.25%, 8/15/23 2,108,639 -------------- TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS (Cost $44,661,724) $ 45,904,876 --------------
The accompanying notes are an integral part of these financial statements. 4
PRINCIPAL AMOUNT VALUE COLLATERIZED MORTGAGE OBLIGATIONS - 1.2% GOVERNMENT - 1.2% $ 250,000 Freddie Mac., 3.2%, 5/21/08 $ 249,143 300,000 Freddie Mac., 5.25%, 11/15/12 302,617 9,310 Fannie Mae., 5.0%, 8/25/22 9,300 -------------- TOTAL COLLATERIZED MORTGAGE OBLIGATIONS - 1.2% (Cost $558,740) $ 561,060 -------------- TOTAL INVESTMENTS IN SECURITIES - 98.5% (Cost $45,220,464) $ 46,465,936 -------------- OTHER ASSETS AND LIABILITIES - 1.5% $ 696,702 -------------- TOTAL NET ASSETS - 100.0% $ 47,162,638 ==============
The accompanying notes are an integral part of these financial statements. 5 PIONEER AMERICA INCOME VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST FINANCIAL HIGHLIGHTS
5/1/03(a) TO CLASS II 12/31/03 Net asset value, beginning of period $ 10.57 -------------- Increase (decrease) from investment operations: Net investment income $ 0.21 Net realized and unrealized gain (loss) on investments and foreign currency transactions (0.15) -------------- Net increase (decrease) from investment operations $ 0.06 Distributions to shareholders: Net investment income (0.26) Net realized gain - -------------- Net increase (decrease) in net asset value $ (0.20) -------------- Net asset value, end of period $ 10.37 -------------- Total return* 2.60% Ratio of net expenses to average net assets+ 1.01%** Ratio of net investment income to average net assets+ 2.42%** Portfolio turnover rate 34% Net assets, end of period (in thousands) $ 2,637 Ratios with no waiver of management fees and assumption of expenses by PIM and no reduction for fees paid indirectly: Net expenses 1.01%** Net investment income (loss) 2.42%**
(a) Class II shares were first publicly offered on May 1, 2003. * 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 with no reduction for fees paid indirectly. The accompanying notes are an integral part of these financial statements. 6 PIONEER AMERICA INCOME VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST STATEMENT OF ASSETS AND LIABILITIES 12/31/03
PIONEER AMERICA INCOME VCT PORTFOLIO ASSETS: Investment in securities, at value (cost $45,220,464) $ 46,465,936 Temporary cash investments (at amortized cost) - Cash 846,158 Cash held as collateral for futures contracts - Foreign currencies, at value - Receivables - Investment securities sold - Fund shares sold 1,417 Collateral for securities loaned, at fair value - Variation margin - Dividends, interest and foreign taxes withheld 399,778 Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, open - net - Due from Pioneer Investment Management, Inc. - Other 2,523 -------------- Total assets $ 47,715,812 -------------- LIABILITIES: Payables - Investment securities purchased $ 427,293 Fund shares repurchased 55,639 Dividends - Upon return for securities loaned - Variation margin - Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, - Due to bank - Due to affiliates 28,774 Accrued expenses 41,468 Other - -------------- Total liabilities $ 553,130 -------------- NET ASSETS: Paid-in capital $ 46,565,729 Accumulated net investment income (loss) 231,501 Accumulated undistributed net realized gain (loss) (880,064) Investments 1,245,472 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - -------------- Total net assets $ 47,162,638 -------------- NET ASSET VALUE PER SHARE: CLASS I: (Unlimited number of shares authorized) Net assets $ 44,525,827 Shares outstanding 4,300,285 ============== Net asset value per share $ 10.35 CLASS II: (Unlimited number of shares authorized) Net assets $ 2,636,811 Shares outstanding 254,225 ============== Net asset value per share $ 10.37
The accompanying notes are an integral part of these financial statements. 7 STATEMENT OF OPERATIONS
PIONEER AMERICA INCOME VCT PORTFOLIO YEAR ENDED 12/31/03 INVESTMENT INCOME: Dividends $ - Interest 2,468,107 Income on securities loaned, net - Other - -------------- Total investment income $ 2,468,107 -------------- EXPENSES: Management fees $ 321,944 Transfer agent fees 1,556 Distribution fees (Class II) 1,486 Administrative fees 37,500 Custodian fees 23,015 Professional fees 28,024 Printing 32,055 Fees and expenses of nonaffiliated trustees 2,630 Miscellaneous 7,962 -------------- Total expenses $ 456,172 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. - -------------- Net expenses $ 456,172 -------------- Net investment income (loss) $ 2,011,935 -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ 193,917 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - -------------- $ 193,917 -------------- Change in net unrealized gain or (loss) from: Investments $ (1,192,892) Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - -------------- $ (1,192,892) -------------- Net gain (loss) on investments, futures contracts and foreign currency transactions $ (998,975) ============== Net increase (decrease) in net assets resulting from operations $ 1,012,960 ==============
The accompanying notes are an integral part of these financial statements. 8 STATEMENTS OF CHANGES IN NET ASSETS
PIONEER AMERICA INCOME VCT PORTFOLIO YEAR YEAR ENDED ENDED 12/31/03 12/31/02 FROM OPERATIONS: Net investment income (loss) $ 2,011,935 $ 2,203,726 Net realized gain (loss) on investments 193,917 144,048 Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions (1,192,892) 2,378,668 -------------- -------------- Net increase (decrease) in net assets resulting from operations $ 1,012,960 $ 4,726,442 -------------- -------------- DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (2,321,232) $ (2,315,833) Class II (26,127) - Net realized gain Class I - - Class II - - Tax return of capital Class I - - Class II - - -------------- -------------- Total distributions to shareowners $ (2,347,359) $ (2,315,833) -------------- -------------- FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 10,875,454 $ 43,606,478 Reinvestment of distributions 2,347,346 2,315,834 Cost of shares repurchased (34,276,542) (16,163,107) -------------- -------------- Net increase (decrease) in net assets resulting from fund share transactions $ (21,053,742) $ 29,759,205 -------------- -------------- Net increase (decrease) in net assets $ (22,388,141) $ 32,169,814 -------------- -------------- NET ASSETS: Beginning of year 69,550,779 37,380,965 -------------- -------------- End of year $ 47,162,638 $ 69,550,779 ============== ============== Accumulated undistributed/(distributions in excess of) net investment income (loss) $ 231,501 $ (112,236) ============== ==============
The accompanying notes are an integral part of these financial statements. 9 PIONEER AMERICA INCOME VCT PORTFOLIO NOTES TO FINANCIAL STATEMENTS 12/31/03 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Pioneer America Income VCT Portfolio (the Portfolio) is a Portfolio of the Pioneer Variable Contracts Trust (the Trust) which is a Delaware business trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of sixteen separate portfolios, fourteen of which issue both Class I and Class II shares (collectively, the Portfolios, individually the Portfolio) as follows: PORTFOLIOS: Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio) Pioneer Europe VCT Portfolio (Europe Portfolio) Pioneer International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio) Pioneer Small Company VCT Portfolio (Small Company Portfolio) Pioneer Mid Cap Value VCT Portfolio (Mid-Cap Value Portfolio) Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio) Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio) Pioneer Fund VCT Portfolio (Fund Portfolio) Pioneer Equity Income VCT Portfolio (Equity-Income Portfolio) Pioneer Balanced VCT Portfolio (Balanced Portfolio) Pioneer High Yield VCT Portfolio (High Yield Portfolio) Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio) Pioneer America Income VCT Portfolio (America Income Portfolio) Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares only) Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only) The Portfolio commenced operations on May 2003. Portfolio shares may only be purchased by insurance companies for the purpose of funding variable annuity or variable life insurance contracts, and may also be purchased by qualified pension and retirement plans. The investment objective of America Income Trust Portfolio is to seek a high level of current income as consistent with preservation of capital. The financial highlights for the Portfolio's Class I shares are presented in a separate book. Trust's financial statements have been prepared in conformity with accounting principles generally accepted in the United States 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 income, expenses, gains and losses during the reporting years. 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 as of 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, based on the last sale price on the principal exchange where they traded, 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. Valuations may be supplemented by dealers and other sources, as required. 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. Temporary cash investments and securities held by Money Market Portfolio 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, and, if applicable, are reported net of foreign taxes on capital accounts at the applicable country rates. B. 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 shareowners. Therefore, no federal income tax provision is required. The amount and characterization of distributions to shareowners 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 10 transactions, or from paid-in capital, depending on the type of book/tax differences that may exist. At December 31, 2003, the Portfolio made reclassifications as described below. These reclassifications have no impact on the net asset value of the Portfolio and are designed to present the Portfolios' capital accounts on a tax basis.
ACCUMULATED NET ACCUMULATED INVESTMENT REALIZED GAIN/ PORTFOLIO INCOME/(LOSS) LOSS PAID-IN CAPITAL - ------------------------------------------------------------------------------------- America Income Portfolio $ 679,161 $ (679,161) $ -
Capital loss carryforwards are available to offset future realized capital gains. At December 31, 2003, America Income Trust VCT Portfolio had a capital loss carryforward of $817,947, of which the following amounts will expire between 2008 and 2011 if not utilized: $382,424 in 2008, $435,523 in 2011. The Portfolio elected to defer $54,391 in capital losses recognized between November 1, 2003 and December 31, 2003 to its fiscal year ending December 31, 2004. The following chart shows the components of distributable earnings (accumulated losses) as of December 31, 2003 and the distributions paid during the year ended December 31, 2003 on a tax basis as of December 31, 2003.
PIONEER PIONEER AMERICA AMERICA INCOME INCOME VCT PORTFOLIO VCT PORTFOLIO 2003 2002 - ---------------------------------------------------------------------------- DISTRIBUTIONS PAID FROM: Ordinary Income $ 2,347,359 $ 2,315,833 Long-Term capital gain - - ------------------------------- $ 2,347,359 $ 2,315,833 Return of Capital - - ------------------------------- Total distributions $ 2,347,359 $ 2,315,833 ------------------------------- DISTRIBUTABLE EARNINGS (ACCUMULATED LOSSES): Undistributed ordinary income $ 422,952 Undistributed long-term gain/ (capital loss carryforward) (817,947) Unrealized appreciation/(depreciation) 1,046,300 ------------- Total $ 651,305 =============
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily attributable to the tax deferral of losses on wash sales, returns of capital on REITs, and the recognition of unrealized gains or losses on certain futures contracts. C. PORTFOLIO SHARES The Portfolio records sales and repurchases of its portfolio shares as of trade date. Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the principal underwriter for the Trust and a wholly owned indirect subsidiary of UniCredito Italiano S.p.A. (UniCredito Italiano), $246,661 in commissions on the sale of Trust shares for the year ended December 31, 2003. Distribution fees are calculated based on the average daily net asset values attributable to Class I and Class II shares of the Portfolio, respectively. Shareowners of each class share all expenses and fees paid to the transfer agent, Pioneer Investment Management Shareholder Services, Inc. (PIMSS), for its services, which are allocated based on the number of accounts in each class and the ratable allocation of related out-of-pocket expenses (see Note 3). Income, common expenses and realized and unrealized gains and losses are calculated at the Portfolio level and allocated daily to each class of shares based on the respective percentage of adjusted net assets at the beginning of the day. Distributions paid by the Portfolio with respect to each class of shares are calculated in the same manner, at the same time, and in the same amount, except that Class I and Class II shares can bear different transfer agent and distribution fees. Income, expenses (excluding 12b-1 fees) and gains and losses are calculated at the Portfolio level and are allocated daily based on the respective percentage of adjusted net assets at the beginning of the day. 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 shareowners are recorded on the ex-dividend date. D. SECURITIES LENDING The Portfolio lends securities in its portfolio to certain broker-dealers or other institutional investors, with the Portfolio's custodian acting as the lending agent. When entering into a loan, the Portfolio receives collateral which is maintained by the custodian and earns income in the form of negotiated lenders' fees. The Portfolio also continues to receive interest or dividends on the securities loaned, and gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for account of the Trust. The loans are secured by collateral of at least 102%, at all times, of the fair value of the securities loaned. The fair value of the collateral will be adjusted daily to reflect any price fluctuation in the value of the loaned securities. The Trust has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Trust invests cash collateral in the Securities Lending Investment Fund which is managed by Brown Brothers Harriman & Co., the Trust's custodian. 11 E. REPURCHASE AGREEMENTS With respect to repurchase agreements entered into by the Portfolio, 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 Portfolio's custodian, or subcustodian. The Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is responsible for determining that the value of the collateral remains at least equal to the repurchase price. 2. MANAGEMENT AGREEMENT PIM manages the Portfolio, And is a wholly owned indirect subsidiary of UniCredito Italiano. Management Fees are calculated daily at the following Annual rate of 0.55% Of the Portfolio's average daily net assets. In addition, under the management and administration agreement, certain other services and costs, including accounting, regulatory reporting and insurance premiums, are paid by the Portfolio. At December 31, 2003, $28,096 was payable to PIM related to management fees, administrative fees and certain other services. 3. TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. (PIMSS), a wholly owned indirect subsidiary of UniCredito Italiano provides substantially all transfer agent and shareowner services to the Trust at negotiated rates. Included in due to affiliates is $125 in transfer agent fees payable to PIMSS at December 31, 2003. 4. DISTRIBUTION PLANS The Portfolio has adopted a plan of distribution for Class II shares in accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily net assets attributable to Class II shares. At December 31, 2003, $553 in distribution fees were payable to PFD. 5. AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION At December 31, 2003, the Portfolios' aggregate unrealized appreciation and depreciation based on cost for federal income tax purposes was as follows:
GROSS GROSS NET APPRECIATION/ TAX COST APPRECIATION DEPRECIATION (DEPRECIATION) - --------------------------------------------------------------------------------------------------------- America Income Trust Portfolio $ 45,434,469 $ 1,275,434 $ (229,134) $ 1,046,300
6. PORTFOLIO TRANSACTIONS The cost of purchases and the proceeds from sales of investments in U.S. Government obligations, excluding temporary cash investments, for the year ended December 31, 2003, were $19,155,083 and $37,960,868, respectively. 7. CAPITAL SHARES At December 31, 2003, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
'03 SHARES '03 AMOUNT '02 SHARES '02 AMOUNT - ------------------------------------------------------------------------------------------------------- AMERICA INCOME PORTFOLIO CLASS I: Shares sold 711,258 $ 8,118,733 4,195,455 $ 43,606,478 Reinvestment of distributions 221,712 2,321,232 223,921 2,315,834 Shares repurchased (3,262,256) (34,132,706) (1,564,808) (16,163,107) -------------------------------------------------------------------- Net increase (decrease) (2,269,286) $ (23,692,741) 2,854,568 $ 29,759,205 ==================================================================== CLASS II: Shares sold 265,643 $ 2,756,721 -- $ -- Reinvestment of distributions 2,521 26,114 -- -- Shares repurchased (13,939) (143,836) -- -- -------------------------------------------------------------------- Net increase 254,225 $ 2,638,999 -- $ -- ====================================================================
12 PIONEER AMERICA INCOME VCT PORTFOLIO REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF TRUSTEES OF PIONEER VARIABLE CONTRACTS TRUST AND THE CLASS II SHAREOWNERS OF PIONEER AMERICA INCOME VCT PORTFOLIO: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer America Income VCT Portfolio, one of the portfolios constituting Pioneer Variable Contracts Trust (the "Trust"), as of December 31, 2003, and the related statement of operations for the year then ended, and the statements of changes in net assets and financial highlights for each of the two years in the period then ended. 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. The financial highlights for each of the three years in the period ended December 31, 2001 were audited by other auditors who have ceased operations and whose report, dated February 8, 2002, expressed an unqualified opinion on those financial highlights. We conducted our audit in accordance with auditing standards generally accepted in the United States. 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 and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 audit provides 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 Pioneer America Income VCT Portfolio of Pioneer Variable Contracts Trust at December 31, 2003, the results of its operations for the year ended and the changes in its net assets and the financial highlights for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts February 6, 2004 13 PIONEER VARIABLE CONTRACTS TRUST TRUSTEES, OFFICERS AND SERVICE PROVIDERS INVESTMENT ADVISER Pioneer Investment Management, Inc. CUSTODIAN Brown Brothers Harriman& Co. INDEPENDENT AUDITORS Ernst & Young LLP PRINCIPAL UNDERWRITER Pioneer Funds Distributor, Inc. LEGAL COUNSEL Hale and Dorr LLP SHAREOWNER SERVICES AND TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. TRUSTEES AND OFFICERS The Fund's Board of Trustees provides broad supervision over the affairs of the Fund. The officers of the Fund are responsible for the Fund's operations. The Fund's Trustees and officers are listed below, together with their principal occupations during the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of 1940 are referred to as Interested Trustees. Trustees who are not interested persons of the Fund are referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 51 U.S. registered investment portfolios for which Pioneer Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the Portfolio is 60 State Street, Boston, Massachusetts 02109. The Fund's statement of additional information provides more detailed information regarding the Fund's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Fund are available without charge, upon request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. INTERESTED TRUSTEES
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS TRUSTEE John F. Cogan, Jr. (77)* Chairman of the Board, Trustee since Deputy Chairman and a Director Director of Harbor Trustee and President 1994. Serves until a of Pioneer Global Asset Global Company, Ltd. successor trustee is Management S.p.A. ("PGAM"); elected or earlier Non-Executive Chairman and a retirement or Director of Pioneer Investment removal. Management USA Inc. ("PIM-USA"); Chairman and a Director of Pioneer; Director of Pioneer Alternative Investment Management Limited (Dublin); President and a Director of Pioneer Alternative Investment Management (Bermuda) Limited and affiliated funds; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel (since 2000, partner prior to 2000), Hale and Dorr LLP (counsel to PIM-USA and the Pioneer Funds) Osbert M. Hood (51)** Trustee and Executive Trustee since President and Chief Executive None Vice President June, 2003. Serves Officer, PIM-USA since until a successor May, 2003 (Director since trustee is elected January, 2001); President and or earlier Director of Pioneer since retirement or May 2003; Chairman and Director removal. of Pioneer Investment Management Shareholder Services, Inc. ("PIMSS") since May 2003; Executive Vice President of all of the Pioneer Funds since June 2003; Executive Vice President and Chief Operating Officer of PIM-USA, November 2000-May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999-November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997-November 1999
* Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. ** Mr. Hood is an Interested Trustee because he is an officer or director of or director of Pioneer and certain of its affiliates. 14 INDEPENDENT TRUSTEES
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE ADDRESS WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS TRUSTEE Mary K. Bush (55) Trustee Trustee since President, Bush International Director of Brady 3509 Woodbine Street, September, 2000. Serves (international financial Corporation Chevy Chase, MD 20815 until a successor advisory firm) (industrial trustee is elected identification and or earlier retirement specialty coated or removal. material products manufacturer), Millenium Chemicals, Inc. (commodity chemicals), Mortgage Guaranty Insurance Corporation, and R.J. Reynolds Tobacco Holdings, Inc. (tobacco) Richard H. Egdahl, M.D. (77) Trustee Trustee since Alexander Graham Bell None Boston University 1995. Serves until a Professor of Health Care Healthcare successor trustee is Entrepreneurship, Boston Entrepreneurship elected or earlier University; Professor of Program, retirement or Management, Boston University 53 Bay State Road, removal. School of Management; Boston, MA 02215 Professor of Public Health, Boston University School of Public Health; Professor of Surgery, Boston University School of Medicine; and University Professor, Boston University Margaret B.W. Graham (56) Trustee Trustee since Founding Director, The None 1001 Sherbrooke September, 2000. Winthrop Group, Inc. Street West, Serves until a (consulting firm); Professor Montreal, Quebec, Canada successor trustee is of Management, Faculty of elected or earlier Management, McGill University retirement or removal. Marguerite A. Piret (55) Trustee Trustee since President and Chief Executive None One Boston Place, 1995. Serves until a Officer, Newbury, Piret & 28th Floor, successor trustee is Company, Inc. (investment Boston, MA 02108 elected or earlier banking firm) retirement or removal. Stephen K. West (75) Trustee Trustee since Senior Counsel, Sullivan & Director, The Swiss 125 Broad Street, 1995. Serves until a Cromwell (law firm) Helvetia Fund, Inc. New York, NY 10004 successor trustee is (closed-end elected or earlier investment company) retirement or and AMVESCAP PLC removal. (investment managers) John Winthrop (67) Trustee Trustee since President, John Winthrop & None One North Adgers Wharf, September, 2000. Co., Inc. (private investment Charleston, SC 29401 Serves until a firm) successor trustee is elected or earlier retirement or removal.
15 FUND OFFICERS
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS TRUSTEE Dorothy E. Bourassa (56) Secretary Serves at the Secretary of PIM-USA; Senior None discretion of board Vice President-Legal of Pioneer; and Secretary/Clerk of most of PIM-USA's subsidiaries since October 2000; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003); and Senior Counsel, Assistant Vice President and Director of Compliance of PIM-USA from April 1998 through October 2000 Christopher J. Kelley (39) Assistant Secretary Serves at the Assistant Vice President and None discretion of board Senior Counsel of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001; Vice President and Associate General Counsel from July 1996 to July 2000); Assistant Secretary of all of the Pioneer Funds since September 2003 David C. Phelan (46) Assistant Secretary Serves at the Partner, Hale and Dorr LLP; None discretion of board Assistant Secretary of all of the Pioneer Funds since September 2003 Vincent Nave (58) Treasurer Serves at the Vice President-Fund None discretion of board Accounting, Administration and Custody Services of Pioneer (Manager from September 1996 to February 1999); and Treasurer of all of the Pioneer Funds (Assistant Treasurer from June 1999 to November 2000) Luis I. Presutti (38) Assistant Treasurer Serves at the Assistant Vice President-Fund None discretion of board Accounting, Administration and Custody Services of Pioneer (Fund Accounting Manager from 1994 to 1999); and Assistant Treasurer of all of the Pioneer Funds since November 2000
16
POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION DURING OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE PAST FIVE YEARS HELD BY THIS TRUSTEE Gary Sullivan (45) Assistant Treasurer Serves at the Fund Accounting Manager-Fund None discretion of board Accounting, Administration and Custody Services of Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 Katharine Kim Sullivan (30) Assistant Treasurer Serves at the Fund Administration None discretion of board. Manager-Fund Accounting, Administration and Custody Services since June 2003; Assistant Vice President-Mutual Fund Operations of State Street Corporation from June 2002 to June 2003 (formerly Deutsche Bank Asset Management); Pioneer Fund Accounting, Administration and Custody Services (Fund Accounting Manager from August 1999 to May 2002, Fund Accounting Services Supervisor from 1997 to July 1999); Assistant Treasurer of all of the Pioneer Funds since September 2003
17 [PIONEER INVESTMENTS(R) LOGO] 14683-00-0204 [PIONEER INVESTMENTS(R) LOGO] PIONEER VARIABLE CONTRACTS TRUST PIONEER HIGH YIELD VCT PORTFOLIO -- CLASS I SHARES ANNUAL REPORT DECEMBER 31, 2003 PIONEER VARIABLE CONTRACTS TRUST TABLE OF CONTENTS Pioneer High Yield VCT Portfolio Portfolio and Performance Update 2 Portfolio Management Discussion 3 Schedule of Investments 4 Financial Statements 10 Notes to Financial Statements 14 Report of Independent Auditors 18 Trustees, Officers and Service Providers 19
PIONEER HIGH YIELD VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO AND PERFORMANCE UPDATE 12/31/03 [CHART] PORTFOLIO DIVERSIFICATION (As a percentage of total investment in securities) U.S. Corporate Bonds 59.0% Convertible Corporate Bonds 37.6% Temporary Cash Investment 2.7% Convertible Preferred Stocks 0.7%
[CHART] MATURITY DISTRIBUTION (As a percentage of total investment in securities) 0-1 Years 9.2% 1-3 years 23.5% 3-4 years 14.3% 4-6 years 38.9% 6-8 years 10.1% 8+ years 4.0%
FIVE LARGEST HOLDINGS (As a percentage of total long-term holdings) 1. Interpublic Group Inc., 7.25%, 10/15/05 4.10% 2. Bowater Inc., 6.5%, 6/15/13 3.92 3. Sepracor Inc., 5.0%, 2/15/07 3.36 4. Crown Holdings, 9.50%, 3/1/11 2.84 5. Texas Industries Inc., 10.25%, 6/15/11 2.83
Holdings will vary for other periods. This list excludes temporary cash and derivative investments. PRICES AND DISTRIBUTIONS
12/31/03 12/31/02 Net Asset Value per Share $ 11.45 $ 9.27
DISTRIBUTIONS PER SHARE SHORT-TERM LONG-TERM (1/1/03 - 12/31/03) DIVIDENDS CAPITAL GAINS CAPITAL GAINS $ 0.76453 $ - $ -
PERFORMANCE OF A $10,000 INVESTMENT The following chart shows the change in value of an investment made in PIONEER HIGH YIELD VCT PORTFOLIO at net asset value, compared to that of Merrill Lynch (ML) High Yield Master II Index and of the ML Index of Convertible Bonds (Speculative Quality). Portfolio returns are based on net asset value and do not reflect any applicable insurance fees or surrender charges. [CHART]
ML INDEX OF CONVERTIBLE BONDS PIONEER HIGH YIELD VCT PORTFOLIO* ML HIGH YIELD MASTER II+ (SPECULATIVE QUALITY) 5/31/2000 $ 10,000 $ 10,000 $ 10,000 12/31/2000 $ 10,623 $ 9,770 $ 8,424 12/31/2001 $ 12,387 $ 10,207 $ 7,882 12/31/2002 $ 12,211 $ 10,013 $ 7,744 12/31/2003 $ 16,215 $ 13,228 $ 10,535
+ Index comparisons begin on 4/30/00. The ML High Yield Master II Index is a broad-based measure of the performance of the non-investment grade U.S. domestic bond market. The ML Index of Convertible Bonds (Speculative Quality) is a market-capitalization weighted index including mandatory and non-mandatory domestic corporate convertible securities. Index returns assume reinvestment of dividends and, unlike Portfolio returns, do not reflect any fees, expenses or sales charges. You cannot invest directly in any Index. AVERAGE ANNUAL TOTAL RETURNS (As of December 31, 2003) NET ASSET VALUE* Life-of-Class 13.45% (5/1/00) 1 Year 32.78%
All total returns shown assume reinvestment of distributions at net asset value. * Portfolio performance does not reflect any variable contract fees, expenses or sales charges. If they had been included, performance would have been lower. See the pages that comprise the inside cover of this report for performance net of any contract fees, expenses or sales charges. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Returns and principal values fluctuate so that your investment, when redeemed, may be worth more or less than its original cost. The performance table and graph do not reflect the deduction of taxes that a shareowner would pay on distributions or the redemption of shares. 2 PIONEER HIGH YIELD VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST PORTFOLIO MANAGEMENT DISCUSSION 12/31/03 High-yield bonds posted outstanding returns during 2003. Below, portfolio manager Margaret Patel describes the factors leading to the rebound in the high-yield market and what drove the Portfolio's outperformance of its benchmark index. Q: HOW DID THE PORTFOLIO PERFORM? A: During the 12 months ended December 31, 2003, the Portfolio's Class I shares had a total return based on net asset value of 32.78%. By comparison, the Merrill Lynch High Yield Master II Index returned 28.15% while the Merrill Lynch Index of Convertible Bonds (Speculative Quality) returned 35.99. Q: WHAT WAS THE ENVIRONMENT LIKE FOR THE HIGH-YIELD MARKET DURING 2003? A: A rally starting in the fourth quarter of 2002 continued through 2003. The economy stabilized and showed modest growth. Defaults, which peaked in January 2002, declined significantly. Investors became more comfortable investing in more volatile asset classes. As a result, high-yield bond prices improved relative to other segments of the fixed-income markets. The Federal Reserve Board buoyed investor sentiment by keeping short-term interest rates at historically low levels. Q. WHY DID THE PORTFOLIO OUTPERFORM THE MERRILL LYNCH HIGH YIELD MASTER II INDEX? A: We overweighted positions in industries that were selling at very depressed prices in 2002 that then rebounded significantly as the outlook improved. Included in this group were investments in technology, health care and biotechnology. Technology was the top-performing sector during the year, due to stability in the industry and signs of improving economic growth. The economically sensitive semiconductor industry benefited in particular from investors' improved appetite for cyclical investments. Health care and biotechnology securities also rose as a result of a more positive regulatory backdrop. The Portfolio also benefited from its significant exposure to convertible securities - bonds that are exchangeable for a set number of shares of common stock at a certain price - many of which improved in concert with share-price increases in their underlying stocks during the course of the year. Q: WHICH INVESTMENTS PROVED TO BE SOME OF THE TOP PERFORMERS DURING THE FISCAL YEAR? WHICH DISAPPOINTED? A: During the past 12 months, most of the Portfolio's investments enjoyed significant price appreciation. The technology sector, in particular, continued to show strength in bouncing back from low levels. Within technology, many companies offered stabilizing revenues and an improving revenue outlook. The securities rebounded from extremely depressed prices to reach those that reflected improved stability and growth of revenues and cash flow. Semiconductor-related firms, Cymer, Conexant Systems, Cypress and Emcore, posted very strong performance due to an improved outlook for microchip demand, and because investors became more comfortable investing in volatile pockets of the market. Tesoro Petroleum, a refiner based on the West Coast, benefited from strong demand for refined products and dramatically improving refining margins. Cyclically oriented non-ferrous metals producer Freeport-McMoRan rose due to signs of improving economic growth. Affymetrix, which produces gene-based testing kits, also offered strong performance due to investor optimism about the firm's prospects. And Lucent Technology rebounded from very depressed price levels. On the down side, Fibermark declined. This producer of specialty fiber-based products suffered from weak demand, pricing pressure among commodity-based portions of the packaging market and the incursion of cheaper-priced imports. Basic chemical producer PolyOne suffered from pricing pressure, soft demand and overcapacity. Q: WHAT IS YOUR OUTLOOK? A: The outlook for high-yield bonds remains positive. This optimism is based on the expectation that the economy will most likely continue to grow at rates above the historical annual average of 3%. With modest growth and declining default rates, we have the potential to benefit from the modest capital appreciation of selected issues. There is strong momentum provided by the Fed's ongoing commitment to provide liquidity to the economy and the markets. The financial markets continue to support riskier credits at a time when short-term interest rates remain at historical lows. ANY INFORMATION IN THIS SHAREHOLDER REPORT REGARDING MARKET OR ECONOMIC TRENDS OR THE FACTORS INFLUENCING THE PORTFOLIO'S HISTORICAL OR FUTURE PERFORMANCE ARE STATEMENTS OF THE OPINION OF PORTFOLIO MANAGEMENT AS OF THE DATE OF THIS REPORT. THESE STATEMENTS SHOULD NOT BE RELIED UPON FOR ANY OTHER PURPOSES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND THERE IS NO GUARANTEE THAT MARKET FORECASTS DISCUSSED WILL BE REALIZED. [SIDENOTE] The Portfolio invests in below investment-grade securities, which may be more volatile - subject to greater price fluctuations than investment-grade securities. The Portfolio's investment adviser, Pioneer Investment Management, Inc., reduced its management fee and certain other expenses; otherwise, returns would have been lower. 3 PIONEER HIGH YIELD VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST SCHEDULE OF INVESTMENTS 12/31/03
S&P/MOODY'S RATINGS SHARES (UNAUDITED) VALUE CONVERTIBLE PREFERRED STOCK - 0.7% DIVERSIFIED FINANCIALS - 0.7% CONSUMER FINANCE - 0.7% 15,000 B-/B2 Nuevo Energy, 5.75%, 12/15/26 $ 607,500 ------------ TOTAL CONVERTIBLE PREFERRED STOCK (Cost $411,975) $ 607,500 ------------ PRINCIPAL AMOUNT CONVERTIBLE CORPORATE BONDS - 36.6% MATERIALS - 1.0% GOLD - 0.4% $ 250,000 BBB+/Baa2 Placer Dome Inc., 2.75%, 10/15/23 (144A) $ 298,195 ------------ SPECIALTY CHEMICALS - 0.6% 1,000,000 BBB/Baa3 RPM International Inc., 1.389%, 5/13/33 $ 543,750 ------------ TOTAL MATERIALS $ 841,945 ------------ CAPITAL GOODS - 4.2% AEROSPACE & DEFENSE - 0.5% 400,000 NR/NR EDO Corp., 5.25%, 4/15/07 $ 446,500 ------------ BUILDING PRODUCTS - 0.7% 500,000 B/NR Lennox International, 6.25%, 6/1/09 $ 602,500 ------------ CONSTUCTION & ENGINEERING - 1.6% 875,000 NR/NR Quanta Services, Inc., 4.0%, 7/1/07 $ 797,344 500,000 NR/NR Quanta Services, Inc., 4.5%, 10/1/23 (144A) 525,000 ------------ $ 1,322,344 ------------ ELECTRICAL COMPONENTS & EQUIPMENT - 1.0% 1,995,000 NR/NR Roper Industries, Inc., 1.4813%, 1/15/34 $ 852,863 ------------ INDUSTRIAL MACHINERY - 0.4% 300,000 BB-/Ba3 Kaydon Corp., 4.0%, 5/23/23 (144A) $ 334,500 ------------ TOTAL CAPITAL GOODS $ 3,558,707 ------------ RETAILING - 0.6% SPECIALTY STORES - 0.6% 500,000 B+/B3 Sonic Automotive, Inc., 5.25%, 5/7/09 $ 487,500 ------------ TOTAL RETAILING $ 487,500 ------------ HEALTH CARE EQUIPMENT & SERVICES - 1.6% HEALTH CARE FACILITIES - 1.6% 400,000 B-/B3 Community Health Systems, 4.25%, 10/15/08 $ 435,000 930,000 B/B3 Lifepoint Hospitals Holdings, 4.5%, 6/1/09 933,488 ------------ $ 1,368,488 ------------ TOTAL HEALTH CARE EQUIPMENT & SERVICES $ 1,368,488 ------------
The accompanying notes are an integral part of these financial statements. 4
S&P/MOODY'S PRINCIPAL RATINGS AMOUNT (UNAUDITED) VALUE PHARMACEUTICALS & BIOTECHNOLOGY - 11.5% BIOTECHNOLOGY - 5.1% $ 1,200,000 NR/NR Affymetrix, Inc., 4.75%, 2/15/07 $ 1,200,000 300,000 NR/NR Cubist Pharmaceuticals, 5.5%, 11/1/08 273,000 1,000,000 NR/NR CV Therapeutics, 4.75%, 3/7/07 913,750 900,000 NR/NR Enzon Inc., 4.5%, 7/1/08 789,750 800,000 CCC/NR Human Genome Sciences, 3.75%, 3/15/07 735,000 400,000 NR/NR Vertex Pharmaceuticals, Inc., 5.0%, 9/19/07 355,000 ------------ $ 4,266,500 ------------ PHARMACEUTICALS - 6.4% 2,000,000 NR/NR Ivax Corp., 4.5%, 5/15/08 $ 2,020,000 300,000 NR/NR Ligand Pharmaceuticals, 6.0%, 11/16/07 749,625 2,800,000 NR/CCC+ Sepracor, Inc., 5.0%, 2/15/07 2,684,500 ------------ $ 5,454,125 ------------ TOTAL PHARMACEUTICALS & BIOTECHNOLOGY $ 9,720,625 ------------ INSURANCE - 0.2% PROPERTY & CASUALTY INSURANCE - 0.2% 200,000 BB/Baa3 Ohio Casualty Corp., 5.0%, 3/19/22 $ 209,500 ------------ TOTAL INSURANCE $ 209,500 ------------ SOFTWARE & SERVICES - 1.5% APPLICATION SOFTWARE - 1.5% 500,000 B/NR BEA Systems, Inc., 4.0%, 12/15/06 $ 501,875 200,000 NR/NR Mentor Graphics, 6.875%, 6/15/07 212,750 500,000 NR/NR Serena Software, 1.5%, 12/15/23 (144A) 540,062 ------------ $ 1,254,687 ------------ TOTAL SOFTWARE & SERVICES $ 1,254,687 ------------ TECHNOLOGY HARDWARE & EQUIPMENT - 8.1% COMMUNICATIONS EQUIPMENT - 3.9% 500,000 B-/NR Adaptec, Inc., 3.0%, 3/5/07 $ 500,625 1,500,000 B-/NR Adaptec, Inc., 0.75%, 12/22/23 (144A) 1,543,125 1,020,000 BB+/Ba2 Corning, Inc., 0.6%, 11/1/08 1,263,525 ------------ $ 3,307,275 ------------ COMPUTER STORAGE & PERIPHERALS - 1.2% 700,000 NR/B2 Maxtor Corp., 6.8%, 4/30/10 $ 1,000,125 ------------ ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.0% 300,000 NR/NR Flir Systems, Inc., 3.0%, 6/1/23 (144A) $ 330,000 500,000 NR/NR Veeco Instruments, 4.125%, 12/21/08 514,375 ------------ $ 844,375 ------------ ELECTRONIC MANUFACTURING SERVICES - 1.5% 1,300,000 B+/Ba3 SCI Systems, Inc., 3.0%, 3/15/07 $ 1,228,500 ------------ TECHNOLOGY DISTRIBUTORS - 0.5% 880,000 BBB-/Baa3 Arrow Electronics, Inc., 0.0%, 2/21/21 $ 457,600 ------------ TOTAL TECHNOLOGY HARDWARE & EQUIPMENT $ 6,837,875 ------------
The accompanying notes are an integral part of these financial statements. 5
S&P/MOODY'S PRINCIPAL RATINGS AMOUNT (UNAUDITED) VALUE SEMICONDUCTORS - 7.8% SEMICONDUCTOR EQUIPMENT - 3.7% $ 700,000 B-/NR Advanced Energy Industries, Inc., 5.25%, 11/15/06 $ 714,000 200,000 NR/NR Axcelis Technologies, 4.25%, 1/15/07 191,500 700,000 NR/NR Brooks Automation, Inc., 4.75%, 6/1/08 700,000 1,000,000 B-/NR FEI Company, 5.5%, 8/15/08 992,500 500,000 B/NR LAM Research Corp., 4.0%, 6/1/06 512,500 ------------ $ 3,110,500 ------------ SEMICONDUCTORS - 4.1% 1,825,000 CCC+/NR Conexant Systems, Inc., 4.0%, 2/1/07 $ 1,738,312 580,000 NR/NR Globespan, Inc., 5.25%, 5/15/06 577,100 1,155,000 NR/NR Triquint Semiconductor, 4.0%, 3/1/07 1,108,800 ------------ $ 3,424,212 ------------ TOTAL SEMICONDUCTORS $ 6,534,712 ------------ TOTAL CONVERTIBLE CORPORATE BONDS (Cost $27,027,181) $ 30,814,039 ------------ CORPORATE BONDS - 57.5% ENERGY - 6.5% OIL & GAS EQUIPMENT & SERVICES - 1.2% 200,000 BB-/Ba3 Grant Prideco Escrow, 9.0%, 12/15/09 $ 220,500 700,000 BB/Ba2 Key Energy Services, Inc., 6.375%, 5/1/13 710,500 100,000 B+/B3 Transmontaigne, Inc., 9.125%, 6/1/10 (144A) 107,250 ------------ $ 1,038,250 ------------ OIL & GAS EXPLORATION & PRODUCTION - 0.8% 100,000 B/B2 Nuevo Energy Co., 9.375%, 10/1/10 $ 109,750 500,000 BB-/Ba3 Tom Brown, Inc., 7.25%, 9/15/13 528,750 ------------ $ 638,500 ------------ OIL & GAS REFINING MARKETING & TRANSPORTATION - 4.5% 930,000 B/B3 Tesoro Petroleum Corp., 9.0%, 7/1/08 $ 964,875 1,255,000 B/B3 Tesoro Petroleum Corp., 9.625%, 11/1/08 1,336,575 1,400,000 B/B3 Tesoro Petroleum Corp., 9.625%, 4/1/12 1,533,000 ------------ $ 3,834,450 ------------ TOTAL ENERGY $ 5,511,200 ------------ MATERIALS - 12.9% COMMODITY CHEMICALS - 1.8% 1,000,000 BB+/Ba2 Nova Chemicals Corp., 7.4%, 4/1/09 $ 1,050,000 500,000 BB+/Ba2 Nova Chemicals Corp., 7.875%, 9/15/25 515,000 ------------ $ 1,565,000 ------------ CONSTRUCTION MATERIALS - 2.7% 2,000,000 BB-/B1 Texas Industries, Inc., 10.25%, 6/15/11 $ 2,260,000 ------------ METAL & GLASS CONTAINERS - 3.3% 465,000 BB/Ba3 Ball Corp., 6.875%, 12/15/12 $ 485,925 2,000,000 B+/B1 Crown Holdings, 9.5%, 3/1/11 2,265,000 ------------ $ 2,750,925 ------------
The accompanying notes are an integral part of these financial statements. 6
S&P/MOODY'S PRINCIPAL RATINGS AMOUNT (UNAUDITED) VALUE PAPER PRODUCTS - 4.6% $ 685,000 BB+/Ba1 Bowater Canada Finance, 7.95%, 11/15/11 $ 727,425 3,225,000 BB+/Ba1 Bowater, Inc., 6.5%, 6/15/13 3,129,885 ------------ $ 3,857,310 ------------ SPECIALTY CHEMICALS - 0.5% 500,000 BB-/B3 Polyone Corp., 8.875%, 5/1/12 $ 460,000 ------------ TOTAL MATERIALS $ 10,893,235 ------------ CAPITAL GOODS - 10.1% AEROSPACE & DEFENSE - 5.0% 2,000,000 B/B2 DRS Technologies, Inc., 6.875%, 11/1/13 (144A) $ 2,055,000 125,000 B+/B1 Esterline Technologies, 7.75%, 6/15/13 (144A) 134,375 1,000,000 BB-/Ba3 L-3 Communications Corp., 6.125%, 7/15/13 1,007,500 1,000,000 BB-/Ba3 L-3 Communications Corp., 6.125%, 1/15/14 (144A) 1,002,500 ------------ $ 4,199,375 ------------ BUILDING PRODUCTS - 1.1% 850,000 B/B2 NCI Building Systems, Inc., 9.25%, 5/1/09 $ 894,625 ------------ INDUSTRIAL MACHINERY - 4.0% 900,000 B/B3 JLG Industries, Inc., 8.375%, 6/15/12 $ 928,125 500,000 B/B2 Manitowoc Co., Inc., 10.5%, 8/1/12 569,375 800,000 B+/B1 Manitowoc Co., Inc., 7.125%, 11/1/13 827,000 500,000 BB+/Ba3 SPX Corp., 6.25%, 6/15/11 513,750 517,000 BB+/Ba3 SPX Corp., 7.5%, 1/1/13 562,238 ------------ $ 3,400,488 ------------ TOTAL CAPITAL GOODS $ 8,494,488 ------------ TRANSPORTATION - 0.6% AIR FREIGHT & COURIERS - 0.6% 500,000 BB-/B1 Petroleum Helicopters, 9.375%, 5/1/09 $ 531,250 ------------ TOTAL TRANSPORTATION $ 531,250 ------------ AUTOMOBILES & COMPONENTS - 1.4% AUTO PARTS & EQUIPMENT - 1.4% 700,000 B+/B2 Intermet Corp., 9.75%, 6/15/09 $ 717,500 500,000 NR/NR RJ Tower Corp., 12.0%, 6/1/13 492,500 ------------ $ 1,210,000 ------------ TOTAL AUTOMOBILES & COMPONENTS $ 1,210,000 ------------ CONSUMER DURABLES & APPAREL - 2.3% HOMEBUILDING - 2.3% 400,000 BB/Ba2 Beazer Homes USA, 8.375%, 4/15/12 $ 441,000 1,535,000 BB/Ba2 Beazer Homes USA, 6.5%, 11/15/13 (144A) 1,533,081 ------------ $ 1,974,081 ------------ TOTAL CONSUMER DURABLES & APPAREL $ 1,974,081 ------------ MEDIA - 4.5% ADVERTISING - 3.9% 3,000,000 BB+/Baa3 Interpublic Group, Inc., 7.875%, 10/15/05 $ 3,270,000 ------------
The accompanying notes are an integral part of these financial statements. 7
S&P/MOODY'S PRINCIPAL RATINGS AMOUNT (UNAUDITED) VALUE PUBLISHING - 0.6% $ 500,000 B/B2 Houghton Mifflin Co., 8.25%, 2/1/11 $ 535,000 ------------ TOTAL MEDIA $ 3,805,000 ------------ RETAILING - 3.3% DEPARTMENT STORES - 1.8% 1,500,000 BB+/Ba3 J.C. Penney Co., Inc., 7.625%, 3/1/97 $ 1,539,375 ------------ DISTRIBUTORS - 1.5% 1,200,000 B-/B3 Wesco Distribution, Inc., 9.125%, 6/1/08 $ 1,242,000 ------------ TOTAL RETAILING $ 2,781,375 ------------ HEALTH CARE EQUIPMENT & SERVICES - 0.6% HEALTH CARE FACILITIES - 0.6% 500,000 BBB-/Ba1 HCA, Inc., 6.25%, 2/15/13 $ 511,804 ------------ TOTAL HEALTH CARE EQUIPMENT & SERVICES $ 511,804 ------------ PHARMACEUTICALS & BIOTECHNOLOGY - 1.3% PHARMACEUTICALS - 1.3% 204,000 B+/B3 Alpharma, Inc., 8.625%, 5/1/11 (144A) $ 206,550 875,000 BB-/B1 Valeant Pharmaceuticals, 7.0%, 12/15/11 (144A) 901,250 ------------ $ 1,107,800 ------------ TOTAL PHARMACEUTICALS & BIOTECHNOLOGY $ 1,107,800 ------------ REAL ESTATE - 9.8% REAL ESTATE MANAGEMENT & DEVELOPMENT - 5.3% 750,000 BB-/Ba3 Forest City Enterprises, 7.625%, 6/1/15 $ 795,938 800,000 B+/Ba3 LNR Property Corp., 7.625%, 7/15/13 842,000 2,115,000 B+/Ba3 LNR Property Corp., 7.25%, 10/15/13 (144A) 2,152,013 510,000 B+/Ba3 LNR Property Corp., 5.5%, 3/1/23 (144A) 664,912 ------------ $ 4,454,863 ------------ REAL ESTATE INVESTMENT TRUSTS - 4.5% 750,000 B/B3 BF Saul Real Estate Investment Trust, 9.75%, 4/1/08 $ 782,812 1,300,000 B+/Ba3 Crescent Real Estate, 9.25%, 4/15/09 1,430,000 1,500,000 CCC+/B2 Meristar Hospitality Corp., 9.125%, 1/15/11 1,590,000 ------------ $ 3,802,812 ------------ TOTAL REAL ESTATE $ 8,257,675 ------------ TECHNOLOGY HARDWARE & EQUIPMENT - 3.9% ELECTRONIC MANUFACTURING SERVICES - 0.7% 500,000 BB-/Ba2 Sanmina-SCI Corp., 10.375%, 1/15/10 $ 585,000 ------------ TECHNOLOGY DISTRIBUTORS - 3.2% 1,200,000 BBB-/Baa3 Arrow Electronic, Inc., 6.875%, 7/1/13 $ 1,278,674 1,050,000 BBB-/Baa3 Arrow Electronic, Inc., 6.875%, 6/1/18 1,090,367 300,000 BB-/Ba2 Ingram Micro, Inc., 9.875%, 8/15/08 331,500 ------------ $ 2,700,541 ------------ TOTAL TECHNOLOGY HARDWARE & EQUIPMENT $ 3,285,541 ------------ TOTAL CORPORATE BONDS (Cost $45,359,792) $ 48,363,449 ------------
The accompanying notes are an integral part of these financial statements. 8
S&P/MOODY'S RATINGS SHARES (UNAUDITED) VALUE TEMPORARY CASH INVESTMENT - 2.6% SECURITY LENDING COLLATERAL - 2.6% 2,207,733 Securities Lending Investment Fund, 1.02% $ 2,207,733 ------------ TOTAL TEMPORARY CASH INVESTMENT (Cost $2,207,733) $ 2,207,733 ------------ TOTAL INVESTMENT IN SECURITIES - 97.4% (Cost $75,182,311) $ 81,992,721 ------------ OTHER ASSETS AND LIABILITIES - 2.6% $ 2,195,036 ------------ TOTAL NET ASSETS - 100.0% $ 84,187,757 ------------ ------------
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 transactionexempt from registration. At December 31, 2003, the value of these securities amounted to $12,327,813 or 14.6% of net assets. The accompanying notes are an integral part of these financial statements. 9 PIONEER HIGH YIELD VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST FINANCIAL HIGHLIGHTS
YEAR ENDED YEAR ENDED YEAR ENDED 5/1/00 TO CLASS I 12/31/03 12/31/02 12/31/01 12/31/00(a) Net asset value, beginning of period $ 9.27 $ 10.33 $ 9.82 $ 10.00 ---------- ---------- ---------- ---------- Increase (decrease) from investment operations: Net investment income (loss) $ 0.76 $ 0.92 $ 0.95 $ 0.61 Net realized and unrealized gain (loss) on investments 2.18 (1.06) 0.62 (0.18) ---------- ---------- ---------- ---------- Net increase (decrease) from investment operations $ 2.94 $ (0.14) $ 1.57 $ 0.43 Distributions to shareowners: Net investment income (0.76) (0.92) (0.95) (0.61) Net realized gain -- -- (0.11) -- ---------- ---------- ---------- ---------- Net increase (decrease) in net asset value $ 2.18 $ (1.06) $ 0.51 $ (0.18) ---------- ---------- ---------- ---------- Net asset value, end of period $ 11.45 $ 9.27 $ 10.33 $ 9.82 ========== ========== ========== ========== Total return* 32.78% (1.42)% 16.60% 4.12% Ratio of net expenses to average net assets+ 0.89% 1.02% 1.15% 1.25%** Ratio of net investment income (loss) to average net assets+ 7.22% 9.39% 9.15% 9.18%** Portfolio turnover rate 48% 42% 36% 33% Net assets, end of period (in thousands) $ 66,587 $ 41,111 $ 32,331 $ 6,849 Ratios with no waiver of management fees and assumption of expenses by PIM and reduction for fees paid indirectly: Net expenses 0.89% 1.02% 1.28% 2.35%** Net investment income (loss) 7.22% 9.39% 9.02% 8.08%**
(a) Shares of Pioneer High Yield VCT Portfolio were first publicly offered on May 1, 2000. * 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 with no reduction for fees paid indirectly. The accompanying notes are an integral part of these financial statements. 10 PIONEER HIGH YIELD VCT PORTFOLIO PIONEER VARIABLE CONTRACTS TRUST STATEMENT OF ASSETS AND LIABILITIES 12/31/03
PIONEER HIGH YIELD VCT PORTFOLIO ASSETS: Investment in securities, at value (including securities loaned of $2,158,691) (Cost $75,182,311) $ 81,992,721 Temporary cash investments (at amortized cost) - Cash Cash held as collateral for futures contracts - Foreign currencies, at value - Receivables- Investment securities sold 413,389 Fund shares sold 4,564,496 Collateral for securities loaned, at fair value Variation margin - Dividends, interest and foreign taxes withheld 1,081,782 Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, open - net - Due from Pioneer Investment Management, Inc. - Other 2,357 ------------ Total assets $ 88,054,745 ------------ LIABILITIES: Payables - Investment securities purchased $ 1,279,162 Fund shares repurchased 69,402 Dividends - Upon return for securities loaned 2,207,733 Variation margin Forward foreign currency settlement contracts, net - Forward foreign currency portfolio hedge contracts, - Due to bank 224,892 Due to affiliates 60,219 Accrued expenses 25,580 Other - ------------ Total liabilities $ 3,866,988 ------------ NET ASSETS: Paid-in capital $ 76,934,850 Accumulated net investment income (loss) 42,283 Accumulated undistributed net realized gain (loss) 400,214 Net unrealized gain (loss) on: Investments 6,810,410 Futures contracts Foreign currency transactions Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - ------------ Total net assets $ 84,187,757 ------------ NET ASSET VALUE PER SHARE: CLASS I: (Unlimited number of shares authorized) Net assets $ 66,587,008 Shares outstanding 5,815,849 ============ Net asset value per share $ 11.45 CLASS II: (Unlimited number of shares authorized) Net assets $ 17,600,749 Shares outstanding 1,536,447 ============ Net asset value per share $ 11.46
The accompanying notes are an integral part of these financial statements. 11 STATEMENT OF OPERATIONS
PIONEER HIGH YIELD VCT PORTFOLIO YEAR ENDED 12/31/03 INVESTMENT INCOME: Dividends $ 144,018 Interest 4,474,126 Income on securities loaned, net 11,587 Other - ------------ Total investment income $ 4,629,731 ------------ EXPENSES: Management fees $ 373,275 Transfer agent fees 1,601 Distribution fees (Class II) 11,424 Administrative fees 37,500 Custodian fees 19,470 Professional fees 30,622 Printing 39,909 Fees and expenses of nonaffiliated trustees 1,091 Miscellaneous 7,937 ------------ Total expenses $ 522,829 Less management fees waived and expenses assumed by Pioneer Investment Management, Inc. - ------------ Net expenses $ 522,829 ------------ Net investment income (loss) $ 4,106,902 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments $ 1,124,588 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - ------------ $ 1,124,588 ------------ Change in net unrealized gain or loss from: Investments $ 10,301,474 Futures contracts - Forward foreign currency contracts and other assets and liabilities denominated in foreign currencies - ------------ $ 10,301,474 ------------ Net gain (loss) on investments, futures contracts and foreign currency transactions $ 11,426,062 ============ Net increase (decrease) in net assets resulting from operations $ 15,532,964 ============
The accompanying notes are an integral part of these financial statements. 12 STATEMENTS OF CHANGES IN NET ASSETS
PIONEER HIGH YIELD VCT PORTFOLIO YEAR YEAR ENDED ENDED 12/31/03 12/31/02 FROM OPERATIONS: Net investment income (loss) $ 4,106,902 $ 3,533,031 Net realized gain (loss) on investments 1,124,588 (323,145) Change in net unrealized gain or loss on investments, futures contracts and foreign currency transactions 10,301,474 (3,825,540) ------------ ------------ Net increase (decrease) in net assets resulting from operations $ 15,532,964 $ (615,654) ------------ ------------ DISTRIBUTIONS TO SHAREOWNERS: Net investment income Class I $ (3,817,405) $ (3,519,047) Class II (279,944) (17,625) Net realized gain Class I - - Class II - - Tax return of capital Class I - - Class II - - ------------ ------------ Total distributions to shareowners $ (4,097,349) $ (3,536,672) ------------ ------------ FROM FUND SHARE TRANSACTIONS: Net proceeds from sale of shares $ 45,609,360 $ 23,512,319 Reinvestment of distributions 4,059,022 3,490,787 Cost of shares repurchased (18,254,761) (13,871,749) ------------ ------------ Net increase (decrease) in net assets resulting from fund share transactions $ 31,413,621 $ 13,131,357 ------------ ------------ Net increase (decrease) in net assets $ 42,849,236 $ 8,979,031 ------------ ------------ NET ASSETS: Beginning of year 41,338,521 32,359,490 ------------ ------------ End of year $ 84,187,757 $ 41,338,521 ============ ============ Accumulated undistributed/(distributions in excess of) net investment income (loss) $ 42,283 $ (465) ============ ============
The accompanying notes are an integral part of these financial statements. 13 PIONEER HIGH YIELD VCT PORTFOLIO NOTES TO FINANCIAL STATEMENTS 12/31/03 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Pioneer High Yield VCT Portfolio (the Portfolio) is a portfolio of the Pioneer Variable Contracts Trust (the Trust) which is a Delaware business trust registered under the Investment Company Act of 1940 as an open-end management investment company. The Trust consists of sixteen separate portfolios fourteen of which issue both Class I and Class II shares (collectively, the Portfolios, individually the Portfolio) as follows: PORTFOLIOS: Pioneer Emerging Markets VCT Portfolio (Emerging Markets Portfolio) Pioneer Europe VCT Portfolio (Europe Portfolio) Pioneer International Value VCT Portfolio (International Value Portfolio) Pioneer Small Cap Value VCT Portfolio (Small Cap Value Portfolio) Pioneer Small Company VCT Portfolio (Small Company Portfolio) Pioneer Mid Cap Value VCT Portfolio (Mid-Cap Value Portfolio) Pioneer Growth Shares VCT Portfolio (Growth Shares Portfolio) Pioneer Real Estate Shares VCT Portfolio (Real Estate Shares Portfolio) Pioneer Fund VCT Portfolio (Fund Portfolio) Pioneer Equity Income VCT Portfolio (Equity-Income Portfolio) Pioneer Balanced VCT Portfolio (Balanced Portfolio) Pioneer High Yield VCT Portfolio (High Yield Portfolio) Pioneer Strategic Income VCT Portfolio (Strategic Income Portfolio) Pioneer America Income VCT Portfolio (America Income Portfolio) Pioneer Money Market VCT Portfolio (Money Market Portfolio) (Class I shares only) Pioneer Value VCT Portfolio (Value Portfolio) (Class II shares only) Portfolio shares may only be purchased by insurance companies for the purpose of funding variable annuity or variable life insurance contracts, and may also be purchased by qualified pension and retirement plans. The financial highlights for the Portfolio's Class II shares are presented in a separate book. The investment objective of High Yield Portfolio is to maximize total return through a combination of income and capital appreciation. The Trust's financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America 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 income, expenses, gains and losses during the reporting years. 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 as of trade date. Net asset values for the portfolio 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, based on the last sale price on the principal exchange where they traded, 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. Valuations may be supplemented by dealers and other sources, as required. 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 becomes aware of the ex-dividend data in the exercise of reasonable diligence. Interest income, including interest on income bearing cash accounts, is recorded on the accrual basis, net of unrecoverable foreign taxes withheld at the applicable country rates. All discounts/premiums are accreted/amortized for financial reporting purposes. Gains and losses from sales on investments are calculated on the identified cost method for both financial reporting and federal income tax purposes, and, if applicable, are reported net of foreign taxes on capital gains at the applicable country rates. The High Yield Portfolio invests in below investment grade (high yield) debt securities and preferred stocks. These high yield securities may be convertible into equity securities of the issuer. Debt securities rated below 14 investment grade are commonly referred to as "junk bonds" and are considered speculative. These securities involve greater risk of loss, are subject to greater price volatility, and are less liquid, especially during years of economic uncertainty or change, than higher rated debt securities. The Portfolio is not diversified, which means that it can invest a higher percentage of its asset in any one issuer than a diversified fund. Being non-diversified may magnify the fund's losses from adverse events affecting a particular issuer. In addition, the non-diversified Portfolios have concentrations in certain asset types, which may subject the Portfolios to additional risks. Further description of these risks is included in the Trust's Prospectus. B. FOREIGN CURRENCY TRANSLATION The books and records of the Portfolio 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, 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 The Portfolio enters 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 Portfolio records 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. 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 shareowners. Therefore, no federal income tax provision is required. In addition to the requirements of the Internal Revenue Code, the Portfolio may also be required to pay local taxes on the recognition of capital gains and/or the repatriation of foreign currencies in certain countries. During the year ended December 31, 2003, the no such taxes were paid. The amount and characterization of distributions to shareowners 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. At December 31, 2003, the Portfolio made reclassifications as described below. These reclassifications have no impact on the net asset value of the Portfolio and are designed to present the portfolios' capital accounts on a tax basis.
ACCUMULATED ACCUMULATED NET INVESTMENT REALIZED PORTFOLIO INCOME/(LOSS) GAIN/LOSS PAID-IN CAPITAL - -------------------------------------------------------------------------------- High Yield Portfolio $ 33,195 $ (33,195) $ -
The following chart shows the components of distributable earnings (accumulated losses) as of December 31, 2003 and the distributions paid during the year ended December 31, 2003 on a tax basis as of December 31, 2003.
PIONEER PIONEER HIGH YIELD HIGH YIELD VCT PORTFOLIO VCT PORTFOLIO 2003 2002 - -------------------------------------------------------------------------------- DISTRIBUTIONS PAID FROM: Ordinary Income $ 4,097,349 $ 3,536,672 Long-Term capital gain - - ----------- ----------- $ 4,097,349 $ 3,536,672 Return of capital - - ----------- ----------- Total distributions $ 4,097,349 $ 3,536,672 ----------- ----------- DISTRIBUTABLE EARNINGS (ACCUMULATED LOSSES): Undistributed ordinary income $ 42,283 Undistributed long-term gain/ (Capital loss carryforward) 400,214 Unrealized appreciation/(depreciation) 6,810,410 ----------- Total $ 7,252,907 ===========
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily attributable to the tax deferral of losses on wash sales, returns of capital on REITs, and the recognition of unrealized gains or losses on certain futures contracts. 15 E. PORTFOLIO SHARES The Portfolio records sales and repurchases of its portfolio shares as of trade date. Certain insurance companies paid Pioneer Funds Distributor, Inc. (PFD), the principal underwriter for the Trust and a wholly owned indirect subsidiary of UniCredito Italiano S.p.A. (UniCredito Italiano), $246,661 in commissions on the sale of Trust shares for the year ended December 31, 2003. Distribution fees are calculated based on the average daily net asset values attributable to Class I and Class II shares of the Portfolio, respectively. Shareowners of each class share all expenses and fees paid to the transfer agent, Pioneer Investment Management Shareholder Services, Inc. (PIMSS), for its services, which are allocated based on the number of accounts in each class and the ratable allocation of related out-of-pocket expenses (see Note 3). Income, common expenses and realized and unrealized gains and losses are calculated at the Portfolio level and allocated daily to each class of shares based on the respective percentage of adjusted net assets at the beginning of the day. Distributions paid by the Portfolio with respect to each class of shares are calculated in the same manner, at the same time, and in the same amount, except that Class I and Class II shares can bear different transfer agent and distribution fees. Dividends and distributions to shareowners are recorded on the ex-dividend date. F. SECURITIES LENDING The Portfolio lends securities in its portfolio to certain broker-dealers or other institutional investors, with the Portfolio's custodian acting as the lending agent. When entering into a loan, the Portfolio receives collateral which is maintained by the custodian and earns income in the form of negotiated lenders' fees. The Portfolio also continues to receive interest or dividends on the securities loaned, and gain or loss in the fair value of the securities loaned that may occur during the term of the loan, will be for account of the Trust. The loans are secured by collateral of at least 102%, at all times, of the fair value of the securities loaned. The fair value of the collateral will be adjusted daily to reflect any price fluctuation in the value of the loaned securities. The Trust has the right under the lending agreement to recover the securities on loan from the borrower on demand. The Trust invests cash collateral in the Securities Lending Investment Fund which is managed by Brown Brothers Harriman & Co., the Trust's custodian. G. REPURCHASE AGREEMENTS With respect to repurchase agreements entered into by the Portfolio, 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 Portfolio's custodian, or subcustodian. The Trust's investment adviser, Pioneer Investment Management, Inc. (PIM), is responsible for determining that the value of the collateral remains at least equal to the repurchase price. 2. MANAGEMENT AGREEMENT PIM manages the Portfolio, and is a wholly owned indirect subsidiary of UniCredito Italiano. Management fees are calculated daily at the following annual rate of 0.65% of the Portfolio's average daily net assets. The portion of the Portfolios' expenses attributable to Class II (or Class I for shares in the case of High Yield Portfolios) will be reduced only to the extent such expenses are reduced for Class I shares (or Class II shares). Pioneer may subsequently recover reimbursed expenses (within three years of being incurred) from certain Portfolios if the expense ratio of the Class I (or Class II) shares would otherwise be less than the expense limitation of the class. Each class will reimburse PIM no more than the amount by which that class' expenses were reduced. At December 31, 2003, $9,283 was reimbursed by High Yield Portfolio under this arrangement and is included in miscellaneous expense. In addition, under the management and administration agreement, certain other services and costs, including accounting, regulatory reporting and insurance premiums, are paid by the Portfolio. At December 31, 2003, $55,214 was payable to PIM related to management fees, administrative fees and certain other services. 3. TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. (PIMSS), a wholly owned indirect subsidiary of UniCredito Italiano provides substantially all transfer agent and shareowner services to the Trust at negotiated rates. Included in due to affiliates is $1,212 in transfer agent fees payable to PIMSS at December 31, 2003. 16 4. DISTRIBUTION PLANS The Portfolio has adopted a plan of distribution for Class II shares in accordance with Rule 12b-1 under the Investment Company Act of 1940. Under the plan, the Portfolio pays PFD a distribution fee of 0.25% of the average daily net assets attributable to Class II shares. Included in due to affiliates is $3,793 payable to PFD at December 31, 2003. 5. AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION At December 31, 2003, the Portfolios' aggregate unrealized appreciation and depreciation based on cost for federal income tax purposes was as follows:
NET GROSS GROSS APPRECIATION/ TAX COST APPRECIATION DEPRECIATION (DEPRECIATION) - ----------------------------------------------------------------------------------------------- High Yield Portfolio $ 75,182,311 $ 6,830,138 $ (19,728) $ 6,810,410
6. PORTFOLIO TRANSACTIONS The cost of purchases and the proceeds from sales of investments other than U.S. Government obligations and temporary cash investments for the year ended December 31, 2003, were $55,315,925 and $27,126,647, respectively. 7. CAPITAL SHARES At December 31, 2003, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
'03 SHARES '03 AMOUNT '02 SHARES '02 AMOUNT - ------------------------------------------------------------------------------------------------ HIGH YIELD PORTFOLIO CLASS I: Shares sold 2,515,726 $ 26,817,319 2,364,432 $ 23,267,135 Reinvestment of distributions 357,809 3,779,086 358,882 3,473,162 Shares repurchased (1,491,103) (15,895,254) (1,419,950) (13,834,156) ------------------------------------------------------------- Net increase 1,382,432 $ 14,701,151 1,303,364 $ 12,906,141 ============================================================= CLASS II: Shares sold 1,708,526 $ 18,792,041 24,056 $ 245,184 Reinvestment of distributions 25,089 279,936 1,833 17,625 Shares repurchased (221,726) (2,359,507) (4,051) (37.593) ------------------------------------------------------------- Net increase 1,511,889 $ 16,712,470 21,838 $ 225,216 =============================================================
17 PIONEER HIGH YIELD VCT PORTFOLIO REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF TRUSTEES OF PIONEER VARIABLE CONTRACTS TRUST AND THE CLASS I SHAREOWNERS OF PIONEER HIGH YIELD VCT PORTFOLIO: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Pioneer High Yield VCT Portfolio, one of the portfolios constituting Pioneer Variable Contracts Trust (the "Trust") as of December 31, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets and financial highlights for each of the two years in the period then ended. 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. The financial highlights for each of the two years in the period ended December 31, 2001 were audited by other auditors who have ceased operations and whose report, dated February 8, 2002, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 Pioneer High Yield VCT Portfolio of Pioneer Variable Contracts Trust at December 31, 2003, the results of its operations for the year then ended, the changes in its net assets and the financial highlights for each of the two years in the period then ended in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts February 6, 2004 18 PIONEER VARIABLE CONTRACTS TRUST TRUSTEES, OFFICERS AND SERVICE PROVIDERS INVESTMENT ADVISER Pioneer Investment Management, Inc. CUSTODIAN Brown Brothers Harriman & Co. INDEPENDENT AUDITORS Ernst & Young LLP PRINCIPAL UNDERWRITER Pioneer Funds Distributor, Inc. LEGAL COUNSEL Hale and Dorr LLP SHAREOWNER SERVICES AND TRANSFER AGENT Pioneer Investment Management Shareholder Services, Inc. TRUSTEES AND OFFICERS The Fund's Board of Trustees provides broad supervision over the affairs of the Fund. The officers of the Fund are responsible for the Fund's operations. The Fund's Trustees and officers are listed below, together with their principal occupations during the past five years. Trustees who are interested persons of the Portfolio within the meaning of the Investment Company Act of 1940 are referred to as Interested Trustees. Trustees who are not interested persons of the Fund are referred to as Independent Trustees. Each of the Trustees serves as a trustee of each of the 51 U.S. registered investment portfolios for which Pioneer Investment Management, Inc. ("Pioneer") serves as investment adviser (the "Pioneer Funds"). The address for all Interested Trustees and all officers of the Portfolio is 60 State Street, Boston, Massachusetts 02109. The Fund's statement of additional information provides more detailed information regarding the Fund's Trustees and is available upon request, without charge, by calling 1-800-225-6292. Proxy Voting Policies and Procedures of the Fund are available without charge, upon request, by calling our toll free number (1-800-225-6292). This information is also available online at pioneerfunds.com. INTERESTED TRUSTEES
POSITION HELD TERM OF OFFICE AND OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS HELD BY THIS TRUSTEE John F. Cogan, Jr. (77)* Chairman of the Trustee since 1994. Deputy Chairman and a Director of Pioneer Director of Harbor Board, Trustee Serves until a Global Asset Management S.p.A. ("PGAM"); Global Company, Ltd. and President successor or Non-Executive Chairman and a Director of trustee is elected Pioneer Investment Management USA Inc. or earlier ("PIM-USA"); Chairman and a Director of retirement or Pioneer; Director of Pioneer Alternative removal. Investment Management Limited (Dublin); President and a Director of Pioneer Alternative Investment Management (Bermuda) Limited and affiliated funds; President and Director of Pioneer Funds Distributor, Inc. ("PFD"); President of all of the Pioneer Funds; and Of Counsel (since 2000, partner prior to 2000), Hale and Dorr LLP (counsel to PIM-USA and the Pioneer Funds) *Mr. Cogan is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates. Osbert M. Hood (51)** Trustee and Trustee since June, President and Chief Executive Officer, None Executive Vice 2003. Serves until PIM-USA since May, 2003 (Director since President a successor or January, 2001); President and Director of trustee is elected Pioneer since May 2003; Chairman and or earlier Director of Pioneer Investment Management retirement or Shareholder Services, Inc. ("PIMSS") since removal. May 2003; Executive Vice President of all of the Pioneer Funds since June 2003; Executive Vice President and Chief Operating Officer of PIM-USA, November 2000-May 2003; Executive Vice President, Chief Financial Officer and Treasurer, John Hancock Advisers, L.L.C., Boston, MA, November 1999-November 2000; Senior Vice President and Chief Financial Officer, John Hancock Advisers, L.L.C., April 1997-November 1999 **Mr. Hood is an Interested Trustee because he is an officer or director of Pioneer and certain of its affiliates.
19 INDEPENDENT TRUSTEES
POSITION HELD TERM OF OFFICE AND OTHER DIRECTORSHIPS NAME, AGE AND ADDRESS WITH THE FUND LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS HELD BY THIS TRUSTEE Mary K. Bush (55) Trustee Trustee since President, Bush International Director of Brady 3509 Woodbine Street, September, 2000. (international financial advisory firm) Corporation Chevy Chase, MD 20815 Serves until a (industrial successor trustee identification and is elected or specialty coated earlier retirement material products or removal. manufacturer), Millenium Chemicals, Inc. (commodity chemicals), Mortgage Guaranty Insurance Corporation, and R.J. Reynolds Tobacco Holdings, Inc. (tobacco) Richard H. Egdahl, M.D. (77) Trustee Trustee since 1995. Alexander Graham Bell Professor of Health None Boston University Healthcare Serves until a Care Entrepreneurship, Boston University; Entrepreneurship Program, successor trustee is Professor of Management, Boston University 53 Bay State Road, elected or earlier School of Management; Professor of Public Boston, MA 02215 retirement or Health, Boston University School of Public removal. Health; Professor of Surgery, Boston University School of Medicine; and University Professor, Boston University Margaret B.W. Graham (56) Trustee Trustee since Founding Director, The Winthrop Group, Inc. None 1001 Sherbrooke Street West, September, 2000. (consulting firm); Professor of Management, Montreal, Quebec, Canada Serves until a Faculty of Management, McGill University successor trustee is elected or earlier retirement or removal. Marguerite A. Piret (55) Trustee Trustee since 1995. President and Chief Executive Officer, None One Boston Place, Serves until a Newbury, Piret & Company, Inc. (investment 28th Floor, successor trustee is banking firm) Boston, MA 02108 elected or earlier retirement or removal. Stephen K. West (75) Trustee Trustee since 1999. Senior Counsel, Sullivan & Cromwell (law Director, The Swiss 125 Broad Street, Serves until a firm) Helvetia Fund, Inc. New York, NY 10004 successor trustee is (closed-end elected or earlier investment company) retirement or and AMVESCAP PLC removal. (investment managers) John Winthrop (67) Trustee Trustee since President, John Winthrop & Co., Inc. None One North Adgers Wharf, September, 2000. (private investment firm) Charleston, SC 29401 Serves until a successor trustee is elected or earlier retirement or removal.
20 TRUSTEES, OFFICERS AND SERVICE PROVIDERS FUND OFFICERS
POSITION HELD TERM OF OFFICE AND OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS HELD BY THIS TRUSTEE Dorothy E. Bourassa (56) Secretary Since November, Secretary of PIM-USA; Senior Vice None 2000. Serves at the President-Legal of Pioneer; and discretion of board Secretary/Clerk of most of PIM-USA's subsidiaries since October 2000; Secretary of all of the Pioneer Funds since September 2003 (Assistant Secretary from November 2000 to September 2003); and Senior Counsel, Assistant Vice President and Director of Compliance of PIM-USA from April 1998 through October 2000 Christopher J. Kelley (39) Assistant Serves at the Assistant Vice President and Senior Counsel None Secretary discretion of board of Pioneer since July 2002; Vice President and Senior Counsel of BISYS Fund Services, Inc. (April 2001 to June 2002); Senior Vice President and Deputy General Counsel of Funds Distributor, Inc. (July 2000 to April 2001; Vice President and Associate General Counsel from July 1996 to July 2000); Assistant Secretary of all of the Pioneer Funds since September 2003 David C. Phelan (46) Assistant Serves at the Partner, Hale and Dorr LLP; Assistant None Secretary discretion of board Secretary of all of the Pioneer Funds since September 2003 Vincent Nave (58) Treasurer Since November, Vice President-Fund Accounting, None 2000. Serves at the Administration and Custody Services of discretion of board Pioneer (Manager from September 1996 to February 1999); and Treasurer of all of the Pioneer Funds (Assistant Treasurer from June 1999 to November 2000) Luis I. Presutti (38) Assistant Since November, Assistant Vice President-Fund Accounting, None Treasurer 2000. Serves at the Administration and Custody Services of discretion of board Pioneer (Fund Accounting Manager from 1994 to 1999); and Assistant Treasurer of all of the Pioneer Funds since November 2000
21
POSITION HELD TERM OF OFFICE AND OTHER DIRECTORSHIPS NAME AND AGE WITH THE FUND LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS HELD BY THIS TRUSTEE Gary Sullivan (45) Assistant Since May, 2002. Fund Accounting Manager-Fund Accounting, None Treasurer Serves at the Administration and Custody Services of discretion of board Pioneer; and Assistant Treasurer of all of the Pioneer Funds since May 2002 Katharine Kim Sullivan (30) Assistant Serves at the Fund Administration Manager-Fund None Treasurer discretion of Accounting, Administration and Custody board. Services since June 2003; Assistant Vice President-Mutual Fund Operations of State Street Corporation from June 2002 to June 2003 (formerly Deutsche Bank Asset Management); Pioneer Fund Accounting, Administration and Custody Services (Fund Accounting Manager from August 1999 to May 2002, Fund Accounting Services Supervisor from 1997 to July 1999); Assistant Treasurer of all of the Pioneer Funds since September 2003
22 [PIONEER INVESTMENTS(R) LOGO] 14675-00-0204 ITEM 2. CODE OF ETHICS. (a) Disclose whether, as of the end of the period covered by the report, the registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. If the registrant has not adopted such a code of ethics, explain why it has not done so. The registrant has adopted, as of the end of the period covered by this report, a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer and controller. (b) For purposes of this Item, the term "code of ethics" means written standards that are reasonably designed to deter wrongdoing and to promote: (1) Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (2) Full, fair, accurate, timely, and understandable disclosure in reports and documents that a registrant files with, or submits to, the Commission and in other public communications made by the registrant; (3) Compliance with applicable governmental laws, rules, and regulations; (4) The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and (5) Accountability for adherence to the code. (c) The registrant must briefly describe the nature of any amendment, during the period covered by the report, to a provision of its code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics definition enumerated in paragraph (b) of this Item. The registrant must file a copy of any such amendment as an exhibit pursuant to Item 10(a), unless the registrant has elected to satisfy paragraph (f) of this Item by posting its code of ethics on its website pursuant to paragraph (f)(2) of this Item, or by undertaking to provide its code of ethics to any person without charge, upon request, pursuant to paragraph (f)(3) of this Item. The registrant has made no amendments to the code of ethics during the period covered by this report. (d) If the registrant has, during the period covered by the report, granted a waiver, including an implicit waiver, from a provision of the code of ethics to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this Item, the registrant must briefly describe the nature of the waiver, the name of the person to whom the waiver was granted, and the date of the waiver. Not applicable. (e) If the registrant intends to satisfy the disclosure requirement under paragraph (c) or (d) of this Item regarding an amendment to, or a waiver from, a provision of its code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and that relates to any element of the code of ethics definition enumerated in paragraph (b) of this Item by posting such information on its Internet website, disclose the registrant's Internet address and such intention. Not applicable. (f) The registrant must: (1) File with the Commission, pursuant to Item 10(a), a copy of its code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, as an exhibit to its annual report on this Form N-CSR; (2) Post the text of such code of ethics on its Internet website and disclose, in its most recent report on this Form N-CSR, its Internet address and the fact that it has posted such code of ethics on its Internet website; or (3) Undertake in its most recent report on this Form N-CSR to provide to any person without charge, upon request, a copy of such code of ethics and explain the manner in which such request may be made. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. (a) (1) Disclose that the registrant's board of trustees has determined that the registrant either: (i) Has at least one audit committee financial expert serving on its audit committee; or (ii) Does not have an audit committee financial expert serving on its audit committee. The registrant's Board of Trustees has determined that the registrant has at least one audit committee financial expert. (2) If the registrant provides the disclosure required by paragraph (a)(1)(i) of this Item, it must disclose the name of the audit committee financial expert and whether that person is "independent." In order to be considered "independent" for purposes of this Item, a member of an audit committee may not, other than in his or her capacity as a member of the audit committee, the board of trustees, or any other board committee: (i) Accept directly or indirectly any consulting, advisory, or other compensatory fee from the issuer; or (ii) Be an "interested person" of the investment company as defined in Section 2(a)(19) of the Act (15 U.S.C. 80a-2(a)(19)). Ms. Marguerite A. Piret, an independent trustee, is such an audit committee financial expert. (3) If the registrant provides the disclosure required by paragraph (a)(1) (ii) of this Item, it must explain why it does not have an audit committee financial expert. Not applicable. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) Disclose, under the caption AUDIT FEES, the aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. Audit Fees Fees for audit services provided to the sixteen portfolios of Pioneer Variable Contracts Trust, including fees associated with the annual filings of its Form N-1A, totaled approximately $297,800 in 2003 and approximately $333,200 in 2002. (b) Disclose, under the caption AUDIT-RELATED FEES, the aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item. Registrants shall describe the nature of the services comprising the fees disclosed under this category. Audit-Related Fees Fees for the Trust's audit-related services, which were for reviews of the semi annual financial statements for some of the Trust's sixteen portfolios, totaled approximately $50,000 in 2003. There were no audit-related services in 2002. (c) Disclose, under the caption TAX FEES, the aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning. Registrants shall describe the nature of the services comprising the fees disclosed under this category. Tax Fees Fees for tax compliance services, primarily for tax returns, totaled approximately $81,050 and $69,100 for 2003 and 2002, respectively. Additionally, there were fees for tax compliance services in 2002 that totaled approximately $54,600 for the 2001 tax returns. (d) Disclose, under the caption ALL OTHER FEES, the aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item. Registrants shall describe the nature of the services comprising the fees disclosed under this category. Other Fees There were no other services provided to the Trust during the fiscal years ended December 31, 2002 and 2003. (e) (1) Disclose the audit committee's pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. PIONEER FUNDS APPROVAL OF AUDIT, AUDIT-RELATED, TAX AND OTHER SERVICES PROVIDED BY THE INDEPENDENT AUDITOR SECTION I - POLICY PURPOSE AND APPLICABILITY The Pioneer Funds recognizes the importance of maintaining the independence of their outside auditors. Maintaining independence is a shared responsibility involving Pioneer Investment Management, Inc ("PIM"), the audit committee and the independent auditors. The Funds recognizes that a Fund's independent auditors: 1) possess knowledge of the Funds, 2) are able to incorporate certain services into the scope of the audit, thereby avoiding redundant work, cost and disruption of Fund personnel and processes, and 3) have expertise that has value to the Funds. As a result, there are situations where it is desirable to use the Fund's independent auditors for services in addition to the annual audit and where the potential for conflicts of interests are minimal. Consequently, this policy, which is intended to comply with Rule 210.2-01(C)(7), sets forth guidelines and procedures to be followed by the Funds when retaining the independent audit firm to perform audit, audit-related tax and other services under those circumstances, while also maintaining independence. Approval of a service in accordance with this policy for a Fund shall also constitute approval for any other Fund whose pre-approval is required pursuant to Rule 210.2-01(c)(7)(ii). In addition to the procedures set forth in this policy, any non-audit services that may be provided consistently with Rule 210.2-01 may be approved by the Audit Committee itself and any pre-approval that may be waived in accordance with Rule 210.2-01(c)(7)(i)(C) is hereby waived. Selection of a Fund's independent auditors and their compensation shall be determined by the Audit Committee and shall not be subject to this policy.
SECTION II - POLICY - ---------------- -------------------------------- ------------------------------------------------- SERVICE SERVICE CATEGORY DESCRIPTION SPECIFIC PRE-APPROVED SERVICE SUBCATEGORIES CATEGORY - ---------------- -------------------------------- ------------------------------------------------- I. AUDIT Services that are directly o Accounting research assistance SERVICES related to performing the o SEC consultation, registration independent audit of the Funds statements, and reporting o Tax accrual related matters o Implementation of new accounting standards o Compliance letters (e.g. rating agency letters) o Regulatory reviews and assistance regarding financial matters o Semi-annual reviews (if requested) o Comfort letters for closed end offerings - ---------------- -------------------------------- ------------------------------------------------- II. Services which are not o AICPA attest and agreed-upon procedures AUDIT-RELATED prohibited under Rule o Technology control assessments SERVICES 210.2-01(C)(4) (the "Rule") o Financial reporting control assessments and are related extensions of o Enterprise security architecture the audit services support the assessment audit, or use the knowledge/expertise gained from the audit procedures as a foundation to complete the project. In most cases, if the Audit-Related Services are not performed by the Audit firm, the scope of the Audit Services would likely increase. The Services are typically well-defined and governed by accounting professional standards (AICPA, SEC, etc.) - ---------------- -------------------------------- ------------------------------------------------- ------------------------------------- ------------------------------------ AUDIT COMMITTEE APPROVAL POLICY AUDIT COMMITTEE REPORTING POLICY ------------------------------------- ------------------------------------ o "One-time" pre-approval o A summary of all such for the audit period for all services and related fees pre-approved specific service reported at each regularly subcategories. Approval of the scheduled Audit Committee independent auditors as meeting. auditors for a Fund shall constitute pre approval for these services. ------------------------------------- ------------------------------------ o "One-time" pre-approval o A summary of all such for the fund fiscal year within services and related fees a specified dollar limit (including comparison to for all pre-approved specified dollar limits) specific service subcategories reported quarterly. o Specific approval is needed to exceed the pre-approved dollar limit for these services (see general Audit Committee approval policy below for details on obtaining specific approvals) o Specific approval is needed to use the Fund's auditors for Audit-Related Services not denoted as "pre-approved", or to add a specific service subcategory as "pre-approved" ------------------------------------- ------------------------------------
SECTION III - POLICY DETAIL, CONTINUED - ----------------------- --------------------------- ----------------------------------------------- SERVICE CATEGORY SERVICE CATEGORY SPECIFIC PRE-APPROVED SERVICE SUBCATEGORIES DESCRIPTION - ----------------------- --------------------------- ----------------------------------------------- III. TAX SERVICES Services which are not o Tax planning and support prohibited by the Rule, o Tax controversy assistance if an officer of the Fund o Tax compliance, tax returns, excise determines that using the tax returns and support Fund's auditor to provide o Tax opinions these services creates significant synergy in the form of efficiency, minimized disruption, or the ability to maintain a desired level of confidentiality. - ----------------------- --------------------------- ----------------------------------------------- - ------------------------------------- ------------------------- AUDIT COMMITTEE APPROVAL POLICY AUDIT COMMITTEE REPORTING POLICY - ------------------------------------- ------------------------- - ------------------------------------- ------------------------- o "One-time" pre-approval o A summary of for the fund fiscal year all such services and within a specified dollar limit related fees (including comparison to specified dollar limits) reported quarterly. o Specific approval is needed to exceed the pre-approved dollar limits for these services (see general Audit Committee approval policy below for details on obtaining specific approvals) o Specific approval is needed to use the Fund's auditors for tax services not denoted as pre-approved, or to add a specific service subcategory as "pre-approved" - ------------------------------------- -------------------------
SECTION III - POLICY DETAIL, CONTINUED - ----------------------- --------------------------- ----------------------------------------------- SERVICE CATEGORY SERVICE CATEGORY SPECIFIC PRE-APPROVED SERVICE SUBCATEGORIES DESCRIPTION - ----------------------- --------------------------- ----------------------------------------------- IV. OTHER SERVICES Services which are not o Business Risk Management support prohibited by the Rule, o Other control and regulatory A. SYNERGISTIC, if an officer of the Fund compliance projects UNIQUE QUALIFICATIONS determines that using the Fund's auditor to provide these services creates significant synergy in the form of efficiency, minimized disruption, the ability to maintain a desired level of confidentiality, or where the Fund's auditors posses unique or superior qualifications to provide these services, resulting in superior value and results for the Fund. - ----------------------- --------------------------- ----------------------------------------------- - --------------------------------------- ------------------------ AUDIT COMMITTEE APPROVAL POLICY AUDIT COMMITTEE REPORTING POLICY - ------------------------------------- -------------------------- o "One-time" pre-approval o A summary of for the fund fiscal year within all such services and a specified dollar limit related fees (including comparison to specified dollar limits) reported quarterly. o Specific approval is needed to exceed the pre-approved dollar limits for these services (see general Audit Committee approval policy below for details on obtaining specific approvals) o Specific approval is needed to use the Fund's auditors for "Synergistic" or "Unique Qualifications" Other Services not denoted as pre-approved to the left, or to add a specific service subcategory as "pre-approved" - ------------------------------------- --------------------------
SECTION III - POLICY DETAIL, CONTINUED - ----------------------- ------------------------- ----------------------------------------------- SERVICE CATEGORY SERVICE CATEGORY SPECIFIC PROHIBITED SERVICE SUBCATEGORIES DESCRIPTION - ----------------------- ------------------------- ----------------------------------------------- PROHIBITED SERVICES Services which result 1. Bookkeeping or other services in the auditors losing related to the accounting records or independence status financial statements of the audit under the Rule. client* 2. Financial information systems design and implementation* 3. Appraisal or valuation services, fairness* opinions, or contribution-in-kind reports 4. Actuarial services (i.e., setting actuarial reserves versus actuarial audit work)* 5. Internal audit outsourcing services* 6. Management functions or human resources 7. Broker or dealer, investment advisor, or investment banking services 8. Legal services and expert services unrelated to the audit 9. Any other service that the Public Company Accounting Oversight Board determines, by regulation, is impermissible - ----------------------- ------------------------- ----------------------------------------------- - ------------------------------------------- ------------------------------ AUDIT COMMITTEE APPROVAL POLICY AUDIT COMMITTEE REPORTING POLICY - ------------------------------------------- ------------------------------ o These services are not to be o A summary of all performed with the exception of the(*) services and related services that may be permitted fees reported at each if they would not be subject to audit regularly scheduled procedures at the audit client (as Audit Committee meeting defined in rule 2-01(f)(4)) level will serve as continual the firm providing the service. confirmation that has not provided any restricted services. - ------------------------------------------- ------------------------------
- -------------------------------------------------------------------------------- GENERAL AUDIT COMMITTEE APPROVAL POLICY: o For all projects, the officers of the Funds and the Fund's auditors will each make an assessment to determine that any proposed projects will not impair independence. o Potential services will be classified into the four non-restricted service categories and the "Approval of Audit, Audit-Related, Tax and Other Services" Policy above will be applied. Any services outside the specific pre-approved service subcategories set forth above must be specifically approved by the Audit Committee. o At least quarterly, the Audit Committee shall review a report summarizing the services by service category, including fees, provided by the Audit firm as set forth in the above policy. - -------------------------------------------------------------------------------- (2) Disclose the percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. N/A (f) If greater than 50 percent, disclose the percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees. N/A (g) Disclose the aggregate non-audit fees billed by the registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant. Aggregate Non-Audit Fees The aggregate non-audit fees for the Trust and affiliates as previously defined, totaled approximately $ $154,350 in 2003 and $123,700 in 2002. These fees include services provided prior to May 6, 2003, the effective date of the pre-approval process. (h) Disclose whether the registrant's audit committee of the board of trustees has considered whether the provision of non-audit services that were rendered to the registrant's investment adviser (not including any subadviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. The Trust's audit committee of the Board of Trustees has considered whether the provision of non-audit services that were rendered to the Affiliates (as defined) that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. ITEMS 5-6. [RESERVED] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. A closed-end management investment company that is filing an annual report on this Form N-CSR must, unless it invests exclusively in non-voting securities, describe the policies and procedures that it uses to determine how to vote proxies relating to portfolio securities, including the procedures that the company uses when a vote presents a conflict between the interests of its shareholders, on the one hand, and those of the company's investment adviser; principal underwriter; or any affiliated person (as defined in Section 2(a)(3) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(3)) and the rules thereunder) of the company, its investment adviser, or its principal underwriter, on the other. Include any policies and procedures of the company's investment adviser, or any other third party, that the company uses, or that are used on the company's behalf, to determine how to vote proxies relating to portfolio securities. Not applicable to open-end management investment companies. ITEM 8. [RESERVED] ITEM 9. CONTROLS AND PROCEDURES. (a) Disclose the conclusions of the registrant's principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, about the effectiveness of the registrant's disclosure controls and procedures (as defined in Rule 30a-2(c) under the Act (17 CFR 270.30a-2(c))) based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph. The registrant's certifying officers have determined that the registrant's disclosure controls and procedures are effective based on our evaluation of these controls and procedures as of a date within 90 days prior to the filing date of this report. (b) Disclose whether or not there were significant changes in the registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. There were no significant changes in the registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. ITEM 10. EXHIBITS. File the exhibits listed below as part of this Form. Letter or number the exhibits in the sequence indicated. (a) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit. Filed herewith. (b) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2 under the Act (17 CFR 270.30a-2). Filed herewith. SIGNATURES [See General Instruction F] Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Pioneer Variable Contracts Trust By (Signature and Title)* /s/ John F. Cogan, Jr. John F. Cogan, Jr, President Date March 05, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* /s/ John F. Cogan, Jr. John F. Cogan, Jr., President Date March 05, 2004 By (Signature and Title)* /s/ Vincent Nave Vincent Nave, Treasurer Date March 05, 2004 * Print the name and title of each signing officer under his or her signature. EX-99 3 cert.txt CERT CERTIFICATIONS -------------- I, John F. Cogan, Jr., certify that: 1. I have reviewed this report on Form N-CSR of Pioneer Variable Contracts Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 05, 2004 /s/ John F. Cogan, Jr. John F. Cogan, Jr. President CERTIFICATIONS -------------- I, Vincent Nave, certify that: 1. I have reviewed this report on Form N-CSR of Pioneer Variable Contracts Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 05, 2004 /s/ Vincent Nave Vincent Nave Treasurer SECTION 906 CERTIFICATION Pursuant to 18 U.S.C. ss. 1350, the undersigned officer of Pioneer Variable Contracts Trust (the "Fund"), hereby certifies, to the best of his knowledge, that the Fund's Report on Form N-CSR for the period ended December 31, 2003 (the "Report") fully complies with the requirements of Section 13 (a) or 15 (d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund. Dated: March 05, 2004 /s/ John F. Cogan, Jr. John F. Cogan, Jr. President This certification is being furnished solely pursuant to 18 U.S.C. ss. 1350 and is not being filed as part of the Report or a separate disclosure document. A signed original of this written statement required by section 906 has been provided to the Fund and will be retained by the Fund and furnished to the SEC or its staff upon request. SECTION 906 CERTIFICATION Pursuant to 18 U.S.C. ss. 1350, the undersigned officer of Pioneer Variable Contracts Trust (the "Fund"), hereby certifies, to the best of his knowledge, that the Fund's Report on Form N-CSR for the period ended December 31, 2003 (the "Report") fully complies with the requirements of Section 13 (a) or 15 (d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund. Dated: March 05, 2004 /s/ Vincent Nave Vincent Nave Treasurer This certification is being furnished solely pursuant to 18 U.S.C. ss. 1350 and is not being filed as part of the Report or a separate disclosure document. A signed original of this written statement required by section 906 has been provided to the Fund and will be retained by the Fund and furnished to the SEC or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----